Apple: The Splendid Failure

on September 25, 2013
Reading Time: 11 minutes

“All of us have failed to match our dream of perfection. I rate us on the basis of our splendid failure to do the impossible.” ~ William Faulkner

The Innovator’s Dilemma

If you’ve heard this story before, don’t stop me, because I’d like to hear it again. ~ Groucho Marx

The Innovator’s Dilemma made the point that successful companies can lose their way when they pay too much attention to legacy products and not enough attention to new stuff. They are making so much money they either don’t see a competitor rising up or are too complacent to feel threatened. In either case the incumbent generally loses and the upstart generally wins.

Standing still is the fastest way of moving backwards in a rapidly changing world.” ~ Lauren Bacall

The paradox is that choosing “shareholder value” or profit as your North Star will eventually lead to the demise of your business. Disruption, short-term greediness, whatever you want to call it—you will die. To paraphrase Clayton Christensen, you fail by getting too good at pleasing your best customers, while companies that were once beneath contempt eat you from below.

Although gold dust is precious, when it gets in your eyes it obstructs your vision. ~ Hsi-tang

This is exactly what happened to Steve Ballmer and Microsoft. They did everything that the stock market wanted them to do — make money, make more money, make even more money — but they failed to create any new businesses that would generate a new stream of income to sustain them in the future.

(A) strategy that seeks to maximize revenue and profits – i.e. the sort of strategy at which Ballmer excelled – necessarily precludes the creation of significant new products. ~ Ben Thompson

People are now (foolishly) contending that Apple doesn’t innovate, but Microsoft’s two big cash cows – Windows and Office – were both created in the 1980’s! Now THAT’s a lack of timely innovation.

It is necessary for us to learn from others’ mistakes. You will not live long enough to make them all yourself. ~ Hyman George Rickover

Ben Thompson further contends that the same thing will happen to Apple if they have a Steve Ballmer-like CEO at the helm or if they follow the advice of the stock market.

“…everyone at Apple would be working so hard, and be making so much money, both for themselves and for Apple’s shareholders, that they would ensure that Apple never again reinvents consumer computing.” ~ Ben Thompson

The Innovator’s Impossible Solution

There is always an easy solution to every human problem—-neat, plausible, and wrong. ~ H. L. Mencken

The innovator’s solution is unbelievably simple…and simply unbelievable:

    1) Invent the future…before your existing competitor’s — and the competitor’s that don’t yet exist — do; and
    2) Prioritize future profits over current profits.

Simple, no?

No.

Inventing The Future

Every once in a while a revolutionary product comes along that changes everything… One is very fortunate if you get to work on just one of these in your career. Apple’s been very fortunate its been able to introduce a few of these into the world. ~ Steve Jobs

Do we know what company is going to create the next revolutionary product and invent the future? Of course we don’t. That company may not even exist yet or be too small for us to take note of. How is one supposed to prepare for that?

Prioritize future profits over current profits

Ignore profit, risk financial ruin, ignore financial incentives for your employees, ignore your creditors, ignore your investors, ignore your stockholders, ignore Wall Street…

…in other words, ignore reality.

It’s A Dilemma

That’s why it’s called a dilemma and not a problem. A problem can be solved. A dilemma is a choice between two equally undesirable alternatives. A company can make money when it’s young and risk stagnating when it’s old or risk starving when it’s young but theoretically innovate forev…well, innovate longer and more often, anyway.

I want to die young at a ripe old age. ~ Ashley Montagu

Hundreds of thousands of companies go out of business every year because they chose the latter course. Makes choosing the former look a little more palatable, eh?

