Part IThe Story
The General
In 1957 two engineers from MIT's Lincoln Laboratory, Ken Olsen and Harlan Anderson, went looking for money to start a company that would build smaller, cheaper computers. The large defense contractor General Dynamics turned them down because they had no business experience. The Small Business Administration office in Boston pointed them to the only firm in the city that invested in untested companies for a living, American Research and Development Corporation, run by a Harvard Business School professor whom everyone called "the General."
ARD's staff gave the pair three pieces of advice before they presented to the board. Do not use the word "computer," because Fortune had reported that nobody was making money in computers. Promise profit margins above five percent. And promise results quickly, because many of the board members were elderly. Olsen and Anderson changed the name of their venture from Digital Computer Corporation to Digital Equipment Corporation, and ARD offered $70,000 for roughly 70 percent of the company, with a loan to follow.
That stake was worth $355 million by 1971. It became the original venture capital home run, the deal that proved a small investment in the right team could return the whole fund many times over. It is also the reason Georges Doriot is often called the father of venture capital.
But the DEC investment was only one episode in a career that spanned four decades of teaching at Harvard, a wartime transformation of how the U.S. Army equipped its soldiers, the founding of one of Europe's leading business schools, and the design of an investment model that the rest of the industry would copy and then improve on. Doriot invented much of what venture capital does. He also demonstrated, through the slow decline of his own firm, what happens when an investment organization cannot share its gains with the people who produce them.
By the Numbers
Doriot and ARD
$3.5MCapital ARD raised in its first public offering, 1946
$70,000ARD's 1957 investment in Digital Equipment Corporation
$355MValue of ARD's DEC stake by 1971
14.7%ARD's annualized return over its life; 7.4% without DEC
~7,000Students who took his Harvard Manufacturing course, 1937–1966
57Students in INSEAD's first class, from 14 countries, 1959
A Son of the Motor Trade
Georges Frédéric Doriot was born in Paris on September 24, 1899. His father, Auguste Doriot, was one of the pioneers of the French automobile industry. He had worked closely with Armand Peugeot and later co-owned the car manufacturer D.F.P., short for Doriot, Flandrin & Parant. Georges grew up in a strict Lutheran household, and childhood visits to his father's factories gave him an early and lasting familiarity with how things were made.
In 1917, at seventeen, he enlisted in the French army and served in an artillery vehicle unit, where he received a battlefield commission as an officer. After the armistice he returned to his studies and earned a science baccalaureate from the University of Paris in 1920.
The war had ruined the family's finances. Auguste's factories had been converted to war production, and his attempt to restart an automobile business afterward failed for lack of capital. On his father's advice, Georges left for the United States in 1921, intending to study factory management at MIT. He carried a letter of introduction to A. Lawrence Lowell, the president of Harvard University. Lowell met him on his arrival in Boston and persuaded him to enroll instead at Harvard's new business school.
Doriot spent a single year at Harvard Business School as a "special student," since he lacked the undergraduate degree normally required. Like many of his classmates, he left after the first-year curriculum without completing an MBA. He never did earn one, which did not prevent him from becoming one of the school's most influential professors.
From Wall Street to the Classroom
In late 1921 Doriot joined the New York & Foreign Development Corporation, an affiliate of the investment bank Kuhn, Loeb & Co. His main job was evaluating new technologies for possible investment, and by twenty-four he had been named a director of a company the Kuhn, Loeb partners organized to develop industrial processes. It was, in effect, an apprenticeship in the work he would later make his life's business.
Kuhn, Loeb was a family firm, and its partnerships went to relatives or to those who married into the family. Doriot had no such connection, and by his own account little interest in the kind of wealth accumulation banking demanded. In 1925 the dean of Harvard Business School, Wallace Donham, offered him a job as assistant dean. Soon afterward Doriot criticized the school's course on factory production so sharply that Donham removed its instructor and told Doriot to teach it himself. Doriot later recalled that he did not know whether he could teach, but that it was at least a subject he felt close to.
He could teach. In 1929, at thirty, he was made a full professor of industrial management. That summer he was in Paris helping the Chamber of Commerce plan an executive training program based on Harvard's case method, the Centre de perfectionnement aux affaires, which opened in 1930. The historian Jean-Louis Barsoux has suggested it may have been the first middle-management program anywhere; Harvard itself did not offer executive education until 1943.
