Lessons from Nvidia
Plus: a book review of The Nvidia Way by Tae Kim
I have spent the past week on vacation with my family in Lincoln, New Hampshire, followed by a mini-reunion with my three best friends from college and our increasingly large brood of children in Plum Island, Massachusetts. To the extent possible, I try to use vacation time to completely unplug — screen-free with a good book in my hands on the deck or by the pool (with constant interruptions, mostly welcome ones, from the kids). Last trip I read a biography of Mike Krzyzewski by Ian O’Connor. This trip it was The Leadership Lessons of Nick Saban, by John Talty, and The Nvidia Way, by Tae Kim.
As I tend to write my weekly Substack Sunday Morning Post columns about what is on my mind that particular week, I thought today I would discuss the upcoming SEC football slate. Roll tide. Nvidia.
I think if you asked 100 Americans what the most valuable company in the world is, you would get some guesses of Microsoft (#2), Apple (#3), Google (#4), Amazon (#5), and maybe even Tesla (#10) or Walmart (#12). But I don’t think more than one out of fifty people could actually tell you that the largest company in the world by market cap is Nvidia, a company formed 32 years ago with a value of just over $4.4 trillion (yes, trillion, with a “t”). Nvidia outpaces all of those other more familiar blue-chip technology names and retail giants.
Nvidia has been a company on my mind lately even prior to reading The Nvidia Way over this past week. Regular Sunday Morning Post readers will notice I wrote about AI two weeks in a row earlier in this summer, but I have not actually known that much about the company behind so much of the AI surge.
That said, Nvidia is not an AI company itself, but it makes the most valuable and powerful computer chips in the world, ones that are powering the vast majority of AI technology. The first real business-use case for Nvidia in the 1990s was making graphics on video games and on personal computers more three dimensional and visually compelling. Nvidia basically then spent three decades positioning itself at the intersection of gaming, processor design, data analysis, and machine learning. By the time AI broke into the public consciousness with tools like ChatGPT, Nvidia was already years ahead of the curve, with its chips becoming the de facto standard for training large AI models.
In 2016, Nvidia’s data center revenue, which is the part of the business most directly tied to AI, was just $339 million. In the most recent quarter? Over $26 billion. That’s not just growth; that’s a transformation. And it’s not slowing down. Demand for Nvidia’s chips is so intense that some of the world’s biggest companies including Facebook/Meta, Microsoft, and even the Saudi sovereign wealth fund are effectively lining up at Nvidia’s door for a piece of the technology. Even governments are treating Nvidia hardware as a strategic asset, with countries racing to stockpile these devices the way they once stockpiled oil reserves. While competitors like AMD and Intel would love to take a bite out of the Nvidia pie, the Nvidia chips are quite literally shaping the trajectory of technology, commerce, and increasingly, even geopolitics.
When investing, Warren Buffett would talk about a “competition moat.” For example, even if you gave a start-up company unlimited resources for product development, marketing, and distribution, they’re not going to be Coca Cola overnight. As I read about Nvidia, I was wondering how anyone is possibly going to catch them since they’re basically starting the AI chip race three laps ahead of the nearest competitor.
I’m not going to get too bogged down in discussion about the technology in this article because, quite frankly, even after reading The Nvidia Way, I still don’t really understand it. But I did enjoy the book, which is heavily researched and very detailed about the entire history of the business, the industry, and its founders. The writer, Tae Kim, is a former Wall Street equity analyst of Nvidia itself turned journalist, and he does a great job of telling what is basically a 30+ year corporate thriller of CEO Jensen Huang essentially betting the company several times on what he saw as the future of technology from graphic design chips to GPUs to deep learning models on massive data sets. Kim had access to Jensen himself, as well as the other founders, and many other voices inside the company, so it makes for a nice and compelling read with credible storytelling.
I don’t want to give away the whole story because the book is worth reading on its own. But one of my favorite bits: an early job that Nvidia CEO Jensen Huang (colloquially now known as just “Jensen”) had in his youth was as a waiter at Denny’s. In fact, the company was later founded during conversations between Jensen and his two co-founders, Curtis Priem, and Chris Malachowsky, during their conversations in a booth in the East San Jose Denny’s. Jensen is quoted in the book as saying he wanted to be the best waiter and busboy Denny’s had ever seen, and he thinks he probably was. Rather than shirk off the job, he says he used it to learn how to interact with customers, how to stay calm when things went wrong, and how important speed and efficiency were in delivering the product, all traits he would carry with him to Nvidia.