I know I’m (working) myself to a slow death, but then I’m in no hurry. ~ Robert Benchley

Steve Jobs Hoped To Resolve The Innovator’s Dilemma

From the errors of others a wise man corrects his own. ~ Publilius Syrus

Steve Jobs clearly hoped to resolve the Innovator’s Dilemma:

Apple has the opportunity to set a new example of how great an American corporation can be, sort of an intersection between science and aesthetics. Something happens to companies when they get to be a few million dollars — their souls go away. And that’s the biggest thing I’ll be measured on: Were we able to grow a $10 billion company that didn’t lose its soul? ~ Steve Jobs

In order to overcome the Innovator’s dilemma, Steve Jobs created a radically new way to run a company, structuring his company entirely differently than any large company of 20th Century.

Kobayashi Maru ((The Kobayashi Maru is a test in the fictional Star Trek universe. It is a Starfleet training exercise designed to test the character of cadets in the command track at Starfleet Academy. The Kobayashi Maru test was first depicted in the opening scene of the film Star Trek II: The Wrath of Khan and also appears in the 2009 film Star Trek. In Star Trek VI: The Undiscovered Country, Dr. McCoy referenced the test as an example of the no-win scenario that he and Captain Kirk were facing. The test’s name is occasionally used among Star Trek fans or those familiar with the series to describe a no-win scenario, or a solution that involves redefining the problem. ~ Wikipedia))

Do not go where the path may lead, go instead where there is no path and leave a trail. ~ Ralph Waldo Emerson

What does Kobayashi Maru mean? It means that when you’re faced with a no-win scenario, you redefine the problem. ((It also means that you haven’t seen enough Star Trek.))

If the only tool you have is a hammer, every problem looks like a nail. ~ Abraham Maslow

There’s great wisdom contained in the above aphorism. On the other hand, if the only tool you have is a Hammer…

…then you really should get more tools.

Steve Jobs went out and forged some more tools.

Effective people don’t just do things differently… they do different things.” ~ Slogan for Covey Leadership Center

Prioritize The User Experience Over Profits

Apple puts the customer at the center of their business. Profit is viewed as necessary, but not sufficient.

We believe that we’re on the face of the Earth to make great products, and that’s not changing. ~ Tim Cook

Apple’s primary objective is to make a great product, to build the best, to to delight the customer and provide a great experience.

Any activity becomes creative when the doer cares about doing it right, or better. ~ John Updike

Apple reinvents existing markets by making the user experience easier, richer, and more pleasant.

The visionary starts with a clean sheet of paper, and re-imagines the world. ~ Malcolm Gladwell

Each time, they begin at the beginning, and start with the user’s experience first and drive back through their infrastructure to make that a reality.

You know, we want to really enrich people’s lives ~ Tim Cook

They absorb the complexity and present the simplicity. They’re obsessed with details and sweat the small stuff so that the customer doesn’t have to.

We try to make tools for people that enable them to do things that they couldn’t without the tool. But we want them to not have to be preoccupied with the tool. – Jony Ive

If it disappears, we know we’ve done it. ~ Federighi

The Expected Result: Innovation and Fanatical Customer Loyalty

The proof of the pudding is in the eating. ~ Miguel de Cervantes

If you make innovation your number one priority, you’d expect innovative products and fanatical customer loyalty. And, unsurprisingly, Apple has them both.

Innovation

Design is where Apple products start,” writes Lashinsky. “Competitors marvel at the point of prominence Apple’s industrial designers have. ‘Most companies make all their plans, all their marketing, all their positioning, and then they kind of hand it down to a designer,’ said Yves Behar, CEO of the design consultancy Fuseproject. The process is reversed at Apple, where everyone else in the organization needs to conform to the designer’s vision. ‘If the designers say the material has to have integrity, the whole organization says okay,’ said Behar. In other words, a designer typically would be told what to do and say by the folks in manufacturing. At Apple it works the other way around.”

Fanatical Customer Loyalty

A satisfied customer is the best business strategy of all. ~ Michael LeBoeuf

ap709556740620Apple’s customer’s love Apple. For some reason that surprises people.

People who don’t love Apple or Apple’s products (and there’s absolutely nothing wrong with that — as we’ll see later, Apple is not for everyone) claim that they don’t understand why Apple’s customers are so loyal. It must be that Apple’s customers are stupid or that they’re part of a cult or because Apple’s marketing has cast a spell upon them.

