How to grow a 50 year old Unicorn 🦄
Post-IPO, would you put all the stock of the company you started on a bet for the future of your company?
Ray Stata did and he’s grown his company into a 50 year old unicorn with over $3.4B in annual revenue.
Ray Stata founded Analog Devices (NASDAQ: ADI) in 1965 in Cambridge, MA. He took the company public in 1969 and currently serves as Chairman of the Board. Ray is an exemplary entrepreneur and executive who’s led his company through several waves of growth and transformation to build it to a market cap of over $21B. In 2015, Analog Devices celebrated its 50th year by ringing the NASDAQ stock market opening bell. In July 2016, Analog announced a $14.8B acquisition of Linear Technology.
Ray was recently interviewed by Antonio Rodriguez (Matrix Partners) at The Ray and Maria Stata Center at MIT. Ray, a graduate of MIT, shared inspiring and insightful stories with local students and entrepreneurs.
Ray and Antonio’s full interview can be found here.
Ray’s most compelling story: his big bet to grow a 50 year old unicorn
Ray: Andy Grove wrote a book called “Only the Paranoid Survive”. In that book he talked about the S-curve. Everything’s got S-curves — products, markets, companies. You always have to be thinking about, anticipating and preparing for the point of inflection. Everything you do will have to be changed dramatically or you will go down the other side of the curve.
When we started the business there were no integrated circuit operational amplifiers. You had to buy discreet transistors to make them. Two years after starting business, the first integrated circuit op amps appeared. They were pedestrian in performance relative to what ADI did with modules, but every year they got a little better and were a tenth of the cost.
By 1969, I came to some conclusions on the future of the world — if you are in the circuits manufacturing business and you don’t do it with semiconductors, you’re dead meat sooner or later. So we had to figure out how to get into the semiconductor business, or get out of the circuit business.
At that point, we were a public company. So I went to the board and presented a plan on how to do this, by funding a startup. The board said, “No, no way, too risky, nobody here knows anything about that business.” Nobody in the company wanted to do that.
I just couldn’t buy that. I could see that future and it wasn’t a pretty future. It may be a long time getting there, but we would end up on the other side of that S-curve. So my wife and I agreed we would take our stock in this public company, hawk it at the bank, take the money and invest it in a startup in the Boston area.
We setup a deal with ADI and said, “We are going to design and manufacture the ICs in this (startup) company. ADI you sell and market through your channels. If you change your mind about this being a good idea, you can buy the company for a fixed price upfront and I’ll take no profit.” I was the CEO, there would have been a conflict of interest.
That was a terrible deal!
Ray: If it turned out that it went down, we would take the hit. Most people thought we were crazy to do it. But we did it anyway, and thank god we did.
If it had not worked, were your kids not going to college at that point?
Ray: That would have been the unthinkable, so you don’t think about that. You only think about making it work because you can make it work. If you don’t do that, you’re going to lose anyway. That was the mindset. In two years it became pretty clear it wasn’t a bad idea for ADI. ADI bought the startup.
You bet the farm and it worked out!
Ray: The company had a lot of strengths — thousands of customers, growing 80%–90% a year, tremendous profits. We just had to figure out how to get through this technical transition.
Andy Grove’s point of inflection, is a dangerous place. You can’t get beyond that point unless you take significant risks and you have to fundamentally change beliefs about what’s important inside your company. That’s why so many companies fail, they can’t get through that early success to get through the next stage.
Ray: If you are going to do something, do it better than anybody else. Be excellent, be #1, get major market share. The way you do that is through innovation. You have to be able to attract the best and brightest technical talent to do the innovation. Those have been the principals from day one and are still the principals today.
The full interview between Ray and Antonio can be found here.
Ray shared stories and thoughts on founders, leadership, innovation, and the Boston ecosystem.