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Horace Dediu

By Horace Dediu

In this interview, Horace Dediu explains what characterises a good leader and a successful business. He reveals the importance of self analysis, having value systems, and taking a long term perspective.

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“The best and brightest are usually put to work on optimisation. Can you make it better, faster, and stronger? But at some point you run out of room to improve things, and that’s when you have to ask can we make it different?”

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Horace is the founder of Asymco, a market intelligence firm and the host of The Critical Path, a talk-show on 5by5 Studios. Horace is renowned as an independent analyst; he pays close attention to the mobile computing industry. Using Apple as a lens he tries to discover what it means to be great. He studied under Clayton Christenson at Harvard Business School. He is based in Finland.
Founder of Asymco
Lives in Helsinki
Harvard University
Shattered Sword
James May
Horace is the founder of Asymco, a market intelligence firm and the host of The Critical Path, a talk-show on 5by5 Studios. Horace is renowned as an independent analyst; he pays close attention to the mobile computing industry. Using Apple as a lens he tries to discover what it means to be great. He studied under Clayton Christenson at Harvard Business School. He is based in Finland.

Horace Dediu - Why Businesses are more Fragile than People

Horace Dediu
In this interview, Horace Dediu explains what characterises a good leader and a successful business. He reveals the importance of self analysis, having value systems, and taking a long term perspective.

N.B This is the unedited transcript of the interview.

Can you introduce yourself?

Yes, I’m a resident of Finland. I am a writer for a blog called Asymco. I’ve been doing it for about three years now. Prior to which I was an analyst working at Nokia also in Finland. My background however is in engineering. I began with degrees in computer science and computer engineering, but then I went on to also study business in business school and did a few startups. That led me to Nokia then that led me to blogging.

I was speaking to my brother and I was asking him who do you think I should get in and he mentioned you. He’s a fan of your work. He really loves your thinking. What he really likes is that you explore the fundamental questions of why a business succeeds and fails. You use Apple as a great lens. A recurring theme is that this Theory of Disruption and how that’s so important in insuring that a company doesn’t just succeed, but it also remains and I really want to explore why this self disruption is so important.

I always like to look at history, engineering was my profession. My hobby was reading history and even as a child reenacting from history some events or like being a pirate or being a soldier or whatever like all kids do. I never lost that thrill to look at the past. I realized that these ideas from history are not properly analyzed or are not properly used in our understanding of business.

What I thought of and what inspired me also was when I was at business school I had a teacher whose name is Clayton Christensen who developed this Theory of Disruption. What makes it interesting as a theory to me is that it takes a very long term perspective. By business standards that means it looks beyond 10 years typically. Most people’s analysis of a business tend to run a couple of years in the front and in the back in the sense of looking at the past and trying to forecast.

The truth is that when you look at long enough time periods you’ll see that a few companies actually survive long periods of time. We know about the problems that it’s hard to get going. Even when you’re successful as a business and you’ve made it, let’s see, you’ve established yourself as a large company, you might find that your time not so much, let’s say, at the top, but even your time as a successful business tends to be very short.

I thought that was a bit weird. I thought actually if we go back into a person’s life there are some companies, especially in technology, that don’t live longer than the average career span of one of the people working in that company. You have few companies that live as long as a person lives. Let’s say an average lifespan of 80 years, it’s hard to find companies that are still going 80 years after they were born. In fact, the only technology company we know of that’s really been … made that lifespan is IBM that’s just turned 100 years.

Far from companies being immortal or being somewhat perpetual lived they are actually very fragile. I was wondering why are companies more fragile than people. I mean people live 80 years and companies don’t. People tend to be healthy and prosperous for much of their lives, but companies don’t. What’s going on? Why are these things so fragile and we don’t talk about any company that’s more than a hundred years old. There are some private owned companies that have been passed on through generations for several hundred of years and then there you can go to Wikipedia and find these, but they’re really small companies that tend to be doing very limited things.

