The business legacy of Mr. Jobs
By Vincent Rice
August 29, 2011
Revered by many, hated by some, but respected by most, the indisputable fact remains that Steve Jobs is the most successful business leader of his generation and quite possibly of all time. The numbers are impressive in themselves but the most remarkable aspect of his success is how it was achieved. Though he remains at Apple, the end of his tenure as CEO is the end of an era and an opportunity to try and grasp just exactly what it is he did and what lessons there are for all of us "trying to make a dent in the universe."
The 41 year old Steve Jobs who arrived back at Apple in 1996 had already had a lifetime's worth of business experience. Due to the success of the Apple II personal computer he had a multi-million fortune by the age of 25. Doubtless he felt that he could do no wrong. The next fifteen years however were a series of tumultuous mistakes and betrayals that saw Steve being thrown out of the company he created and suffering significant failures at Pixar, the computer graphics division he bought from George Lucas, and NeXT, the business computer company he created. These were crucial experiences in Steve's transition from entrepreneur to business leader.
Neither company could make a profit and in both cases the problem was hardware. Pixar were involved in the creation of very high-end rendering machines for their animations but they weren't selling any and the cost was killing them, or rather Steve, since they were operating solely off his bank account. His pride couldn't let them fail. Eventually Steve stops the hardware development, fires half the workforce, keeping only the Renderman (CG rendering software) programmers and crucially John Lassiter's animation department - the only department making any money.
At the same time the beautifully designed NeXT Cube computer was simply too expensive for individuals to buy and could not compete with the likes of Sun Microsystems and IBM in the enterprise market. In a devastating blow The COO of NeXT tried to sell the company from under Steve's feet to Sun. It didn't come off but the writing was on the wall. NeXT closed their manufacturing plant, losing 300 workers, and became a small software company, licensing the excellent NeXT operating system that they had developed in tandem with the hardware. This was the lowest point and by 1993 Steve Jobs had virtually retired to be with his new young family at the age of 38.
John Lasseter at Pixar was recognized as one of the finest animators in the business and had won several awards for adverts and short films. Jeffrey Katzenburg at Disney tried to lure him to the "Magic Kingdom" but Lasseter knew he would get buried at Disney and wanted to stay with his team. Eventually Disney agreed a deal for Pixar to produce three full-length animated movies for US$27 million each with Pixar getting 12.5% of gross - a surprisingly poor deal - but Pixar and Jobs knew no better at the time. The first Toy Story script was rejected out-of-hand but Lasseter eventually turned it around to Disney's liking and by 1995 the film had been made. Steve actually had little to do with the running of Pixar at that stage but turned up at a preview screening to see Disney's Pocahontas and Toy Story back to back. He very quickly realized what the team at Pixar had achieved and saw how the deal with Disney could turn into something very big indeed.
Jobs swiftly took over the reins at Pixar and brought on board a CFO with Wall Street credibility to prepare for an IPO (Initial Public Offering) on the Stock Exchange. It seemed a ridiculous idea - Pixar had never made a profit - but Jobs was convinced that Toy Story was going to be a massive hit and timed the IPO for a week after the film's release. Sure enough the film opened at $28 million and went on to gross $127 million. The IPO was a massive success and Steve Jobs was suddenly worth $1.5 billion. Controversially, most of the Pixar workers got nothing. Jobs went back to Disney and demanded a new 50/50 deal for the next two films - and got it. Incredibly, in 2005 when Disney boss Michael Eisner was finally fired, Pixar and Jobs engineered a "reverse-takeover" of Disney Studios that cost Disney $7.5 billion and put Pixar's Ed Catmull and John Lasseter in charge. Steve Jobs remains Disney's largest shareholder.
Apple in 1996 was in a poor state. Windows 95, Mac clones, an ageing operating system, a lacklustre roster of products and an equally uninspiring CEO meant that Q4 1996 was one of the worst financial quarters ever. Uncharacteristically Jobs had refused to take up the offer of a hostile takeover of the company by Oracle's Larry Ellison in 1995 but when Apple went shopping for a new modern operating system Steve managed to convince the board to buy NeXT for $400 million and he became an "informal advisor" to the CEO Gil Amelio. While Amelio stumbled and mumbled through his presentation at the WWDC of January 1997, Steve Jobs ended the developer conference with a remarkable one hour Q&A session in which the roots of everything we see today from Apple are plain to see. Within months Amelio had been sacked and Jobs agreed to take the position of "Interim CEO." Apparently he was concerned about being CEO of two public companies but one suspects that there were deeper psychological effects at play. It's as if Jobs felt he had to earn his place at Apple again and not just be handed the keys.
