Before writing this blog post I decided to apply one of Steve Jobs’ ideas: “Deciding what not to do is as important as deciding what to do.” [1997] This is not a post about Steve Jobs as a person, so I have tried hard in this post to not discuss his personality. I try to limit the discussion to what I have learned from him about business. Of course, you are perfectly free to write a blog post or article about what he taught you about business. You can write a post about how his personality was a key part of his success in business too. You can also write a post and say: “That isn’t what Steve Jobs meant when he said X.” You could even be right, but that would not be what Steve Jobs taught me.
Dates of quotes are important in trying to understand Steve Jobs so I have included them in this post. A good friend of mine, who knew Steve Jobs very well, said to me: “He was a chameleon. And a really good one.” So when Steve Jobs said something really does matter in understanding what he meant.
1. “The difference between the best worker on computer hardware and the average may be 2 to 1, if you’re lucky. With automobiles, maybe 2 to 1. But in software, it’s at least 25 to 1. The difference between the average programmer and a great one is at least that. The secret of my success is that we have gone to exceptional lengths to hire the best people in the world. And when you’re in a field where the dynamic range is 25 to 1, boy, does it pay off.” [1995]
“The problem is, in hardware you can’t build a computer that’s twice as good as anyone else’s anymore. Too many people know how to do it. You’re lucky if you can do one that’s one and a third times better, or one and a half times better… Then it’s only six months before everybody else catches up. But you can do it in software. As a matter of fact, I think that the leap that we’ve made is at least five years ahead of anybody.” [1994] This phenomena described by Steve Jobs, when combined with supply-side economies-of-scale and demand-side economies-of-scale, creates a lollapalooza. The existence of lollapaloozas in an environment where scaling happens digitally over networks means that digital businesses are nonlinear in terms of its outcomes. This point is so fundamental to any digital business today that the Jobs quotes above must come first in my list. Once the offering of a business is digital, even small advantages tend to lead to a “few winners-take-most-all” result.
The power law distributions that exist in business flow from this “few winners-take-most-all” phenomenon. The great wealth of a tiny number of technology business founders is one outcome of this phenomenon. As another example, both (1) the power law distribution inside a venture capital firm’s portfolio and (2) the power law distribution of financial returns between venture capitalists, are driven by digital businesses being part of Extremistan. That financial outcomes tend to produce an unequal distribution of income is not a new phenomenon. The rich get richer phenomenon is at least as old recorded history. What is new is that digital systems are an accelerant of the Matthew effect (rich get richer) phenomenon.
This isn’t a post about technology but it is worth noting that the second quote above about hardware was made by Steve in 1994. NeXT had just exited the hardware business the previous year, and Steve Jobs’s grand vision was reduced to a software objects company. The iPhone was introduced in 2007. Did Steve prove himself wrong with iPhone or is there a way to square the circle? A very smart friend of mine points out:
“The irony about this quote is that the things that really made the iPhone special were all hardware. Large touchscreen with way more sensors for touch than anyone had done before. Screen twice the size of any cell phone. Tons of custom integrated chips. Multitouch and IOS would’ve made no sense without the innovative hardware to enable this.”
Would Steve Jobs say that, nevertheless, it is the software and other factors that maintain Apple’s moat for a longer period? To square the circle, one can argue that hardware still provides considerable advantage. I believe Steve Jobs is saying the advantage is not nearly as big as is the case with software, so hardware innovation must be constant. In other words, is Steve Jobs saying that hardware based moats are more precarious and require continual innovation? Hardware that is “a third times better or one and a half times better” is still an advantage. Wouldn’t it be fantastic if we could still ask him?
2. “If we don’t cannibalize ourselves, someone else will.” [Isaacson biography, 2013]
In an Extremistan environment, the same powerful nonlinear phenomenon that built you up, can tear you down just as quickly. If you go into denial, mistakes you make years before can end up causing severe financial pain. Bill Gates said to me many years ago that the potential downside of the power of network effects “is what makes me work so hard and worry so much.”
