There’s an interesting article in USA Today about Apple’s future. The author, Michael Wolff, cites several reasons for asserting that Apple is on the downside of maturity. I figured it’s been a while since I’ve posted insights on Apple, and there’s a lesson for small and mid-market companies, so I’d do a little prognostication.
Wolfe cites four main points for his conclusion:
- Its phone market, tablet market and content-selling business — iTunes — until recently practical monopolies, have become, as if overnight, hugely competitive fields. Management, in this strictly top-down company, is suddenly in dramatic flux. And, with its great map app debacle, Apple’s customers are starting to rise up against its famous closed-system policies.
- And yet, befitting a company whose real genius is design (i.e. illusion), there is something ephemeral about its position. It has not so much created monopolies — the secret of generational success — as opened new markets for everyone. These markets — smartphones, tablets, digital content distribution — have become the dominant ones in the technology business. There’s no place else for a big player to go. And in the case of phones and tablets, all you have, in the end, are fairly basic machines. It’s a game of price and features and shrinking margin.
- The smartphone market — until recently split between an ever-growing iPhone dominance, a stalwart BlackBerry and a divided Android field — is now, increasingly, an iPhone vs. Samsung world. The difference between one dominant player and a collection of would-be players and two clear alternatives is a vast one. Samsung’s consumer electronics marketing clout — and its breathtaking advertising budget — is even large enough to go toe-to-toe with Apple’s brand mythology and ubiquity.
- And now a backlash against the products. It is an extraordinary part of the Apple marketing dynamic that a great number of consumers buy Apple while resenting it, too. Apple is a peer-pressure buy, often at the expense of functionality and, even, common sense. The underlying fury at Apple’s authoritarian product control and disregard of its consumers finally broke into the open with its decision to abandon Google Maps.
- I find it fascinating the Wolff equates design to “illusion.” That observation alone clearly demonstrates that Wolff (the author of several books on technology) is looking at Apple through the lens of a technologist, and not through the lens of Apple’s customer.
- Wolff is looking at the market from the standpoint of volume – not profit. In other portions of the article he refers to Apple’s degrading market share. While Apple is losing “market share”, its share of the profits continues to increase. While that is certainly no guarantee of success in the future, it’s the focus on volume over profits that gets most technology companies in trouble (a la Dell, IBM, HP to name just a few). So yes, Samsung is picking up lots of share (and spending ungodly amounts on advertising – some of which is quite entertaining) it’s not denting Apple’s profit.
- Wolff’s final point is partially legitimate. While Apple is maniacal in focusing and understanding its core customer, it’s not good at listening. It’s confident, even arrogant, in its actions, and that is always a risk. While Apple did screw up Maps, it’s not the first time its done so, and botched the follow up (antennae-gate anyone?). To date, Apple has always quickly recovered by staying focused on its core.
And, that is the lesson for all business leaders. While I cannot predict Apple’s future, I can say this:
- Apple has succeeded because it’s maniacally clear on who their customer really is. Simply put, Apple knows who they want to be a hero to, and who they don’t worry much about.
- Apple has always focused on their why, not their what.
- Since Jobs returned Apple has been extremely focused on what it does best.
If Apple stays true to those three points, my bet is with them (and every business that follows these rules). If they violate them, then yes, Apple’s days of dominance are numbered, but not because someone else is building better products.
I had the pleasure of spending an evening this week with two of my favorite entrepreneurial advocates – Dan Sullivan and EO. Dan was sharing his thoughts on creating a 10x mindset, and he made two points that I think are critical for all of us. A Front Row Seat to Creative Destruction We live in crazy times today. Let’s face it, things are messy. Messiness never creates comfort, and in today’s 24-hour news cycle that discomfort is multiplied. But the reality is that, that’s what progress is all about. As new innovations kill old standards. It’s never pretty, and the amazing rate of progress we are all able to take advantage of, also means there’s an amazing rate of destruction. As Dan shared, we’re at a crossover from a world ruled by the laws of industrial production to one ruled by the laws of the microchip. Think about this. Dan pointed out that the very iPhone sitting in my pocket would have been valued at $1.7 billion in 1972. I can only imagine what the iPad I’m writing this post on would have been valued at. Scarcity vs. Abundance The real battle we’re witnessing is a battle between the philosophy of scarcity and the philosophy of abundance. While entrepreneurs tend to naturally have an abundance outlook, we must remember that many institutions and industries have a highly vested interest in scarcity. If it’s a zero sum game, we need institutions to protect us from ourselves. If every time there’s a winner, there’s a loser (and the bigger the winner the bigger the loser), then we must have authorities to referee the game. A scarcity mindset leads to resentment, guilt and destruction. Abundance leads to creation, gratitude and cooperation. As economist and business profession Julian Simon professed, there is one – and only one – natural resource. It’s called human ingenuity…and I wouldn’t bet against it.
It’s not often that you get to witness the birth, growth, climax and death of a major company in less than a generation, but we’re all witness to it at RIM, with the impending death of their business.
When I wrote Is Blackberry a Dead Product Walking, I was worried that people would view the headline as hyperbole (and many did, while taking issue with my thoughts). Yet, here we are, less than 18 months later the stock is down form nearly $70 to just above $10. Last week, news comes that RIM, the maker of Blackberry, has engaged JP Morgan Chase and RBC Securities to “help it evaluate its options.”
As I shared in my original post, “You know the surest way to go broke? Keep introducing more new products while you continue to lose share of a growing market. Down the tubes. Slow but sure.” It turned out not to be so slow.
Let this be a lesson to all business – especially small and mid-market ones. It didn’t have to be this way. But, sure as the sun sets in the West, RIM followed a direct path to irrelevancy:
- They defined themselves by their product, not by their customer.
- All innovation was inward focused. Increasingly they became a solution looking for a problem.
- They assumed they couldn’t fail.
- They wrote off every challenger – including Apple – as a non-starter, with a model that was not viable. Saying in April 2007, ““Again, I have said this before and I will say it again; Apple has done the industry an enormous favor because they basically told the world expect a media player as a software feature on a good smartphone. As the leading smartphone appliance company and platform company, we could not buy that kind of validation for $100 million.”
- They refused to bring true innovation to the table for fear of cannibalizing their revenue; failing to realize what Steve Jobs did, “If we don’t cannibalize our products, someone else will.”
Don’t fall victim to hubris. Be maniacally focused on your customer, challenge the status quo and you’ll find a future far brighter than RIM’s.
It’s the dream of many entrepreneurs. Coming up with that big idea, starting a business, growing it and ultimately selling for a sum of money that allows them to relax for the rest of their life.
Over the last 20 years, I’ve learned that there are, fundamentally, two types of business owners: those that have no desire to sell their business and are just looking to earn a nice (or substantial) income doing things they love to do; while others desire to sell their business, often viewing their business as the primary asset in their wealth creation efforts.
What I find interesting is that only about 10% of those owners that desire to sell in the future ever really stop to understand what really drives the equity value of a business. Unfortunately, the failure to consider this typically results in a business that fails to deliver either on its income or wealth creation potential.
In my experience, there is a major driver of equity value that is often overlooked, and yet it is the primary driver in the enhancing the long-term valuation of a business.
The ability to systematically, independently, predictably and consistently generate new customers, while protecting your margins is crucial to unlock the equity value of any business.
I will be writing more about this in the future here, but for now suffice it to say that if selling your business in the future, whether to an outsider, to your employees, or to your kids, it is critical that you develop a well articulated, consistent, predictable approach to the development of new customers. This ability will enable you to unlock the max value of your business, while also enhancing the profitability and income your enjoy in the meantime.