Steve launched himself into Apple's turnaround with extraordinary energy. A deal was done with Microsoft to end all hostilities, guaranteeing MS Office for Mac for five years and securing a symbolic $150 million share deal. Jobs famously remarked that the PC wars were over and that Microsoft had won. This deftly stopped the constant market-share comparisons and allowed Apple room to get quietly profitable. A new advertising company was engaged and a series of cool black and white photos of iconic people with the slogan "Think Different" were produced to play on the notion of Apple as the maverick underdog capable of changing the world. Jobs interviewed every product team and asked them to justify themselves. Gil Amelio had got the number of Apple projects from 350 down to 50 - Jobs got it down to 10. Life at Apple quickly changed - smoking was banned and a fantastic new cafeteria created. A policy of absolute secrecy concerning product development was introduced and strictly enforced. Porting the NeXTSTEP operating system to the Mac platform began and a product strategy consisting of only four segments was devised: Pro Desktop, Pro Portable, Consumer Desktop, Consumer Portable.
A quiet Brit, Jonathan Ives was working on a side project at Apple for a network computer. He wasn't happy and wanted to leave but Steve Jobs was impressed with his ideas and sensibilities and made him Head of Industrial Design. They worked closely together on the design of the "Internet Mac" for the consumer desktop segment and this became the original Bondi Blue iMac. It was launched in the same room as the original Mac was 14 years earlier in an occasion heavy with symbolism and emotion, and the clear message that Apple was back and reconnected to its roots. It was of course a massive success.
All Steve's experience and the lessons learned in the previous years had come to this point, and from this point the seeds of all Apple's subsequent successes were sown. He had seen a talent in Jon Ives and immediately put him in a position to exploit that talent. They worked on a design that was unique yet true to the physical essence of the computer, which of course at that point was the CRT inside. They developed a new plastic composition to take the heat of the processor while allowing them translucency and color. The machine had a cute face and a rounded form to make the emotional connection that was so important for the success of the first Mac but had consequently been lost at Apple. They also worked hard to ensure that the machine was actually affordable, in part by removing a bunch of legacy connectors and the floppy disc drive. A move that shocked the tech community but delighted customers - a common theme to come. The iMac was also noteworthy for introducing the mass market to USB, a connection technology invented by Intel that was frankly dying. With Apple committing to it as their only peripheral connector on consumer machines there was an explosion of activity by peripheral manufacturers wanting to standardize on USB. Here was a new phenomenon - a vast ecosystem of subsidiary manufacturers emerging around the popularization of a standard.
A few months later the G3 PowerMac was introduced in a new Bondi Blue plastic case, the iMac now came in five fruit colors and the brightly colored iBook was launched. The share price rocketed and in two years the turnaround had been achieved. Steve now entered what might be called the visionary phase at Apple.
At the beginning of the new century a number of significant things occurred; Steve now felt able to call himself CEO, the first iteration of Mac OSX was released, the "Digital Hub" strategy was conceived and the first Apple retail store was opened. The last two are particularly interesting in that they flew against all the received wisdom of the time. Everybody was obsessed with the Internet. PC's would become simple "thin clients" to remote servers and all computers would be bought on-line. Jobs disagreed vehemently. In fact he had to disagree because if that was indeed the future then Apple was undoubtedly doomed. Even with all the talk about market-share being irrelevant Apple was still stuck at 5 percent and needed a strategy to push consumers to switch from PC's to Macs. Steve positioned the Mac as the center of your "digital lifestyle," connected to your still cameras, video cameras and music players. Apple started to produce software to allow mere mortals to edit their photos, video or make a DVD. Apple also noticed, a little late in fact, how the craze for downloading music from Napster or from your own CD collection was snowballing. iTunes was created in just a few months to allow you to rip from CD's and organize your music library.
Shops and Pods
Jobs felt that although they were now making a superior product, PC users simply wouldn't get over their inertia and buy a Mac unless they saw and felt how well designed they were and how easy to use. The retail strategy was a risky and expensive one and Steve knew it. He drafted in retail heavy-hitters from Gap and Target and built a dummy store in a warehouse to get the meticulous design exactly right. At the same time an engineer, Tony Fadell, was trying to sell a small mp3 music player that he had invented and nobody was interested. Jobs immediately saw the potential and nine months later the beautifully designed white iPod with a unique click-wheel interface and a huge capacity was launched. It was quite expensive but nobody cared. It was exactly what people wanted for their new digital music collections and it became the new Walkman, selling massively across the world.