3. “Stay hungry. Stay foolish.” [2005]
Nassim Taleb wrote in his book Antifragile: “the idea present in California, and voiced by Steve Jobs at a famous speech: “Stay hungry, stay foolish” probably meant “Be crazy but retain the rationality of choosing the upper bound when you see it.” Any trial and error can be seen as the expression of an option, so long as one is capable of identifying a favorable result and exploiting it…” I have written previously that financial returns are created in the venture capital industry by harvesting optionality. To “stay hungry” is to be alert for opportunity, patient but ready to act aggressively when the time is right. To “stay foolish” is to be willing to buck conventional wisdom when there is a massive potential upside, and a relatively small downside (optionality).
4. “I have always wanted to own and control the primary technology in everything we do.” [2004]
“Because Woz and I started the company based on doing the whole banana, we weren’t so good at partnering with people. I think if Apple could have had a little more of that in its DNA, it would have served it extremely well.” [2005]
“We have to let go of this notion that for Apple to win, Microsoft has to lose. We have to embrace the notion that for Apple to win, Apple has to do a really good job. And if others are going to help us, that’s great.” [1997]
People like Steve Jobs, John Malone and Elon Musk understand the business problems associated with wholesale transfer pricing power as well as anyone in technology. Simply put: Wholesale transfer pricing = the bargaining power of company A that supplies a unique product XYZ to Company B, which may enable company A to take the profits of company B by increasing the wholesale price of XYZ. The way Steve Jobs used the iPod/iTunes business model even before iPhone to avoid the wholesale transfer pricing power of music owners was masterful.
5. “The cure for Apple [when it was down] is not cost-cutting. The cure for Apple is to innovate its way out of its current predicament.” [2004]
“A lot of companies have chosen to downsize, and maybe that was the right thing for them. We chose a different path.” [2010]
You can’t cut your way to success in the technology business. To stop investing in research and development means inevitable, usually nonlinear, decline. There are many current examples of companies paying the price of doing stock buybacks rather than investing aggressively in research and development. Eating your corn seed in a technology business is suicidal and spectacular in its negative consequences at scale.
6. “Even a small thing takes a few years. To do anything of magnitude takes at least five years, more likely seven or eight.” [1995]
Too many founders are unaware of the commitment that they are making when they start a business. To create something truly great takes years. Yes, a truly tiny number of people have flipped a SaaS business in a few years, but that is (1) not common and (2) not an Apple, Microsoft of Google class dent in the universe. The converse of this point is that not every business needs to make a dent in the universe. Owning a small but profitable business can be a very good thing. Not every business should raise venture capital.
7. “My model of management is the Beatles. The reason I say that is because each of the key people in the Beatles kept the others from going off in the directions of their bad tendencies…. They sort of kept each other in check. And then when they split up, they never did anything as good. It was the chemistry of a small group of people, and that chemistry was greater than the sum of the parts. And so John kept Paul from being a teenybopper and Paul kept John from drifting out into the cosmos, and it was magic. And George, in the end, I think provided a tremendous amount of soul to the group. I don’t know what Ringo did.” [2003]
This is a puzzling quote. He did say it so it is worth thinking about. A good friend who knew Steve Jobs said that he sought “control” like Paul and yet idolized John. The situation with the Beatles was not really comparable to Steve’s interaction with others. To truly understand what Steve Jobs meant here would require asking for clarification. It seems more likely that Jobs was referring to the fact that every person on Earth has strengths and weaknesses and that different personalities can balance each other and create a stronger team. By having a diverse team with complementary skills and talents the whole of the output of the team can be far greater than the sum of the parts, if you get the mix right. This lollapalooza outcome can be positive or negative. The venture capitalist Bruce Dunlevie once said to me that every once in while a team comes along that is truly special and magic things happen. Bruce said to me that the chemistry is never exactly the same, but there is something familiar about the pattern.
8. “Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty because they didn’t really do it, they just saw something. It seemed obvious to them after a while.” [1996]
“Being a beginner again… freed me to enter one of the most creative periods of my life.” [2005]
There are many heuristics that can get in the way of creativity. Sometimes it is hard to see what is right in front of your face. As just one example, Steve Jobs said once:
“The last few years at NeXT, I’ve gotten a little better glimpse of what I really saw at Xerox PARC [in 1979], which was two things. One blinded me to the other because it was so dazzling. The first, of course, was the graphical user interface. The second thing I saw–but didn’t see–was the elaborate networking of personal computers into something I would now call ‘interpersonal computing.’ At PARC, they had 200 computers networked using electronic mail and file servers. It was an electronic community of collaboration that they used every day. I didn’t see that because I was so excited about the graphical user interface.