In 1930 Doriot married Edna Allen, a Harvard research assistant. The Depression that followed the 1929 crash brought him an extraordinary amount of consulting work. Between 1932 and 1941 he sat on the boards of some twenty companies and held executive positions in ten others. In 1940 he became president of the struggling McKeesport Tin Plate Corporation and stabilized it by negotiating the sale of its tin-plate division to Jones & Laughlin. The hands-on exposure to companies in trouble shaped his teaching as much as his investing.
The Manufacturing Course
In 1937 Doriot combined his teaching into a second-year elective called simply "Manufacturing." The name was deceptively modest. Its stated purpose was to train students in the analysis and control of a manufacturing company, with an emphasis on "new products, new ideas, new developments and new questions of research," and in practice it ranged across leadership, entrepreneurship, career planning and the management of innovation.
The course ran until Doriot's compulsory retirement in 1966 and enrolled about 7,000 students. Its graduates, known as "Doriot Men," included Philip Caldwell, later CEO of Ford; the automation pioneer John Diebold; Dan Lufkin, co-founder of the investment bank Donaldson, Lufkin & Jenrette; and James D. Robinson III, later head of American Express. Arthur Rock, who took the course in 1951, went on to finance Fairchild Semiconductor and Intel. Thomas Davis, another student, later founded the Mayfield Fund. Both men credited Doriot with shaping their decision to become venture investors.
At the same time, Doriot was drawn into a regional problem. New England's textile and garment industries were in terminal decline, and in 1939 the New England Council formed a committee to examine how new products and new companies might replace them. It was chaired by Karl Compton, the president of MIT, and included Ralph Flanders, an engineer and industrialist who would soon become president of the Federal Reserve Bank of Boston, and Merrill Griswold of Massachusetts Investors Trust. Doriot chaired its subcommittee on "Development Procedures and Venture Capital." The war interrupted the work. The relationships it created became the nucleus of ARD.
The Quartermaster's Laboratory
When France fell in 1940, Doriot offered his services to the French embassy in Washington and was offered a job driving the ambassador's limousine. He walked out. By then he had become an American citizen, and his reputation in manufacturing had reached the U.S. military. In the spring of 1941 Edmund Gregory, a former student who had just been appointed Quartermaster General of the Army, recruited him into the Quartermaster Corps as a lieutenant colonel responsible for speeding up procurement.
His first assignment was persuading Detroit automakers to retool their plants for Army trucks. When Japan seized the natural rubber plantations of Malaya in late 1941, he turned to the rubber crisis; his February 1942 memorandum outlined what became the national rubber rationing program and started a federal effort to develop synthetic alternatives.
In July 1942 the Quartermaster Corps created a Military Planning Division and put Doriot in charge of its research. In October 1943 he became director of the whole division, a contracting organization that grew from 500 to 2,000 civilians and handled several billion dollars of research and procurement. His programs focused on the ordinary soldier: water-repellent fabrics, better boots, insulated clothing, insecticides and the Army's field rations. In 1943, responding to shortages of metal, his division began developing body armor made from layers of fiberglass and resin, manufactured by Dow Chemical. His researchers named it "Doron" in his honor. It was first used at the Battle of Okinawa.
Doriot was promoted to brigadier general in February 1945, a rare rank in the Quartermaster Corps, and received the Distinguished Service Medal. He also proposed consolidating the Army's scattered research programs at a single site in the Boston area, which eventually became the research center in Natick, Massachusetts. Its Doriot Climatic Chambers, used to test soldiers and equipment in extreme environments, were named for him in 1994.
The war years taught him something that would define ARD. He had seen that the right combination of scientific talent, money and urgency could move ideas from laboratory to production at astonishing speed. He also knew that in peacetime there was no organized way to pay for that process.
Marrying Money to Ideas
The New England Council's plans revived as the war ended. In 1943 the council had asked banks, insurance companies and investment trusts whether they would provide capital for new enterprises; all said their mandates did not allow it. Flanders, by now president of the Boston Fed, argued publicly that the country's wealth was increasingly concentrated in trustees' hands and that new businesses were being starved of capital as a result.
— Ralph Flanders, quoted in Spencer Ante, Creative Capital, 2008We need to marry some small part of our enormous fiduciary resources to the new ideas which are seeking support.
