Finding the old Mojo – Macs are back – Apple


Summary:

  • It seems like the best way to find old success is to do more of what used to make you successful
  • But lack of success is from market shifts, meaning you need to do more things
  • Investing in what you know gets more expensive every year, with little (if any) improvement in returns
  • To regain success it’s actually better to get out into new markets where you can compete with lower investment rates, generating more profitable sales
  • Apple increased its sales of Macs not by focusing on Macs – but instead by becoming a winner in entirely different markets creating a feedback loop to the old, original “core”

MediaPost.com, in its article “Enterprise Sector Takes a Shine to Apple” has some remarkable statistics about Apple sales.  At a time when most PC manufacturers, such as Dell and HP, are struggling to maintain even decent growth (even after the launch of upgraded Windows 7 and Office 2010) Apple is dramatically increasing its volume of Macs – and gaining market share. In last year’s second quarter:

  • Mac sales jumped almost 50% in the business sector
  • Mac sales jumped a whopping 200% in the government sector
  • Mac sales rose over 31% in the home sector
  • In Europe, Mac unit sales doubled their market share – and more than tripled their share in dollars

Yes, Macs are a small part of the market.  Around 3.5% in the U.S.  But, if you’re an Apple employee, supplier or investor that doesn’t matter, does it?  In fact, it comes off sounding like a PC fan pooh-poohing a really astounding sales improvement.  Nobody is saying the Mac will soon replace PCs (that’s more likely to happen via mobile devices where Apple has iPhone and iPad).  But when you can dramatically increase your sales, especially as a $50B company, it’s a big deal.

The lesson for managers here is more unconventional.  For years we’ve been told the way to grow your sales and profits is to “stick to your knitting.”  To “protect your core.”  The idea has been promoted that you should jettison anything that is a diversion to what you want to do best, and completely focus on what you select, and then try to out-compete all others with that product.  If things don’t improve, then you need to get even more focused on your core, and invest more deeply.  And hope the Mojo returns.

But that’s exactly the opposite of what Apple did.  When almost bankrupt in 2001 Apple jettisoned multiple Mac products.  It invested in music and entertainment products (iPod. iTouch and iTunes) to grab large sales with lower investment rates.  It then rolled that success into developing the mobile computing/phone business with the iPhone and all those apps (some 250 thousand now and growing!).  And it built on that success with a mobile tablet called the iPad.  The Mac is now growing as a result of Apple’s success in all these other products creating a favorable feedback loop to the original “core”.

Apple spends less than 1/8th the money on R&D as Microsoft.  And an even lesser amount on marketing, PR and sales.  Yet, by entering new markets it gets far more “bang for its buck.”  By entering new markets Apple is able to develop and launch new products, that sell in greater volumes and at higher profits, than had it stuck to being a “Mac company.”  In fact, back when it only had 45 days of cash on hand, if it had stayed a “Mac company” Apple would have failed.

What we now see is that constantly re-investing in what you know drives down marginal rates of return.  It keeps getting harder and harder, at ever greater cost, to drive new development and new sales with upgrades to old products.  Look at the sales and profit problems at Sun Microsystems (world leader in Unix servers) and Silicon Graphics (world leader in graphics computers) and now Dell.  What we’d like to think works at driving revenue and profits really raises new product costs and creates an easy target for new competitors who attack you as you sit there, all Locked-in to doing more of the same.

Contrarily, when you develop new products for new markets you grow revenues at lower cost, and thus higher profits.  And you create a feedback loop that helps you get more sales without massive investments in your historical “core.”  Think about Nike.  It hasn’t been a “shoe company” for a very long time – but its shoes are greatly benefited by all the success Nike has in golf clubs and all those other products with a swoosh on them.  

When confronted with a decision between “investing in the core” – or “protecting the mother ship” – or investing in new markets and solutions —- be very careful.  Your “gut” may lead you to “in a blink” decide the obvious answer is to invest in what you know.  But we are learning every quarter that this is a road to problems.  You get more and more focused, and less and less prepared for the market shift that sent you into that “core focus” in the first place.  Pretty soon you’re so far removed from the market you can’t survive – like Sun and SGI.  It’s really a whole lot smarter to get out into new markets with White Space teams that can generate revenues with a lot less cost by being a smart, early competitor.

Lifecycle Reality – Google, Telstra, GM

 You've probably read that 80% of new jobs are created in small business.  Even if this is true, it creates a misconception. You'd think that we need to start lots of new companies.  As BusinessWeek reported in "Looking for More High Growth Start-ups" 40% of new jobs are created by a mere 1% of start-ups.  The really fast growers.

We like to think that all companies contribute job growth to the economy.  But that is simply not true. In reality, the vast majority of businesses contribute no new jobs.  In fact, they are reducing employment.  Almost all of the job growth, in fact almost all of the economic growth, comes from a very small number of companies that account for almost all the real growth.  These are the 10% of companies that are in the Rapids.  All others are either looking for early growth, or trying to "hang on" to an outdated Success Formula and seeing their business slowly (or not so slowly) erode.