That led me to think about what makes a company survive long term. One of the explanations why companies fail is Disruption Theory and disruption means they are typically done in by a competitor that isn’t better than they are, but usually typically worse than they are. That’s why it’s such a difficult concept to accept because you think that in order to succeed you need to improve, improve, improve, but Disruption Theory suggests that there’s a limit to how far you can go and how good you can be before you’ve exceeded the market’s ability to absorb your improvements.

Therefore you need to reset yourself into competing on a different basis. Typically this transition is so painful that if you attempt it and a lot of the reasoning why that is by the way isn’t that someone is just not courageous enough or someone doesn’t have the skill to think in this way, but rather that actually if they did they’d get fired. Typically the larger organization even the CEO is not truly free to do what he wants. There are so many constraints. Sometimes the constraints are not even overt like someone telling you something. They’re very subtle and implied rather than explicit. You would see things like peer pressure. You would see things like getting the wrong vibe from your peers and saying, “That’s a very crazy idea. You don’t want to do that.”

I’ve been also thinking about the psychology of leadership and how certain people are able to do crazy things and get away with it. As you know anecdotally when you go back and you ask people how are you successful, they usually have a crazy story. They say it was an exceptional situation. I had this crazy idea and almost by mistake this happened. Rarely do you see someone telling you a story, “Well, we succeeded because we had a plan, a five year plan and we stuck to the five year plan and we hit all our targets and we did exactly what we wanted to do five years ago.” That does not usually create unforeseen wealth. It usually simply says you’ve managed to stumble along and survive.

There’s a psychological element. There’s an understanding of how people are motivated. There’s this question that comes up a lot in Asian philosophy and notions about duality, states of mind like Yin and Yang, the idea to have two frames of mind, the ability to be thinking outside the box, all these things we’ve heard, lateral thinking. All these phrases are part of the same thing about being able to change the trajectory you’re on.

The theory really has been a way for me to focus on that. My contribution if I may to the theory would be that I’ve studied it very closely with respect to Apple. That hasn’t been done as far as I know in an academic way. My approach has been basically three, four, five years worth of study, deep study of one company with that theory as the means of explanation. I think we’ve proven some things and we’ve maybe challenged some of the theories with the data we have.

Let’s talk about the psychology of this leadership and why some can do it and why others can’t. Those that can, what are the characteristics?

Right, it’s actually one of the most important questions you’re asking which is the definition of leadership as we know. Typically people confuse leadership with management. Management is about preservation of a situation. It’s making sure things run. Obviously we value leaders that are good managers. We value if the trains run on time. We value that services are functioning and so on which is what we expect government to do and we expect people therefore that our in government to be leaders.

In business and in government, I think actually leadership often really is about making change happen and the ability to get people to follow you into the unknown. That is the essence, the essential quality of a good leader in my opinion. Of course the military has been studying this problem because their needs are much more acute in terms of how do you get people to follow you into a dangerous situation. They study leadership and then if you go to any office or training school in any place in the world that is the essential question of how do you make that happen.

There you have tools at your disposal as a leader to enforce authority. What if you’re in a situation where you don’t have these tools, you don’t have threats or you don’t have the ability to coerce people? How do you get people to follow you purely because they believe? That is I think the quality of a great leader. Of course, psychologically it has some characteristics. One, obviously lead by example, don’t just tell people, but rather show people how to do things.

There is also the ability to really be charismatic and really persuade. Persuasion going back to Aristotle, you have the idea of being credible as one of the keys to persuasion, having an emotional appeal being able to create empathy in your audience. Also being able to be logical, so it’s a combination of all these three things that make a person credible or I should say persuasive.

These are things you don’t learn from a book. You practice. Playground politics comes to play. How do children behave? All these are seated at very early ages and I think are developed over time and nurtured over time. I don’t think there’s such a thing necessarily as a natural leader. I think there’s a skill that can be learned but there are people who have certain talents which makes it easier for them.

In studying Apple are you seeing reoccurring patterns and relating them back to disruption, so being willing to go to new markets. Why is that so important for their survival?

