Xerox had an innovation department that put out some of the tech that we use on a daily basis, but never truly capitalized on it.

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Stephen Semple:
Hey, everyone. We’ve given Dave a week off. He’s been working pretty hard lately. I have with us today my partner and buddy, Gary Bernier. And the reason why I brought Gary on is, for what we’re going to talk about today, Gary has a very, very unique perspective. Because, today, we’re not going to talk about the building of an empire. It’s one of these stories that I keep coming across and it keeps bouncing around in my head. Because there’s a cautionary tale there, but I still think it’s something interesting to talk about. And that is a little bit about Xerox and especially some of the things Xerox did in the technology space. The reason why I wanted Gary in on this is Gary was intimately involved with a number of things that were going on around the space when Xerox was doing some of the things that we’re going to talk about today.

And to put it in perspective, here are a few things that Xerox invented. And I want you to think about how, if they had patented these things and developed it, how different a business Xerox would be today. So here’s a couple of things. The mouse, think about that. Xerox invented the mouse. The thing that we all use every day. The graphical user interface, that whole visual way of how we interact with a computer. Apple didn’t invent that. Microsoft didn’t invent that. Xerox invented that. This whole concept of what you see, what you get, which type of network was it? Was it Token Ring?

Gary Bernier:
Ethernet. They had the first Ethernet network.

Stephen Semple:
The first fricking Ethernet network. Cornerstone stuff of what almost the entire computer industry is built off of was invented by Xerox.

Gary Bernier:
And, Steve, they had one more thing.

Stephen Semple:
Do I need to sit down?

Gary Bernier:
Yeah, you do. It’s called email.

Stephen Semple:
I didn’t know that. One of the things we talk about in the podcast and is this whole idea… And, Gary, you and I have talked about this over the years as well, is this whole idea of getting out of your space, not looking around your industry, all those other things, to innovate? Xerox had part of this right. So what Xerox did is they said, “Okay, sitting in this room amongst all these photocopier people, we can’t innovate as a photocopier business. So what we’re going to do is we’re going to set up this separate lab.” And they called it the Palo Alto Lab. “We’re going to hire a bunch of really smart people. We’re going to stick them over there. And we’re going to let them innovate like crazy because we need to be outside of our environment to innovate.” They got that part right. Look at what they came up with, little things like email. Oh my God, I had no idea about the email one.

Gary Bernier:
They didn’t actually invent email, but they demonstrated email.

Stephen Semple:
They’re the ones that made it work and were working on it. But they invented the most, they invented these other things. So they got that part right. The part that they got wrong was as soon as it moved out of that, as soon as somebody from Xerox, the photocopier company, came in and looked at it, they still ran into the same problem. Because the only lens they could look at it from is, “I don’t see how you could use that on a photocopier.” So what also had to happen is senior management had to get out of those four walls. Innovation has to come from the top.

Gary Bernier:
It definitely has to be supported by the top. Because these guys, like you say, these guys had innovated. They had developed the first computer network and had their own personal computers created. And this is at a time when the personal computer space was a mess.

Stephen Semple:
What year are we talking about?

Gary Bernier:
Well, the easy way for people to remember it is we’re talking Apple II.

Stephen Semple:
Which, again, is early ’90s, isn’t it?

Gary Bernier:
Oh, even earlier than that. No, it’s mid-’80s.

Stephen Semple:
Right, sorry. Apple II, which predates the Mac, right?

Gary Bernier:
Yeah.

Stephen Semple:
Because the Mac was ’88. So sorry, yeah, you’re talking ’84. Yeah, my calendar dyslexia kicked in there.

Gary Bernier:
It’s okay. It’s okay because you let the secret out of the bag, the Mac, the first Mac is what Steve Jobs did with the information he got out of Palo Alto Research Community from Xerox. His getting his tour there is what transformed Apple, and Steve Jobs, and created the Mac. The Mac wouldn’t exist if he hadn’t struck the deal with Xerox. Now, the story goes, oh, he just walked into PARC and he saw all this great stuff. No. No, no, no. He actually traded pre-IPO stock in Apple with the Xerox corporation. He talked them into a deal, he negotiated a deal. They did a money and a stock swap. So for a million bucks, he got these ideas.

