[I]t’s building an environment that makes people feel they are surrounded by equally talented people and their work is bigger than they are. The feeling that the work will have tremendous influence and is part of a strong, clear vision.
—Steve Jobs1
You can’t throw a stone in Silicon Valley without hitting a start-up, and the same is nearly as true today in New York, Boston, and Austin, Barcelona, Berlin, and Tel Aviv. But the picture is completely different when trying to launch an innovative start-up within an established, traditional company.
In cases like this, the way that you organize is as critical as the people you choose for your organization or the products or services you deliver. Steve Jobs became an icon in part for what he achieved by going against the tide of traditional wisdom about how to run a company. He wasn’t the first to create a stand-alone development group within a larger corporation, but his Macintosh group became the prototype for how to make it happen and how to make it work successfully.
I witnessed that the very week I started at Apple. At Steve’s invitation, on a cloudy Saturday in February 1981, I joined him for a drive to a destination he had carefully avoided naming. It turned out to be a destination featured in every history of Apple. We were headed for the Xerox Corporation’s super-secret Palo Alto Research Center, better known as Xerox PARC. On the way over, Steve told me about PARC, describing it as a kingdom of PhD nerds who “didn’t get it.” But he thought there was some great talent there we could use. So one of my assignments for the visit was to get contact info from some of the talented people we met and follow up with them later.
The building itself was nothing special, giving no hint of the advanced technology being developed inside those walls. Most of the people we met were very guarded and not very friendly. I found out later that most of them did not know that Xerox was a major investor. Despite their caution, they totally underestimated Steve’s ability to absorb their technology.
As you may know, it was on this and two earlier visits that Steve picked up the ideas for making the Macintosh so unique and setting Apple on its course to success. (I have sometimes wondered what would have become of Apple if Xerox had said no to Steve’s request to visit.)
On the way back, Steve had a laser-like stare that I eventually understood as his “I have a vision and the plan to make it happen” look. I was to experience this look many times.
By the time Steve came to work the Monday morning after our PARC visit, he already knew what the product was he wanted to develop and how it would work. It was only a matter of figuring out how to go about it.
When I joined Apple, a remarkable man, Jef Raskin, had until recently been leading a small team of people working on developing a next-generation breakthrough product for Apple. Jef had a fascinating background. He had won a national award from the American Rocket Society when most kids his age were still learning algebra. By the time he joined Apple, he had degrees in mathematics and physics (with minors in philosophy and music), and he had held positions as an associate professor of music, assistant professor of visual arts, and even as an assistant instructor of bicycling. He had written and scored the music for a show on PBS, conducted the San Francisco Chamber Opera Company, and had a one-man show of his paintings at the Los Angeles County Museum of Art.
Jef met the two Steves when they were introducing the Apple II at the first West Coast Computer Faire and was hired soon after. Though it was well outside his area of responsibilities (he was in charge of documentation), he wrote a stream of memos about how to make the computer into a truly convenient device. He put those ideas into motion by finagling permission to assemble a small development team to build a new kind of personal computer.
Steve tried to convince Jef that the graphical user interface and the mouse in use at Xerox PARC would become the new face of computing. Jef was just as convinced that what Steve wanted would make the machine too expensive for the masses.
Though cofounder of Apple, Steve Jobs was now in career limbo, with no specific duties or responsibilities, no project he was in charge of. Meanwhile, Apple management was in disarray, with entrepreneur Mike Scott still CEO and investor Mike Markkula still board chairman. I joined Apple because of Steve’s dynamic personality, his intensity, and his almost mystical degree of enthusiasm—but the CEO and chairman totally failed to recognize this. It has sometimes seemed to me that I was the only person in leadership at Apple back then who recognized these qualities; Steve sensed this, and it was one of the key reasons that he and I became so close, along with his seeing me as a mentor because of my years of experience working for IBM and Intel.
Scotty and Mike saw Steve’s brashness as a red flag. But when he said he wanted to take over Jef Raskin’s small development team, they gave him carte blanche, removing Jef from leadership of the team he had created and handing the reins over to Steve. They did this not because they were convinced Steve was going to be able to create a great product, but to get him out of their hair. He had been a nuisance, showing up in the work area of the Lisa, which management looked on as the company’s next-generation computer, and haranguing the engineers about what they were doing wrong. They had little understanding of what he was going on about—a mouse, icons, pull-down menus, and the like—and thought he was just being a distraction and annoyance. They wanted to get him out of the way.
