When Steve Jobs returned to Apple in 1997 after it acquired NeXT, he brought with him two essential concepts without which Apple would never have achieved its mind-boggling success.
While few of us will have a fraction of Jobs’s talent, we all can learn these concepts and apply them to our startups.
1. Build capabilities that let you win again and again.
The first concept is to build a stable of mutually reinforcing capabilities that allow your startup to take market share from rivals in big markets.
Here are the four capabilities that Apple developed and applied to three markets–MP3 players, smartphones, and tablets–over a decade.
- Design excellence. Jobs was obsessive about turning Apple’s handheld devices into fine jewelry. He also made sure that the different products could work together easily. The mass craftsmanship and attention to detail contributed to consumers’ willingness to pay a price premium.
- Marketing mojo. Apple had memorable advertisements, Steve Jobs was a great presenter of new products, and Apple’s retail stores make consumers happy and offer great service.
- Ecosystem building. Whether it was developing iTunes, building an App store, or forming partnerships with wireless carriers, Jobs excelled at building content and services that made consumers want to buy its hardware.
- Supply chain efficiency. Thanks to the skills of Tim Cook, Apple was able to build a supply chain–doing much of its manufacturing at Foxconn near Hong Kong–that drove down its unit costs and enabled it to earn gross profit margins as high as 70%, with both low costs and a 44% price premium over the competition.
Apple was able to apply and refine these capabilities to grab share in three big markets that existed before Apple decided to compete.
2. Keep pedaling the Value Cycle.
This brings to mind the second concept that Steve Jobs mastered–the Value Cycle-the idea that in order to sustain superior performance, a company must keep turning the strategy wheel through three distinct processes:
- Value creation is the design and marketing of a product that users are eager to employ because it meets their most important needs better than do competing products.
- Value capture is setting price high enough above cost to generate sufficient profit to create a return for shareholders, pay employees and suppliers, and reinvent the business.
- Value renewal is filtering the market signals–from changing customer needs, upstart competitors, and changing technology–to which a company must respond and adapting to stay ahead of competitors.
Apple mastered the Value Cycle while Steve Jobs was alive. In the nearly three years since Tim Cook took over, Apple has not cranked the Value Cycle for another turn–that is, it has so far failed at Value Renewal.
Perhaps Cook will prove me wrong at some point in the future. But in the meantime, you should take away three lessons. First, your startup must master capabilities that will enable you to make your first run through the Value Creation and Value Capture processes.
Second, you must apply the capabilities that got you to that point so that you can succeed at Value Renewal as Apple did when it made the transition from the iPod to the iPhone.
Finally, if your company stops pedaling the Value Cycle, it eventually dies. Keep riding!