Column: Why Apple Won

Letter From Silicon Valley

10.23.06, 6:00 AM ET

Burlingame, Calif. -The best piece of management advice I’ve ever heard came from a boss who said his job was to set the bar for performance incredibly high and cheer like crazy for his employees to clear it.

I thought of that advice this past week as I set my iPod to “shuffle,” and flipped through a new book on the iPod and that sultan of Silicon Valley, Steve Jobs. The Perfect Thing: How the iPod Shuffles Commerce, Culture and Coolness, by veteran journalist Steven Levy, is a gushy but fascinating set of essays about the iPod. (Levy and his publisher have taken iPod’s “shuffle” motif to heart: Every copy of the book starts with the same essay, entitled “Perfect.” The next eight essays, however, are “shuffled” and so appear in different orders in different copies of the book.)

Every great company starts with some phenomenal product. The hard part is doing it again, and again, and again.

Google's big breakthrough was its search engine. Since that smash hit, Google has been vacuuming up talent and then giving them enormous latitude. (See: "Who's Really Running Google?") Managers encourage engineers to spend about 20% of their time on projects they’re passionate about. This lets Google crank out dozens of new products and widgets a year, but few have had much impact. And the company's most notable new products are ones that started outside the Googleplex : GoogleEarth and now YouTube.

What has been most remarkable about Apple Computer under the steely scrutiny of Steve Jobs is the number of genuinely big hits the company has rolled out. It certainly has not invented everything it sells. But because we’ve seen Apple with Jobs and without, the company is almost a laboratory experiment of the role of top management in turning an idea into a “perfect” thing.

In his book, Levy vividly chronicles the story of the birth of the iPod in the essay entitled “Origin.” The first team of engineers who tried to squeeze a thousand songs into a gadget that fit in your pocket was a team from Digital Equipment’s Palo Alto, Calif., research division. (Interesting historical note: A group of engineers in that same lab also invented a marvelous search engine called AltaVista, which, before Google, was topnotch.)

Other companies, both in the U.S. and Asia, were scrambling to create small MP3 music players. Still others were working on software that would simply let Macintosh computers play MP3s. None of this was going on at Apple.

By June 2000, Apple executives, starting with Jobs, realized that they would be missing a big opportunity if they didn’t jump into the music business. Apple snapped up one tiny company that had written Mac-based music software. What was missing from that product, Levy writes “was the trademark conviviality that characterizes just about everything that Apple does. Steve Jobs would not tolerate a program that was ugly or acted ugly.”

For music aficionados--and Jobs counts himself as one--playing music on computers wasn’t good enough. (Most of the speakers were lame.) None of the first flush of MP3 players was good enough. The only answer was to build a player that would be not just good enough but awesome.

Levy’s account has all the great details--how Apple contracted with an outside developer to put together a prototype, how Apple strong armed the guy into working full time for the company. (“I’m doing this for your own good,” Apple executive Jon Rubinstein loftily told the engineer, who would have preferred to make up his own mind.)

Where does Jobs come in?

At every go or no-go checkpoint. On every detail. Engineers were told to finish “builds,” in-process prototypes of software and hardware, on Fridays instead of more typical midweek deadlines. “I think ... they were giving the build to Steve, who would take it home for the weekend and play with it,” one engineer told Levy. Mondays started with long “to fix” lists.

“Steve would be horribly offended [if] he couldn’t get to the song he wanted in less than three pushes of a button,” another engineer said.

“Jobs certainly has an aesthetic that permeates the whole company,” Levy told me, when I asked him about Jobs’ influence on the iPod. “He can be super, super critical--it can be very frustrating to work with him.”

There are more than a few stories about people who worked their hardest on a project only to have the results razed in a review with Jobs. “Yet after a horrible evaluation, you crawl back to your office and try again--and this time, you surpass what you thought you could do,” Levy says.

Ideas can germinate anywhere. Getting you to surpass what you thought you could do is ultimately the job of top management. Somebody has got to hold up that bar insanely high. That can make for an agonizing work environment or an inspiring one, depending on how the critiques are delivered.

Just remember to cheer like crazy.

http://www.forbes.com/digitalentertainment/2006/10/20/ipod-itunes-jobs-tech-media-cz_ec_1023valleyletter.html

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Book Review: Andrew Carnegie

Man of steel -- and silence
Carnegie felt himself to be 'trustee' of his wealth
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Reviewed by Elizabeth Corcoran
Sunday, October 22, 2006

Andrew Carnegie

By David Nasaw

THE PENGUIN PRESS; 878 Pages; $35

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At a time when you can learn almost anything with a few hops around the Internet, our expectations of biographers have grown steeply. They must have exquisite (and of course accurate) details. And they must have sweep and scope, offering us more perspective than even the subject of the biography could ever have done.

