How much can we learn from Steve on Innovation, Marketing and Business Strategy?
A few days ago I stumbled on this video where Guy Kawasaki shared 12 lessons he learned from Steve Jobs. Guy worked with Steve in the early days of the Mac. This presentation was delivered a few hours after Steve passed away. It is been viewed almost a half a million times, but it is 47 minutes long. I thought I should share a summary from my notes:
Experts” are clueless – There are many people who will claim to be gurus and experts. Don’t trust them. They are more often mistaken.
Customers cannot tell you want they need –” Back in 1984 they would have asked for a faster, cheaper Apple II (not a Mac). The day you hear Apple is using focus groups to create future products, that’s the day to short the Apple stock”. For more, here is a post on Steve Job’s Genius Ability to Innovate.
The biggest challenges beget the best work – If you are going to change the world, you need to work on challenges no one else has solved before.
Design matters. “Design is the product.” Especially for Apple, but true for more and more industries today. Another post on the importance of design.
Use big graphics and big font in your presentations. Jobs was a master presenter. His slides make bold statements and don’t compete for attention with what he is saying.
Jump curves, not better sameness – What Guy means is that Steve was not interested in incremental improvements, but on disruptions that completely change the game, Guy uses the example of the change from ice factories to having ice available in your refrigerator.
It either works or does not work – “Don’t worship religions and fads. We did not care if it was ‘open’ or ‘closed’ only that it worked.”
Hire A players exclusively . A players hire A players. B players hire C players. As Jim Collins wrote: the most important thing is people – ‘who is on the bus’.
Real CEOs can demo. Meaning executives need to be users of the products they sell, they need to be competent and demonstrate their passion.
Entrepreneurs ship, not slip. Steve pushed his team to deliver on time. He did not wait for a perfect product (the first iPhone had many limitations) but it was developed in record time. Then there is time for continuous improvement.
Somethings need to be believed to be seen. “If you wait for proof it will never happen.” This is so true
If you want to watch the entire video, you will find it here.
When Microsoft announced the Surface there was a lot of expectation of the market. Since I got mine, almost every time I send an email with the signature “Sent from my Surface RT” or every time I use it in a group setting, I get asked about it – they have the market’s attention, or at least curiosity.
The device is not perfect. No device is. Even the iPad 4 has its own share of limitations and bugs. I love mine and I think it is a much more complete and usable device than the iPad. But this post is not about my opinion aout the device, which you can read here on Quora. My observation is that every Surface user I have heard from has generally the same reaction: “Compared to the Surface, the iPad is a toy.” or “Since I got my Surface, my iPad is in a drawer”. The point is not to say the device is better – every customer has to make that decision on its own. The point is that Microsoft has a real fighting chance.
The device launched just in time for the Holiday season. It still did OK, in my opinion, selling a million units in its launch month against 14 million units sold by Apple. Yet the opporuntity was much larger. The problem (or a problem) is that a 32Gb iPad costs exactly the same, $499. This forces buyers to make a concious decision of buying the Surface versus the iPad. Here is the opportunity:
What would have happened it Microsoft had launched the Surface at a price of $275?
There would be no comparison against an iPad at $499. It would make the competitive decision much easier for customers who were not already sold on iPad. A large chunk of the market made of people who don’t want to spend $499 for a tablet wuld probably jump in. It would be a no-brainer compared to a 16Gb iPad mini at $329.
At $275. the Surface would certainly be a better buy than the Kindle HD, which sells for $299, and was selling at a rate of a million units per week at the peak of the holiday season.
The economics make sense
The cost to manufacture a Surface RT with 32Gb of memory, according to iSupply, is $271. Let’s assume Microsoft sells 5 million Surfaces instead of one million, just for the sake of the conversation. If we take $224. of profit from each of these four million units, that would have decreased $896 million in profits for Microsoft.But in reality it only sold a million, so te actual los in profits would only be $224 million.
That would have taken its operating income from $7.77 billion for Q3 2012 to ‘only’ $7.55 billion. hardly a dent, and well above the $6.6B from the same quarter last year. More importantly, it would have added $1.1 billion in extra revenue to bring the quarter from $21.46B to $22.56B, avoiding a miss of expectations (see stock price for the impact of that).
