William Hewlett

• The Bottom Line: William Hewlett, co-founder of Hewlett-Packard, pioneered a management philosophy known as the 'HP Way,' which serves as a powerful, real-world blueprint for value investors seeking companies with extraordinary management and a durable, culture-based competitive advantage.
• Key Takeaways:
• Who he was: An engineer and entrepreneur who, with David Packard, built one of Silicon Valley's foundational companies, not just by making great products, but by creating a revolutionary corporate culture.
• Why he matters: The “HP Way” provides a qualitative checklist for identifying the very traits warren_buffett seeks in management: integrity, a long-term focus, and a deep understanding of what creates lasting business value. It's a masterclass in building a cultural moat.
• How to use his principles: Investors can use the tenets of the HP Way—such as respect for individuals, a focus on innovation over marketing, and decentralized decision-making—to analyze a company's leadership and culture, helping to distinguish truly great businesses from merely good ones.

Imagine two young engineers, Bill Hewlett and Dave Packard, starting a business in a Palo Alto garage in 1939. It's the quintessential Silicon Valley startup story, but with a crucial difference. While many founders dream of a quick exit or a flashy product launch, Hewlett and Packard were dreaming of something far more profound: building a company that would last. They weren't just building electronics; they were building an ecosystem, a philosophy, a way of doing business. This philosophy became known as the HP Way. Think of a business as a garden. A short-term, speculative manager is like a house flipper who throws down some cheap turf for curb appeal, hoping to sell quickly before the weeds take over. William Hewlett was a master gardener. He understood that to grow something strong and enduring, you must first enrich the soil. For HP, the “soil” was its culture. The HP Way was a set of principles focused on cultivating this soil: trust in employees, a commitment to technical contribution, and a long-term view that prioritized sustainable growth over short-term profits. Hewlett believed that if you hire good people, give them the tools and freedom they need, and treat them with respect, they will naturally do amazing work. This seems like common sense today, but in the hierarchical, top-down corporate world of the mid-20th century, it was revolutionary. It was a belief that the company's greatest asset wasn't its patents or its factories, but the collective creativity and dedication of its people.

“Men and women want to do a good job, a creative job, and if they are provided the proper environment, they will do so.” - William Hewlett

For the value investor, Hewlett is not just a historical figure. He is an archetype. He represents the kind of founder-manager whose principles create enormous, long-term shareholder value. Understanding his approach gives you a mental model for identifying the often-invisible cultural assets that underpin the world's most successful and durable companies.

A value investor's job is to buy wonderful businesses at fair prices. The “wonderful business” part is where William Hewlett's legacy becomes an indispensable tool. Financial statements can tell you about a company's past performance, but a Hewlett-esque culture can tell you about its future resilience and potential.

• The Ultimate Litmus Test for Management Quality: Warren Buffett famously looks for three things in a manager: intelligence, energy, and integrity. The HP Way is a practical manifestation of all three. It's a management framework built on the integrity of trusting your people, the intelligence to focus on long-term value creation, and the energy to foster a culture of constant innovation. When you read a CEO's annual letter, ask yourself: “Does this sound like William Hewlett, or does it sound like a Wall Street analyst?” The answer is incredibly revealing about the quality of management.
• The Architect of a Cultural Moat: A moat is a company's defense against competitors. While patents, brands, and network effects are common moats, a strong and unique corporate culture can be the most durable of all. It's almost impossible for a competitor to copy. The HP Way created a culture where the best engineers wanted to work, felt empowered to innovate, and were intensely loyal. This created a self-reinforcing cycle of talent, innovation, and market leadership. This “cultural moat” is a primary source of long-term intrinsic value.
• A Masterclass in Rational Capital Allocation: The HP Way prioritized long-term investment in research and development (R&D) over meeting quarterly earnings expectations. Hewlett understood that spending money to develop the next breakthrough product was a far better use of capital than financial engineering designed to temporarily boost the stock price. This is the essence of intelligent capital_allocation. A management team that thinks like Hewlett sees shareholder capital as a precious resource to be reinvested into strengthening the business's core for decades to come.
• The Embodiment of a Rational, Owner-Oriented Mindset: Hewlett and Packard ran the company as if they were going to own it forever—which, for a long time, they did. They made decisions that were best for the business in the long run, not what was best for their stock options in the short run. This owner-oriented mindset is precisely what value investors seek, as it aligns management's interests directly with those of long-term shareholders.

