Alan Shugart

BW: Tell us a little bit about your couple of weeks in New York, when you were out of Silicon Valley (He'd worked for years in IBM's Silicon Valley unit). What didn't you like about the East?

SHUGART: I'm a native Californian to start with. I only worked a couple of weeks at IBM in New York because they transferred me, and I thought I'd try it. After two weeks, it was very clear to me personally that I was not your basic New York type of guy, and so I said I'm going home.

BW: What was it that bugged you? What was the big difference would you say?

SHUGART: You know, I'm not really sure. I don't think that it's that I didn't know enough people. Really, I never stopped to analyze it. I think people spend too much time analyzing those kinds of decisions and I'm one of the people that doesn't spent that much time analyzing. I listen to my intuition. My intuition said go home.

BW: Can you give us some details of the day -- supposedly the day you quit -- when you hired all those guys away to Memorex?

SHUGART: I didn't start Memorex for a couple of weeks. In fact, everybody has the wrong impression -- they think I quit IBM to go to Memorex, and that's totally untrue. I think IBM thought that, too. I quit IBM because I wanted to go back to California, and in that two-week period in New York, a lot of people in the industry -- outside of IBM -- heard that I'd been transferred and they kept calling me, asking me to go to work for them.

I had never realized there was so much opportunity on the outside of IBM. When I got back to California, after resigning in New York, I hadn't planned on going to work for anybody. I was going to take a month or so off. Then the President of Memorex, called me and said, "Al, we would like you to join the new peripherals group that we've started." And I said, "I'd be happy to talk to you. When would you want me to start?" and he said, "Tomorrow."

I didn't really want to do that. I'd wanted to take a month off, and he says, "Well, we can't take a month off. We don't have the time." So I said, "Okay, I'll come over tomorrow and talk to you about it." I did, and then I started at Memorex immediately. But that was not my plan.

BW: There's a story that you set up shop in a bar across from IBM. Is there any truth to that story?

SHUGART: Oh, yes, there's a partial truth to that. So, Memorex hired me, and I was in charge of the main part of the peripheral operation, the disk drive development and production operation. I was the vice president for peripherals. So we were obviously short of people, and I called the people I knew and tried to talk them into coming to Memorex. But there was a bar outside of IBM, the Paddock Lounge, that everybody stopped at...I shouldn't say everybody -- derelicts like myself, I guess, stopped there after work. I knew the owner very, very well, and of course, I knew all the patrons.

This was within a week or two or three weeks after I joined Memorex. I went there at five o'clock to have a beer and shoot pool and talk to all my friends that were still at IBM and tell them what a great opportunity there was at Memorex. That was only part of the recruiting effort, I also knew a lot of people and I called them at home.

BW: From what you know about other industries in Silicon Valley, is there anything different about the role of personal relationships in Silicon Valley and high tech than in other industries? Do you think that's part of the formula out here?

SHUGART: Personal relationships are the whole deal.

BW: Here we're sitting in the biggest industry in the world now, and yet, out here it feels like there's not all that many people calling the shots.

SHUGART: I think personal relationships, number one, are important. But also it's the perception that people have of you. If you're soliciting people to come to work for you, even if they don't know you, if they've read about you in the paper, and they read good things or if they read bad things -- it's the reputation that you've gained, and this is something you do over many, many, many years. So it's not just personal contacts, but it's also a reputation that you want to gain.

BW: There's obviously a lot of venture capital money out there if you're in high-tech. But with so much of the focus on this part of the economy, is it hard for other folks?

SHUGART: Well, I think that's absolutely right. It's a lot easier for a high tech company to get venture capital than it is for a non-high-tech company. But worse than that is that...venture capitalists can't afford to take the time to invest a small amount of money. They have to invest a big amount of money.

Say, you want to start a high tech firm. So you say okay, let's go raise a million dollars and we're going to get really rich. You wouldn't find a venture capitalist in the world that would put up a million dollars. If you needed $50 million, they talk to you. They can't take the time to invest $1 million, and that's a problem, and that's what we found at Pebble Beach Ventures, too, that some high tech people would come to us just because they don't need very much money and they can't get the traditional venture capitalists to spend the money.

BW: Can you give me an example?

