How has National Instruments (NI) grown from an organisation run by three engineers to a company with 6,600 employees worldwide? What are the basic foundations that the founder of National Instruments laid that have enabled the organisation to grow into a billion dollar enterprise?
Those were some of the questions that drove Rahul Chopra to talk to Dr James Truchard, founder, president and CEO of NI.
Q. What motivated you to start NI?
A. Autonomy was the main idea. I was in Austin and working at the University of Texas. I had just finished my Ph.D and was working in a research lab. I wanted to stay in Austin as I loved the place, so I wanted to create a job that I liked. I realised that to achieve these goals I would have to create a good business.
Plus, I constantly saw a lot of students being forced to leave the city due to limited career options in the region. I wanted to create a company where people didn’t have to leave to grow, because they had a career path. So that was one of the fundamental goals as well. To this day, that goal remains key to NI and that’s why we put a lot of importance on professional growth.
Q. How were the initial times? What were the challenges faced? Any learning that you’d like to share?
A. I worked pretty hard while I was also working on a full-time job so that we could self finance. That’s very difficult to do unless you are in a university environment but Jeff (Kodosky), Bill (Nowlin) and I were able to do this. We self financed the business. As for the initial challenges, obviously the key was for us to pick the right product that we could sell and work on, given our background and circumstances. We did that with our instrument interfaces. What we learned is what we summarised early on through our 100-year plan.
Q. In these days of frequent economic turbulences, NI has a 100-year plan! What’s this plan about?
A. Right from the start in the 70s, we always looked at other companies and their culture, and how they operated, to pick up good ideas. It was not until we were to go public that I realised that putting our philosophy down on paper would be helpful when talking to shareholders. So in 1995, I came out with the 100-year plan, which was aimed to frame how we will make decisions.
At the 100-year level, we set the frame for our role in the society. We talk about our philosophy of operations and how it is designed to benefit all the stakeholders.
Then if you look at the next (decade) level, you have the vision of what you are trying to do as a company. When we started, we had a pretty simple vision for creating jobs that we would enjoy and to self-finance the company. It was also the concept of automation of instrumentation that we started, then we went into the vision of what we wanted to do for virtual instrumentation. Vision for us is really a decade timeline.
The next level is the five year time-line, which gets topical, like alternative energy which is important. This term is where we start looking at how fast we can grow in the next five years and so forth.
Then at the one-year level, we look at our goals for the current year, our budgets and so forth.
The overall idea is that we should always look at the long term when we make decisions, and look at the time-line to know when these decisions need to be made and executed.
Q. Any major mistakes made that provided learnings that helped NI grow?
A. One of the most important areas for a vision driven company to focus on, are the platforms that you create, since the software and hardware has to be highly integrated. If you get that strategy wrong, you end up with products that are not that good or don’t fit the platform well. In the mid-90s, for example, we approached industrial automation in a way that didn’t really fit the platform so we also had some forays into products that while they looked similar they were really not vision-aligned.
Also, during the initial phase of NI, we did take on some special projects that, with time, we migrated away from. They helped us fund at that time but they also created distractions. So I always say to follow the vision and execute it well. If we did that well, we did well and if we didn’t do that well then we didn’t do well. Fortunately, we didn’t have too many cases of ‘major’ poor decisions. Overall, we made a lot of good decisions but there were some areas where we didn’t, and these were typically where we didn’t follow the vision as tightly as we needed to, and that compromised the growth of the company.
Q. Typically, entrepreneurs find it difficult to change their role as the organisation evolves. How did you manage this transition?
A. That’s an important aspect, and a very tough thing to do. Your style has to change. As a start-up entrepreneur you have to be aware of all the elements and perhaps the partners who are helping you in that process—whether finance, technical or sales. As the company grows, you have to start delegating. For every challenge, my style has been to figure out one of the officers from the company and then delegate the role. I started with the simplest things to delegate and gradually delegated the more complex roles. The hardest of all, to delegate, is the core strategy and vision.
A basic thumb-rule could be that when you get about 70 people, you have to start working on delegation. When you get to 300 you have to have more formal structure in place, and when you get to 1000 you really have to have a very well formed management structure for each of the functions in place.
I, for one, delegated things after having figured out how to get things done in those departments or functions. So some of the things I delegated quickly included manufacturing, accounts, and sales and marketing.
I still, from time-to-time, look at the specific elements of products but, more and more, I am now building a team that really understands the vision and key architectures at the top. We actually have a routine meeting of the architects and the visionaries of the company to see whether we are building the products in keeping with the vision that we have.