Stephen Semple:
I didn’t realize that about the stock swap. So, basically, here’s what happened. So Xerox invents this stuff. Jobs is getting a tour of Palo Alto. And he says, “Hey, I would love to be able to use this idea. Here’s a bunch of pre-IPO. Here’s a bunch of-“

Gary Bernier:
Oh, no, no, no, no, no, no.

Stephen Semple:
No?

Gary Bernier:
No.

Stephen Semple:
Okay.

Gary Bernier:
No. He spent the money before he got the tour. They didn’t let him into the henhouse until the deal was struck. He knew that there was something there to figure out because Xerox had done all this great stuff. And, again, the computer industry was tiny at that point in time. So he was like, “Oh, I got to get in there. I got to see what these guys are up to. I got to have an idea of what’s going on inside this organization. I got to see this stuff that they’re doing.” Because, again, the computer industry is big today. It was tiny back then. The engineers all hung out. They still hang out today, but it’s just-

Stephen Semple:
It’s different.

Gary Bernier:
Yeah, there’s a lot more of them in Silicon Valley than there was back then.

Stephen Semple:
Right. This is back in the days when Hewlett and Packard were still doing shit in their garage.

Gary Bernier:
Yeah.

Stephen Semple:
Well, maybe they had moved out of the garage by then, but not that long before, they were still in the garage doing printers, right?

Gary Bernier:
This is the infancy of personal computers. The IBM PC had not come out yet. It did not exist in the world, right?

Stephen Semple:
Right, yes.

Gary Bernier:
The world of personal computers was tiny. He wanted to see what the big boys were doing. And so, yeah, he made a deal.

Stephen Semple:
So he makes this deal with Xerox. If Xerox had held onto that stock through to today, they would’ve done really, really well with this deal.

Gary Bernier:
They’ve probably done well with the stock, if they held it because, yes, it was original shares in Apple.

Stephen Semple:
Original shares in Apple. But the interesting thing is, when we look at Xerox as a company, if Xerox had been able to figure out how to really monetize these ideas, Xerox, look, Xerox would be the most valuable company probably in the world, not Microsoft or Apple.

Gary Bernier:
I can tell you, in my years of computer distribution, we never sold a Xerox Ethernet card. We probably sold 50 brands of Ethernet cards, but none of them were labeled Xerox. So here they are with the first Ethernet network. And when IBM PCs and networking first evolved, they weren’t part of it. Like you say, they had the pieces, they just abandoned it. They didn’t capitalize on it, which is crazy.

Stephen Semple:
So when we think about the book that you and I have been collaborating on, which is going to be coming out soon, the Five Silver Bullets and one of those things is innovation. And how important innovation is to building an empire. If you want to go from small to big, innovation is a big deal. So the interesting thing is there’s a lesson to learn from Xerox and there’s a cautionary tale. So the lesson is, yes, get out of your environment, and go somewhere else. Either set something over here and let people innovate, or be like Schultz and learn something in Italy about coffee or whatever. But it’s that whole get out of your environment to innovate. Xerox did that very well and ended up with some massive innovation.

But if we’re really talking about building an empire, you have to be able to capitalize on that innovation. So what are the mistakes that you think Xerox made that prevented them from being able to capitalize on it? Because here’s the interesting thing, Gary, you had some interesting insight on it. Because, at that very same time, you also had Jobs leaving Apple and doing the next stuff. And I know you were in some interesting meetings with Jobs and a small group of people, and he was trying to recruit folks to NeXT, where they really took that idea to the next level. And then he came back to Apple, and that’s really when the Macintosh happened. Because NeXT was pre-Macintosh, wasn’t it?

Gary Bernier:
I look at it as phase one, phase two of Apple. Phase one, where Jobs was there. And you’ve done the podcast on the commercial. So the launch of the Mac, that was Steve Jobs. So he launches the Mac. It’s after that that the company starts to get really big. And that’s when he gets ousted and they bring in John Sculley, and he forms NeXT. And, again, he gets to do what he wants. And, yeah, when I got to see what he was doing at NeXT, he truly had a WYSIWYG interface built on top of a Unix platform and everything else. It was like, “Oh my God, can I get ahold of this?” And the problem was he would only sell it to educational customers at the time. NeXT was only selling to education. And it’s when he also started up the animation company, and he started providing all the computers for the animation company, so you could see where he was going at that time.