American Research and Development Corporation was incorporated in June 1946. Its founders included Flanders, Compton, Harvard Business School dean Donald David and Griswold. Doriot, discharged from the Army that year, became president and held the job for twenty-five years.
The decision that shaped ARD's entire history was forced on it by a lack of interest. Institutional investors were not willing to commit large sums privately, so ARD raised its initial capital through a public stock offering, selling roughly 140,000 shares and collecting $3.5 million. The buyers included insurance companies, investment trusts, individual investors and university endowments at MIT, Rice, the University of Pennsylvania and the University of Rochester. As the journalist Spencer Ante wrote in Creative Capital, his 2008 biography of Doriot, ARD was the first professional venture firm to raise money mainly from institutions rather than family fortunes. That idea, pooling institutional money and handing it to professional managers to invest in new companies, is the foundation of the modern industry.
The structure ARD used to do it, a publicly traded closed-end fund registered under the Investment Company Act of 1940, would eventually undo it.
Longhair Projects
ARD's early years were hard. Between 1946 and 1950 it evaluated 1,869 proposals and made 26 investments. In 1947 it lost $55,000, and only two of its eight portfolio companies were profitable. Some investments failed outright; one, Circo Products, collapsed after a supplier stopped providing a chemical it depended on.
The successes came from the most scientific projects. ARD's first major investment was High Voltage Engineering Corporation, founded by MIT physicists to build particle accelerators for cancer treatment and nuclear research. Compton reportedly recommended it on the grounds that it might never make money but that its human value was so great it belonged in the portfolio. When the company went public in 1955, ARD's $200,000 investment was worth $1.8 million. In 1948 ARD backed Ionics, which was developing membranes to desalinate seawater. When Doriot asked engineers at Dow Chemical for a second opinion, they dismissed the technology as impossible until Ionics' founder mailed them a working membrane.
By 1951 ARD's portfolio companies had combined sales of $40 million and 3,000 employees, and the firm recorded its first operating profit. Merrill Griswold told Fortune that friends had initially grumbled about "another longhair project" and urged ARD to back something commercial. The directors had learned the opposite lesson: the research-heavy companies were their best ones.
Doriot's philosophy of investing came from his years as a teacher and board member rather than from financial theory. He was far more interested in the people than the plan, and he said so in ARD's 1949 annual report.
— Georges Doriot, ARD annual report, 1949An average idea in the hands of an able man is worth much more than an outstanding idea in the possession of a person with only average ability.
He called portfolio companies "members of the family" and described venture capital's purpose as financing "noble" ideas rather than simply making money. ARD insisted on board seats and gave its companies management help alongside the money, a practice known as the "Doriot style" and an early form of what later venture capitalists would call adding value. Over its life, ARD reviewed thousands of proposals and funded somewhere between 120 and 150 companies, depending on the source, with an acceptance rate that never rose above four percent in any five-year period. About three-quarters of its investments went into research-intensive fields such as chemicals, scientific instruments, electronics and industrial equipment, where patents could protect a small company from larger competitors.
Financially, the first decade was disappointing. Between 1946 and 1956 ARD's net asset value per share grew about 5.2 percent a year, while the S&P Composite Index grew 8.9 percent. The shares traded at a steep discount to the value of the portfolio, at one point 65 percent. MIT sold its entire ARD stake in 1955. By 1956 the firm had less than $1 million available to invest. Then came DEC.
Digital Equipment Corporation
Olsen and Anderson had asked for $100,000. ARD offered $70,000 in equity for about 70 percent of the company, plus a $30,000 loan to follow. With no other offers, they accepted. In August 1957 they incorporated Digital Equipment Corporation and set up in part of a former woolen mill in Maynard, Massachusetts. It was ARD's only new investment that year.
Doriot involved himself closely in DEC's business side. He placed ARD advisers on its board and assigned Dorothy Rowe, ARD's assistant secretary, to serve as the company's first treasurer. Board meetings were held at ARD's Boston office. He coached Olsen on presentation and salesmanship, advising him to display circuit boards on purple velvet, as a jeweler would, rather than lay them on a desk. Olsen did not hire a senior person without Doriot's input. Yet Olsen also recalled that ARD gave DEC freedom and did not interfere, whether things were going well or badly.