Right, Apple was a tragic company. I mean this in sort of a Greek tragedy sense because it is a company that seems to have this period of greatness and then these periods of crisis. It is the tragic hero. I think it chooses to be that way. I think also artists know this that in order to be great many times you have to suffer. There’s this kind of like this period when you are down which gives you actually the ability, the inspiration to do great things. It’s almost bipolar and it causes many people to go mad. Many artists have trouble with this cycle.

The pattern I see is that they don’t do much innovating, meaning that they’re actually improving the same thing they’ve done before but that’s called a sustaining improvement. It’s not disruptive. They’re not changing the world. That period may last quite a long time. We saw it for example in 2000s, between 2001 and 2007. Hardly any new category or products showed up between the iPod and the iPhone. We have the iPhone growing nicely but then we had the Mac. The Mac went through a couple of transitions where it went increasingly into a laptop form factor which people forget, but moving from desktop to laptop happened a little gradually. It was something which I think now 80% of their computers sold or the Mac sold are actually laptop computers. That was the opposite 10 years earlier.

You had this transition happening. Then they went from PowerPC to Intel, which was so dramatic at the time that their stock price fell like 40% when that was announced. They introduced things like super thin laptops and did all these things. We forget about them, but at the time this was all the buzz whether we’re going to see a new design for a Mac. It was a big deal. Now, we don’t care so much anymore.

The point is that we had this period where seemingly, now in retrospect it looks like nothing was happening. Then what happened is the iPhone came and then a couple of years later the iPad came. They began to assume that the cycle time of new category introductions was every two years. If you don’t see something in two years time it means it’s over. Even though you have 30, 40 years worth of history people judge you on the last three months.

What’s happening now I think we might be in the slower period but I have no doubt that they’re working on things in the background. One example is that the iPad itself probably began as a project in 2001 or 2002. It took all of nine years to really immerge out of incubation. In that sense I think a lot of the things you don’t hear about or you never potentially will hear about that they’re still doing these things and trying to crack certain problems. When they immerge they immerge and they immerge at this time when conditions are right. That means a lot of things has to be right before a product is launched by Apple because they they don’t want to have a flop.

Usually I give another example. I think the best way to explain Apple is actually by looking at another company, which is Pixar. Pixar, essentially it’s a blockbuster manufacturing factory. They’re essentially set up to produce one thing and that’s called a blockbuster movie. They do so in a predictable way. That’s never happened before. The idea of a blockbuster was that it was if you make 100 movies and if you’re lucky one of them will be a hit. No, that’s not the way Pixar operates. Pixar operates in the principle that will not ship a product unless it’s going to be a blockbuster and it has to earn $350 million or something like that.

However, there’s a price to be paid. First problem is that they need a long time. They actually spend four, five years in the making of a movie. It often goes through multiple iterations as well. The movie isn’t like you sit down and you say, “This is the movie. This is the script. These are the actors. Okay, development over? Go into production.” That’s how most movies are made but because it’s a digital product they’re able to constantly change it while they’re making it. That allows them to refine the products so that it’s not that they take three, four years to shoot a movie it’s that they take three, four year to polish that movie to the point where it actually is good enough.

They can go sit and watch what they call a rush which is like a three-minute segment and watch it and have an audience for it and test it and say, “Okay, it doesn’t quite work, you know, we need to change that product to be a different thing. It shouldn’t be a pencil, it should be a pen.” They go back and they refine it and refine it and refine it. By the time it’s done, actually they go through something called a crisis internally where even the plot of the story is deemed suboptimal so they’ll change the characters or they’ll change one of the outcomes of the story. That’s such a deep change that usually you have to throw away a huge part of the movie and redo it. They almost like relish the idea that they’re going to get this crisis every single time because it allows them to go deeper and uncover a better product.

That, if you study a company like Pixar and how they make blockbusters you realize that probably this is my hypothesis, I could be wrong, but probably that’s how Apple works deep inside as well. They go through a process of bringing something nearly to launch and then they decide, “You know, it’s not good enough. Let’s discard it and start all over again.”

