INTERVIEW
A Talk with a Wide-Ranging Mind
Q: The last book of yours was the one in which you wrote about the deliberateness of the innovation process. Has there been any deliberateness in your own life? Was there a plan for Peter Drucker?
A: In retrospect, my life makes sense, but not in prospect, no. I was probably thirty before I had the foggiest notion where I belonged. For ten or twelve years before that I had experimented, not by design but by accident. I knew, even as a little boy, that I didn’t want to stay in Austria, and I knew that I didn’t want to waste four years going to a university. So I had my father get me a job as far away as one could go and as far away from anything that I was eventually headed for. I was an apprentice clerk in an export house. Then I worked in a small bank in Frankfurt. It’s a job I got because I was bilingual in English and German. That was October 1929. The stock market crashed, and I was the last in and the first out. I needed a job and got one at the local newspaper. It was a good education, I must say.
In retrospect, the one thing I was good at was looking at phenomena and asking what they meant. I knew in 1933 how Hitler would end, and I then began my first book, The End of Economic Man, which could not be published until 1939, because no publisher was willing to accept such horrible insights. It was very clear to me that Hitler would end up killing the Jews. And it was also very clear that he would end up with a treaty with Stalin.
I had been quite active in German conservative politics even though I had a foreign passport, and so I knew that Hitler was not for me. I left and went first to England and then, four years later, to this country. I worked in London for an insurance company as a securities analyst and as an investment banker. If I had wanted to be a rich man I would have stayed there, but it bored me to tears.
Q: Would you define entrepreneur?
A: The definition is very old. It is somebody who endows resources with new wealth-producing capacity. That’s all.
Q: You make the point that small business and entrepreneurial business are not necessarily the same thing.
A: The great majority of small businesses are incapable of innovation, partly because they don’t have the resources, but a lot more because they don’t have the time and they don’t have the ambition. I’m not even talking of the corner cigar store. Look at the typical small business. It’s grotesquely understaffed. It doesn’t have the resources and the cash flow. Maybe the boss doesn’t sweep the store anymore, but he’s not that far away. He’s basically fighting the daily battle. He doesn’t have, by and large, the discipline. He doesn’t have the background. The most successful of the young entrepreneurs today are people who have spent five to eight years in a big organization.
Q: What does that do for them?
A: They learn. They get tools. They learn how to do a cash-flow analysis and how one trains people and how one delegates and how one builds a team. The ones without that background are the entrepreneurs who, no matter how great their success, are being pushed out. For example, if you ask me what’s wrong with [Apple Computer Inc. cofounders] Wozniak and Jobs…
Q: That’s exactly what I was going to ask.
A: They don’t have the discipline. They don’t have the tools, the knowledge.
Q: But that’s the company that we’ve looked to for the past five or six years as being prototypical of entrepreneurial success.
A: I am on record as saying that those two young men would not survive. The Lord was singularly unkind to them.
Q: Really?
A: By giving them too much success too soon. If the Lord wants to destroy, He does what He did to those two. They never got their noses rubbed in the dirt. They never had to dig. It came too easy. Success made them arrogant. They don’t know the simple elements. They’re like an architect who doesn’t know how one drives a nail or what a stud is. A great strength is to have five to ten years of, call it management, under your belt before you start. If you don’t have it, then you make these elementary mistakes.
Q: People who haven’t had this big-company experience you prescribe: would you tell them that they shouldn’t attempt their own enterprise?
A: No, I would say read my entrepreneurial book, because that’s what it’s written for. We have reached the point [in entrepreneurial management] where we know what the practice is, and it’s not waiting around for the muse to kiss you. The muse is very, very choosy, not only in whom she kisses but in where she kisses them. And so one can’t wait.
In high tech, we have the old casualty rate among young companies, eight out of ten, or seven out of ten. But outside of high tech, the rate is so much lower.
Q: Because?
A: Because they have the competence to manage their enterprises and to manage themselves. That’s the most difficult thing for the person who starts his own business, to redefine his own role in the business.
Q: You make it sound so easy in the book.
A: It is simple, but not easy. What you have to do and how you do it are incredibly simple. Are you willing to do it? That is another matter. You have to ask the question.
