CompanyAmerican Research & Development Corporation

If there is a historical link to the roots of entrepreneurship within the Harvard Business School, it would lead directly to General Georges F. Doriot, the legendary HBS professor who taught at the school from 1926 to 1966. “The General” as he was known, influenced and inspired scores of HBS graduates—more than 7000 second-year students took his transformative Manufacturing course—and in 1946, Doriot created the first venture capital firm in the United States. American Research & Development (ARD), based in Boston, turned the revolutionary idea of funding and investing in promising but risky startup ventures into a groundbreaking industry that reshaped the landscape of American business.

Though the terms “visionary” and “genius” are overused in today’s amped up media environment, Doriot was unquestionably both. The elegant Frenchman, who came to the U.S. in 1921 and became one of the 20th Century’s most dynamic business influencers, changed the rules, both in the HBS classroom, and in the world of commerce.During World War II, he joined the Quartermaster General’s office and his brilliance in organizing and implementing much needed strategy for supporting the war effort earned him the rank of Brigadier General. He was an outlier who believed deeply in innovation, disciplined analysis and future focus. He refused to use HBS’s vaunted case method, preferring to lecture his classes on far more than manufacturing.

“I quickly learned that the course had nothing to do with manufacturing, it had to do with a way of life,” recalled David Arnold, MBA 1947, who went on to work for Doriot at ARD. “He made you think.”

Doriot lectured his aspiring leaders on how to think about business in the long term. He required his students to do extensive field work visiting companies in the Boston area in order to not just observe the process but meet the people making the decisions. Among his assignments was a group project to research and write about an industry five years hence. In this way, he introduced the five-year plan as a corporate strategy.

“He was an extraordinary individual with a quiet charisma that made him the trusted adviser of a wide group of businessmen and other leaders,” wrote Robert McCabe, MBA 1958, who became a partner at Lehman Brothers. “One of his greatest skills was his ability to ask questions that illuminated the critical aspects of an important decision his friends might be facing.”

Always quotable, he famously told his students, “Always remember, that someone, somewhere, is making a product that will make your product obsolete.” He counseled his students to regularly read the obituaries in The New York Times before they read anything else “in order to learn from the lives of great men.”

Even after he stopped teaching in 1966, Doriot’s presence continued to be felt at HBS. William A. Sahlman, MBA 1975 and a long-time HBS professor said, “Doriot was a transformative figure at HBS and beyond. He created an experience—almost more than a course—that was captivating and demanding. He had very high standards and commanded the respect of his students. Doriot was not a classic HBS Socratic teacher nor was he preoccupied with skills. He wanted to change how people think for the rest of their careers and he largely succeeded at that.”

A strong believer in the individual and in innovation, Doriot was not shy about counseling his students on how to dress and how to behave in an ethical manner. Arnold recalled that he even offered advice to his then all-male students on the importance of choosing the right woman to marry. Doriot believed deeply that a healthy family life was essential for a businessman’s success. His former students unabashedly attributed much of their later success to the course and the General. Many, such as James D. Robinson III, who became chairman of American Express; Sanford Bernstein, who founded the brokerage firm that bore his name; Walter Haas, chairman of Levi Strauss and Philip Caldwell, the first non-family member to become chief executive of Ford Motor Company, considered Doriot a seminal figure in their lives.

Said Caldwell at Doriot’s 80th birthday celebration in 1979, “The things he taught me then are more important 35 years after I graduated from the school than they were when I began my career.” It was Doriot’s belief that an individual, given the chance and the financing, could change the world. He also looked presciently around the New England region and recognized that most of the once thriving industries such as textiles, shoe-making and manufacturing had departed or were in their death throes. As a financial center, however, there was a lot of old Yankee money that might be made available for new companies embracing the engineering and technology innovations coming out of local universities and research labs.

Howard Anderson, MBA 1968 and now an HBS senior lecturer, wrote in a profile of Doriot that he went to “a group of stodgy old bankers with a unique proposition: Let’s set up a fund that will invest in promising young companies, often companies with little or no sales and with little management experience but with potentially breakthrough technologies. Let’s understand that this will be `risk’ capital; the firms have no real assets except the Yankee Brain, which gets up at 5 a.m. and works like hell. And let’s not lend them money because it will be a long time before they could pay it back. But let’s buy equity. Let’s grow companies.”

Displaying a keen understanding of what it took to create and nurture a startup, Doriot brought an innate skill to his concept for venture capital. In his book about Doriot, “The First Venture Capitalist,” Udayan Gupta wrote, “In a world in which the financing of risk and innovation was random and haphazard at best, Professor Doriot brought clarity and introduced a system. He recognized several key elements in the process. Real companies take time to build. Young companies need several rounds of equity—not debt. Most importantly, treat shareholders—the ones who take the risk to provide equity capital—right.”

In its early days, ARD had no Apple Computer or Google lurking around the corner and the hoped for embrace of this new concept was slow in coming. The firm’s fortunes changed in 1957 when a young MIT Lincoln Labs engineer named Ken Olsen approached Doriot with an idea for a company that would build powerful computers that were far smaller and less expensive than the giant multi-million dollar mainframes that ruled the day. With a modest $70,000 investment from ARD that allowed Olsen to set up his nascent Digital Equipment Corporation in an old woolen mill in Maynard, Mass., everything changed. ARD received a stunning 70 percent stake in the young company, a bet that resulted in an astronomical payback. At its zenith, Digital grew to become the world’s second largest computer company with 130,000 employees and sales of more than $14 billion. ARD’s original investment grew by more than 5000 times and eyes grew wide with envy and excitement. Maybe, critics grudgingly acknowledged, this venture capital idea had some upside.

Over the course of his long career, Doriot touched thousands of lives and left a remarkable legacy. In 1959, for example, he helped bring the concept of postgraduate business education to Europe with the founding of INSEAD in Fontainebleau, France. Today INSEAD is among the world’s top business schools. As with other great thinkers, Doriot was well ahead of his time. He spoke of the need for business to embrace the concept of social responsibility decades before that became a politically correct dictate. He used his classroom to impart a holistic view of the business world. “He was convinced that if students were to succeed in business, they had to see their work as part of a larger mission,” Gupta wrote. “Businesses exist because they serve a larger purpose, not simply to make money.”

Ultimately, he was able to see the fruits of his efforts to set off genuine enthusiasm for starting new businesses. And as Howard Anderson put it, Doriot made a lasting impression. “In the end, Doriot was a missionary,” Anderson wrote. “His gospel was that strong management and great new ideas would spawn new industries and prosperity. And those of us who followed have stood on the shoulders of a giant.”