Steve Jobs is a modern day, corporate equivalent of Genghis Khan, and Apple was his horde.
His secret lay in the way he thought a problem through.
If I asked you what business Avis or Budget were in you would probably say car rental. Although this is true, it is not the most effective way to think of these companies. A far more profitable way to think about them is as mass producers of second-hand cars.
Most entrepreneurs and executives would have also answered car rental. That answer is driven by the obvious revenue source – rental payments for the use of the cars.
A deeper analysis leads to a second major revenue source, and that is the disposal of the cars at the end of their useful lives. The residual value of these assets turns out to be an important factor in the profitability of car rental companies.
To see that insight shifts are not a one-off phenomenon, think about newspapers. If I were to ask you what business newspapers are in, you might answer the provision of news to the buyers of these publications.
This answer is not unreasonable, since if we follow the revenue stream we see that people pay for these publications, generating revenue for the media company, so that they may consume the news in the publications. But a clue as to whether this view is an effective one is to consider how much people pay for each issue – at most a few dirhams. Can that alone cover costs?
With the media it is easier for the layperson to discern the main alternative revenue source – advertising. Once we understand that newspapers are simply delivery channels for advertising copy it becomes easier to develop successful business strategies.
Defining the target audience for newspapers becomes a simple exercise of understanding the target audience of the advertisers. From that you can reverse-engineer what content is necessary to deliver to attract this demographic. The mistake that far too many fledgling media outlets make is to define their target audience without reference to the needs of their major clients, the advertisers.
Car rental companies and media companies started off with a business model consistent with their actual business.
Over time the realities of the business created slight shifts in interpretation of the business model that nevertheless led to massive potential profits. The question becomes, can companies proactively use these subtle differences to their advantage? I think that the answer is yes, and that the greatest example is Apple, which used it to devastating effect.
Many view Apple as an exciting company that innovates every year. I find this hard to believe, as creativity cannot be produced in a consistent manner. What I believe happened is that a genius tried to provide the world with the best product and when he failed, and he failed hard, he spent years understanding why and developing a master strategy that has unfolded over many years.
I am speaking of Steve Jobs. The Mac in the mid-1980s was a far superior product than Microsoft's operating systems running on a PC in the mid-1990s. As a young entrepreneur, Jobs probably believed that producing the best product would result in success. His disappointment at the failure of the strategy must have been bitter.
It is not hard to imagine Jobs spending a decade analysing what happened, trying to understand how Microsoft and the PC dominated the market. Could it be that he came to the conclusion that the key to Microsoft’s success was that a high-demand platform was used to sell a low-quality product?
I believe that Steve Jobs took this model one step further and decided to use innovative products to penetrate open markets and then use this penetration to deliver great products and services that circumvented competitive barriers.
The first iPods were expensive but competed with the MP3 player market – not very lucrative. This certainly had nothing to do with telecommunications or music production. Were Nokia, Samsung, Sony or Warner scared? They probably did not even notice. Certainly Microsoft did not pay attention.
But once Apple combined the iPod with its iTunes Store music distribution platform a few years later, it took the world by storm. The hardware company found a second significant source of revenue in music sales to an audience it created with its iPod.
This commercial blitzkrieg could not have been haphazard. Steve Jobs slew half a dozen global corporate giants by thinking differently.
Sabah Al Binali is an active investor and entrepreneurial leader, with a track record of financing, building and growing companies in the Mena region. You can read more of his thoughts at al-binali.com
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