This is where probably you get a lot of the rumors that come out that they’re ready with a TV and then you realize that they’re not ready with a TV. As you go through these processes sometimes you even go to the manufacturer and ask them to make a couple of thousand units. They’ll actually build prototypes and then you test them and then you realize they’re not good enough so you cancel the order. That’s how far Apple will go I think. That’s very frustrating though if you’re a market analyst or somebody who wants to see predictability.

The other thing that I would point out is that there’s a launch station period, there’s a lot of polishing that happens. Sometimes you throw it away at the end because it’s not good enough. They’re a company that is so obsessed about not launching a bad product that they’ll go through the sacrifice. It’s tough on the people but, this is what I meant by the DNA of Jobs. Jobs was just a perfectionist and just infused in everybody the idea that don’t settle. That’s what’s going on.

By the way, this is why also the stock price is so volatile and so even though it may be the most valuable company in and out of that slot, but Wall Street doesn’t like this idea. They don’t like the idea that a company can make a blockbuster one day and then suddenly it’s quiet for a long time. Maybe that means it’s over. That’s never happened before. There’s never been a company in history except for Pixar, but Pixar is like very, very narrow in this definition, movies. There’s never been a company that produces real things, real products for the whole world that is able to hit them out of the park every single time.

This is the basal analogy that Steve Jobs used. He said like an American baseball star Babe Ruth, he said, “He only knew how to do one thing which is hit homeruns.” He was a terrible baseball player because he couldn’t do anything else, but he could just hit home runs, he had the same swing and the same play every time. His point I guess was that we aim to make homeruns every time. That is not nearly as predictable as cranking up the same thing every day. That’s what I see a little bit in Apple.

I guess the question I ask myself every day is is that changing? That’s really the thesis for someone who might be observing a company. It’s like what is Apple, is a permanent state of being or is it something that will fall tangibly.

For aspiring entrepreneurs or even for those that are working in large companies, how can they enter a position of what Pixar has? Being willing to sacrifice that time period of where they don’t ship anything because they’re so committed to the quality, the output.

Yes, there’s another analogy. The enemy of good is perfection. Sometimes you have this situation where we’re just good enough. Everybody has a different threshold. Sometimes actually you’re better off shipping something in “beta” or not yet ready because you’re going to need the feedback of the early audience to get better, and the early audiences doesn’t mind the product not being good enough. You’ll have that dialogue if you will with the customers. You want to get that information from them as quickly as possible so that you will actually deliver a greater product.

To some degree some brands, some companies are more suited to that type of launch schedule. I think the question of how do you commit yourself sometimes to say no to mediocrity is it’s about having a good sense of it yourself. It’s this character issue. Sometimes we’re just born that way. I think that partly one of the leader’s job is to make that call and decide. Whenever there’ll be people who have differences of opinion, so two of them may come to you and say, “My point is this and I believe we should ship now” and another one would say, “No. It’s the leader’s job to make that final decision.” Many times the leader doesn’t have a great basis. Both arguments are good, but they have to have some inner sense of what’s important.

In companies, again this comes from Christensen and the Theory of Disruption that companies are really composed of three things or are defined by three attributes. One is the people in the company and they’re sometimes called resources which is, I think, a derogatory term. They are really what constitute the brain power.

Second though is the processes of the company. This is how you apply those resources, those assets to make them work together. Processes are usually they’re written down. You’ll see things like, “Okay, this is how we ship product. We have to have these meetings. We have to have these studies conducted. We have to gather this information. We have to then analyze it and sign off on this checklist. Then we go to phase two and we have these milestones”

Companies actually many times have very great processes. They will hone them over time because they’ll develop them and improve them. Some companies are very process oriented. An example would be Microsoft is very process oriented and almost all the internal discussions you have at Microsoft are about process.