It’s not hard to understand. People of vision have a hard time in traditional companies. They want to throw off the chains and charge ahead, and that just doesn’t go down well in any conventional business.
As for Jef, he was able to build his machine—but only after he left Apple and joined another company that was willing to let him do it his way. He was a brilliant man, highly accomplished, with skills outshining many of the leading talents in half a dozen fields, but his computer flopped.
Steve—driven, driving, never easy to work for—had developed an instinct for what would best serve the average consumer. Now having taken over Jef’s team, he was able to lead the development of their computer according to his own personal vision.
There was one carryover from Jef: he had already named the computer “Macintosh.”
Steve created what would become a company within Apple, a virtual company that for all practical purposes had almost nothing to do with the rest of Apple.
In our daily conversations (my office was only 20 feet from his) and on our frequent walks outside, around the buildings, Steve talked often about his frustration that Apple was quickly turning into a company with a traditional structure and way of operating. He talked a lot about the danger, often speaking of the rest of Apple and especially the other product groups as “the bozo organizations.” They were hiring people with the right degrees and the right experience at other companies, paying little attention to whether they had the start-up mentality.
He didn’t want the Mac group to be dragged into this and lose the entrepreneurial focus—the ability to see and be motivated by an inspiring vision of the future.
He went to his original partner, Steve Wozniak, who had been responsible for creating the original Apple computer and the Apple II, and for choosing the hardware engineers and programmers. Steve told Woz, “We need to build a new team for the Macintosh.” Woz fully bought into that, but his heart still belonged to the Apple II, which was his own creation. Before Jobs could get any support from his start-up partner, Woz crashed an airplane he was flying—stalling on takeoff in a type of plane he wasn’t sufficiently familiar with. He was seriously injured, even losing some of his memory for a time, and wasn’t around to give Steve Jobs the support he longed for.
It was clear to Steve that he needed to make Macintosh a start-up organization, totally separated from the rest of Apple. In fact, he and I later talked about Macintosh being spun out as a separate company, to be called Macintosh Corporation—still owned mostly if not entirely by Apple, but run independently by Steve. I went to the board to make the case for this, pointing out that Steve had created this separate organization that was essentially independent of Apple and that it would be far better for Apple as well as for Macintosh to give him total authority for running it. As far as I could tell, the board never even gave the idea serious consideration.
No one in Apple management thought Steve’s project would ever amount to anything.
How much autonomy did he really have? Here’s one example: the Macintosh factory. The Apple board was reluctant but finally agreed to give him a budget of $3 million for the plant. Before it was finished, Steve had spent $12 million. In just about any other company, so huge an overrun would have been grounds for any lesser figure than Steve to be fired, or the project would have been taken away. But those were the go-go days at Apple. The company was flush with capital from the sales of the Apple II, with nearly a billion dollars sitting in the bank. A $9 million overrun didn’t seem like such a big deal.
Of course, Steve wasn’t the first person in business ever to conceive of a work group that would operate under different principles than the rest of the company. If Steve had needed a model, he could have found it in what came to be called the Skunk Works at Lockheed Aircraft. The head of that unit was Clarence “Kelly” Johnson, who had originally been hired as a tool designer. Kelly started off by advising the company’s chief engineer that the design for the new Model 10 Electra aircraft was so flawed that the plane would be unstable in flight. Instead of firing him, the chief engineer allowed the youngster to do some wind tunnel tests. When the tests showed Kelly was right, he was pulled off tool design and given the job of redesigning the aircraft. He was reassigned as one of Lockheed’s five aeronautical engineers.
In World War II, when the U.S. military grew alarmed that the new generation of German jet fighters would be far superior to anything we had, Kelly said he could develop a new fighter in six months. He was allowed to handpick the Lockheed engineers he wanted, setting them up in a makeshift but secret work area under a rented circus tent situated close to a smelly plastics factory. One of the design engineers answered his phone one day; because of the smell, he jokingly identified the location with the term from a popular comic strip: the Skonk Works. The label stuck, with Skonk becoming the more familiar Skunk.
The team, incredibly, created the new fighter, the P-38, under schedule and under budget. They were able to do this because Lockheed gave Kelly and his Skunk Works team latitude to ignore corporate operating procedures, break the rules, and do whatever it took to get the job done.