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Most small businesses are in the Wellspring.  Looking for some kind of growth.  Most of these – literally 90% – never really figure out a Success Formula that drives growth, and they simply die off.  The other big group of businesses are somewhere in the Flats or Swamp.  Growth has left them, as market shifts have taken demand to other competitors.  They are facing a Re-Invention Gap between what they do and what most customers really want.  As a result, they produce no inflation-adjusted revenue growth, and no new jobs.  Eventually, as the re-invention gap grows, they drift into the Swamp of declining returns.  Eventually they become obsolete.  Think about independent pharmacies, most insurance agents, small banks, bicycle shops – you get the idea. 

So where do we get new jobs?  From the companies that are in the Rapids.  Think about the skkyrocketing employment at places like Boeing and airlines when aviation was a growth industry in the 1960s through the 1980s.  And the growth in computer and IT jobs in the 1990s.  Those businesses that participatd in the Rapids are participating in market shifts, and they are creating new revenues and jobs.

Today a good example is Google.  While traditional companies are lamenting "a bad economy" Google is participating in the market shift, and thus creating revenue growth and new jobs.  At PoynterOnline.com, in "Google Team Offers Lessons in Innovation, Project Management", we can read how the GMail team discussed at the recent South by Southwest Conference their approach to remaining in the Rapids.  While other organizations are frozen in place, trying to Defend what they've always done, and thereby falling into the Swamp, Google keeps pushing forward with new solutions that help customers do new things — and thus create additional growth.

Apple, Amazon and Cisco are additional examples of organizations that are using Disruptions and White Space to keep their companies participating in market shifts.  As a result, they've kept growing in 2008, 2009 and into 2010.  They don't blame the economy, they keep innovating and taking new solutions to market.  Thus they grow.  Those companies that are blaming the economy are simply spending too much time trying to Defend & Extend their old Success Formula, and drifting into obsolescence.

Even big, entrenched companies can grow.  The Wall Street Journal recently interviewed the CEO of Austalia's phone company, Telstra, in "If You Don't Deliver Numbers You Aren't Doing Your Job." He points out that as CEO his most important role is to keep the company growing.  He could easily have gotten stuck thinking of his business as a traditional, land-line telco.  But his role is to balance the management of an old Success Formula with implementing White Space which can evolve his company forward into a post-modern communications company with new technologies and new solutions.  As a result, what could be thought of as a bureaucratic monopoly is much more successful, growing through its participation in market shifts.

Alternatively, we have AT&T, and its former leader Mr. Whitacre now ensconced at General Motors.  The original AT&T almost went bankrupt before being acquired by what was Southwestern Bell – then renamed to AT&T.  AT&T kept losing jobs by the tens of thousands – as did the regional Bell Companies.  Mr. Whitacre, with his "caretaker" approach to the old Success Formula, simply kept buying up old pieces of the original AT&T and laying off more people.  Today AT&T is a shell of what it was in the early 1980s when split apart.  It is not an aggressive part of the market shift, nor is it growing like Telstra.

And Mr. Whitacre is now at GM.  Another company that is deeply mired in the Swamp – and very unlikely to avoid the Whirlpool.  GM is not leading in any market shifts, and as a result its sales are not growing – nor is its employment.  Lacking participation in growing markets, GM will continue shedding revenues and jobs as it marches toward obsolescence.

Myths about lifecycles abound.  The biggest is that if you stick to your core, you will keep growing.  Somehow you will jump from one new product line to the next, and maintain growth.  But it just doesn't happen.  Focusing on your core causes you to drop out of growth as market shifts make you irrelevant – like Wang, Lanier, Digital Equipment, Silicon Graphics and Sun Microsystems.  Growth slows, employment shrinks.  To succeed you have to continuously participate in market shifts, to keep yourself in the Growth Rapids.  And for our economy, we desperately need more leaders to refocus on creating Disruptions and White Space to grow – like Google – if we are to get the U.S. economy growing again.

Keep moving forward – Microsoft, Apple, Google, RIM, Hearst

Did you ever notice how often a large company will introduce a new solution (often a new technology), but then retrench from promoting it?  Frequently, the market is developed by an alternate company that captures most of the value.  We can see that behavior looking at smartphones.

Smartphone platform share 1.10
Source:  Silicon Alley Insider

In 2008, three early leaders were Microsoft, RIM and Palm.  But Microsoft chose to invest in Defending & Extending its PC software business – with updates to the operating system in Vista and OS 7.  As the market has shifted toward mobile computing, Microsoft has been clobbered.  But largely because it remained stuck trying to protect its "core" while the market shifted away.  Palm also tried to Defend & Extend its early position with updates, but because it did not follow the pathway to greater usage with new applications it also has seen dramatic share decline.

Meanwhile, RIM has promoted new uses within the corporate world for mobility, and thus grown its market share.  And Apple has made a huge impact by bringing forward dozens of new mobile applications, closely followed by Google.  What we see is a classic example of the early entrant fading largely because they decided to Defend the old market, rather than investing in the new one.  Really too bad for shareholders in Microsoft (losing 20 share points) and Palm (losing 10 share points), while good for shareholders of RIM, Apple and Google.