By the way, there are some companies which are also very resource oriented. Typically like a consulting company really is much more about the individuals employed. If you have a consulting or an investment bank or a law firm those are about who are the individuals. The people are usually what are billable and therefore they are the ones who rise above or have discussions about who’s good and who isn’t and hiring is extremely important. Who gets the bonus, who gets the power and so on. The politics in such as firm will be about who has the maneuver for advantage. Whereas process companies are tending to be more the success and failure of individuals in those companies are about being attached to a process.

The third thing that the company is, the third category or attribute is what I call values or priorities which is the ‘why’. The first one is ‘what’ the second is, ‘how’, and the third is the ‘why’. In terms of computers, you'd be like, "What are your inputs? What are your algorithms?" What is the purpose of the program?

Every company has a set of values, a set of priorities, which define what processes to build and who to hire. The problem is that the values often aren't well-defined. These aren't things that even are written down or they're not things that anyone is comfortable speaking about. Some companies try to codify them. Some companies try to write them down as a set of values. The valued statements are typically pretty pointless then they come across of being vague and wishy-washy, and something that people take for granted.

Sometimes the most powerful value systems are the ones that are not written, but these are the things, which actually guide the company. When you join an organization, no matter whether it's government or private, or even a club, you'll realize pretty quickly what the values are. Sometimes if you're just brand new, you're what they call a rookie, someone will take you and teach you these things. They'll be your mentor and they'll guide you through and explain to you how things are done here. Smart people will pick it up real fast and they'll realize immediately. Okay, this is how I behave. If I have at least to-do items, this is what I do first and this is what I wait to do later.

Almost the value systems are enforced on a daily basis, on a task-by-task basis. Do I show up to this meeting or not? Is it okay to be late? Which customers do I call on first? Which do I not call on? A lot of these things, how do you make that decision as an individual? Because no one will tell you everyday what you should do. That's what value systems are designed for. The problem is that most companies, like I said, are not explicit about it, are not even self-aware.

Many times these things can be actually quite negative. They can be quite toxic environments and they create an environment where people are unhappy. In fact, the problem with Microsoft during the late '90s was that their value system was so perverted by their monopoly status and the way they have gotten there; that they got into trouble with the law that the management was forced into a corner and had to really fight for its survival, because even the government said, "What you're doing is unethical or illegal."

How did you get there? I'm sure that people in charge of the Microsoft didn’t anticipate that they would get into that scenario. When you are combative and you are so…,by the way, anecdotally, this was what was happening inside the company as well. Everybody was competing to such a degree with each other, that it became normative behavior. It was normative behavior to elbow people out of the way, to stab people in the back, to be extremely vicious. Internally, with such normative behavior, everybody was doing it that they didn’t think twice when they were doing it to someone outside.

That's what leadership, again, can do. A great leadership team will impose a good value system and will question whether they're on the right track with respect to the values. That's what I think is missing in education about business, is how you'd create these things. Because everybody says, "Well, now if you try to say this, you're being moralistic." Somehow you're trying to impose a value system, a judgment system, whatever. That's why it's not taught because it isn't actually applicable in every scenario. There are no fast rules about how to do it, but this is again deep inside you have to have, a strong compass. I wouldn’t say moral necessarily because that has a lot of connotations, but it is something that guides you and the rightness and the wrongness of things. It should drive a lot of the thinking by the values.

It's been a long side trip here on this topic, but it's one way to think about the "what's wrong with organizations" and how things can be improved.

You also make this point about self-analysis.

Self-analysis, yeah. When I was at Nokia after five years or so in one company, you start to see things repeating themselves. You ask yourself. Well, I think we were here before and we saw this problem already. I observed that the reason it happens is because people cycled in and out of jobs. You will have someone take that position, the head of, let's say, developer relations. You're in charge of developers at Microsoft or at Google, or something like that. You're in that job. You're ambitious. You have your dream of climbing the ladder. Sure enough in a few years, you will rotate out of that position. When you do, the replacement isn't trained by you. They come to the job with the expectation that they'll make their mark on it.