Q. How do you define your current role now? What are the things you focus on and which aspects have you delegated?
A. Internally, I work on driving the vision. Plus, I regularly meet my key executives to look at the product strategy, specific products and how things are shaping up with respect to our vision. So, I am still very hands-on in that process.
I believe the success of a company depends on the leadership driving the vision. For example, we recently introduced our vector signal transceiver, and I spent a great deal of time in the process of getting it to align with our vision of what we are trying to do with FPGAs, multi-core and ensure that we deliver a truly visionary product in the marketplace.
Q. After talking to folks at NI, I get the sense that you are involved in quite a few projects and you connect with people across the levels. But somehow, it seems that there is a positive spin to it, nobody looks at it as micro managing. How do you manage that?
A. Well, it starts with the vision. So, it’s coaching about the vision and how you’re working and getting folks to understand that. So, you’re not making the decisions, you’re being more of a coach and making sure they know what the vision is all about and what is important in what they are working on.
Q. How do you manage the HR side of business?
A. I do spend quite a bit of time recruiting, all the way to giving the vision presentation to young graduates.
When it comes to recruits, there are two popular techniques: the stone wall and the brick wall. In the stone wall technique, you try to match the skill and talents with the job of the person. So when you put together stones of different sizes and different shapes and they fit, you get this brilliant wall. The other one is where you try to find people who can match the requirements of a position.
I prefer the stone wall technique—when I look at someone, I look at his strengths and talents and then I complement them over time.
Q. How do you complement people over time w.r.t. their talents?
A. Well, I can list some very brilliant people who have communication issues. They may say something in a manner that might confuse their subordinates. So you have to complement them with people who can communicate well. Similarly, you find folks that are really good at implementation but don’t want to work on the big picture view, so you need to find somebody who matches that profile. Overall, you have to keep looking for the right pieces to fit in the puzzle.
Q. Right now, a lot of people pit discipline vs creativity. What is more important to you, as an entrepreneur?
A. We aim to reach a balance between the two—a sort of harmonious relationship between the two attributes. We hire based on both of them. Obviously, there has to be creativity to define a unique opportunity but without discipline it is of no use.
Q. NI has been a debt-free company throughout your tenure. So, what has your fiscal management policy been?
A. Well, this area, again, is something my background, coming off of the farm, helped me a lot. I’m fairly conservative, financially. When you experience success in terms of growth, you tend to do stuff like hiring too many people to do a job. You need to clearly understand the role of ‘profit’ for a growing organisation. If you are not clear about that–you can make a lot of wrong decisions.
Also, understanding how not to over-commit, which is a very, very easy thing to do.
Q. Did you ever set a benchmark as to what the profits should be?
A. In 1987, based on our prior years, we started with what we wanted to grow into in terms of profit and it was basically 20 per cent growth and 18 per cent profit before taxes. The 18 per cent number was a number which we needed to earn so that we wouldn’t have to take money from someone else. Because, when you take money from someone else, they start telling you what to do and when someone else is telling you what to do, then you are not really autonomous. The 20 per cent was based on the fact that we wanted to create a career path for people and if you grow less than 20 per cent, especially in India where market factors dominate, you do not create a career path for the people who you want to be joining your company.
Q. Do you also define what percentage of the profits should get reinvested into the organisation’s future expansion and R&D? If yes, can you share the formula?
A. We target 16 per cent of our revenue to be invested into R&D – 8 per cent to maintain our existing products and 8 per cent for new product development. We also target 36 per cent of our revenue for sales and marketing, and 6 per cent of revenue for general and administrative functions.
Q. What is the secret behind maintaining a continued growth over the years?
A. NI has a strong track record of sustainable growth and profitability because we are managed for the long term. We believe the fundamental drivers of our long-term sustained growth have been new product R&D and a strong sales force. Over the last few years, we invested aggressively in innovation through research and development, with the output being new products that build on our highly differentiated platform. Similarly, with our strategic investments in developing a strong sales force, we are positioned to help our customers find ways to lower their costs, improve their productivity and help them bring their own innovative products to the market quickly.
Q. How important is India for you, as a market?
A. NI IndRA (India, Russia and Arabia) represents one of the company’s fastest growing regions, and we are excited about the significant outcome of NI’s strategic and long-term R&D investment in India. As India’s influence on the global marketplace grows, the NI India team collaborates with hundreds of customers in universities, SMEs and multinational corporations to nurture local innovation and accelerate productivity.