DEC's first computer, the PDP-1, went on sale in 1960 for $120,000, a fraction of the price of a mainframe. In 1965 the PDP-8 cut the price to $18,000 and became the first mass-produced minicomputer, opening computing to laboratories, factories and universities that could never afford an IBM machine. On August 19, 1966, DEC went public at $22 a share, and ARD's roughly 65 percent stake was valued at $38.5 million. Five years later it was worth $355 million. DEC went on to become the largest employer in Massachusetts and the second-largest computer maker in the United States after IBM.
Doriot and Olsen were temperamentally well matched. Doriot routinely warned entrepreneurs against buying "twenty-cylinder Cadillacs" and "fifty-room mansions." Olsen drove a Ford, mowed his own lawn and, once he was a multimillionaire, treated himself to a second canoe. Doriot turned down several offers to sell DEC, including approaches from Xerox and Hewlett-Packard, betting that it could thrive independently.
— Ken Olsen, quoted in Spencer Ante, Creative Capital, 2008It's very hard for someone who owns a major part of the stock to be patient. The General really preached this and really practiced it.
The numbers show how much DEC mattered. Over its whole life ARD earned an annualized return of about 14.7 percent. Without DEC, the figure would have been about 7.4 percent. A single investment roughly doubled the performance of the fund, a pattern that would become the defining feature of venture capital returns.
The Business School for Europe
Doriot's interest in European business education predated ARD, and after two world wars he became convinced that a school bringing together young managers from different countries, including former enemies, could help rebuild Europe and bind it together. Through the early 1950s he lobbied the Paris Chamber of Commerce and recruited former Harvard students living in France to the cause. Claude Janssen, who graduated from Harvard Business School in 1955, became one of his principal agents. Olivier Giscard d'Estaing, brother of the future French president, brought political connections. Industrial support came from executives at Pechiney and Saint-Gobain.
In July 1957, the same summer ARD invested in DEC, the Paris Chamber of Commerce agreed to establish the school. Hiring took longer than planned, and the opening was pushed back to September 1959. The Institut Européen d'Administration des Affaires, INSEAD, began classes on September 12, 1959, with 57 students from 14 countries, in space at the Château de Fontainebleau. At its dedication that October, a letter from President Dwight Eisenhower congratulated everyone involved in founding an institute "destined to play a creative role in the economic affairs of Europe and the world." Doriot raised about $123,000 from American donors, including former students, Morgan Guaranty and the Pepperidge Farm founder Margaret Rudkin, roughly 18 percent of the school's initial gifts.
INSEAD moved to its permanent campus near Fontainebleau in 1967 and has since become one of the highest-ranked business schools in Europe. Of all Doriot's creations, it is the one that has grown most steadily in the way he intended.
The Compensation Problem
DEC's success exposed a flaw at the heart of ARD. Because the firm was a registered investment company, the conflict-of-interest provisions of the Investment Company Act barred it from giving its staff stock options in portfolio companies. When the sums were small, that was tolerable. As the portfolio grew more valuable, it became crippling.
The contrast was stark. When Optical Scanning Corporation, a troubled ARD company rescued by ARD's Charles Waite, went public, its CEO's net worth went from nothing to $10 million. Waite received a $2,000 raise. Doriot fought the Securities and Exchange Commission over the rules for years, and at one point drafted a three-page memo attacking the agency's failure to understand venture capital, which he never sent.
ARD began losing its best people to firms that could share the gains. William Elfers, a fifteen-year veteran widely seen as Doriot's heir, left with Waite in 1965 to found Greylock, organized as a limited partnership. Henry Hoagland left in 1969 to start Fidelity Ventures. William Congleton departed to co-found Palmer Partners. All chose the limited partnership, which was free of the regulations that bound ARD. By the late 1960s, publicly traded stocks made up almost all of ARD's portfolio, and it no longer much resembled a venture firm.
Historians disagree about how much of this was unavoidable. The financial writer Charles Morris argues that Doriot could have taken ARD private or set up affiliated partnerships, as the West Coast firm Draper, Gaither & Anderson had done in 1959. Instead, he held up his own modest lifestyle as a model and worried aloud that employees who grew rich too quickly would lose their drive. He also resisted planning for his own succession. When ARD's board created a "Committee on 70" to manage the transition, Doriot evaded it.
In 1972, with no plan in place, the board accepted a merger with the conglomerate Textron. ARD's DEC shares were distributed to its shareholders before the deal closed. Doriot remained chairman of the ARD subsidiary until 1974. It made few new investments and was disbanded in 1976.