The question in my mind is like how do you have continuity when that happens? One thing I will say for Apple which I think it's opposed both positive and negative is that you'll see the same people on the same jobs for a very long time. They're very much pigeon hold in a way because if you have Bob Mansfield, the head of engineering, he stays head of engineering for decades; as it was the case with Forstall, head of iOS. They might move a little bit laterally or from being head of one piece of software to another piece or more pieces, but they'll be in the software. Whereas, when I was in Nokia, the amazing thing was that the top manager was playing musical chairs that one day they would be head of mobile phones. The next day, they'll be head of networking and then they'll be head of software the next.

This was by design. They said if we're going to groom people, teach them about the business by having them act as heads of these different divisions. Once you've done your time heading up all these groups, you will quote "no" all about the business. You might be a candidate for CEO. If you don’t make the spot, then you're actually going to leave the company.

That was the way they would actually create the management succession. A new person joins the circle and one person leaves the circle every year. I don’t want to judge it as wrong or right, but the point is that it creates a different timeframe of mind than the Apple model where you have basically Tim Cook. Although he's a CEO now, he was basically an operations guy where the whole time he was there, and didn’t have to head up software at any point in his career. He didn’t have to head up semiconductors or the Mac group or the iPod group to be able to be CEO, or even to move up in the value in the ladder.

These actual things like how do you organize properly for management to get the right training to move up to be incentivized for staying in the job, to stay in the organization. The reason, I think, the Apple model maybe a bit more tuned to preservation of culture is partly this, as you said, having institutional awareness or self-awareness, that makes it possible perhaps. I am still a believer in codifying things by putting things in writing. The very few companies will put together any kind of document that says look.

The governments have these things called laws and they put them in writing. Sometimes they have a basic law or constitution and they put that in writing. There are these questions about how to govern a nation and it's all based on code or a written word. In companies, that doesn’t exist, right? You have maybe a procedures manual or you have a hiring manual, but you don’t have things like ‘How do we make leaders?’ or ‘How do we define our priorities?’, or ‘How do we act in every possible situation?’. Of course, it sounds almost preposterous because there are millions and infinite permutations.

We are treating business very much like a black art, and I don’t think I'm a believer that over time it will get better. The anecdote I use a lot is that business, teaching and business theory, and management as a science is so medieval that we still think of the people who are the best at this game as being nearly magicians, and we pay them like that. This is why CEOs got paid so much. They get paid so much because it's mysterious what they do. It's believed that they have such magical powers that we gosh, we hope they don’t leave. Let's give them a lot of money to stay.

Horace, tell me about your MBA at Harvard and being taught by Clayton Christensen. Well, specifically to those that don’t have the privilege of going. What were the main takeaways? What did you get from Clayton?

Well, the trouble for me and I think this was trouble for a lot of MBA students, is that you don’t really feel you're learning a lot while you're in it. It’s entertaining. It's engaging. It's very exhilarating but you're not sure exactly what you've learned because the case method gives you a lot of examples. It's up to you to put them into a pattern in your mind and it takes a long time for you to assimilate that information. You're drinking from a fire hose as they say.

The thing that, I think, I got from Clayton that was most valuable is this long term perspective, the idea that the theory is possible even though you're given a case-by-case method, you're not given a narrative. It just forced me to step back and think about things. The best thing you can get from a business, well, I think, is the way of thinking and the ability to go back whenever you're faced with a dilemma and solving it through a way of approaching a problem. I don’t think I came away with a toolkit. I didn’t come away with, okay, now I know how to do financial analysis. Now, I know how to calculate certain things. Besides, those things are commodities. You don’t need to go to an expensive place or spend a lot of money to learn those things.

What can startups learn from what you're doing now, but not so much the companies but the early stage six-months, two-year companies? Are there principles that you're discovering that can be applied to startups?

Sure. Well, I operate as a startup, so in the sense I have to eat my dog food. I do try to be disruptive in my approach. If you were to measure what I do as a disruption, it would be that. What I do has typically been done by many others and is done by many others. It's just that they charge a whole lot of money and I don’t. What I try to do is I disrupt by essentially giving away what used to be very, very valuable. My point being that in exchange for giving it away, I gain something else. I gain reputation, visibility, followers, and I'm highly citable.

