Why Companies Decline

At the end of Walter Isaacson's biography of Steve Jobs, we hear directly from Jobs about his legacy. Among the topics he considers is why companies decline. Ultimately, Jobs feels that companies decline when the salesmen start running the show.

Through Isaacson's book, Jobs lays out a generalized lifecycle for leading companies. First, a company starts out by doing a great job. It innovates and then "becomes a monopoly or close to it in some field." Sadly, at this point, "the quality of the product becomes less important." This is when the company starts "valuing the great salesmen, because they are the ones who can move the needle on revenues, not the product engineers and designers." According to Jobs, this is precisely how "the salespeople end up running the company."

Jobs provides a number of historical examples of this phenomenon. It happened at IBM (NYSE: IBM  ) when John Akers took over in the mid-1980s. Akers, according to Jobs, was a "smart, eloquent, fantastic salesperson, but he didn't know anything about product." He also felt that the same thing happened at Xerox and Microsoft (Nasdaq: MSFT  ) . About the latter company, Jobs felt the decline began when Steve Ballmer took over, and he doesn't think "anything will change at Microsoft as long as Ballmer is running it."

Jobs thought a similar process occurred at Apple (Nasdaq: AAPL  ) when John Sculley, formerly of PepsiCo, became CEO from 1983 to 1993. Sculley, according to Jobs, was a guy who showed little interest in creating great products, and that almost destroyed the company. Jobs said Apple "was lucky and it rebounded."

One might extrapolate from Jobs' remarks that founder-led firms such as Google (Nasdaq: GOOG  ) and Facebook can continue on their upward trajectory. In fact, there is some evidence for that view in the book.

Despite the fact that Jobs felt Google had "ripped off the iPhone," he did agree to meet with its co-founder Larry Page, who had sought out Jobs' advice on how to be an effective CEO. In a nutshell, Jobs told him to focus on five products and get rid of the rest of it.

Jobs said he tried to be as helpful as he could to Page, and added that he'd have done the same for Mark Zuckerberg, the founder of Facebook. Clearly, Jobs believed in founder-led companies, and was wary of firms that were headed by leaders who didn't love developing products.

Obviously, these are pretty general observations from Jobs about an extremely complicated topic. But I'd still value Jobs' insights on this more than I would, say, a business guru like Jim Collins. When a guy who deservedly belongs in the same pantheon as Henry Ford and Thomas Edison speaks, I think we should listen.

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John Reeves owns shares of Apple and Google. You can follow him on Twitter @TMFBane.

The Motley Fool owns shares of Microsoft, International Business Machines, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Microsoft, and Google, as well as creating bull call spread positions in Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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