How Andy Grove, Silicon Valley's Great Paranoid, Shaped Intel and the Valley We Know Today

The management master has died. Here is how he turned Intel into the world's most valuable tech company.

Andy Grove (September 2, 1936 – March 21, 2016) was Intel's fourth employee and its third CEO. Under him, Intel became the most successful tech company of its day, at one point worth more than $500 billion.

He set the rules by which Silicon Valley runs, and brought engineering culture into the way business works.

Andy Grove, Silicon Valley's most famous paranoid, Intel's fourth employee and third CEO, has died.

In his lifetime Grove built Intel into the world's largest tech company. Its market value once topped $500 billion, a figure Apple did not surpass for another decade. His reputation for paranoia also made his the most feared name in Silicon Valley.

"Any conversation with Andy Grove, you knew, was going to turn into a debate, and he was going to win. He would win because he was smarter than you, quicker than you, and worked harder than you... And if all that failed, he would show his true colors, overpower you emotionally and shout you into submission. One way or another he would win, because that is what it meant to be Andy Grove. He would do whatever it took to win, because he believed he was right, and took his own rightness for granted," Michael Malone writes in The Intel Trinity, Intel's official history.

Today, though, few people link Grove's name with Silicon Valley. The Valley changes too fast. People now talk about Steve Jobs, Tim Cook, Elon Musk and Larry Page. Grove, who stepped down as Intel's CEO in 1998 and as its chairman in 2005, seems like a figure from the Valley's ancient history.

In January 2013, PBS held the premiere of its documentary Silicon Valley. Nearly everyone invited had some tie to Intel, and Grove made a rare appearance. People jostled to shake his hand, knowing it might be their last chance. He was 77, had lived with Parkinson's disease for years, and his health was failing.

Grove earned that respect, because his work at Intel shaped Silicon Valley. Start with its culture of engineers working day and night: in today's Valley a 60-hour week counts as almost normal, and Grove deserves the credit. His influence even crossed the ocean to China. His books High Output Management and Only the Paranoid Survive were among the first management books brought into China, and Liu Chuanzhi, the founder of Lenovo, once said in public that he learned management by reading Grove and Bill Gates.

Before Grove came to Intel, none of this existed. Intel co-founder Bob Noyce, known as "the saint," worked constantly to keep his personal image spotless. The other co-founder, Gordon Moore, was a technologist who stayed aloof from management. Before founding Intel, the two had worked at the semiconductor company Fairchild. There, neither could bring himself to be tough, and they had little control over where the company went. Meetings dragged on forever; everyone rambled, and the agenda was forgotten.

Grove made Intel a different company. He built a results-first culture. No one could make excuses for a missed target, and anyone who wasted time in a meeting was called into Grove's office to face a furious tirade. In time, his office became the one place in the universe no one at Intel wanted to go.

What they did not expect was that worse was to come. When Intel ran into trouble in the early 1980s, Grove did not cut costs the way other companies did. Instead he launched the "125% Solution": every employee had to work two extra hours a day for the next six months, without extra pay. In November 1982, Intel announced company-wide pay cuts, and in 1983 it froze wages.

Noyce and Moore did not like what they saw. Yet, interestingly, both tolerated Grove's hard line. They likely understood that only with Grove driving it could Intel really win.

Grove had already proved as much. In 1970, Intel, just two years old, faced a major choice. Its main business, memory chips, was in serious trouble: yields on its products were too low, and the whole Silicon Valley memory-chip industry was in decline. Intel was close to bankruptcy. At the same time, a potentially revolutionary technology had landed in front of it: the microprocessor.

Should Intel play it safe, turn down the new technology and throw everything into saving the memory business? Or should it stake everything on developing microprocessors? Co-founder Noyce walked into Grove's office and calmly told him, "We're starting a new project."

Grove exploded on the spot: "Go away, go away, we don't have time for this! What kind of company starts a new project when it's fighting for its life?"

Noyce did not tell Grove what to do; in fact, he did not know himself. The whole job fell to Grove. He began juggling Intel's internal resources, keeping memory chips improving and in production while finding resources to develop and manufacture microprocessors. Above all, he had to keep Intel from going bankrupt in the meantime.

Luckily, Intel finished developing two microprocessors, the 4004 in November 1971 and the 8008 in April 1972. Its marketing team moved quickly to teach corporate customers what microprocessors could be used for. Noyce, Moore and Grove went on the road themselves to make the case. They drew up a list of possible uses for the chip that included automatic toilet flushers, cow-milking machines, video game consoles and blood analyzers.

In The Intel Trinity, people involved recall: "Intel's efforts worked. Seemingly overnight, the engineers they had visited suddenly understood what the microprocessor meant." Intel became the first, and the most important, player in the microprocessor market.

By the time the crisis of the 1980s hit, with revenue falling from $1.63 billion in 1984 to $1.26 billion in 1986, no one thought of Grove as a mere executor any longer. He was the one making the decisions.

He asked Moore: "If we brought in a new CEO now, what would he do?"