You can't meet William Hewlett, but you can use his philosophy as a lens to scrutinize the companies you consider for investment. It requires moving beyond the numbers and becoming a “business analyst,” not just a “stock analyst.”

When researching a company, go through these steps inspired by the HP Way.

1. 1. Scrutinize Management's Language and Philosophy:
   • Action: Read the last 5-10 years of shareholder letters. Watch interviews with the CEO. Listen to earnings calls.
   • What to look for: Do they talk obsessively about their people, customers, and product innovation (the “soil”)? Or is the focus entirely on financial metrics, beating “the Street's” estimates, and share price performance (the “curb appeal”)? Hewlett-esque leaders talk like business owners building something for the next generation.
2. 2. Assess Employee-Centricity:
   • Action: Look at objective data where possible. Check employee turnover rates for their industry. Read reviews on sites like Glassdoor, but with a critical eye for patterns rather than individual complaints.
   • What to look for: Does the company promote from within? Does it invest in training? Is it consistently ranked as a “Best Place to Work?” Companies that treat employees as valuable assets, not disposable expenses, are cultivating a Hewlett-style cultural moat.
3. 3. Evaluate the Innovation Engine:
   • Action: Analyze the company's R&D spending as a percentage of sales over time and compare it to competitors. More importantly, what is the output of that R&D? Are they launching truly new products or just making incremental tweaks?
   • What to look for: A company following the HP Way is driven by engineering and problem-solving, not by marketing. Their products create markets rather than just chasing them. They are willing to make long-term bets on new technologies, even if it depresses profits in the short term.
4. 4. Look for Decentralization and Trust:
   • Action: This is more difficult to assess from the outside, but you can find clues. Read business articles and case studies about the company's structure.
   • What to look for: Does the company operate as a rigid, top-down hierarchy, or does it empower individual divisions and team leaders to make their own decisions? The HP Way championed “management by walking around”—a decentralized approach where leaders stay connected to the front lines and trust their teams to execute. This structure fosters speed, accountability, and innovation.

The most powerful example of the Hewlett philosophy is Hewlett-Packard itself. Its history provides a perfect case study in both the immense value created by the HP Way and the tragic value destruction that occurs when it's abandoned.

The Investor Takeaway: An investor in the 1970s who analyzed HP using this qualitative lens would have seen a company with an almost unbreachable moat built on culture and innovation. An investor in the early 2000s, applying the same lens, would have seen that the moat was being filled in. The financials hadn't necessarily collapsed yet, but the “soil” was becoming toxic. The decay of the HP Way was a massive leading indicator of the poor business performance that followed. This demonstrates that analyzing a company's culture isn't a “soft” skill; it's a critical component of risk management and assessing long-term viability.

• Focus on a Durable Moat: It helps you identify one of the most powerful and hard-to-replicate competitive advantages: a superior corporate culture.
• Excellent Filter for Management: It provides a clear framework for judging the quality and long-term orientation of a company's leadership team, helping you avoid managers who are simply looking to cash in.
• Forward-Looking: While financial metrics are backward-looking, a cultural analysis can provide insights into a company's future potential and resilience.
• Enhances Margin of Safety: Investing in a company with a strong, Hewlett-esque culture adds a qualitative layer of margin_of_safety. Such companies are more likely to navigate tough times and emerge stronger.

• Subjectivity: Unlike a P/E ratio, a company's culture cannot be precisely calculated. It requires judgment, and an investor's assessment can be wrong.
• Difficult to Assess from the Outside: As an individual investor, you have limited access to the inner workings of a company. You must rely on public statements, employee reviews, and media reports, which can be incomplete or biased.
• Culture is Not Static: A great culture built over 50 years can be dismantled in just a few years by the wrong leadership, as the HP example shows. It requires continuous monitoring.
• Can Overlook Turnarounds: This lens favors established, high-quality companies. It might cause an investor to dismiss a company with a currently poor culture that is a potential turnaround candidate under new, excellent management.

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