There is a young man I know who starts businesses. He is on his fifth. He develops them to the point that they are past the baby diseases and then sells out. He’s a nanny. You know, when I grew up there were still nannies around, and most of them used to give notice on the day their child spoke its first word. Then it was no longer a baby. That’s what this particular fellow is, a baby nurse. When his companies reach twenty-nine employees he says, “Out!” I ask why and he says, “Once I get to thirty people, including myself, then I have to manage them, and I’m simply not going to do anything that stupid.”
Q: That example would tend to confirm the conventional wisdom, which holds that there are entrepreneurs and there are managers, but that the two are not the same.
A: Yes and no. You see, there is entrepreneurial work and there is managerial work, and the two are not the same. But you can’t be a successful entrepreneur unless you manage, and if you try to manage without some entrepreneurship, you are in danger of becoming a bureaucrat. Yes, the work is different, but that’s not so unusual.
Look at entrepreneurial businesses today. A lot of them are built around somebody in his fifties who came straight out of college, engineering school, and went to work for GE. Thirty years later, he is in charge of market research for the small condenser department and is very nicely paid. His mortgage is paid up and his pension is vested, the kids are grown, and he enjoys the work and likes GE, but he knows he’s never going to be general manager of the department, let alone of the division. And that’s when he takes early retirement, and three weeks later, he’s working for one of the companies around Route 128 in Boston. This morning I talked to one of those men. He had been in market planning and market research for a du Pont division—specialty chemicals—and he said, “You know, I was in my early fifties, and I enjoyed it, but they wanted to transfer me.…” Do I have to finish the story?
So now he’s a vice-president for marketing on Route 128 in a company where he is badly needed, an eight-year-old company of engineers that has grown very fast and has outgrown its marketing. But he knows how one does it. At du Pont, was he an entrepreneur or was he a manager? He knows more about how one finds new markets than the boys at his new company do. He’s been doing it for thirty years. It’s routine. You come out with something, and it works fine in the market, but then you see what other markets there are that you never heard of. There are lots of markets that have nothing to do with the treatment of effluents, or whatever that company does, but they didn’t know how to find them until this fellow came along.
There is entrepreneurial work and there is managerial work, and most people can do both. But not everybody is attracted to them equally. The young man I told you about who starts companies, he asked himself the question, and his answer was, “I don’t want to run a business.”
Q: Isn’t there some irony in the fact that you who study organizations aren’t part of one?
A: I couldn’t work in a large organization. They bore me to tears.
Q: Aren’t you being very hard on the Route 128 and Silicon Valley people? You’ve called them arrogant, immature.
A: High tech is living in the nineteenth century, the pre-management world. They believe that people pay for technology. They have a romance with technology. But people don’t pay for technology: they pay for what they get out of technology.
If you look at the successful companies, they are the ones who either learn management or bring it in. In the really successful high-tech companies, the originator isn’t usually there five years later. He may be on the board; he may be honorary chairman; but he is out, and usually with bitterness. The Apple story is different only in its dimensions. Steve Jobs lacked the discipline. I don’t mean the self-discipline. I mean the basic knowledge and the willingness to apply it.
High tech, precisely because it has all the glamour, is prone to arrogance far more than any other. But it’s not confined to high tech.
Q: Where else?
A: Finance. There’s a different kind of egomaniac there, but still an egomaniac. Partly for the same reason. They make too much money too soon. It spoils you, you know, to get $450,000 in stock options at age twenty-three. It’s a very dangerous thing. It’s too much excitement.
Q: This entrepreneurial society that you write about in the book, how did it develop? And are you absolutely persuaded that it’s not just a fad?
A: Certainly, demographics have had a lot to do with it. You go back thirty years, twenty-five years, and the able graduates of, let’s say, Harvard Business School all wanted to go into big business. And it was a rational, intelligent thing to do because the career opportunities were there. But now, you see, because of the baby boom, the pipelines are full.
Another reason we have an entrepreneurial society, and it’s an important reason, is that high tech has made it respectable. The great role of high tech is in creating the climate for entrepreneurs, the vision. And it has also created the sources of capital. When you go to the venture capitalists, you know, most of them are no longer emphasizing high tech. But all of them began in high tech. It was high tech that created the capital flow. And how recent this is is very hard to imagine. In 1976, I published a book on pension funds in which I said that one of the great problems in making capital formation institutional is that there won’t be any money for new businesses. That was only ten years ago and at that time what I said was obvious. Today it would be silly.