That means that whereas someone who is working for a large firm getting a large salary is heard by five people. I put the whole equation on it’s head and say, "Well, I'm heard by 50,000 people. By the way, I don’t have to spend as much time to produce for them as you do for five because, actually, I'm good enough with a blog story rather than a 20-page report." It turns out that that blog story gets loved to read by thousands more people, and I get much smarter because they give me feedback. You don’t get that feedback with your 20 pages for five people.

In that sense, what's important for any startup is to think this way: You're small and you're typically going to compete with someone much larger. It's a David versus Goliath scenario. The way you win that is not by being stronger, but by being cleverer and doing things differently. I love the David-Goliath scenario because, actually, technology is what's called the problem for David. He used a projectile rather than a sword and he could project his force. He could project his weaponry, if you will far, far, further. That was the asymmetry that won the battle for them.

Again, every company needs to think this way. Startups have no alternative but to be clever this way.

What's wrong with categorizing bias as high income and no income?

Categorization is one of the most important things, but it's also one of the most poorly done things in terms of marketing. Companies tend to categorize because they can measure. If what you can measure about the world is age, gender, income, then why not divide the world according to age, gender and income? What you cannot measure is love, passion, intuition, and attractiveness. Those things since we cannot measure them, we don’t divide the world along those dimensions. That maybe, in fact, the way people actually buy things and that’s what the problem is.

The point of marketing is to understand buyer behavior and put in front of buyers what it is the most likely they will buy, and explain to people why they should buy things because they have the qualities that they're looking for. That's the trouble with most companies. It's not that they're foolish. It's because they don’t have the numbers to defend the argument that we should sell people things they love.

Some people get it. A lot of people and obviously in the business of selling entertainment get to the bottom of questions around, ‘What is it that make people passionate?’ ‘What touches people's heart?’. They actually do categorize according to value. That's how you have romance and you have thrillers, and you have these other types of product for movies, although they also break it up by gender and age, and so on. The idea is also in luxury products. You have people saying, "Okay. Well, how would you categorize diamonds?” Would you say the size of diamonds? Surely but the way they're put together, the way they're marketed makes all the difference in terms of what people buy.

I would challenge people that are in startups who are technically minded and love data to take as much data as you can. I always say grab as much as you can. Consume it, process it, but also try to think about what causes people to buy things in reality. Use the data but not necessarily make everything depend upon data.

Coming to a close now. For those that want to build a sustaining company, from your insights from Apple, what is it that they need to think about? What's the main thing that they need to bear in mind?

The rule for sustaining things is that you tend to do what makes most sense, and because you have the data to defend this argument. In a sense, the best and brightest in our world are usually put to work on optimization and are asked, “Can you improve the way this works?”, “Can you make a better engine?”, “Can you make a faster car?”, “Can you make a stronger building?”. They would go forward and say, "Well, by studying it I can see a lot of inefficiency. I can see a lot of weaknesses. Let's tweak it this way and that way to improve it." Almost everytime you see an argument for why to buy something is that it is better. It's 20% more efficient. It's 10% faster, etc.

Most people who are ambitious and smart will be very eager to solve these puzzles. Now, they'll drive to do better than some of their peers. That is really 99% of, I think, what most energy is spent on in the world. It is on improving what we already have. At some point, you run out of room to improve things. They just got so good that they can't get any better. That's where you have to step aside and ask. “Can we make it different rather than better?”

I don’t have a great advice to someone to say, "Well, how can you make things better? How can you sustain?" other than say, "It's what excellence is all about. Just be excellent and you will succeed. To be successful when things are already beyond great, then excellence is not enough. You need to be inspired and be crazy to some degree.


Welcome to Dorm Room Tycoon

Interviews that cut to the chase and extract wisdom. Learning from the most influential innovators. Hosted by William Channer.

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Jeffrey Zeldman

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