Are you kidding me?

Source

If Apple’s first priority is the user experience, then OF COURSE Apple’s customers are going to be loyal to them. It’s not an enigma or some great mystery, just the opposite. Apple’s high customer loyalty is an obvious result of Apple’s policies and priorities. Since Apple puts the customer experience first, what would be surprising would be if Apple’s customer’s were NOT loyal.

Appreciation is a wonderful thing: It makes what is excellent in others belong to us as well. ~ Voltaire

The Unexpected Result: Devoted Employees And Massive Profits

If a company prioritizes product over employees and profits, then employee loyalty and profitability are supposed to suffer. But that hasn’t happened at Apple.

Devoted Employees

The problem with prioritizing product over profits is that it demotivates employees by reducing career advancement and removing economic incentives. Or, at least, that’s how it’s supposed to work.

Money doesn’t make you happy. I now have 50 million but I was just as happy when I had 48 million. ~ Arnold Schwarzenegger

I don’t think that working at Apple is a picnic, but it’s very clear that they attract and keep good employees. The reason for this is that they substitute intrinsic rewards for financial rewards. That’s not going to cut it for everyone but it’s highly motivating to the type of employees that Apple finds desirable.

“People come (to Apple) for the values that are evident in every product we build,” Ive says. “When we make decisions, it’s not a battle of people trying to break us out of our value system. We all want to double down on these values, whose aim is to make things simpler, more focused. Those are spoken and unspoken mantras in all the discussions we have. You can call that Steve’s legacy, but it’s Apple now.”

Working on fascinating projects, pursuing excellence, having a sense of purpose, feeling like you’re making a contribution to the world — these things are highly motivating to many people.

And frankly, we don’t settle for anything less than excellence in every group in the company ~ Tim Cook

Perfection is our goal, excellence will be tolerated. ~ J. Yahl

Turns out that for many, the products, not the profits, are motivation enough.

You can tell a lot about a company by the people they keep.” ~ Advertising slogan for Microsoft Corporation

“He who has a ‘why’ to live can bear almost any ‘how.'” ~ Friedrich Nietzsche

Profits

Take a long, hard look at these quotes regarding de-emphasizing profits at Apple:

“Manage the top line, and the bottom line will follow.” ~ Steve Jobs

If you keep your eye on the profit, you’re going to skimp on the product. But if you focus on making really great products, then the profits will follow. ~ Steve Jobs

“The goal of Apple is not to make money but to make really nice products, really great products. That is our goal and as a consequence if they are good, people will buy them and we’ll make money.” ~ Jonathan Ive

Sounds like a lot of pie-in-the-sky hooey, right? If you prioritize product over profits then profits are going to suffer, right?

Wrong.

Apple currently has 55% phone profits. I think the 5c designed to bring them back up to 65%. ~ eric perlberg (@eric_perlberg)

But how could this be?

So many companies wish they were as doomed as Apple. ~ ßen ßajarin (@BenBajarin)

Apple’s Secret, Hidden In Plain Site

“A paradox is truth standing on its head to attract our attention.”

So how does this work? If Apple is prioritizing product over profits, then why do they have so much profit?

Simple. They only go after the profitable part of the market (duh).

It Is No Bed Of Roses

It’s not all sunshine and flowers for Apple. Their contrarian strategy riles the analysts. Their elitist pricing maddens the critics. And for some reason, Apple, makes people go out of their gourd.

Pundits, Analysts, and Investors. Oh my!

Industry observers don’t understand Apple. (To be fair, I think Apple may reciprocate, in kind.)

I know that you believe that you understood what you think I said, but I am not sure you realize that what you heard is not what I meant. ~ Robert McCloskey

Lots and lots of analysts would prefer that Steve Ballmer ran Apple. The way Steve Ballmer is running Microsoft into the ground is the kind of failure that analysts can understand and appreciate.

