How Steve Jobs Solved the Innovator’s Dilemma
At the closing of Steve Jobs’ biography there is a quote from Jobs that reads:
“My passion has been to build an enduring company where people were motivated to make great products. Everything else was secondary. Sure, it was great to make a profit, because that was what allowed you to make great products. But the products, not the profits, were the motiviation. Sulley flipped those prioriites to where the goal was to make money. It’s a subtle difference, but it ends up meaning everything: the people you hire, who gets promoted, what you discuss in meetings.”
The truth of this quote is explained by what is called the Innovators Dilemma.
If you pay close attention to any industry driven by innovation, you’ll notice a distinct pattern: A founder has a problem that no good solution exists for. They develop an innovative product or service, and they start a company to sell it to others. Soon they want to maximize profits, so they hire managers to do two things: sell more and reduce costs.
Then an employee has a radical idea for a completely different type of solution. It’s not the solution customers are asking for, and it’s more expensive to produce than the current one, so the manger now has a dilemma. Do they approve the new solution, betting that this is the direction of the industry, or do they kill the project to protect profits?
Well, in companies who are profit focused, the answer is simple: they kill the project. You see, the manager was hired to hit certain profit targets. If they miss their targets they lose face with upper management, their reputation is damaged, their bonuses are denied, and often they will lose their job. To prevent these unpleasantries, every decision a manger makes is tied to profits. Who they hire, who they promote, what KPIs get measured and what projects they approve. Needless to say, a disruptive solution that customers are not asking for, which costs more to produce will almost always get cancelled.
The canning of the project usually results in the employees leaving the company to spin off a startup selling the new solution. While they don’t have the resources or recognition of the larger company, the solution is so innovative that customers are happy to pay a premium. Soon enough the startup now dominates the marketing, the original company is out of business, and the new startup turned big corporation begins to focus on maximizing profits.
But that is what was different about Apple. Their core value was, “make great products” not “make higher profits”. Jobs instilled those values into the people he worked with, and in the company culture. That has allowed Apple to overcome the innovator’s dilemma, innovating year after year, and banking billions in the process. We’ll see if that remains true after his passing.