In the years that followed, the Lockheed Skunk Works teams, continuing to operate in secret and outside the standard corporate rules, would create one amazingly successful aircraft after another—planes as unique as the U-2 high-altitude spy craft.
Steve and Kelly were like-minded in their understanding of a simple truth: great products rarely get created in a bureaucratic environment.
Steve began to call the Macintosh team intrapreneurial, a term that has since mostly faded from use but that was at the time coming into popularity in business circles.
Though the term is out of favor these days, at the time it seemed to Steve as made-to-order. The year after the Macintosh came out, he explained his understanding of that term to a Newsweek reporter as “[a] group of people going, in essence, back to the garage, but in a large company.”2
Steve kept trying to influence the rest of Apple not to lose the entrepreneurial spirit. He understood from the first that you don’t create great products by passing a project along from one corporate division to another—a concept group, to a design group, to an engineering group, to a marketing group . . . or whatever. Without ever lecturing us about it, he believed in small, integrated teams. He had a vision of a team always small enough that every member—every member—stayed involved all the way through. Off-sites for the entire team would be one key way of making that happen. The commitments made at a meeting in front of all team members were sometimes even more powerful than a one-on-one promise to Steve; they were essential for keeping projects on schedule.
Yet even though he was the company cofounder and soon to become chairman of the board, trying to get the whole of Apple to shift to the model of a start-up was a struggle. I believe he already had the insight and inherent ability to turn all of Apple into a Skunk Works organization, yet the men running the company, and the board as well, didn’t recognize this. So they stuck him off in the corner, thinking it was money well spent to keep him busy with Macintosh.
It’s interesting to wonder about what would have happened if Steve had taken over Apple at the time. He would have killed the Lisa, which would have been a good thing. The Apple II/Apple III would have run out of steam. Apple would eventually have become a Macintosh company—much sooner than actually happened.
I had come to Apple with some management skills I picked up in my years at IBM, where, for a time, I was part of that research team in San Jose developing what would become the forerunner of the ATM. The team included a unique group of engineers—very independent guys, trying to do their own thing. But independent wasn’t a term in the IBM vocabulary. For every group like this, IBM always assigned a senior manager, supposedly a mentor but more of a monitor, to oversee the operation and keep it under control. Even though we were working in a research center, and actually called a Skunk Works unit, we were nowhere as free to operate as Steve Jobs was in his Macintosh days.
If you have your eyes set on creating autonomy within a larger company, you’ll need to realize that the degree of freedom and independence Steve Jobs was able to wrest from Apple in some ways went a good deal beyond what is reasonable to expect in other situations. It helped that he had a champion supporting his cause: as a vice president, I was able to find ways of protecting the Mac group against attempts by the Apple bureaucracy to rein him in.
After the Macintosh had launched, I dropped by to visit a friend who was working on his PhD in business at the Claremont Graduate University in Southern California. At the time there was a lot of speculation about how Steve was going to get along at Apple. My friend picked my brain about this and the big question of whether Steve would be able to turn Apple around and keep the company from going under.
Over lunch, my friend introduced me to his adviser, the renowned Peter Drucker. At the time, Peter was in his late eighties and was one of America’s most respected authorities in corporate management—an author, teacher, and consultant to many leading corporations. The question about Steve and Apple came up again. I said I was very confident in Steve’s ability to get the whole company working like the teams of the Macintosh Pirate days, and that he would focus on the key products as his turn-around strategy.
This led to a conversation about what type of organization is most powerful for promoting innovation, as well as whether it was possible to foster a start-up mentality in an established company. The conversation between Peter and me grew heated.
His position was that among the numerous types of organization management structures, the functional organizational structure has been most successful—that is, a structure in which the organization is segmented into divisions like sales, marketing, human resources, engineering, manufacturing, and so on; this is what you might call a top-down or a command-and-control structure, based on subordination, with all orders coming from on high, passed down the ladder. Peter insisted that every company needs this type of structure to operate effectively and achieve its goals.
He rattled off a list of benefits. His list went something like this:
The major drawbacks as I saw them then and still see them include the following:
Most important of all, the start-up type of structure encourages innovation.
Peter Drucker and I didn’t settle anything that afternoon, but I still wonder if he would have revised his opinions had he lived long enough to see the full extent of Apple’s success as an innovative, Pirate organization.
Do you have an organization that Steve Jobs would have approved of or, instead, one that would have pleased Peter Drucker? To determine how supportive your current organization is in fostering innovation, test yourself with this series of questions.
