I had dinner with a group of friends a few nights ago, and we enjoyed a couple of conversations that started me thinking about the business strategies that have made Apple so successful in the last few years.
I point these out because I think all of them are worthy of emulation, and few of them are actually put into practice by many other companies.
So here they are: the seven business strategies that have arguably led Apple to the top of the global corporate heap.
1. Always aim to be the best.
This sounds so obvious, and yet so many of Apple’s competitors have decided to compete on price, or on distribution philosophy (“open source” vs. proprietary), or on market share, or have targeted some limited niche.
In comparison, when you think of Mac OS X, the MacBook line, the iPod, the iPhone, the iPad, and even the Apple TV, it’s pretty obvious that for each product line, Apple’s goals were simply to create and maintain the best product available in each of their respective markets.
Note that I’m not arguing here that Apple has some secret way of actually making the best product — I’m just pointing out that Apple has consistently tried to make the best product, whereas few if any of its competitors have even set their sights this high.
Why aim to make the best product? Here are some of the benefits of this strategy.
You can command higher profit margins, which in turn allow you to plow more money into research & development, which enables you to make even more great products.
Even if you fail to meet all of your goals for the product, you still end up with something that’s pretty good. Few would call the Apple TV “insanely great,” but it’s still not something Apple need be ashamed of.
You consistently improve your company’s brand, and consistently avoid tarnishing that brand.
You make it easier for employees, partners and suppliers to find high levels of motivation when working with you.
Over time you build a consistent image for your company.
You can streamline your product lines, avoiding product variations that make manufacturing and support more difficult.
Oh yeah, and you tend to sell a lot of stuff too.
2. Sell both the hardware and the software.
Apple has taken a lot of hits over the years for refusing to “open” its software to run on other companies’ hardware, but its refusal to do so under Steve Jobs has demonstrated all of the following benefits.
You can control and optimize the complete user experience.
You avoid diluting your customers’ loyalties by splitting them between multiple brands. (How excited do you think customers can get when they buy a Dell PC running Microsoft Windows with a sticker reminding them that it’s Intel on the inside? As opposed to a MacBook with a glowing Apple on its case?)
You can keep the hardware simple: this is practically impossible if you allow multiple other companies to sell hardware that runs your software, because they will inevitably strive to differentiate themselves through bizarre, unattractive and ultimately unproductive variations in their hardware.
You can sneak up on your competition. Again, this is practically impossible if you make only the hardware or only the software, because you are then forced to tell multiple other companies about the new stuff you’ve got in the works, so that they can get their hardware/software ready to work with your new stuff: just try keeping a secret in that sort of environment.
You can make more money. If you only sell the hardware, it is hard to command much of a profit margin, because it is hard to differentiate yourself from other products that run the same software. If you only sell the software, it is hard to get customers to buy a product more than once, it is hard to convince your customers that your product has much tangible value, and it is hard to prevent competitors from undercutting you on price. Sell both together, and you get repeat customers willing to pay a bit more to get a reliable and desirable product.
3. Dare to create something new.
So many companies seem to be content to make incremental improvements to existing products. This is a defensive strategy that tries to keep an existing customer base from eroding, not an aggressive strategy that is likely to command new market share. When you look at the iPod, the iPhone and the iPad, what strikes me is not so much what great products these are, but how isolated they are as examples of fundamentally new products in the consumer electronics space. I mean, where is the competition? Not in the sense of others following in Apple’s footsteps, trying to create something roughly comparable — there’s plenty of that — but in terms of other companies creating something fundamentally new? It’s hard to think of even any recent attempts, failed or otherwise, that are comparable to Apple’s.
4. Sell to individual consumers, not institutional buyers.
Institutional buyers tend to favor low prices, stability and their established supplier base. In theory they like innovation too, but in practice they tend to wait until “innovation” shows up in one of the existing product lines they are already buying from an existing supplier, and even then they want low prices and stability above all else. Also, to make matters worse, institutional buyers tend to make large, monolithic purchasing decisions, so they are extremely risk-averse. So if you want to innovate, these guys are not going to be your best customers. There are no early adopters among institutional buyers.
Individual consumers, on the other hand, make small, individual purchasing decisions, so you can typically find a group of early adopters among consumers. They are more easily influenced to try new things. They tend to make more emotional choices, and so are open to buying something based on the overall gestalt of the product, rather than on purely objective, quantified criteria.
For many years, during the period of peak WinTel domination, it was widely asserted and often believed that individual purchasing decisions should follow business preferences: that home users should purchase MS Windows and MS Office, so that their children would learn the tools that would prepare them for the working world. Apple’s recent successes have proven, however, that innovation occurs in the consumer markets, and that business buyers get gradually dragged along.
5. Strive to anticipate, shape and ultimately even define emerging markets.
I don’t know that this requires any magical ability to predict the future. And it’s different from the usual advice to be the first to enter a new market. If you look at music players, smart phones and tablets, Apple was slow to enter all of these markets, and in fact only pursued them after it became obvious that others already in them were not having the sort of success that Apple thought was possible.
The result? People don’t think of themselves as wanting a smart phone, and then choosing an iPhone — they simply know that they want an iPhone. It’s the same with the iPod and iPad.
6. Take the road less traveled.
It is hard to succeed in business simply by traveling a path already trod by others. It is not that everything you do has to be different than others — in fact, that was a problem that Jobs corrected in Apple when he returned in 1997 — but you have to be different in some ways in order to differentiate your company from its competition.
This means that you have to be a bit of a contrarian — you have to question prevalent assumptions and take nothing for granted in order to discover profitable innovations that others have overlooked.
In other words, “Think Different.”
Unlike many of its competitors, Apple has resisted the temptation to get into every possible market in computing and consumer electronics. In fact, if you look at Apple’s home page, you’ll find only five product lines listed across the top: Mac, iPod, iPhone, iPad and iTunes. That’s it. I can’t think of a single company of comparable size that has such a limited set. Look at the Google home page, for example, and you see seven products listed across the top, plus another menu item that says “More,” which leads to another menu that includes an “Even More.” There is no “more” for Apple, let alone an “even more.”
Oh, and what were those conversations I was having with friends that led me to write this piece? One long-time Windows users showed up to dinner with a shiny new MacBook. When I asked him what had happened, he said he was still running Windows, but he’d purchased a MacBook because “Apple makes the best hardware.”
The other friend was a Microsoft employee, and he was explaining that company’s modest goals in the smart phone and tablet markets.
March 21, 2012