Apple, on the other hand, doesn’t play by the known rules:

— Apple doesn’t do low prices;
— Apple chooses quality over quantity;
— Apple doesn’t go after market share;
— Apple emphasizes touchy, feely, emotional things that can’t be measured;

Unless analysts learn to appreciate the unmeasurable value consumers place on the experience of a product, they will be forever surprised. ~ Ben Thompson (@monkbent)

— Apple doesn’t play well with Wall Street.

Giving your company over to the whims of Wall Street is like turning your daughter over to a pimp.

The reason Apple isn’t playing by the known rules is because Apple is playing an entirely different game – a game that the Analysts are unfamiliar with.

No product has been more disrupted by the shift from enterprise to consumer than analyst forecasts. ~ Ben Thompson (@monkbent)

Apple taking advice from Wall Street would be like a baseball player taking advice from a football coach.

There is nothing so stupid as the educated man if you get him off the thing he was educated in. ~ Will Rogers

To be fair, even if Apple were playing the game, short-term, myopic, panic-stricken Wall Street is hardly who’d they turn to for advice.

Just out of curiosity, why the hell do analysts think that lowering the price of something is innovative?

Basically, Wall Street is trying to teach a fish how to swim. And Apple’s having none of it.

Apparently, Wall Street feels everyone — except Apple, who has done it time and time again – has expertise in disruption theory.

Critics

Apple is not for everybody:

— They sell a premium product at a premium price.

— They also think that they know technology better than their customers do. Go figure.

The downside to being better than everyone is that people seem to think you are pretentious. ~ Despair.com

— Also, Apple has a very loyal fan base.

Everybody hates me because I’m so universally liked.

Apparently, Apple’s whole attitude and the attitude of Apple’s customers just really ticks people off. The sad truth is that excellence makes people nervous.

If you haven’t got anything good to say…you can always blog about Apple.

I don’t get it. All Apple is asking you to do is not buy their stuff and shut up. Is that really so hard?

Descartes walks into a bar, and the bartender asks “Would you like a beer?” Descartes replies, “I think not” and poof! he vanishes.”

If only Apple’s thoughtless critics were so easily disposed of.

Reality Distortion Field

You think APPLE has a reality distortion field? When it comes to delusional thinking, Apple can’t hold a candle to their critics.

There are an incredible number of people who honestly believe that Apple can hoodwink 9 million people into buying an iPhone. ~ James Kendrick (@jkendrick)

Judging from the lines around the block and the cheering in Palo Alto, Apple screwed up again and built something nobody wants. ~ John Lilly (@johnolilly)

Most people need a reason to criticize others. Apple’s critics just need a keyboard.

Judging from the comments, Apple seems to have two major problems: not enough demand AND not enough supply ~ Horace Dediu (@asymco)

After using the iPhone 5S for a few days I can say it hasn’t fixed that awful sense of emptiness inside me. Worst iPhone release ever. ~ Jonathan Wight (@schwa)

I offer Apple’s critics a bargain: if they will stop telling falsehoods about Apple, I will stop telling the truth about them.

Conclusion

Is Apple an Illusion or a paradox waiting to be resolved?

We are confronted by insurmountable opportunities. ~ Walt Kelly, from Pogo

Apple is like a good sermon. They comfort the afflicted and afflict the comfortable.

“It’s easy to make a buck. It’s a lot tougher to make a difference.” ~ Tom Brokaw

“The reasonable man adapts himself to the world. The unreasonable man persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.”-George Bernard Shaw

I am now convinced that Apple will always be viewed as a failure by their critics and by their investors, no matter what they make or how much they make…

We are all failures–at least, the best of us are. ~ James M. Barrie

…ah, but what a splendid failure they are.

Next Time: “Apple’s Dilemma: The Bear Case Against Apple”

Author’s Note: I’ve been twittering a lot of late. Come join the discussion @johnkirk