My point: reducing the price of the Surface to $275. would have had virtually no impact to profits and would have had a large impact on revenue. Microsoft could have opted to make this a promotional, limited-time offer, creating a sense of urgency for consumers.
Even at the $275. price, Microsoft would have a profit opportunity in the lucrative accesories market. An installed base of millions of devices creates a large opporutnity to sell keyboards, cases, mice, applications and other accesories. they could have charged a nominal monthly fee for Office.
Microsoft’s opportunity to earn a solid footing in the post-PC era is surely worth more than a 3.5% decrease in profits.
Besides the neglible impact to profits, the only other downside I can think of is the impact to OEM partners. This is an important point, but one on which Microsoft should have decided on when they decided to enter the hardware business. Would Acer and Dell be upset our would they have been thankful for the creation of a market, acceleration of the application base and pressure to be more competitive?. Yet, the upside for Microsoft could be very big:
$1.1 Billion in increased revenue for the quarter, bringing revenue not only in line with expectations, but probably exceeding it.
Creating a product line with $4 Billion in revenue, esentially overnigt would be an incredible business success by any measure.
The stock is near the bottom of its 52 month range at $27.55 as I write this. I can’ speculate the actual impact to the stock price, but I think it is reasonably to expect a jump if microsoft had sold 5 million Surfaces. Every dollar increase in stock price creates $8.3 billion in stockhohlder value. The stock has hovered around $30 for a decade despite very large increases in sale and profits. You could argue an event like this could generate positive momentum.
Microsoft would have earned significant economies of scale, bringng the costs down for them and OEM partners, providing a long-term economic advantage.
It would have eliminated any doubts of the consumer adoption of Windows 8 which would have lifted the entire ecosytem incluidng sales of Windows Phone and PCs, resulting in a benefit to OEM and accelerated porting of applciations to Windows 8. Maybe we would have Instagram on Win 8 by now.
Apple would have sold less iPads. Let’s assume out of the 4 million incremental units two come from would-be Apple buyers. Microsoft is a very competitive company, this would not be an insignificant win.
Imagine the impact of the news “Apple sells only 12 million iPads in Q4, Microsoft sells 5 million in its first quarter”. The brand, PR, employee morale and talent acquisition value of this statement is woth much more then a 3.5% decrease in profits. Imagine the Businesweek cover story “Microsoft is Back”.
When Microsoft priced the Surface at $499 I was very suprised, knowing Steve Ballmer is hyper competitive and a long-term thinker that has demonstrated a discipline to invest in markets for the long term. Microsoft has a lot of smart people, I am sure they spent considerable energy in their pricing startegy.
I believe the Surface will be successful anyway. The 128Gb Pro model sold out in hours. A million units in their first quarter is not bad, even compared to the iPad’s 3.3 million in its first quarter. But I can’t avoid thinking of what could have happened with a more agressive pricing strategy. We probably would be in an alternative future. your thoughts?
For the record, I admire Steve Jobs and Apple and have blogged about it a couple times.
Disclosure: I worked for Microsoft from 2004 to 2008, I am no longer affiliated with the company but still own some stock. As with all post in this blog, this post reflects my personal opinion. I own a Dell PC, a Surface, a Lumia 920 and a Zune. We have an iPhone, multiple iPods and an iPad at home. I have used Macs since the 1980s and sold a few of them when I was in the digital imaging business.
Like I said in my last post, I am not a fan of Apple products. I have a Windows Phone, I love my Zune, and a month after I joined Rackspace I retuned my MacBook Pro to the IT department to get a Dell Windows 7 laptop. I have worked with Apple products for many years, I sold many Macs when I was in the digital imaging business in the early 90s and here are iPods, an iPhone and an iPad in our household.
Yet, as a marketer and a business man it would be foolish not to recognize the unique ability in Steve Jobs to transform industries: personal computers, music, cell phones, animated movies and publishing. Steve also had his share of failures : The Apple Lisa, hiring John Sculley, NeXT, Apple TV (so far), Ping FM, and others.
