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SanDisk's Harari: Expensive Mistakes Become Pearls of Wisdom

October 2006

STANFORD GRADUATE SCHOOL OF BUSINESS—After Eli Harari earned a PhD in solid state sciences at Princeton University, he tried to invent something for a ready and robust market: the 26 million people in the United States who enjoy fishing. His efforts did not fly.

"Fortunately, my wife set me straight," the flash memory magnate told amused GSB students at the student-run View from the Top speech on October 26. Harari is an international expert and early developer of flash memory technology and the founder, president, and CEO of SanDisk, the top supplier of flash memory data storage products used in MP3 players, digital cameras, mobile phones, and handhelds.

"How many people on the earth know what you know about physics and semi-conductors?" asked his wife after several failed attempts at inventing a newfangled, retractable fishing rod.

"Maybe 100," Harari admitted.

"Why don't you focus on your core competency?!" she urged.

Focusing on one thing and doing it well turned out to be critical wisdom that influenced the trajectory of Harari's career. He would learn the lesson more than once.

With his exceptional appreciation of the inviolate laws of physics, Harari helped to usher in flash memory technology long before early adopters, industry giants, and prominent venture capitalists were on board. His recognition of the physical principles at work in flash technology—similar to those in space radiation technology—helped fuel Harari's drive to see it through to commercial success.

Originally from Israel, Harari came to the United States in 1969 with a fellowship to do research. He had $1,000 in his pocket.

"It was a golden era—1969—the year that Neil Armstrong touched the moon," said the sanguine CEO. "It was the golden age of microelectronics and space travel; a very exciting time!"

"Stick to your convictions, no matter how painful" was the bottom-line of Harari's talk and a prominent theme of his story. Turning down VC funding and walking away from lucrative partnerships when they were tied to conditions that conflicted with what he knew to be true were among the challenges.

Harari's first job was with Hughes Aircraft where he was able to work on anything he wanted. But, because it was government funded, he was prevented from commercializing his discoveries. He left and went to Intel.

"Their spirit was incredible," said Harari about the chiefs of that legendary company, Gordon Moore, Bob Noyce, and Andy Grove. But as Intel grew to 20,000 employees, it would not invest in Harari's technology.

Harari left and founded his first company, WSI, where he learned how to run a business the hard way: by how not to run one. Mistakes included out-of-control spending and an out-of-sync board. The company was also trying to do too many things, Harari reflected.

"You do one thing and you do it well. If your chances of success are one in ten, you don't double your chances of success by doing two things. You reduce your chances of success."

The board of directors insisted that Harari—though an excellent technologist—put someone else at the helm to run the business. Eventually, Harari was fired.

"I was 43 and I had to start over again. But I'm challenged by adversity. It was those mistakes that have come in very handy," Harari said. "Mistakes are very valuable. If you are pushing the envelope, you will make mistakes."

"I've learned you need to have very good people who share your strategy and your goals." Harari picked a highly successful team of three to found and run SanDisk. They have remained with the company for 18 years.

Even in the early days of—when a megabyte of memory was $50 rather than 2 cents—SanDisk beat Intel and IBM. But ushering in a new technology was tough. Harari learned with many other CEOs that after early adopters provide hope that an industry will take off, growth comes to a standstill.

"'When you're deep in a hole, stop digging and start climbing' was very good advice," said Harari of those early struggling stages.

It was the internet that changed life for digital cameras and—more important to Harari—for the tiny removable memory card business, the stuff of flash.

"I didn't have the internet in my business plan!" said Harari. It was a welcome force behind SanDisk's success. Partnerships, particularly the one SanDisk has with Toshiba, have flowered and the two now share a $15 billion market.

Harari listed other lessons: Be honest. Don't lie. Take calculated risks. Fix things when they need fixing. And "the harder you work, the luckier you get!"

"You are in a golden era," Harari told the students. The stakes are high. A new multi-billion-dollar market is opening up. "The world is becoming very complex and brutally competitive," said Harari.

The time is ripe for business models that can handle that complexity and competition.

"You were born at the right time, and you're in the right place!"

—Karen O'Leary