It’s taken me, and to some extent the rest of the industry, a whole decade to finally start to address that second breakthrough– using computers for human collaboration rather than just as word processors and individual productivity tools.” [1991]
One of the things I have found in my writing is that people love and learn well from metaphors. Not only is connecting things in different ways a driver of creativity, it is a great way to convey knowledge. I am compelled to quote Charlie Munger yet again: “you can progress only when you learn the method of learning. Nothing has served me better in my long life than continuous learning.” When Steve Jobs refers to being a “beginner again” I strongly suspect he is referring to Shunryu Suzuki-roshi’s ideas including: “In the beginner’s mind there are many possibilities, but in the expert’s there are few.”
9. “I think part of what made the Macintosh great was that the people working on it were musicians and poets and artists and zoologists and historians who also happened to be the best computer scientists in the world.” [1996]
This sort of thinking is consistent with Charlie Munger’s “lattice of mental model’s” philosophy: “What is elementary, worldly wisdom? Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form….You must know the big ideas in the big disciplines, and use them routinely — all of them, not just a few. Most people are trained in one model—economics, for example—and try to solve all problems in one way.” Many professionals often think only about their own discipline and think that whatever it is that they do for a living will cure all problems. A nutritionist may feel as if she can cure anything for example. Or a chiropractor may believe he can cure depression. These are examples of “man with a hammer” syndrome since to such a person “everything looks like nail” even though it may not be a nail. In the language of Philip Tetlock, it is better to be a “fox” (knows a little about a lot) rather than a “hedgehog” (knows a lot about very little).
10. “People think focus means saying yes to things you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred good ideas that there are. You have to pick carefully.” [2004]
“Innovation is saying no to a thousand things. That’s true for companies, and it’s true for products…. We’re always thinking about new markets we could enter, but it’s only by saying no that you can concentrate on the things that are really important.” [1998]
Focus is tremendously helpful. Focusing on what a business can do that is unique not only creates a sense of mission but is more likely to result in the creation of a moat. This is the same point made by Bill Gurley (tipping his mat to Howard Marks) when he points out: “Being ‘right’ doesn’t lead to superior performance if the consensus forecast is also right.”
11. “Apple’s market share is bigger than BMW’s or Mercedes’s or Porsche’s in the automotive market. What’s wrong with being BMW or Mercedes?” [2004]
This quote pre-dates the iPhone, which changed everything for Apple. But it is interesting nevertheless since this approach is part of the path that took Apple to where it is now. In any event, really big markets create really big opportunities. When I write my post on Don Valentine of Sequoia (who was an original investor in Apple) I will discuss that point in some detail. Don Valentine said once: “I like opportunities that are addressing markets so big that even the management team can’t get in its way.” My post on Andy Rachleff address this point as well.
12. “I’m convinced that about half of what separates successful entrepreneurs from the non-successful ones is pure perseverance.” [1995]
In several of my blog posts I have talked about the difference between missionary and mercenary founders. Missionaries tend to have more perseverance and are much more likely to create a company with massive impact (i.e., put a dent in the universe). Bill Gates said once; “we were kind of naively optimistic and built big companies. And every fantasy we had about creating products and learning new things — we achieved all of it. And most of it as rivals.” If I was able to be a fly on the wall of one meeting between two people who put actually a dent in the technology business it would have been the last meeting between Bill Gates and Steve Jobs. I can’t resist adding that Don Valentine once said to Regis McKenna (who had sent Steve Jobs to talk to him): “Why did you send me this renegade from the human race?” My friend Craig McCaw uses the word “renegade” and similar terms in the same positive way to describe someone who can break the mold and create new value for the world.
Notes:
Steve Jobs – The Lost Interview
CBS News – Steve Jobs in his own words
FastCompany – Steve Jobs wisdom
- A Dozen Things I’ve Learned From Comedians About the Business of Life
- A Dozen Things I’ve Learned from Doug Leone About Startups & Venture Capital
Categories: Uncategorized