In 1997, shortly after Steve Jobs had returned to Apple as CEO, Michael Dell was asked what he'd do if he were in charge of the company. Dell replied, "I'd shut it down and give the money back to shareholders."
Apple investors are obviously very thankful Dell wasn't put in charge. The company's shares are up over 17,000% since Dell made that flippant remark.
The period from Steve Jobs' return to Apple until his death in 2011 is one of the greatest runs in American business history. During that time, Apple went from being a troubled company in decline to become the most valuable company in the world.
This raises two essential questions for investors:
1. What precisely accounts for this incredible success during Steve Jobs' second act at Apple?
2. Were there signals available to investors in 1997 that Apple was on the verge of its dramatic upward trajectory?
The excellent new book Becoming Steve Jobs, by Brent Schlender and Rick Tetzeli, provides us with valuable insights into these two questions. They argue that it's essential to examine the wilderness years from 1985 to 1997 -- the time when Jobs left Apple to start NeXT and acquire Pixar -- in order to better understand the company's remarkable transformation from 1997 onward. They write,
Management expert Jim Collins, author of Good to Great and Built to Last in addition to other best-sellers, believes Jobs was "not a success story, but a growth story." Schlender and Tetzeli show us that Jobs achieved most of his growth during the overlooked period between his two tenures at Apple.
Learning from Woody
In 1985 Steve Jobs was definitely in need of some "growth." Indeed, some observers might have said he needed to grow up. The authors describe him as "egocentric, unrealistically idealistic, and unable to manage the ups and downs of real relationships." At that time, they believe, Jobs could be a "spoiled brat."
Things began to change, however, after he purchased the Computer Graphics Division from George Lucas, which then became "Pixar." Schlender and Tetzeli argue that, "without the lessons he learned at Pixar, there would have been no great second act at Apple."
Jobs benefited most of all from Ed Catmull, who was Pixar's chief technical officer under Jobs. The authors note that Catmull knows more about managing and motivating creative people than anyone they've ever met. And this had a huge influence on Jobs, who learned that "the best management technique is to forgo micromanagement and give good, talented people the room they need to succeed." That lesson would be central to his later success.
During this time away from Apple, Jobs also gained discipline from trying to salvage his struggling new company, NeXT, while also negotiating deals on behalf of Pixar. Jobs' intense struggle to succeed, in the face of numerous obstacles, had a tremendous impact on him. He became an effective leader. Jim Collins believes he went from being a "great artist to being a great company builder."
Dropping in after dropping out
Was it apparent at the time that Steve Jobs was a wiser, more effective leader when he returned in 1997? That is impossible to know for sure, of course. But the authors offer an interesting framework for looking at that question. And their outlook might be helpful for investors who are considering similar situations.
In his famous Stanford University commencement address in 2005, Jobs himself offered a way to understand the future. He told a beautiful story about how he "dropped in" on a calligraphy class, after dropping out of Reed College. At the time, he felt the course couldn't have been more impractical. And yet, 10 years later, when he was designing the first Macintosh computer, he was inspired to include multiple typefaces and proportionally spaced fonts. Jobs then told the graduates:
The authors believe this is key to understanding Apple's future success after Jobs returned. Jobs had been through a lot with NeXT and Pixar, and he'd just have to "trust that the dots would somehow connect." Schlender and Tetzeli point to the iPhone as a perfect example of this. Five disparate teams were exploring wildly, and Jobs was able to bring them together to create the most successful, most profitable consumer product ever. As Jobs noted, "We followed where our desires led us and we ended up ahead."
No one in 1997 knew exactly what the future held for Apple. But those investors who understood where Jobs had been and what he had learned might have been willing to bet on his second act. By connecting the dots backward, we now know that would have been an extremely wise bet.
The real Steve
Schlender and Tetzeli have written an important book that should be read in tandem with Walter Isaacson's authoritative Steve Jobs. Their book is a lot more admiring of Jobs, and they quote Tim Cook who feels "the Isaacson book did him [Jobs] a tremendous disservice." Personally, I enjoyed both books, and feel Jobs was such a large personality that he is deserving of multiple interpretations. Somehow, I think Jobs would have appreciated Walt Whitman's famous line, "I am large, I contain multitudes."
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