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The Ultimate Entrepreneur: Jim Goodnight, SAS

Goodnoght
Artificial intelligence and machine learning are considered the new new thing but Jim Goodnight sets the record straight: “That’s exactly what we have been doing in statistics for years and years. We just call it building a model where these computer people call it machine learning. It’s a model, it ain’t nothing the machine learned.”

What Goodnight has been doing for 50 years is developing computer software that applies statistical methods to data to help people make better decisions. Automating these decisions is what AI is all about: ”Once you have created software to make decisions and humans don’t have to make them, you are allowed to call it artificial intelligence.”

SAS, the statistical analysis software company Goodnight co-founded in 1976, has a remarkable track record. It has grown revenues and stayed profitable year after year for forty years, in a constantly-changing industry where numerous other companies have failed to adapt to new technologies, business models, and buzzwords.

Adapting quickly and opportunistically to changing circumstances is another thing SAS has been doing for years and years. Only four years ago, Goodnight displayed a similar attitude towards “big data,” the new new thing of the time, telling IT World Canada “We were there before the term was invented. The reason we’re all talking about big data is because some analyst made all the money they could off of cloud, and they had to move on to the next buzzword.” But he also saw how the hype helps his business, opening up conversations with business decision-makers reading about the latest “disruptive innovation” in the business press.

Stressing SAS’s years of experience and accumulated expertise while dressing it up with the allure of the newest new thing is more important today than ever before. The specific segment of the industry invented by SAS (and a few other companies started by academics-turned-entrepreneurs like Goodnight), has attracted formidable new players in the last 15 years, as data analysis became everybody’s business with the exponential growth of enterprise and consumer data.

These new kids on the data mining block include large IT vendors buying their way into the market (e.g., IBM) and the “digital natives” (e.g., Google, Amazon) developing their own data analysis software and often sharing it with the world. SAS has responded by investing, like other successful technology companies, in clever marketing and in customer-pleasing innovations.

SAS has been promoting its own favorite buzzword, “analytics,” a relatively new term popularized by Tom Davenport in the 2006 Harvard Business Review article “Competing on Analytics” (and the book with the same title, co-authored with Jeanne Harris), based on research sponsored by SAS (and Intel). The company has also served as a catalyst for the proliferation of undergraduate and graduate programs focused on preparing young people for careers in “business analytics,” ensuring a steady supply of qualified analyzers and future SAS customers.

More important, SAS has transformed in recent years what it offers to its customers. A quarter of the company’s annual expenses goes to research and product development, to innovating its future. “It’s a combination of listening to our customers and looking ahead ourselves and deciding what customers will need in the future,” says Goodnight. “Eight years ago, we began working on high-performance analytics.”

That “pivot” of the 33-year-old startup (in 2009) meant making all their software work in parallel, on many processors simultaneously rather than running on just one processor, speeding up calculations for their customers (Goodnight says he understood the need for parallelism when a banker in Singapore told him it took 18 hours to calculate the value of risk). In addition, SAS moved all its software into a unified and cloud-supported environment, open to other modern computational languages. It now provides what amounts to a comprehensive business management platform, encompassing all business activities and decisions requiring data analysis.

Constant product innovations and clever marketing have always been the hallmarks of successful high-tech companies, but not many have survived and thrived for over four decades. What has SAS done differently?

“If you treat employees like they make a difference, they will make a difference,” Goodnight shares what he calls “a very important rule in business.” A lot has been written (see, for example, here and here), about how SAS employees “are treated with respect” as Goodnight puts it, resulting in very low turnover and perennial showing on Best Places to Work lists worldwide. While Goodnight has said (and written) that keeping employees intellectually engaged and removing distractions (e.g., providing daycare, a healthcare clinic, and dry cleaning on premises) is a must when you are dealing with people doing creative work, he has extended his respect to landscapers, cleaning crews, and daycare employees who are all on the payroll. The result is lower revenue per employee, but “I just believe it’s proper and the right thing to do.”

It’s also proper to keep the health of the company in mind when taking care of its employees’ well-being. A work/life group that holds frequent seminars and helps employees with their personal issues, a medical facility on campus with doctors and nurse practitioners—they are there Goodnight has said because “we want to keep [employees] healthy because in the long run we have to pay their healthcare costs so it’s better to try to keep them healthy to start with.”

Paying attention to expenses is the key to SAS record of continuous profitability. When asked to explain this record, Goodnight says with a laugh “revenue growth should always be higher than expense growth.” He is keenly aware that this sounds very old-fashioned, adding “that doesn’t apply to a lot of companies that are out there now because it is how many people are using your site that matters.” Managing expenses means putting “breaks on hiring all the time—not growing too fast is probably one way to make sure that you are ready for the next downturn.”

Taking a long-term approach to growth and profitability is possible because SAS has not gone public. “It has been a help to us not to have people on Wall Street tell us how to run our company,” says Goodnight. “We run it the way we think it should be run, not how a 28-year-old analyst on Wall Street tells us it should be done.”

Instead of doubtful scrutiny by Wall Street, Goodnight recommends self-scrutiny and willingness to admit mistakes and change course. “When you’ve dug a hole deep enough,” Goodnight says in the video below, “get out of it, don’t keep digging.” It’s a hard thing for CEOs to do because after investing a lot of money in some hyped-up new new thing and not seeing adequate returns, they tend to continue to throw money at it in a desperate hope for an eventual turnaround.

In 1995, SAS started a gaming group because some of their software development employees wanted to apply their skills to the growing video games market. By 2000, SAS became the number six game developer and distributor in the U.S. Annual revenues reached $55 million, but expenses were $85 million. “We sold it off,” Goodnight dryly sums up his illustration of both the flexibility required of CEOs and the most important question to ask when making business decisions—can we afford it?

Balancing respect for employees and the overall well-being of the business, pursuing the right combination of nurturing employees and nurturing profits, extends beyond SAS to future employees, customers, and partners. Most of the company’s philanthropic activities are focused on bridging a persistent “analytics skills gap,” according to a SAS corporate brochure, “by targeting worldwide education initiatives in STEM to ensure the next generation of innovators has the knowledge and skills to succeed.” More than 2 million teachers and students use SAS Curriculum Pathways, created for grades K-12, offering free tools, digital resources, and mobile learning apps.

In 1988, Glenn Rifkin and George Harrar published The Ultimate Entrepreneur: The Story of Ken Olsen and Digital Equipment Corporation. The book opens with a quote from Olsen, DEC’s co-founder, “Success is probably the worst problem for an entrepreneur” and ends with another quote “The final picture of success is how well the company does after you’re gone.” In 1988, 31-year-old DEC was one of the most profitable companies in the U.S. Four years later, amid declining sales and profits, Olsen was ousted and, in 1998, DEC was acquired by Compaq.

Goodnight and SAS have managed success well for 41 years. Goodnight has proved that success does not have to be a problem if the entrepreneur keeps his or her ambition in check. The key differences between SAS and DEC are the former’s measured growth (14,000 employees today vs. DEC’s 130,000 at its peak) and its unwavering focus on a narrow (but continuously expanding) market segment which allowed it to develop and maintain a unique company identity and a leading market position. With data eating the world, SAS stands a good chance of continuing to thrive.

Read more: Forbes