The third thing promoting the entrepreneurial society perhaps is the most important, although I’m not sure whether I’m talking chicken or egg. There’s been a fundamental change in basic perception over the past, make it, fifty years. The trend was toward centralization—in business, in government, and in health care. At the same time, when we came out of World War II we had discovered management. But management was something that we thought could work only in large, centralized institutions. In the early 1950s, I helped start what became the Presidents’ Course given by the American Management Associations. In the first years, until 1970, for every hundred people they invited, eighty wrote back and said: “This is very interesting, but I’m not GE. What would I need management for?” And the same was true when I first started to work with the American College of Hospital Administrators, which gave a seminar in management. Hospital administrators needed it, but invariably we got the answer, “We have only ninety beds; we can’t afford management.” This has all changed now. Don’t ask me how and when. But nowadays, the only place left where you still have the cult of bigness is in Japan. There, bigger is better and biggest is best.
So, in part, the entrepreneurial society came about because we all “learned” how to manage. It’s become part of the general culture. Look, Harper & Row—who is the publisher for [Tom] Peters and [Bob] Waterman—half of the 2 or 3 million books they sold were graduation presents for high school graduates.
Q: Your book or In Search of Excellence?
A: Oh, no, no. Not my book. My book would be hopeless. They couldn’t read it, much less master it. The great virtue of the Peters and Waterman book is its extreme simplicity, maybe oversimplification. But when Aunt Mary has to give that nephew of hers a high school graduation present and she gives him In Search of Excellence, you know that management has become part of the general culture.
Q: Does the arrival of the entrepreneurial society mean that we should be rejoicing now because our national economic future is assured?
A: No. It’s bringing tremendous change to a lot of vast institutions, and if they can’t learn, the changes will be socially unbearable.
Q: Has any of them started to change?
A: My God, yes. The new companies are the least of it, historically. The more important part is what goes on in existing institutions. What is far more important is that the American railroad has become innovative with a vengeance in the last thirty years. When I first knew the railroads in the late 1940s, there was no hope for them. I was quite sure that they would all have to be nationalized. Now, even Conrail, the government-owned railroad, makes money.
What has happened in finance is even more dramatic. In, make it, 1960, some smart cookies at General Electric Credit Corporation realized that commercial paper is a commercial loan, not legally, but economically. Legally, in this country, it’s a security, so the commercial banks have a hard time using it. Our number-two bank is not Chase and not Bank of America. It’s General Electric Credit.
The most robotized plant in the world is probably the GE locomotive plant in Erie, Pennsylvania. Twenty years ago, GE didn’t make a single locomotive in this country. It was much too expensive. They were all made by GE Brazil. Now, the U.S. plant is far more automated than anything you could possibly find in Japan or Korea.
That’s where the innovation has been, and that’s where we need it, because if we don’t get the changes in there we will have one corpse after another, with enormous social danger.
Q: Is that why you wrote Innovation and Entrepreneurship?
A: I wrote the book because I felt the time had come to be a little more serious about the topic than most of the prevailing work was and also in part because, bluntly, most of the things you read or hear seem to me, on the basis of thirty years of work and experience, to be misunderstandings. The entrepreneur—the person with George Gilder’s entrepreneurial personality—yes, there are such people, but they are rarely successful. On the other hand, people whom Gilder would never accept as entrepreneurs are often very successful. Entrepreneurship is not a romantic subject. It’s hard work. I wanted to dislodge the nineteenth-century folklore that holds that entrepreneurship is all about small business and new business. Entrepreneurs range from the likes of Citibank, whom nobody has accused of being new or small—or General Electric Credit—to Edward D. Jones & Co. in St. Louis, the fastest-growing American financial-services company
But there’s another reason. When I published Practice of Management thirty years ago, that book made it possible for people to learn how to manage, something that up to then only a few geniuses seemed able to do, and nobody could replicate it. I sat down and made a discipline of it. This book does the same with innovation and entrepreneurship.
Q: Well, you didn’t invent the stuff.
