Financial Modeling Back in the Day: A Brief History of the Spreadsheet

This article covers a brief history of the spreadsheet, its impact on financial modeling, and its cultural embedding in the finance industry.

Financial Modeling Back in the Day: A Brief History of the Spreadsheet | Firmex

Few financial analysts have heard of Dan Bricklin, better known as the godfather of the spreadsheet. Yet it was his invention that brought the dark age of financial modeling to a close.

As the story goes, Bricklin was sitting in his finance course at Harvard Business School chipping away at an MBA. It was the spring of 1978. He already held a degree from MIT under his belt and a few years of experience working with major computer companies. Bricklin told Harper’s (re-published in Wired) that he and his classmates were hit with a pretty straightforward assignment: use a ledger sheet to create a financial model for a merger.

Of course, this wasn’t the sort of job someone like Bricklin, working towards a Harvard MBA, would be spending much time on in a real job. Any modeling tasks would be tackled by teams of data processors—real people using massive mainframe computers.

And yet, Bricklin’s fairy godmother instinct must’ve known about those in the doldrums with their pen and paper ledgers. Because he got hung up on the idea that there had to be a simpler way to make a spreadsheet; something that wouldn’t need to be written and reworked every time. 

“I thought, if only we had a blackboard where I could erase a number and write a new number in, and everything would recalculate,” Bricklin told NPR

Meanwhile, out on Wall Street, hundreds of junior associates (because analysts barely existed before the spreadsheet), secretaries and accountants were scratching their way through paper spreadsheets, pencils in hand. They were augmented by typing pools who typed up the model outputs. Tweaking a model was non-existent. Changing a number meant doing all the calculations again. 

Between the Sheets

Bricklin connected with his programmer buddy Bob Frankston and the two designed VisiCalc, the first electronic spreadsheet program, releasing it in 1979. The entire program fit on an 80kb floppy disk and was made for the recently launched Apple II computer. It buoyed the Apple II’s reputation as one of the first personal computers for business use.

IBM soon followed up with its own computer, while Lotus Software introduced Lotus 1-2-3 in 1983, a spreadsheet program with expanded capabilities for calculation and database management including naming cells, cell ranges, and spreadsheet macros. Lotus reported revenues of $53 million in its first year and followed it up with a public offering. A year later, in 1984, the software company had tripled its revenue to $156 million.

The dark days were over. Pen and paper became old news. Spreadsheet training found its way into the onboarding programs for new employees at investment banks.

“The spreadsheet immediately started getting picked up by the financial services industry for its ability to do ‘what if’ calculations, like: If the rate changes from 1% to 2%, how will it affect my investment capital?” David Wolfe, a technologist told Gizmodo. By 1984 more than a million computer spreadsheet programs were purchased in the US. 

“Compare the expansion of business today to the conquering of the continent in the nineteenth century,” Lotus founder Mitch Kapor told Harper’s in 1984. “The spreadsheet in that comparison is like the transcontinental railroad. It accelerated the movement, made it possible, and changed the course of the nation.”

Of course, Kapor didn’t know at the time that within less than a decade, his “killer app” that ate VisiCalc’s lunch would be usurped by another entrant in the form of Excel.

The Age of Derivatives… and Mistakes 

Wall Street took to the invention of the electronic spreadsheets and ran with it. The electronic spreadsheet didn’t just disrupt the way Wall Street got things done. It helped rewire thinking, opening up a whole approach to high tech investment banking. With the ability to recalculate at the swap of a number, plays become more complex and trading took on new angles. New markets for things like derivatives emerged.

“Mortgage derivatives, future derivatives – they came out of the ability to bundle products together, and calculate derivative values for them,” Wolfe told Gizmodo. “That’s where the intersection between personal computing and spreadsheets seemed to happen.” 

However, the switch to digital required a bit of blind faith that the computer was accurate. Which proved not to be the case in some situations. 

“Spreadsheets give this impression of objectivity, a certain accuracy, because they look complicated: there are lots of digits, you can put all these ideas and data points together and create these elaborate structures, and produce what seem to be incredibly precise answers,” Will Deringer, assistant professor of science, technology, and society at MIT and a former investment banking analyst told Gizmodo. “But they are actually quite vulnerable to small errors, and very brittle, with no mechanism for telling you if they’ve gone off the rails.”

Beyond the errors, Lotus 1-2-3 and VisiCalc had different ways of treating cash flows. But inevitably it didn’t matter. VisiCalc was acquired by Lotus and Lotus was on the cusp of being blindsided by Excel, a user-friendly spin on 1-2-3. 

Excel-erated Growth 

For the past 30 years, Excel has been the market leader in spreadsheet applications. It’s a symbol and a literal icon. And one that’s becoming increasingly controversial as the world cannonballs forward. Some argue stock-picking and modeling have moved beyond Excel’s capabilities.

AI, machine learning ,and data science promise new avenues for modeling. As Daniel Rosengarten, head of asset-liability management (ALM) quantitative development at Barclays, recently said at a conference: “If you want to see a quant go crazy, give them a large amount of data, and Excel to work with it.” 

But Excel is persistent. The spreadsheet has staying power. For proof, ignore all the mudslinging about the death of Excel and recognize that for the past eight years, Excel aficionados have gathered from across the globe for the Financial Modeling World Championship. The prize: $10,000 in prize money and something called the Golden Keyboard. 

This is the stuff of legends: a trajectory of success not even Bricklin, the spreadsheet sage himself could’ve modeled and predicted. Without his invention, we wouldn’t even be able to try.

Illustration by Christy Lundy


Andrew Seale

Andrew Seale is a Toronto-based business writer who contributes frequently to Yahoo Canada Finance, The Globe and Mail's Report on Business and The Toronto Star.