> “I have my own theory about why decline happens at companies,” Jobs told me: They make some great products, but then the sales and marketing people take over the company, because they are the ones who can juice up profits. “When the sales guys run the company, the product guys don’t matter so much, and a lot of them just turn off. It happened at Apple when Sculley came in, which was my fault, and it happened when Ballmer took over at Microsoft.”
I'm curious when this was recorded, but my guess is early 2000s or maybe late 1990s?
With how Apple has avoided ever becoming a monopoly in pretty much any area, and instead tries to just take the top most profitable customers, it really meshes well with this idea of not becoming a monopoly and having the company rot.
Edit: looks like this might be from Triumph of the Nerds, a series released on PBS in 1996. So before Jobs' return to Apple and Apple's turn around.
That’s an interesting thought. I always assumed they went for the upscale market because that’s where the profit margin is. But also, it does seem to let them pull in a ton of profit while not ever becoming a monopoly or the dominant player.
I think they are only the majority in tablets, right? And tablets seem to be, oddly enough, a bit stagnant.
Yes, it's more than simply going for the most profitable customers, it's about avoiding the least profitable customers so that there's still a forcing function on the company to stay on top. And also direct immediate feedback trhough loss of the high profit margin customers, when starting to fail.
Of course, this could be overthinking a plate of beans, maybe Apple just aims for a high price point and high profit margin. But if you did want to take most of the current profits, and most of the future profits, you'd ensure you got enough feedback to not become a monopoly. You'd aim to take only the high profit margin customers and intentionally ignore the lower profit margin customers to let some form of competition continue to push on you.
From what I understand, their network was overengineered and they generally put out a very high quality product, and didn't need to do a lot of marketing.
They put out a high quality, overengineered, extremely expensive product that, by government mandate, had no competition. After deregulation it was clear that customers wanted a little less quality for a lot less money.
You don't need to do any marketing when you're a government-protected monopoly and customers have a choice between having phone service with you, or no phone service at all.
Reminds me of Clayton Christensen's talk at Google or argument in this article.
"Because they were taught to believe that the efficiency of capital was a virtue, financiers began measuring profitability not as dollars, yen, or yuan, but as ratios like RONA (return on net assets), ROIC (return on invested capital), and IRR (internal rate of return)...
All of this makes market-creating innovations appear less attractive as investments. Typically, they bear fruit only after five to 10 years; in contrast, efficiency innovations typically pay off within a year or two. What’s worse, growing market-creating innovations to scale uses capital, which must often be put onto the balance sheet. Efficiency innovations take capital off the balance sheet, however. To top it off, efficiency innovations almost always seem to entail less risk than market-creating ones, because a market for them already exists."
Reputation is an asset like anything else. It's probably economically rational to build up a reputation for good quality while you're small, and then switch to extracting as much value as you can from that reputation once you've gotten big. (I don't like it but I don't see any way to prevent it being the most profitable course)
It's also possible to optimize for long term profitability.
> There were certain things about the business where it was obvious – speaking to people who had been on that journey for 25 years before I joined – that they were not likely to change in the future because they hadn’t changed in the previous 25 years. The first thing that struck me was an absolutely rock-solid commitment to gaining the trust of the customer, the employees, the suppliers and business partners. Almost every rule or method or procedure of the company was built around ensuring that.
If you're in a stable business like groceries where you can be confident that your market will still be around in 25 years, sure. But that doesn't apply to a lot of businesses.
Precisely. Who accurately predicted the shift from long-haul, high-capacity airliners to smaller, more fuel efficient airliners to fit with a hub-and-spoke model?
Now layer that on top of the decade it takes to get a new plane from drawing board to delivery.
From what I've read, it sounds like Boeing completely lucked into it. It wasn't some smart person who could accurately predict the future.
And to be honest, a lot of companies we think of as being "innovative" and having "foresight" are that way. They made the best business decision they could, based on what was known at the time, and the stars lined up to make it a huge hit.