A: In a large part, yes.
Q: You didn’t invent the strategies. They were around before you wrote them down.
A: Not really
Q: No? What I’m trying to say is that people were doing these things—finding market niches, promoting entrepreneurial behavior in their employees—before your book came out.
A: Yes, and everybody thought it required genius and that it could not be replicated. Look, if you can’t replicate something because you don’t understand it, then it really hasn’t been invented; it’s only been done.
When I came into management, a lot of it had come out of engineering. And a lot of it came out of accounting. And some of it came out of psychology. And some more came out of labor relations. Each of those was considered separate, and each of them, by itself, was ineffectual. You can’t do carpentry, you know, if you have only a saw, or only a hammer, or you never heard of a pair of pliers. It’s when you put all those tools into one kit that you invent. That’s what I did in large part in this book.
Q: You’re certainly one of the most accessible of the serious writers on management topics.
A: Well, I’m a professional writer, and I do not believe that obscurity is a virtue.
Q: Why do you work alone? No staff?
A: I don’t enjoy having to do work to keep other people busy. I want to do the work I want to do and not the work I have to do because I have to pay them or they have to eat. I’m a solo performer. I’ve never been interested in building a firm. I’m also not interested in managing people. It bores me stiff.
Q: Do clients come to you now?
A: With one exception I don’t do any consulting elsewhere.
Q: Why are you interested in business? If your overarching interest is in organizations, why not study other kinds? Why not political organizations?
A: My consulting practice is now fifty/fifty profit-nonprofit. But I didn’t come out of business. I came out of political journalism. In my second book, The Future of Industrial Man, I came to the conclusion that the integrating principle of modern society had become the large organization. At that time, however, there was only the business organization around. In this country, the business enterprise was the first of the modern institutions to emerge. I decided that I needed to be inside, to really study a big company from the inside: as a human, social, political organization—as an integrating mechanism. I tried to get inside, and I had met quite a few people as a journalist and as an investment banker. They all turned me down. The chairman of Westinghouse was very nice to me when I came to see him, but when I told him what I wanted he not only threw me out, he gave instructions to his staff not to allow me near the building because I was a Bolshevik. This was 1940.
By 1942, I was doing quite a bit of work for the government. I had given up looking for a company to study when one day the telephone rang and the fellow said, “My name is Paul Garrett, and I am vice-president of public relations for General Motors Corp. My vice-chairman has asked me to call you to ask whether you would be willing and available to make a study of our top management structure.” Since then, nobody at General Motors has ever admitted to having been responsible for this, but that is how I got into business.
Q: You look at business from a position that is unique. You’re neither an academic…
A: Though I’ve been teaching for fifty years.
Q: But you don’t consider yourself an academic. And you certainly don’t write like an academic.
A: That is, you know, a slur on academics. It is only in the last twenty or thirty years that being incomprehensible has become a virtue in academia.
Q: Nor are you an operations person.
A: No, I’m no good at operations.
Q: So you don’t get down there in the mud with your clients.
A: Oh yes, a little. Look, whatever problem a client has is my problem. Here is that mutual fund company that sees that the market is shifting from sales commissions to no front-end loads. A terrific problem, they said. I said, no, it’s an opportunity. The salesman has to get his commission right away, and the customer has to pay it over five years. That’s a tax shelter. Make it into something that, if you hold it for five years, you pay not income tax but capital gains tax on it. Then you’ll have a new product. It’s been the greatest success in the mutual fund industry. That’s nitty-gritty enough, isn’t it? I let him do all the work, and he consults the lawyers. I could do it, too, but he doesn’t need me to sit down with his lawyers and write out the prospectus for the SEC.
Q: Do you read the new management books that come out?
A: I look at a great deal of them. Once in a while you get a book by a practitioner, like [Intel Corp. president] Andy Grove’s book, High Output Management, on how one maintains the entrepreneurial spirit in a very big and rapidly growing company I think that’s a beautiful book and very important. But in order to get a book like that, I plow through a lot of zeros. Fortunately, the body processes cellulose very rapidly.
Q: It doesn’t bother you that Tom Peters and Bob Waterman got rich and famous for a book built on ideas, Peters has said, that you had already written about?