Is a climate of innovation continually supported by the board of directors, CEO, VP, and team leaders?
Any organization that wants to be fully innovative needs to have support for that innovation at every level, from the board of directors to the team leaders. This priority has to be continually communicated to all employees down to the newest hire and on display in every press release and public event.
Do you have the right people?
Not everyone who has spent his or her working life in traditional companies can really transform into the kind of independent thinker and performer that is so essential for an innovative team. Still, given the opportunity, most people are motivated to do what it takes to be creative. The right people will be very entrepreneurial in nature, have the ability to be flexible in their focus, and be able to change direction easily. The talent always needs to be open to change and open to the ideas of others. They need to be people who believe instinctively that the focus must be on the product, not the process.
Is there a method in place to monitor the team?
Steve was extraordinary in his hands-on managing of product development, at every level. I’ve never encountered the CEO of any other large company who was anywhere near as involved in the small details of each new product. It was as if Steve had invented the idea of ongoing development feedback on a regular, very frequent basis. In most cases, a new piece of design wasn’t passed up the line to be shown to Steve by a VP; instead, the responsible team members themselves made the presentation. Steve didn’t want any comments or instructions from him to be garbled as they were passed up the line, as in the old children’s game of Telephone. The people doing the creative work got directly from Steve their praise or scolding, and directions on what he wanted changed or fixed.
Are your people strategic and focused at the same time?
This is where small, mobile teams are critical to the organization. Narrowing down certain broad goals into more specific tasks and organizing small teams to meet them is critical. Contributors need to have the big picture as well as how their function or job fits into the whole scheme: a designer working on the physical buttons of the iPod needs to understand the compelling reason the product is to have only one button. Steve’s demands for secrecy, even among teams working on different parts of the same project, was sometimes in conflict with this goal, which in Steve’s version turned into something like, “You’ll get as much information as you absolutely need about what the other teams are doing, but not a syllable more.”
Does your team have an absolute commitment to the product?
An absolute commitment to the product is the most important ingredient for innovative organizations. If your company makes products that everyone can use, are all your employees committed to using items from your company? Do they take pride in speaking about the product, not just to relatives and friends, but even to strangers?
Think of when Steve stepped onto the stage for a new product introduction. Every organization and contributor in Apple was probably impacted by his enthusiasm and commitment. It wasn’t a sales head or product head on stage—it was the leader himself giving praise to the entire organization. When he said, “This is the greatest product in the world,” everyone who had the remotest connection with developing, promoting, or marketing the product swelled with pride.
One of the big advantages of the Apple-type organization is that it is based on products and on the innovators involved in developing and building those products, not on hierarchy or control. In a function-based organization, when there is change, particularly in upper management, it can have a profound impact through all levels. Since these organizations are built on control, the change can be dramatically negative.
But when Steve stepped down months before his death and his second-in-command Tim Cook became the new man in charge, the change had almost no impact on the organization. Prior to becoming CEO, Tim had been responsible for worldwide sales and operations plus the Mac division and played a key role in supplier relations. The change in command from Steve to Tim took place with barely a ripple on the waters.
The same was true with the departure of Ron Johnson, Apple’s head of retail. Even though he was the real founder and implementer of the worldwide Apple store business—which his vision and Steve’s design sense had made such a huge success against expectations—once again the transition was smooth.
This flexibility also applies to the board of directors. Shortly after Steve’s departure, it was announced that longtime board member Arthur Levinson would become the chairman of the board. Meanwhile, Disney CEO Bob Iger was appointed as a new board member. Both have Pirate written all over them. Art was CEO of the multibillion-dollar biotech company Genentech and was sometimes referred to as the Steve Jobs of the pharmaceutical industry. He won numerous awards for his technical achievements as well as his leadership skills. Bob Iger, on the other hand, played an important role in rebuilding the partnership between Disney and Pixar after it appeared that the deal was down the tubes.
So despite these crucial changes, there is every reason to expect that Apple will continue to be the best model we have of what the successful Pirate company needs to look like: a comparatively flat organization, with a core made up of small teams of people focusing on products.
Notes
1. Rama Dev Jager and Rafael Ortiz, In the Company of Giants: Candid Conversations with the Visionaries of the Digital World (Darby, PA: Diane Pub Company, 1997).
2. “A Whiz Kid’s Fall: How Apple Computer Dumped Its Chairman,” Newsweek, September 30, 1985.