Saying that a company can plan for future profitability isn't supported by the facts.
Save for perhaps the development of transporter technology or an unending deluge of viral pandemics, making airplanes for commercial aviation seems fairly predictable as to whether or not it'll exist in 25 years.
To some extent, but your airplane customer has quite a bit more flexibility than a grocery customer. I'm probably not going to buy French perishables but an airbus is a different story.
The question was whether or not your market will exist in 25 years, not whether or not your customers will consider a competitor's product.
And regardless, I have quite a lot of flexibility as a grocery customer. I can go to Safeway, Whole Foods, Grocery Outlet, or my local small grocery around the corner. Target and Walgreens even have some groceries too.
The decision to value the long term trust of your employees, customers and business partners more than short term profits would apply to any type of business that wants to survive and thrive over the long haul.
I think it's the McNamara fallacy taking hold over time.
>But when the McNamara discipline is applied too literally, the first step is to measure whatever can be easily measured. The second step is to disregard that which can't easily be measured or given a quantitative value. The third step is to presume that what can't be measured easily really isn't important. The fo[u]rth step is to say that what can't be easily measured really doesn't exist. This is suicide.
Cutting corners on something can save money now and can be measured but the hit to reputation can't be.
Hard times create strong people
strong people create good times
good times create weak people
weak people create hard times
Obviously that's not some magic rule or anything, but people shape their surroundings, then the surroundings shape their people. When played out across generations (or multiple phases of ownership at a company, as in your comment), cycles often form.
Seems like if you do this over and over and over again under different brands - say on like a staggered Decade schedule - you optimize your profits, milking as much out of your market as possible while severely cutting cost and quality and competence.
Completely different thing. The gist of the Boeing theory is that it was ruined by a finance-driven culture that resulted in cost-cutting away quality and safety.
"Enshittification" is not based on cost-cutting or optimizing for profits. It's when a product that's already "perfect" and widely used, has lots of money/effort invested in it to chase further growth, and the changes end up making the product worse for its existing userbase.
4.1 Company starts to talk about politics instead of products in their marketing campaigns
4.2 Company starts to cut cost on workforce by pushing out experienced people and hiring cheap newbies
4.3 As a result of the previous one, expertise drops rapidly and product quality starts to drop
4.4 As the product quality decreases, bleeding experienced people makes it impossible to stabilize
4.5 There is nobody left to innovate. The cafeteria manager is the best path to become an IT director (real case: 3 consecutive cafeteria managers in the same office were promoted as IT directors in one of these companies), so the best expertise the management has is to pick the right beverages for the automated vending machines in the office
4.6 Principles and values disappear, corruptions grows, while internal controls don't even bother to look into frauds less than $1 million per incident
4.7 stock price drops, even if the company continuously spends money on shares buybacks
It does. When you have nothing big to inovate to most products, you need to tell a story to keep the attention of the customers. This is where 4.1 comes into the picture.
When 4.1 changes the direction into politics, you start doing it internally. That leads to the next points.
Boeing, like many B2B companies, is B2B2C. They may not sell directly to the public, but they have a public brand. (Unlike Spirit AeroSystems.)
And therefore, B2B companies run ads, e.g. to sway public opinion on government policies, or (now) to restore flyer confidence in their product. If US airlines get enough emails and letters from customers saying "I'll never fly a 737 MAX again!", that gives the airlines huge negotiating leverage against Boeing.
Gillette was B2B until 10 years ago, but it was one of the biggest spenders on marketing as percentage of their product total cost. There is no pure B2B if your brand is known to public.
1. Company is product-quality focused
2. Beats competition and creates mini-monopoly
3. Sales becomes somewhat inelastic to changes in quality
4. This leads "cost-cutting" and marketing focused execs/decision making to beat out product quality execs/decision making
5. Company's product quality takes predictable linear path to the bottom