You have probable read a dozen ‘Leadership lessons from Steve Jobs’ articles, but I have a slightly different perspective that I want to share. These are the three reasons Steve had an incredible ability innovate, according to the Adaptive Marketer:
1. Steve clearly understood customer needs
Apple is famous for not doing traditional customer research . A few days ago Guy Kawasaki came to Rackspace and told a group of us at Rackspace “the day you see Apple doing a focus group is the day you must short your stock”. It is easy to come to the conclusion that Steve ignored customers creating customers on his own.
It is true Apple does not do customer focus groups, there is no feedback section on the website and after 5 years there is only one iPhone form factor despite customers who have asked for a physical keyboard, larger screens or a smaller, lower-cost version.
But there is a difference between not accepting direct customer feedback and not understanding customer needs. Steve was frustrated with the user experience in the first iTunes-enabled phone, the ROKR. Steve understood customer’s frustration with smart phones in general. He understood customer needs, and used his technology and user experience genius to create products that served those needs.
In fact, Steve Jobs’ first press quote, published in the July 1976 issue of Interface magazine read “If we can rap about their needs, feelings and motivations, we can respond appropriately by giving them what they want.” referring to his customers for the Apple I, hobbyists.
2. He understood it success is not a result of having the best technology, but in offering the best user experience.
This ability is especially important in the technology industry where most product managers, marketers and executives are fixated on the virtues of the latest technologies that we often miss or misunderstand customer needs. Steve was a geek at heart, but he also deeply understood the importance of customer experience.
Probably as important, he understood the power of simplicity. If you look at his product launch keynotes (and if you are a marketer you must), the message was concrete and simple to understand.
In 2005 when he launched the iPhone, he did not have slides with a hundred features, technologies and capabilities. Instead, the iPhone was presented as a phone, a music player and a browser: three concepts that everyone understood. He did not talk about how many megapixels in the camera, how many megahertz in the processor, or the details behind multi touch technology. It was simply a phone, a music player and a browser.
In terms of technology, there was nothing revolutionary in the iPhone. The Windows Mobile phones available in 2005 could do everything an iPhone could do. But Windows Mobile was not simple. The best technology does not always win. Otherwise we would all be using Amiga computers.
3. Steve was relentless in making his dreams a reality.
In a previous post, I summarized Marcus Buckingham’s perspective on leadership: Great leaders are restless for change, impatient for progress and deeply dissatisfied with the status quo. The possibility of a better future burns them and propels them. Great leaders see the future so vividly they have no choice but to do everything in their power to make this future real.
Steve really was an example of this. When the iPhone was announced, there was no market for $599 phones. There were only a handful of phones that were so expensive. If you worked at Motorola, for example, and proposed launching a $599 phone, the response would be that market research showed there were not enough buyers willing to pay so much for a phone, especially a phone that did nothing new.
“Apple iPhone will fail….The iPhone is nothing more than a luxury bauble that will appeal to a few gadget freaks. In terms of its impact on the industry, the iPhone is less relevant.” – said Mathew Lynn, from Blomberg in2007
Yet, Steve said Apple would sell 10 million phones in the first 18 months. And he did.
There was no market for iPads, either. Tablets had been available for years. Microsoft issued me a Toshiba tablet when I joined in 2004, which was interesting but I used mostly as a normal PC. When the iPad was launched people were confused about the use case. Why would anyone need one? Seemed like a cool toy for people with a couple hundred bucks laying around.
As my friend John Smolucha points out in a recent blog post: “Even more impressive, nearly 75% of Apple’s revenues come from just two products: the iPhone (53%) and the iPad (20%). The first iPhones began shipping in June 2007 and the iPad only became available a year ago, on April 3, 2010. I don’t know about you, but I’m not aware of any other company that generates nearly 75% of its revenue from products that didn’t exist five years ago, while doing it during a global economic downturn.”
Steve believed in his dreams beyond what rationality, beyond market research, beyond corporate practices and policies. He had a vision and worked tirelessly to make it a reality. Yes, he was a micromanager, but only because he was a perfectionist and did not accept any deviations from his dreams.
Today most people would regard Steve Jobs as the inventor of the iPhone. I want to share the story of the iPhone that I believe is true, even though I don’t have any proof. It is based on storied I heard and observations. None of this is confidential information I gained while I worked at Motorola in 2004.
How Motorola invented the iPhone
Back in 2004 the RAZR was the best selling phone in history. Apple was starting to dominate the music industry with the iPod and was getting ready to launch the iPod nano. Apple was happy, things were looking good.