The Legacy
Georges Doriot died of lung cancer in Boston on June 2, 1987, at the age of 87. He had smoked a pipe throughout his adult life. Edna had died in 1978; they had no children.
By then the industry he had helped create had moved largely to California, and it was organized in a way he had resisted. The limited partnership, with carried interest for the partners, management fees and funds with fixed lives, became the standard vehicle for venture capital from the 1970s onward, in part because it solved the problems ARD could not solve under SEC rules. Some of its most influential early adopters were his own former employees.
Yet much of the substance of modern venture capital is recognizably his: raising money from institutions and investing it through professional managers; backing people over plans; taking board seats and providing hands-on help; holding patiently through a company's growing pains; and building a portfolio in the expectation that one exceptional winner will pay for everything else. The economic historian Tom Nicholas writes that ARD created the standard venture capital paradigm. His students and employees built Greylock, Fidelity Ventures and the Mayfield Fund, and financed Fairchild and Intel.
DEC itself did not last. Its minicomputers were overtaken by personal computers and workstations, and in 1998 it was acquired by Compaq. By then, the idea that had funded it had outgrown both the company and the firm that backed it.
Part IIThe Playbook
Doriot's career offers two sets of lessons. The first comes from what he got right: a method for selecting and supporting new companies that still defines venture capital. The second comes from what he got wrong: an organization that could not keep its own talent. Both are useful to anyone who builds, backs or runs young companies.
The principles
- 1.Back the person before the plan
- 2.Pool patient institutional money under professional management
- 3.Take a board seat and do real work
- 4.Let one winner carry the portfolio
- 5.Hold through the growing pains
- 6.Say no to almost everything
- 7.Frame the pitch for the skeptic in the room
- 8.Share the gains with the people who create them
- 9.Choose a structure that fits the time horizon
- 10.Plan your succession before you need it
- 11.Build institutions that outlast their founder
Principle 1
Back the person before the plan
Doriot's 1949 annual report stated the idea plainly: an average idea in the hands of an able person is worth more than a brilliant idea in the hands of an average one. ARD's early failures reinforced the lesson. When companies went wrong, the cause was usually management, not the underlying technology.
In practice, this meant spending a great deal of time with founders before investing and judging their character, persistence and ability to learn as carefully as their technology. Olsen and Anderson had no business experience at all, which is exactly why General Dynamics turned them down. Doriot saw engineers who understood their product deeply and could be taught the rest.
Tactic: Before evaluating any proposal on its merits, write a one-paragraph assessment of the founder alone: what they have built before, how they handled their last setback and how quickly they learn. If that paragraph is not compelling, pass, however good the idea looks.
Principle 2
Pool patient institutional money under professional management
Before ARD, investment in new companies depended largely on wealthy families. Doriot and his co-founders designed a vehicle that let insurance companies, investment trusts and university endowments each put a small share of their assets into new ventures, with professionals choosing and supervising the investments. Flanders's phrase for it was marrying a small part of the nation's fiduciary resources to new ideas.
The innovation was organizational rather than technical. It greatly expanded the amount of capital available to new companies and made venture investing a profession rather than a hobby of the rich. Every modern venture fund with institutional limited partners descends from that design.
Tactic: If you are raising capital for something unconventional, identify which institutions have long-term obligations and could afford to commit a small fraction of their assets to it. Design the vehicle around their constraints, including reporting, liquidity and governance, rather than asking them to break their own rules.
Principle 3
Take a board seat and do real work
ARD required board representation in its portfolio companies, and its people did far more than attend meetings. At DEC, Doriot supplied the company's first treasurer, placed advisers on its board, coached Olsen on salesmanship and weighed in on every senior hire. At High Voltage Engineering and Ionics, he and Compton sat on the boards themselves.
The balance he struck is the hard part. Olsen said ARD gave DEC freedom and did not interfere. The help was concentrated on the things engineers were least equipped to handle, such as finance, sales and hiring, while the technical and product decisions stayed with the founders.
Tactic: For each company you advise or invest in, list the two areas where the founders are weakest and where you can personally help. Spend your time there, and stay out of the areas where they are strongest.
Principle 4
Let one winner carry the portfolio
ARD's lifetime return was about 14.7 percent a year. Without DEC, it would have been about half that. A single $70,000 investment roughly doubled the performance of a fund that backed well over a hundred companies. The result made clear what later investors would call a power law: in venture capital, a very small number of investments produce most of the returns.