Then when he got hired back at Apple, it was like, “Oh, I know what’s going to happen is the next operating system that he developed under that company.” That’s what became the new macOS. The one we’re running today is based on the work he did at NeXT. You could just see it at the time. It’s like, “Oh my God, I want this so bad. It’s amazing. It does things that nothing else can do.” So, yes, he was on that leading edge again. And as a geek, you’re like, “I want this, I want this.” And it took him going back to Apple, and creating what I’ll call the next version of the Mac, which was the Unix-based operating system, macOS that we use today.

Stephen Semple:
So there are two things I want to go back and just deconstruct before you move on. So for a lot of people, we don’t understand what WYSIWYG is, so it’s what you see is what you will get. Now, what people forget, you’ve got to be old like me, to remember the days-

Gary Bernier:
Or me.

Stephen Semple:
Or you. I was trying to be nice. You have to be old like me, old like us, to remember the days when you would type something out on Word and you would print it and it would look different off the printer. And then you’d have to reformat things on the page and print it, and reformat things on the page and print it until you could finally get it printed on the piece of paper the way you wanted it to look. So this whole idea of, oh, how it looks on your screen and how it looks on the printer rocked your world. It was like, “Oh my God, my life just became so much easier.”

Gary Bernier:
And that’s one of those things that Steve Jobs had in that NeXT operating system was the first true what you see is what you get. He had taken the technology that’s called PostScript. Most people don’t even have to worry about this, but any designer in the world knows exactly what I’m talking about because everything’s done in the PostScript language. But that’s what gave you those scalable, beautiful fonts. This was the mid-’90s when he was demonstrating this stuff. And like you say, nothing else came close.

Stephen Semple:
And fonts were so important to Jobs. We forget that, in university, he left computer programming and he did a course in calligraphy. That’s how much he believed and loved fonts and things like that. But another thing I want to… When you talked about it being a small environment, I remember you also sharing with me a story about when Jobs was at NeXT and doing a presentation, and you were in the room, and he did the recruiting thing. There was, what? You and 20 people in the room or something like that?

Gary Bernier:
It was a small group. I think it was a little bit bigger.

Stephen Semple:
But imagine this, being in a room with less than 50 people, and him going, “Oh, and by the way, if you want a job at NeXT, come see me after this presentation.”

Gary Bernier:
Yeah, come on down.

Stephen Semple:
Come on down and give me your business card and let’s talk. This tells you the size and the intimacy of the computer industry at that time, that a guy like Jobs, at the end of a presentation says, “I’m looking for people to work for me.” Not, “Come see my people.” “Come see me.”

Gary Bernier:
The part that I remember most about that presentation was actually the Q&A; because to me it was hilarious. Because Steve wanted to answer any questions you had. You’re in that intimate setting with a few geeks and we’re asking questions. He would have to look at the lawyers in the front row. And there were all of us in jeans and t-shirts, and these five guys in suits. And he would look down at them, and if they nodded their heads, he would answer the question. That’s how the Q&A went at the time, was he brought the lawyers with him so he wouldn’t give away any trade secrets. Now, you just contrast that with what went on at PARC, and it’s like how quickly things change to the protectionism that we see in today’s computer marketplace.

Stephen Semple:
So there’s the success Xerox gets in terms of creating these things, but there’s the inability to capitalize on it. What can we learn from that, Gary? Because if somebody’s going to want to build an empire, they’ve got to do those two pieces. So what can we learn?

Gary Bernier:
The one thing that struck me as we were retelling the story was that what didn’t exist at the time of PARC was actually the S-curve. So the S-curve of innovation came after that in terms of a piece of science.

Stephen Semple:
Oh, in terms of people really understanding that.

Gary Bernier:
Understanding when innovation takes off. The hard part of innovation is, when you’re at the beginning, how much work you have to do to get that innovation adopted. And everybody underestimates that first part of the S-curve until it starts trending up and becoming popular.

Stephen Semple:
Right, so the idea behind the S-curve, and was popularized by Everett Rogers in the book called The Diffusion of Innovation, which was published in 1995. So you’re right, we’re talking a decade later. 1995 is when he published that work for the first time.