Motorola had a team in Libertyville working on customer trends, lifestyle, and technology trends. At the time, a few Motorola phones had music capabilities, and the company saw an opportunity to converge the iPod and the RAZR.
The story is that Ed Zander, Motorola’s president at the time, had a meeting with Steve Jobs to share this idea. Apparently, Steve was not very interested in the idea. Then Ed said something that changed Steve’s point of view (and probably the world):
“When you leave the house, you always bring the three things: keys, wallet and your cell phone. That’s it. Your iPod is not in this list.”
At that point, Steve understood Motorola’s idea and agreed to build a product. The Motorola ROKR E1 was launched on September 7th, 2005. It was the first phone to work with Apple’s iTunes, a truly revolutionary concept. Yet it was fatally flawed.
There were a few key problems with the ROKR: it could only store 100 downloaded songs at any given time, probably a limitation imposed by Apple to avoid direct competition with the iPod. There was no USB interface, which made the process of getting music into the phone incredibly slow. Apple did not seem to be particularly excited about the ROKR, Ed Zander complained to Apple about lack of support and undercutting it with the Nano.
However, the biggest flaw was usability. Like most cell phones in 2005, the user interface was not intuitive. Here is where you can see the genius of Steve Jobs at work: Steve understood without great user experience the idea of a music phone was going to fail.
Most likely, Steve became frustrated about the lack of UX focus at Motorola, and thought he would execute on the same idea on how own. Development on the iPhone started that same year, in 2005. . It was a monumental task. Building a cell phone operating system from scratch is not an easy task, even for Apple. The iPhone shipped June 2007. The rest, is history.
The iPhone was not perfect when it launched. At the time, it was a closed system that did not allow any third party apps. Apple asked developers who wanted to innovate to basically create a browser app optimized for the Safari mobile browser. After a few months, Steve saw the opportunity in an ecosystem and opened the iPhone to 3rd party apps. Today, the breadth of iPhone apps is one of the strongest selling points, and the focus of the “There is an App for that” ads.
Before Apple fanatics show outside my home with pitch forks and torches, I am not trying to take credit away from Steve. People who know me know I am not a fan of Apple products (I love my Windows Phone and yes, I have a Zune and it is great), but it would be foolish not to recognize Steve as an incredible innovator.
When the iPhone was first announced, I remember exchanging many emails with industry colleagues -as many people did – speculating about the possibilities of Apple hitting the 10 million target that Steve Jobs set during the announcement.
Many emails were based on market research: how many people were buying phones at over $500 at the time, how big was the market for smartphones, etc. I was skeptical given the complexity of the software stack that powers a phone. Most of us had to eat our words.
How did Steve pull it off?
There are many answers: articles and surely books are being written about it. I found a key piece today while reading a new book “Do you matter? how great design will make people love your company“. In this book, the authors explain how apple and other leading companies are design-driven and how most other companies are metrics-driven.
As a marketer , many times I have had to justify my plans with market research: opportunity analysis, market sizing, CAGR (compound annual growth rate) numbers, etc. Most companies financial discipline require this type of financial justification based on hard data and require some kind of proof that an investment will yield results based on research, focus groups, etc.
Not at Apple. The key to design-driven companies is that they place significant value in customer experience. The company is aligned behind it. The problem with customer experience is that it is emotional, therefore not measurable. Steve Jobs has a knack for great design (in the broad sense of the word, meaning how to create products people love) and is able to pull it off because he runs the company and the board of director trusts his investments will pay off most of the time. Or at least he has a success ratio that allows the company to experiment.
If Steve had to justify the iPhone based on hard numbers, or if anyone at Motorola had envisioned the iPhone, they would have more than likely been shut down by senior managers because market research, hard data and market trends do not support the idea of a $600 first-generation smartphone selling 10 million units in the first 18 months.
Interestingly enough, Motorola actually came up with the idea of the iPhone: they went to Apple and had to convince Jobs it was a good idea based on the fact you don’t leave your house without three things: car keys, cell phone and wallet. Everything esle is secondary. But I digress.
If this is a topic you are interested in, I highly recommend the book. It is written by Robert Brunner and Stweart Emery. I am half-way though but it is well worth it already.