The implication is uncomfortable. It means accepting that most investments will be modest or will fail, and it means that selling a winner too early can cost more than all the losers combined. Doriot resisted offers from Xerox and Hewlett-Packard for DEC, which is part of why the stake was worth so much.
Tactic: Review your portfolio, whether of investments, products or projects, and identify the one or two with the largest possible upside. Make sure they are getting disproportionate attention and resources, and set a high bar before agreeing to sell or cap them.
Principle 5
Hold through the growing pains
Doriot referred to portfolio companies as members of the family and resisted pressure to sell successful investments for a quick return. ARD held its DEC stake from 1957 until its merger with Textron in 1972. The first decade of the firm's performance was poor enough that MIT sold its shares in 1955, two years before the investment that would make ARD famous.
Patience was a competitive advantage because it was rare. Olsen said it was the thing that made Doriot unusual: owners of large stakes find it very hard to wait, and Doriot both preached and practiced it. The lesson is not that every holding deserves patience, but that the best ones need time to become what they can be.
Tactic: When a strong investment or project hits a difficult period, separate problems of timing from problems of quality. If the team and the market are still sound, write down the milestones that would justify holding for another two years and review against them, rather than reacting to short-term results.
Principle 6
Say no to almost everything
Between 1946 and 1950 ARD reviewed 1,869 proposals and made 26 investments. Over its lifetime the acceptance rate never exceeded four percent in any five-year period. The firm also concentrated on sectors where it had an edge: research-intensive fields where patents could protect small companies and where ARD's MIT connections gave it early access and expert judgment.
Selectivity served two purposes. It kept the portfolio small enough for ARD's people to provide real help to each company, and it concentrated capital on the handful of opportunities where the firm's particular strengths mattered.
Tactic: Set an explicit acceptance rate for new commitments, whether investments, partnerships or projects, and track it. If you are saying yes to more than one in twenty, ask whether you are spreading your attention too thin to help any of them properly.
Principle 7
Frame the pitch for the skeptic in the room
ARD's advice to Olsen and Anderson was shrewd. Avoid the word "computer," because the business press had declared computers unprofitable. Promise margins above five percent. Promise fast results for an elderly board. None of it changed what DEC would build. All of it changed how the board would hear the proposal.
Doriot's team understood that a good proposal can fail because of a single word that triggers the audience's existing doubts. Naming the company Digital Equipment rather than Digital Computer kept the conversation on what the product would do, not on a category investors had already written off.
Tactic: Before presenting a proposal, list the three objections your audience is most likely to have based on what they have recently read or experienced. Remove any language that triggers those objections unnecessarily, and address each one directly with a specific commitment.
Under the Investment Company Act, ARD could not give its staff equity in portfolio companies. When Charles Waite rescued Optical Scanning and took it public, the company's CEO made $10 million and Waite got a $2,000 raise. Doriot argued with the SEC for years, but he also resisted other solutions, partly because he worried wealth would sap his employees' drive.
The result was predictable in hindsight. His heir apparent left to found Greylock, and other senior people followed to firms that could pay them a share of what they produced. The incentives he offered his entrepreneurs, meaningful ownership in what they built, were exactly the ones he could not offer his own team.
Tactic: Compare how the people who generate your organization's biggest wins are paid with what they could earn elsewhere for the same results. If the gap is large, close it with a real share of the upside before your best people close it for you by leaving.
Principle 9
Choose a structure that fits the time horizon
ARD became a publicly traded fund because institutional investors would not commit privately in 1946. That structure exposed it to daily share-price swings, a persistent discount to the value of its holdings, SEC rules on compensation and pressure from public shareholders, all while it was trying to make long-term, illiquid investments. By the late 1960s its portfolio consisted almost entirely of publicly traded stocks.
The limited partnership, with fixed fund lives, management fees and carried interest, fit venture investing far better, which is why it became the industry standard. The lesson extends beyond finance: an organization's legal and financial form determines what it can do, how it pays people and how long it can wait.
Tactic: Write down the time horizon of the work your organization does and then the time horizon imposed by its structure, such as reporting cycles, fund life or investor expectations. Where the two conflict, change the structure early, before the mismatch drives away people or capital.