A: No. The strength of the Peters book is that it forces you to look at the fundamentals. The book’s great weakness—which is a strength from the point of view of its success—is that it makes managing sound so incredibly easy. All you have to do is put that book under your pillow, and it’ll get done.
Q: What do you do with your leisure time?
A: What leisure time?
Q: Maybe I should have asked if you have any?
A: On my seventieth birthday, I gave myself two presents. One was finishing my first novel and the other was a second professorship, this one in Japanese art. For fifty years, I’ve been interested in Oriental art, and now I’ve reached a point where I’m considered, especially in Japan, to be the expert in certain narrow areas—advising museums, helping collectors. That takes a fair amount of time.
Also, I don’t know how many hundreds or thousands of people there are now all over the world who were either clients of mine or students and who take the telephone and call to hear themselves talk and for advice.
I swim a great deal and I walk a great deal. But leisure time in the sense of going bowling, no.
A: Unsystematically. It’s a compulsion neurosis. There’s no pattern.
Q: Do you use a typewriter?
A: Sometimes. It depends. And I never know in advance how it’s going to work.
Q: How long, for example, does it take you to write a Wall Street Journal column?
A: To write it, not very long—a day To do it, much longer. They’re only fourteen hundred, fifteen hundred words. I recently did a huge piece on the hostile takeover wave—six thousand, seven thousand words—for The Public Interest. I had to change quite a bit. It suddenly hit me that I know what a hostile takeover is, but how many readers do? That had to be explained. I totally changed the structure, and that takes a long time for me. Once I understand it, though, I can do it very fast. See, I’ve made my living as a journalist since I was twenty My first job was on a paper that published almost as much copy as The Boston Globe. The Globe has 350 editorial employees; we were 14 employees fifty years ago, which is much healthier. On my first day—I was barely twenty—I was expected to write two editorials.
Q: If the business of America is business, and all that sort of thing, why don’t businesspeople have a better popular image than they do?
A: The nice thing about this country is that nobody’s popular except people who don’t matter. This is very safe. Rock stars are popular, because no rock star has ever lasted for more than a few years. Rock stars are therefore harmless. The wonderful thing about this country is the universal persecution mania. Every group feels that it is being despised and persecuted. Have you ever heard the doctors talk about how nobody appreciates how much they bleed for the good of humanity? Everybody is persecuted. Everybody feels terribly sorry for himself. You sit down with university professors, and it is unbelievable how terrible their lot is. The businessman feels unloved, misunderstood, and neglected. And have you ever sat down with labor leaders?
They are all of them right. It’s all true. This is not a country that has great respect, and this is one of its great safeguards against tyranny. We save our adulation for people who will never become a menace—for baseball players and rock stars and movie idols who are completely innocuous. We have respect for accomplishment, but not for status. There is no status in this country. There’s respect for the office of the president, but no respect for the president. As a consequence, here, everybody feels persecuted and misunderstood, not appreciated, which I think is wonderful.
Q: Would you like to say something disrespectful about economists?
A: Yes. Economists never know anything until twenty years later. There are no slower learners than economists. There is no greater obstacle to learning than to be the prisoner of totally invalid but dogmatic theories. The economists are where the theologians were in 1300: prematurely dogmatic.
Until fifty years ago, economists had been becomingly humble and said all the time, “We don’t know.” Before 1929, nobody believed that government had any responsibility for the economy. Economists said, “Since we don’t know, the only policy with a chance for success is no policy. Keep expenditures low, productivity high, and pray.”
But after 1929, government took charge of the economy and economists were forced to become dogmatic, because suddenly they were policymakers. They began asserting, Keynes first, that they had the answers, and what’s more the answers were pleasant. It was like a doctor telling you that you have inoperable liver cancer, but it will be cured if you go to bed with a beautiful seventeen-year-old. Keynes said there’s no problem that can’t be cured if only you keep purchasing power high. What could be nicer? The monetarist treatment is even easier: There’s nothing that won’t be cured if you just increase the money supply by 3 percent per year, which is also increasing incomes. The supply-siders are more pleasant still: There’s no disease that can’t be cured by cutting taxes.
We have no economic theory today. But we have as many economists as the year 1300 had theologians. Not one of them, however, will ever be sainted. By 1300, the age of saints was over, more or less, and there is nothing worse than the theologian who no longer has faith. That’s what our economists are today.