The idea of the S-curve is this, the amount of time it takes to go from zero to 12 and a half, or 15%, depends on whose study you look at. Let’s call it 15, it’s a nicer number. The amount of time it takes to go from zero to 15% of market potential is the same amount of time it takes to go from 15% to 80%. And then the same amount of time to go from 80% to saturation. So the reason why they call it an S-curve is you think about drawing that line, flat, flat, flat, flat, flat. A little bit of incline hits that 15%, and goes vertical. Hits that 80% and goes flat again. And if you actually draw it, it looks like an S that’s been tipped on the side. So there are two things that people underestimate. One is the effort to get to the 15%, but also what happens following that.

Gary Bernier:
The explosion, the growth that happens.

Stephen Semple:
The explosion, yes. That’s one of the mistakes that people were making at the time was underestimating how much work it gets to get the innovation out there. And then, also, underestimating that when it gets out there and gets adopted, how explosive it is. So it’s those two things, okay.

Gary Bernier:
You’ve got that computer market that was really hobbyists and enthusiasts at the beginning of the innovation. It grew, grew, grew, grew, grew. Because, okay, there were some business applications and some small businesses started using it, but there was no standard. And it would be interesting to go back and plot the IBM PC and its introduction into the market space.

Stephen Semple:
It follows it almost perfectly. Smartphones follow it, cell phones follow it, and all of this stuff follows it unbelievably well. So that’s the first thing. What’s another mistake do you think that Xerox made?

Gary Bernier:
I think the big mistake that they made is they had the research and development department and, obviously, it was successful. What they didn’t have was the business development piece that would tack onto that, that would turn that into a viable product, that they would take to market. They could take it from concept to viable product to market. And market it from PARC, or from some new brand, or whatever they wanted to do. But as you said, big brother, Xerox looks at PARC and goes, “Ah, I don’t know if I want to do anything with this because it doesn’t fit.” They actually needed to create something to bring those concepts to market because they didn’t fit. That would be my-

Stephen Semple:
Right, so it’s almost like what they needed to have is either a champion at a very senior level inside Xerox to push these ideas forward or just like this whole idea of I’ve done this separate thing over here. I need to allow those people to create a go-to-market strategy. Now, what I think, for our customers, for the small and mid-size owner-operated businesses, this speaks to why the owner needs to actually be the person who gets out of the office and drives. Now, it’s not that you need to create all the innovation ideas, but you need to be part of that innovation process.

Gary Bernier:
You need to champion the innovation. And a lot of times, what we’re talking about in innovation is your customer experience. We want you to create the best customer experience, a unique customer experience. We think about Rick at Noble when you open that door, and you go from the outside parking lot, actually into the forest. That’s innovative and different and shocking. People think of innovation as big leaps, and they don’t necessarily have to be big leaps. It just has to be very different from what your competition is doing, that improves your customer experience, or their experience with your product, or the acceptability of your product in the marketplace. You figured out some marketing concepts that are innovative for your space because nobody else is marketing that way.

Stephen Semple:
That’s really interesting what you’re saying. I’m now thinking back to… Because what? We’re at around 135 podcasts that have been done. And if I think about the aha moments in them, where something’s happened, in fact, that aha moment has been championed by the owner almost every time.

Gary Bernier:
Ford and the pig farm.

Stephen Semple:
Yeah, but you see the Ford with the pig farm is an interesting one. It was somebody from Ford who observed him and brought it to him. But he was the one who said, “Go out there and find new ways to do it and bring it to me.” It wasn’t that they were bringing him an idea that he wasn’t open to. So in other words, I guess what I’m saying is, you can’t delegate it. This is one of the things you can’t delegate. And, in fact, the organization is probably going to resist it. You can’t delegate it. And you must champion it. The innovation has to come from the top.

Gary Bernier:
The enemy of innovation is, “That’s the way we’ve always done it.”

Stephen Semple:
And there’s actually, to me, three enemies. That’s the first one. The second one is, “Show me somebody else in our space who’s doing it.” Well, guess what? It’s not super innovative if somebody in your space is already doing it. It’s like one of my favorite things I love to say to people, leaders, and leaders. Best practices are stolen from the leaders. Leaders lead.