Moore answered without hesitation: "He would get us out of memories."

Grove looked hard at Moore and said: "Then why shouldn't you and I walk out the door, come back in, and do it ourselves?"

Intel left the memory-chip business, cut 7,200 jobs, close to a third of its workforce, and closed seven plants. It was now officially a microprocessor company.

Its rival now was Motorola, a formidable maker of microprocessors. To beat it, Intel launched a marketing campaign called Operation Crush. This was another lesson Grove taught Intel and the rest of Silicon Valley: engineers absorbed in building technology had to understand that technology alone does not win a tech company the market.

On December 4, 1979, all of Intel's marketing experts gathered in a conference room at headquarters. For a week, Grove and his team barely left the room. They emerged with an ambitious plan: Operation Crush.

The core idea was to sell Intel's microprocessor as a complete solution. Intel would tell customers that buying its microprocessor meant buying the whole Intel brand: the semiconductor experience of its founders Noyce and Moore, more than ten years of technical leadership, and a set of extras Intel provided, including a math coprocessor, design tools to help customers build their products around the microprocessor, and long-term troubleshooting support.

Intel also set itself a sales target of 2,000 "design wins," meaning commitments, made while a customer's product was still being designed, that it would use an Intel microprocessor.

The campaign was a triumph. By the end of 1980, Intel had 2,500 design wins. When the operation was first announced, even the most optimistic analysts had expected Intel to reach only a third of its target.

But what truly mattered for Intel was an order Operation Crush won from IBM, which usually did not buy from outside suppliers. What followed surprised everyone. IBM and Intel, joined by Microsoft, changed how the computer industry worked. Together they created a horizontal industry, in which hardware makers, the software maker Microsoft and PC assemblers each supplied a piece, to compete with Apple's vertical model, in which Apple made everything itself, from processor to software to case.

John Sculley, then Apple's CEO, later said that failing to make Apple's software run on Intel microprocessors was one of the biggest mistakes of his career as a manager.

Grove liked this model. He called it industrial democracy: products from many manufacturers had to work together, and together they made up the whole. An Intel processor could be paired with a Sharp display, a Conner hard drive, Toshiba memory, a U.S. Robotics modem, a Microsoft operating system and so on.

Intel and Microsoft formed a de facto "Wintel" alliance, a two-company grip on the personal computer industry. The arrangement became known as "Andy and Bill's Law": every time Grove's Intel released a new microprocessor, Gates's Microsoft upgraded Windows to make use of it. The Wintel alliance held firm until the PC era ended.

In 1989 and 1991, Grove launched two more campaigns that became classics. The first was Operation Red X. The ad was spare: the number 286 with a huge red X drawn across it. The second was Intel Inside, which put a small blue "Intel Inside" sticker on personal computers.

When they were first launched, both campaigns caused fierce argument inside Intel. Its engineers were still wary of marketing.

Grove overrode his lieutenants' objections, and he was proved right. Red X persuaded consumers to trade their 286 computers for 386 machines, pushed PC makers to buy the newer chips, and taught consumers to upgrade their electronics quickly. Intel Inside turned Intel from a brand known to equipment makers into a brand known to consumers; together with the later five-note chime, it became Intel's signature.

Grove stepped down as Intel's CEO in 1998 and left the board in 2005. He gave almost his entire career to Intel. In 2000, after he had handed over the CEO job, Intel's market value passed $500 billion. The dot-com bubble played a part, but the number still shows what Intel was worth.

In a sense, Intel owes its glory to Grove. Noyce left Intel early, and Moore never touched management. Without Grove, Intel would not be where it is today. What he gave Intel—a results-first work culture, an understanding of what marketing means for technology, a horizontal model of industry, and his decisions at each of Intel's strategic turning points—shaped not only the company but also the way Silicon Valley works.

It is no exaggeration to call him the world's greatest entrepreneur. Richard Tedlow, a Harvard Business School professor and management scholar, wrote a biography of Grove, the only biography of an individual Tedlow ever wrote.

In 1997, Time named Grove its Man of the Year and put him on the cover.

That issue was probably one of the two issues of Time Grove treasured most. In January 1957, a 21-year-old Grove had just left his native Hungary and arrived in the United States. That month the cover of Time honored a Hungarian, a tribute to the tragic and heroic fight of the Hungarian people for freedom against Soviet totalitarian rule.

In 1956, riots and demonstrations broke out in Hungary, and Grove joined the marchers. Soviet troops soon arrived, and Grove had to flee. After passing through Vienna in Austria and then Passau and Bremen in Germany, he crossed the Atlantic and reached New York in 1957. "I stopped and felt a chill. There were skyscrapers all around me. I looked up at them, speechless. They looked just like the America in the photographs. Suddenly it struck me, with astonishment, that I really was in America," Grove wrote in his memoir many years later.

Back then, he could hardly have imagined that 41 years later he would appear on the cover of the same magazine himself, as the world's greatest entrepreneur.

Image credits: richestcelebrities.org, Intel, Bloomberg