Q: What about government? Do you see any signs that the entrepreneurial society has penetrated government as an organization?
A: The basic problem of American government today is that it no longer attracts good people. They know that nothing can be done; government is a dead-end street. Partly it’s because, as in business, all the pipelines are full, but also because nobody has belief in government. Fifty years ago, even twenty years ago, government was the place where the ideas were, the innovation, the new things. Japan is the only country where government is still respected and where government service still attracts the top people.
Q: So there’s nothing for government to do, in your view?
A: Oh, no, no. The days of the welfare state are over, but we are not going to abolish it. We have to find its limits. What are the limits? At what point does welfare do damage? This is the real question, and it’s brought up by the success of the welfare state. The problems of success, I think, are the basic issues ahead of us, and the only thing I can tell you is that they don’t fit the political alignments of the nineteenth and early twentieth centuries. They do not fit liberal and conservative and socialist. The traditional parties make absolutely no sense whatever to anybody of age thirty. And yet, what else is there?
Q: Is Ronald Reagan’s administration promoting or inhibiting this entrepreneurial society of yours?
A: It’s a very interesting administration: totally schizophrenic. When you look at its deeds, it hasn’t done one darn thing Mr. Carter wouldn’t have done. And probably he wouldn’t have done it any worse either, or any better. The words, however, are different.
This is a very clear symptom, I think, that there has been an irrevocable shift in the last ten years. No matter who is in power, he would no longer believe in big government and would preach cutting expenses and would end up doing nothing about it. This is because we, the American people, are at that interesting point where we are all in favor of cutting the deficit—at somebody else’s expense. It’s a very typical stage in alcoholism, you know, where you know you have to stop—tomorrow.
Q: Do you think we will?
A: Alcoholics usually don’t reform until they’re in the gutter. Maybe we won’t wait that long. Three years ago, to do anything about Social Security would have been unspeakable. Now it’s speakable. It’s not doable yet, but I think we’re inching toward solutions.
Q: You’re not too worried about the future then?
A: Well, one can get awfully pessimistic about the world. It’s clearly not in good shape, but it probably never has been, not in my lifetime. One of my very early childhood memories is the outbreak of World War I. My father and his brother-in-law, who was a very famous lawyer, jurist, and philosopher, and my father’s close friend at the time, who was Tomás Masaryk, the founder of Czechoslovakia, a great historian and much older of course.… I still remember our house. Hot-air heating pipes carry sound beautifully. Our bathroom was above my father’s study. I was not quite five, and I listened at the hot-air register to my father and my uncle Hans and Masaryk saying, “This is the end not just of Austria, but of civilization.” That is the first thing that I can remember clearly. And then I remember the endless obituaries in the newspaper. That’s the world I grew up in and was very conscious of, the last days of anything that had any value. And it hasn’t changed since. So it’s awfully easy for me to be pessimistic, but what’s the use of it? Lots of things worry me. On the other hand, we have survived against all odds.
Q: It’s hard to place you, politically…
A: I’m an old—not a neo—conservative. The neoconservatives started out on the Left, and now they are basically old-fashioned liberals, which is respectable, but I’ve never been one. For instance, although I believe in the free market, I have serious reservations about capitalism. Any system that makes one value absolute is wrong. Basically, the question is not what are our rights, but what are our responsibilities. These are very old conservative approaches, and I raised them in the first book I wrote, The End of Economic Man, when I was in my twenties, so I have not changed.
Q: Were you ever tempted to go into politics?
A: No, I realized very early that I was apolitical, in the sense that I hadn’t the slightest interest in power for myself. And if you have no interest in power, you are basically a misfit in politics. On the other hand, give me a piece of paper and pencil, and I start to enjoy myself.
Q: What other things cheer you?
A: I am very much impressed by the young people. First, that most of the things you hear about them are nonsense, for example, complaints that they don’t work. I think that basically they’re workaholics. And there is a sense of achievement there. But I’m glad that I’m not twenty-five years old. It’s a very harsh world, a terribly harsh world for young people.
(1985)
This interview was conducted by senior writer Tom Richman and appeared in the October 1985 issue of Inc.