One reason I like the Denny’s story so much is that I, too, worked as a waiter at the Denny’s in Bangor, Maine the summer after graduating high school. Everyone should work in food service, for exactly the reasons Jensen pointed out, and also because it would make restaurant-goers more patient when circumstances are frustrating if they, too, had experience working in the kitchen, among the wait staff, or cleaning up.
The key thing about Nvidia (beyond the technological innovation, of course) is the culture. Although as I say that, you could make a case, for sure, that the innovation is inseparable from the culture as the former would not be borne without the latter. Jensen created a system as Nvidia where excellence was expected and everyone knew their role. Nvidia is an organization where innovation compounds, year after year, by a relentless focus on excellent and intolerance for those who are not team players, who do not work well with others, or who are not willing to give their total effort to the mission.
Other key characteristics of the business that stood out to me from reading the book:
Employees need to be able to accept transparent feedback, and managers and executives need to be willing to provide it. Tolerance of an under-performing team member damages morale and, ultimately, undermines the product and performance of the company.
One reason Jensen has been so successful as a CEO (he is now one of the longest-tenured CEOs in American business) is that he understands the technology and has a razor-sharp business mind. Good leaders may be one or the other — they might understand their industry really well or have great corporate instincts — but great leaders know their product, their industry, and the business side of things.
If your business is not evolving, it is slowly dying. Companies that find themselves with a moat of competition, to use a term noted above, may find the moat gone as technology evolves. Do you remember in the 1990s how everything “had an Intel inside.” That was the marketing line. Well, Intel has basically had their lunch taken by Nvidia over the past decade and is now a company seemingly searching for direction. Jensen’s attitude has always been, “We’re 30 days from going out of business.” Even for the most valuable company in the world worth nearly $5 trillion, this killer mindset of constantly evolving and never becoming complacent is part of what continues to fuel their success.
The best talent wants to work with other talented people doing meaningful work. For a technology company, the loss of talent can mark the beginning of a death spiral. As good engineers leave, it weakens the remaining team and, with it, the products they develop. As the ecosystem weakens further, more talent leaves, thereby fulfilling the spiral. This is true with technology companies, for sure, but the same could be said about almost any company or industry. One of the most important things for executives of a company to be mindful of is how to attract, retain, and maintain the engagement of their talent.
You have to strategically adapt in order to win. An example from the Nvidia story: Nvidia calculated that with the pace of innovation, new, higher powered processing chips were coming to the market, on average, every three years — that is how long the cycle took to develop, test, produce, and ship a new chip. So what Nvidia did was split their production teams into three parts, with the work for the next generation chip already underway by Team #2 while Team #1 was developing the immediate next chip for launch. And, you guessed it, while Teams #1 and #2 were working on their products, Team #3 was already working on the third generation chip. By doing this, Nvidia cut the production timeline down from three years to 12-18 months, essentially beating every other competitor to market. Once chip #1 was hitting the market, the next generation chip was right behind it while others in the industry were just embarking on the next cycle.
I’ll leave the story there for now. I know this Sunday Morning Post article was a little different this week, which is partially because I am in vacation mode. I’ll see you next week for more content and perspective. If you’re interested, please track down The Nvidia Way by Tae Kim at your favorite local bookstore. It’s a good read, even if the tech discussion and jargon does outkick the layperson’s (like me) understanding of how the actual products work. It’s still a very interesting story chock full of great lessons for business and in life. In fact, I have some passages saved to share with my U12 soccer team as we embark upon our season about playing your specific role to the best of your abilities, seeking excellence in the process instead of focusing only on the finished result (the results will come), and how responding to adversity is what makes character, and character is what makes success. They may roll their eyes a bit, but maybe they can take some inspiration from one of the wealthiest and most influential leaders in the world starting out by trying to be the best Denny’s waiter he could be.
Ben Sprague lives and works in Bangor, Maine as a Senior V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com.
Here is the booth in the East San Jose Denny’s with a plaque marking the birthplace of the largest company in the world.