And in Apple's case we can see that the company continues using White Space to grow revenues by expanding the new marketplace.  The iPad is off to a very strong start, with tens  of thousands of units ordered last week.  But of greater importance is how Apple is promoting the shift to mobile devices from traditional PC devices.  At SeekingAlpha.com, in "How the iPad, Slates Will Evolve the Next Two Years," the reporter projects how demand for all laptop products will decline as more capability and functionality is added to mobile devices like smartphones and these new slate products. 

Microsoft can keep trying to Defend & Extend PC technology, but it won't be long before their efforts largely won't matter.  Don't forget that once Cray computers was a rapidly growing super-computer company.  But increasing performance from much alternative products eventually made Cray irrelevant. Same for Silicon Graphics and Sun Microsystems

Today the market capitalization of Microsoft is about $250B, about 4x sales.    Apple's market cap is just over $200B, about 6x sales.  Google's market cap is about $180B, about 8x sales.  All reflect investor expectations about future growth.  The D&E company is simply not expected to grow – and in fact is much more likely to disappoint than the companies growing share in growing markets toward which customers are shifting.

And any company can choose to participate in growth, versus Defend & Extend.  While Tribune Corporation is trying to find a way out of bankruptcy, and struggling to figure out how to deal with market shifts away from newspapers, Hearst is taking positive action.  The Wall Street Journal reports in "Hearst Jumps Into the Apps Business" how the old-line newspaper company has set up a White Space project, complete with dedicated people and its own funding, to begin developing mobile applications for news! 

Even when business leaders see a market shift, far too many choose to Defend & Extend the "core."  Unfortunately, that leads to disappointments.  Keep in mind Microsoft and its rapid loss of Smartphone share as users move increasingly to mobile devices from PCs.  To succeed leaders need to drive their organizations in the direction of market shifts, and growth.  Like Apple, Google and even Hearst.

Disrupt to Succeed – Forbes

"From the day we start kindergarten we fear the teacher's call to our
parents saying, "Hello Mr. and Mrs. Smith. I'm sorry to tell you that
Mary has been disruptive in class." We are taught, trained and
indoctrinated to go along and get along, to not disrupt. In fact we're
constantly told to seek harmony. But in business that can destroy your
entire value."

That's the first paragraph from my Forbes.com column, posted today, "To Succeed You Must Seriously Disrupt."  Companies that don't Disrupt remain Locked-in to Success Formulas with declining value until all hope is lost – just look at Sun Microsystems. Although Chairman Scott McNealy was famous for his Disruptive corporate behavior – he was unwilling to tolerate disruptions from his own organization to the company business model.  In 10 years Sun went from $200B market cap to out of business. 

Now Toyota is struggling because it wouldn't Disrupt.  Meanwhile Honda is doing much better than most, because it is willing to Disrupt.  Listen to the 40 second video on Disruptions, and read the article so you can see the need for Disruption and adopt in your business!

Listen to Competitors Rather than Customers – Google, IBM, Tribune, Cisco

Leadership

Listen To Competitors–Not Customers

01.06.10, 03:10 PM EST

The accepted wisdom that the customer is king is all wrong.

That's the start to my latest Forbes column (Read here.)  Think about it.  What would Apple be if it had listened to its customers?  An out of business niche PC company by now.  What about Google?  A narrow search engine company – anyone remember Alta Vista or Ask Jeeves or the other early search engine companies?  No customer was telling Apple or Google to get into all the businesses they are in now – and making impressive rates of return while others languish.

But today Google launched Nexus One (read about it on Mobile Marketing Daily here) – a product the company developed by watching its competitors – Apple and Microsoft – rather than asking its customers.  In the last year "smartphones" went to 17% of the market – from only 7% in 2007 according to Forrester Research.  There's nothing any more "natural" about Google – ostensibly a search engine company – making smartphones (or even operating systems for phones like Android) than for GE to get into this business.  But Google did because it's paying attention to competitors, not what customers tell it to do. 

No customers told Google to develop a new browser – or operating system – which is what Chrome is about.  In fact, IT departments wanted Microsoft to develop a better operating system and largely never thought of Google in the space.  And no IT department asked Google to develop Google Wave – a new enterprise application which will connect users to their applications and data across the "cloud" allowing for more capability at a fraction of the cost.  But Google is watching competitors, and letting them tell Google where the market is heading.  Long before customers ask for these products, Google is entering the market with new solutions – the output of White Space that is disrupting existing markets.

Far too many companies spend too much time asking customers what to do.  In an earlier era, IBM almost went bankrupt by listening to customers tell them to abandon PCs and stay in the mainframe business —– but that's taking the thunder away from the Forbes article.  Give it a read, there's lots of good stuff about how people who listen to customers jam themselves up – and how smarter ones listen to competitors instead.  (Ford, Tribune Corporation, eBay, Cisco, Dell, Salesforce.com, CSC, EDS, PWC, Dell, Sun Microsystems, Silicon Graphics and HP.)