Truth be told Jobs and Apple were shocked by the numbers but as per usual they wasted no time in exploiting the phenomenon and all the logical steps that followed. An iTunes for Windows, a whole range of iPods and eventually the iTunes music store. Steve's experience with Disney was particularly useful in persuading the record companies that they really had no option but to offer their wares through the iTunes store. This symbiosis of hardware and software that only Apple could do was finally the magic combination that brought Apple products to the attention of the whole world. Mac market share began to increase and the retail stores started to become the most profitable pieces of real estate in the world. From 2004 on, Apple's profits rose exponentially.
By June 2005 the transition to OSX was complete with 10.4 proving to be the most solid and popular release. Apple had a problem however, the PowerPC processors it was using, made by IBM, were too power hungry and hot to be used in the smaller and lighter portable laptops that were becoming such an important market segment. In addition they were perceived as slow by the tech community. Jobs revealed to a shocked audience that they had been writing an Intel compatible version of OSX in parallel all this time and that Apple would be moving to an all Intel line up. It was a masterstroke. Life became much easier for developers wishing to port to the Mac and in any case you could run Windows on it if you really had to. Another psychological barrier to Mac ownership had been removed.
The iPod had re-kindled Job's interest in the possibility of a hand-held computer. He hated the PDA's of the time and had famously killed the Newton on his return to Apple. As early as 2003 Steve was playing with a handheld touchscreen that some of the engineers had programmed with the inertial scrolling and bounce that we see today. At some point there came a eureka moment when Jobs saw that the "killer app" of a hand-held could be as a phone. In fact you could make the easiest phone possible. The existing mobile phones were very poor in how their functions were accessed and most people just used them for calls. Once again Jobs saw a unique opportunity and the next few years were spent developing the hardware required, creating a port of Mac OSX to work on that hardware, and negotiating with the mobile carriers to ensure that the iPhone experience was unique. Plus of course in typical Steve Jobs style getting a better deal than any other handset maker.
The iPhone was launched in January 2007 and Jobs understood completely the significance of the event. If Apple got this right, then rather than fighting a decades-old battle of Mac verses PC they would be creating an entirely new computing market, potentially dominating it for years to come. The launch of course was an extraordinary success and again Apple were quick to iterate all the logical steps that followed that success - the App Store and eventually in 2010 the iPad. What's remarkable about the iPad is that although the operating system is exactly the same, the form factor and the context in which it is used have created yet another unique market segment that Apple continues to dominate.
Health and Legacy
It's no secret that since 2003 Steve Jobs has faced severe health problems. It's no secret either that these problems seems to have taken a dark turn since 2008 culminating in his resignation last week. An event timed to perfection in typical Jobsian style at the point when Apple briefly became the most valuable quoted company in the world. In many ways the past few years have seen Steve preparing Apple for a future without him. Tim Cook has been with Apple for 15 years and Steve's second in command since 2004 - there was never any doubt of his succession. Steve has instigated an internal "University" for the numerous Vice Presidents of the company run by an ex-Yale business professor to teach them the "Apple way." In one of his final acts as CEO he obtained planning permission for a quite extraordinary new head office campus building that should meet Apple's needs for at least a decade.
So what can Steve Jobs teach us about success? Well there really is no secret - the usual clichės apply - passion, vision and focus. In Jobs however these qualities are turned up to 11 and certainly in his early career caused much friction and upset to those around him. As some close to him have said, in later life he learned how to "ride the beast within" and become an extraordinary leader. Steve himself said, "you have to have a crazy passion for what you do because without it you will never put up with what's necessary for success". Steve is also famous for maintaining a vision of how he believes the world will be in five, ten or even twenty years time and planning accordingly, "we try to skate to where the puck is going to be, not where it is". Apple is an extraordinarily focused company and this of course comes from the top. Job's obsession with the slightest detail is legendary and Apple prototypes many more products that are rejected than are ever produced, "in a way we are prouder of the hundreds of products we throw out than the few we make."
In a few years Apple will very likely become America's first trillion dollar company and that will be due in large part to the "Apple DNA" that Steve Jobs has created, in the end his greatest triumph.
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