SHUGART: No, I can't. But I think when we started Seagate, we only had a million and a half dollars of venture capital. That's all we ever got. You couldn't do that today. They'd laugh at you. But then they'd also say, "We can't afford to take the time to evaluate your business plan if all you're looking for is a million and a half dollars."

BW: What do you think you would have done? Ask for more?

SHUGART: No, what you end up doing is going to private sources -- 'sugar daddies' as they call them -- or you go to companies. You know Intel's doing an awful lot of that and I think Microsoft is and some other companies are. You go to companies that are generally in the same field -- very wealthy companies.

BW: You've done a lot of acquisitions of late. Do you think acquisitions are going to become more of an exit strategy for small companies? Do you think the acquisitions are going to rival the IPO as the way things happen out here?

SHUGART: Yeah, I do. What's actually happened, you've seen in the last two years, is that although IPOs have really sprouted, acquisitions have been keeping pace, and I think acquisitions will continue to keep pace with IPOs.

BW: Do you think there's too much IPO hype, and are people missing the point -- that the value is in the established companies. Could you talk a little bit about that?

SHUGART: Well, the difference between an IPO and other ways of getting liquidity in your stock, it seems to me, is that the IPO has nothing as a base except people who want to get rich and make money. In other words, greed. Nothing wrong with greed, I guess. Greed works. But that is really what is behind all IPOs. IPOs: you want to get the securities liquid so that you can cash in and get some money.

With acquisitions, money is part of it, but not all of it. They are also looking more towards the future, longevity, and so forth. That's why I think they go to companies to get bought out, because the companies can supply the continuation of support and infrastructure that these new companies need, and that you don't get just by having an IPO.

BW: You've joked about how you expect to see the day you introduce a [disk] drive in the morning and call for the end of its life at the end of the day. Assuming that it's true and assuming that there is some sort of maturation or some slowing down of the market in terms of product cycles, is that a threat at all to the kind of growth we've seen?

SHUGART: No, in fact, I think it makes life easier if life cycles get a little longer. It means you can make more money off of the investment you made in developing a product if it lasts 11 months instead of 9 months. I think it's a plus for the company. It's not a threat at all.

BW: And it's not taking away the engine of innovation that keeps the whole cycle moving?

SHUGART: No, not at all. As a matter of fact, if you have longer life cycles on the products -- and you have the capability of developing products on a faster schedule -- it would seem to me you'd be able to use that engineering talent to look at some other things. So there'd be other growth available. So I don't look at it as a negative at all.

BW: What's your opinion of the PC slowdown--or the one we were worried about a little bit ago. Just how sustainable is the whole PC engine here for high tech?

SHUGART: We didn't really see a PC slowdown. We saw a lot fewer disk drives in the PC market, but that was our own fault. We screwed up. We had some operational problems. We saw a slowdown in the high-performance area, which are file servers, big workstations, and enterprise-level kinds of storage. We saw a slowdown there. But actually, personal computers didn't look bad at all. It was our own problem. I see that still progressing and also I see the high-performance marketplace coming back. Summer's always slow. But come the September timeframe, I see the whole IT [Information Technology] market coming back as well as the personal computer market even doing better.

I think as long as the economy stays OK, the personal computer industry will do well, assuming that we continue our efforts towards making computers, faster, cheaper, and easier to use.

BW: You've done a lot of startups in your career, and there seem to be a lot of -- we're calling them serial entrepreneurs -- out there. So what do you think the secret is?

SHUGART: I don't know. You have to be an entrepreneur, there's no question about that, but we have a lot of entrepreneurs in our company. You've got to have a mind that you're willing to let be occupied 24 hours-a-day by one thing for quite some time. It takes that kind of entrepreneur. But we have a lot of entrepreneurs in our company. You have to be a leader, and that's something you're born with, you don't learn.

I made that statement a long time ago. Leaders are born. You don't learn that kind of thing. Some are and some aren't.

BW: People talk about the fact that Silicon Valley gives you the right to fail. Maybe that's one of the differences, that you can come back. But what about Apple; whatever they seem to do, doesn't seem to fix the company. So does Silicon Valley really just like a winner?

SHUGART: There's no substitute for being a winner. There's no question about that--although failing, as long as there's a rationale for the failing, isn't a killer deal. Even venture capitalists will look up founders who start companies that fail and say, hey, these people have learned a lot in their failure.

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