But the third one is there’s also an operational challenge, in that, when we do innovative things, your sales team gets really excited about it. Because, guess what? Innovative ideas are going to make the sales team’s job easier. Operations get resistant to it. Because, guess what? Innovation makes the operations job harder. And when we get growth, who gets rewarded? The sales team. Who doesn’t get rewarded? The operations team. Now, the operations team will never say, “Hey, I don’t…” They’ll always be like, “Hey, we’re all for this growth thing.” But they will be the ones who will point out, “This innovation is a lot of work.” And what we’ve got to honor them with, “Yes, it is a lot of work. And guess what? When you execute on this thing, you, too, are at the bonus table.” Because we don’t invite them to the bonus table.

One of the things you and I often love talking about is teamwork. And most organizations don’t have teams. Because I’m a big hockey fan, and when you win the Stanley Cup, if you are a player in the Stanley Cup, even if you played a little minor role, you were the fourth liner who put in two minutes a game. Guess what? Your name is on the cup. Everyone’s name goes on the cup.

Gary Bernier:
I had that exact conversation with a client this week because they’re opening a new retail store. And they gathered the team together, and they said, “Okay, tell us what we need to do to make this happen from your department, your perspective, and everything?” And so I said to them, I said, “Yeah, right now, you have the opportunity to engage the whole company as a team in opening up this new store.” Now, your regular day-to-day business, you don’t have that opportunity because you’re all working as work groups and stuff. So, yeah, you have to take advantage of those moments when you can actually bond the organization together to work as a team. And if you were trying to roll out one of these innovative ideas, like you were talking about, that would be precisely the time to do it.

Stephen Semple:
So here’s the big lesson, and then we’re going to sign off here because this is the brilliant thing. This is the thing I want people to take home with them or apply in their business. So you’ve heard me say in the past when you’re outside your environment and you’re looking for innovation, instead of looking at going, “Hey, I can’t do that because I’m a plumber,” and this is something Disney’s done. You have to reframe the question to, “How can I do that, given I’m a plumber?” But here’s the operations one. We go to operations and we go, “What do you think of this idea?” Don’t go saying what you think of this idea. Not only, “What do you need to make this work?” That’s a brilliant question. Because, now, you’re putting them in the future. It’s happening.

And, now, you’re also saying, “I’m going to honor you, recognizing you’re going to need new tools. What do you need to make this work? What do you need?” That’s always going to be a bit of negotiation. But it starts the process of conversation, of implementation, and honoring the fact that, yes, this is going to require more out of them. I love it. That’s the takeaway. Ask your operations people, “What do you need to make this work?”

Gary Bernier:
Absolutely. That’s how to engage your operations team. And, again, your framing of how, given I’m not a, how can I apply this to my business, is excellent framing. And I’ve seen you do that with people over and over again. So that’s the framing for the owner. And then you also give the bonus framing, which is how to engage the operations team right off the bat. The bad question is, “What do you think of this?” Never ask it that way. “What would you need to make this happen?” Is so much better.

Stephen Semple:
Yeah, and one of the things you may discover is, that you’re not going to be able to make it happen because it’s more complex than you thought. Or you might discover it’s easier. You don’t know. But honor them. But that gets them engaged. And here’s the other part, they’re now feeling like they’re part of the process.

Gary Bernier:
Well, and, Steve, the last tip on the operations people is version one, two, three that we always talk about. Version one is a minimally viable product. This is a concept, again, from the technology industry. You just want to get version one of this thing done. You don’t want it to be the Cadillac with all the bells and whistles. You just want it to be functional to prove the concept, the idea, works.

Stephen Semple:
Yeah, and be okay with the fact there’s going to be errors and things mixed and whatnot. Yeah, awesome. I think these are things that are going to really help people with innovation because it’s one of the five elements that’s really, really required to turn a business into an empire. And, yes, Gary and I have a book coming out very, very soon called Five Silver Bullets, so watch for that soon. In fact, by the time this podcast publishes, it might already be out there. It’s that close.

Gary Bernier:
It better be out there.

Stephen Semple:
Yeah, it’s with the publisher right now. We’re really excited. Thanks, everyone.

Gary Bernier:
Thanks.

Dave Young:
Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app, and leave us a big, fat, juicy five-star rating and review. And if you have any questions about this or any other podcast episode, email to questions@the empirebuilderspodcast.com.

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