Principle 10
Plan your succession before you need it
Doriot ran ARD for twenty-five years and never arranged for anyone to replace him. When the board set up a "Committee on 70" to plan the transition, he evaded it. His obvious successor, William Elfers, had already left to found Greylock. In the end the board accepted a merger with Textron, and the firm that invented institutional venture capital was absorbed into a conglomerate and dissolved within four years.
A founder's reluctance to plan for succession is common and understandable, but the cost falls on everyone else. Doriot's own organization, which he had designed to back companies for the long run, did not outlive his tenure.
Tactic: Identify, in writing, who would lead your organization if you left within a year, and what they would need to learn to do it well. Share that plan with your board or partners, and give the successor real responsibility now.
Principle 11
Build institutions that outlast their founder
The contrast between ARD and INSEAD is instructive. ARD depended on Doriot personally, and it faded when he did. INSEAD was established by the Paris Chamber of Commerce with backing from industry, a network of Harvard alumni and American donors, and its own leadership from the start. It has grown for more than six decades and is now one of Europe's leading business schools.
Doriot's greatest influence came through people and institutions he did not control: the students of his Manufacturing course, the ARD employees who founded their own firms and the school in Fontainebleau. The durable part of his legacy was what he taught and seeded, not what he ran.
Tactic: For your most important project, list the decisions that currently require you personally. Move at least one of them each quarter to a team, a process or a governing body that will still exist when you step away.
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Part IIIMaxims
- Losses teach what theory cannot. Doriot's early investment failures taught him that most business collapses are human failures, not technical ones.
- Frugality is a signal. Doriot trusted founders who drove Fords and bought second canoes more than those who wanted fifty-room mansions.
- Research is a regional asset. ARD's founders saw that MIT's laboratories could replace New England's dying mills, and Route 128 proved them right.
- Presentation is part of the product. Circuit boards on purple velvet sold better than circuit boards on a desk.
- A bad first decade is not a verdict. ARD underperformed the market for ten years before DEC redeemed the whole experiment.
- Wartime urgency is a template. Doriot's Quartermaster division showed how fast research could move when money and talent were aimed at a clear need.
- Rules written for one industry can strangle another. The Investment Company Act protected mutual-fund investors and crippled a venture firm.
- Teaching compounds. Seven thousand Manufacturing students carried Doriot's ideas into companies, banks and venture firms he never touched.
- Your alumni may build your competitors. Greylock, Fidelity Ventures and Palmer Partners were all founded by people who learned the trade at ARD.
In Their Own Words
Without action, the world would still be an idea.— Georges Doriot
The entrepreneur is the only man who can take two sticks and make fire. Everyone else needs matches.— Georges Doriot
I am not interested in making a fast buck. I am interested in building companies that will last for fifty years or more.— Georges Doriot
Someone, somewhere, is making a product that will make your product obsolete.— Georges Doriot
The real reward of being a venture capitalist is being able to say 'I helped build this company.'— Georges Doriot
Always consider investing in a grade A man with a grade B idea. Never invest in a grade B man with a grade A idea.— Georges Doriot
A startup is a company that is confused about what its product is, who its customers are, and how to make money.— Georges Doriot
The venture capitalist's job is to take the risk out of adventure and put the adventure back into business.— Georges Doriot
You must have the courage to bet on your judgment. You must have the courage to bet on the people you select.— Georges Doriot
Creative capital is patient capital. It waits for the right moment and the right opportunity.— Georges Doriot
The best time to repair the roof is when the sun is shining.— Georges Doriot
A company is known by the people it keeps.— Georges Doriot
In venture capital, you are not just investing in a company; you are investing in the future.— Georges Doriot
The key to successful investing is not predicting the future, but preparing for it.— Georges Doriot
Innovation is the specific instrument of entrepreneurship. It is the act that endows resources with a new capacity to create wealth.— Georges Doriot
The successful entrepreneur is one who can live with uncertainty and still make decisions.— Georges Doriot
In business, the rearview mirror is always clearer than the windshield.— Georges Doriot
The most dangerous moment for a company is when it stops being paranoid about its competition.— Georges Doriot
A business plan is a document that tells you what you don't know about your business.— Georges Doriot
Competition brings out the best in products and the worst in people.— Georges Doriot
Further reading
- Creative Capital: Georges Doriot and the Birth of Venture Capital by Spencer E. Ante