In "Andrew Carnegie," historian David Nasaw provides more than 800 pages of marvelous detail about Carnegie's cinematic, rags-to-riches story. Carnegie was a Scottish immigrant who became America's largest steelmaker, an insatiable industrialist who became a leading philanthropist. Nasaw's research is extraordinary, drawing on everything from family letters to private business memos. Nasaw falls short, however, by packing these details into a disappointingly bland analytical framework.

Nasaw concedes right away that he isn't sure what to make of his subject. "I find him one of the most fascinating men I have encountered," Nasaw avers in his introduction. But it's a story with muted colors: Carnegie is neither as heroic nor as villainous as he has often been portrayed.

Instead, Nasaw plays it down the middle. We learn that Carnegie was born in 1835 to a poor linen-weaving family in Scotland. Industrial looms put Carnegie's father out of work. His mother, Margaret, or "Mag," shepherded the family to Allegheny City, Pa., where she had relatives. She would become her oldest son's heroine and constant companion, until her death in 1886.

By age 17, Carnegie had joined the Pennsylvania Railroad as chief assistant (and telegraph operator) for an up-and-coming manager named Tom Scott.

Railroads were hot. It was a giddy time to be in a growth business. There were few of today's checks and balances on aggressive business practices: government regulations, labor unions and litigation, and so on. Carnegie's boss, Scott, helped him make his first investment at age 20.

It was probably a sweetheart deal: Adams Express had just won an exclusive contract to use the Pennsylvania Railroad to ferry packages between Philadelphia and Pittsburgh. Nasaw suggests the shares were a quid pro quo for the contract. Carnegie got his nugget because, as the telegraph operator, he would have known all the details of the deal.

Thrilled by investing, Carnegie looked for more opportunities. As he liked to tell the story, he spotted one when he met a man who had designed a novel sleeping berth for railways. Carnegie claimed he showed the design to Scott, who invested in the inventor's company, and that he, Carnegie, scraped together enough funds to invest, too. The happy story ends with the inventor's success -- and appropriate winnings going to the savvy investors, starting with Carnegie.

But that account is just smoke and myth, Nasaw contends. Carnegie got a toehold in the deal between the berthmaker and the railroad because his bosses were arranging for kickbacks and he was, once again, in the know. "Capitalizing on insider information to invest in companies that were about to be enriched by lucrative contracts was standard operating procedure for railroad executives," Nasaw writes.

Nasaw steadily chronicles how the charming, tiny Carnegie (he stood not quite 5 feet tall) rose through making smart investments, selling bonds, knowing when to get in and out of deals and negotiating fiercely. What will truly awe readers in our Blackberry and e-mail-centric world, however, are the number of holidays Carnegie managed to take while building up his fortune.

As he was leaving for a year of travel in October 1878, Carnegie described his leaving this way: " 'Bang! Click! The desk closes, the key turns and goodbye for a year to my wards,' " meaning companies, which then included Union Iron Mills, Lucy Furnaces, Keystone Bridge Works, Union Forge, Cokevale Works and the Edgar Thomson Steel Rail Works. "I'm off for a holiday, and the rise and fall of iron and steel 'affecteth me not.' " Despite this cavalier attitude, Carnegie became perhaps the world's richest man when he sold his company to J. Pierpont Morgan for $400 million in 1901.

Carnegie's philanthropic streak ran deep and true, Nasaw reports. Carnegie outlined his intention to give away most of his fortune when he married at age 52 in 1887, years before clashes with unions and his retirement. In 1889, he wrote his influential "Gospel of Wealth," a primer on why some people had so much money and how to give it away. Carnegie had no love of religion but instead was strongly influenced by the English philosopher Herbert Spencer. Core to Carnegie's beliefs was an idea that Bill and Melinda Gates continue to espouse: that the wealthy are "merely 'trustees' for their communities, with no individual right" to their fortunes.

Nasaw's decision to keep his narrative firmly glued to Carnegie's schedule leaves some holes, however. "What was remarkable about the library and organ [donation] programs was how little time or energy Carnegie invested in them," Nasaw writes. So the biography spends little time exploring the effect these kinds of works had and significantly more time on the conflicts Carnegie navigated with labor unions at his steel plants and on Carnegie's self-appointed campaign to halt American imperialism.

Carnegie lived with gusto through 1914, when he suddenly retreated into silence. "We cannot diagnose Carnegie's condition," Nasaw writes. He speculates that the world war depressed Carnegie, who died in 1919. Carnegie changed his world in profound ways. Nasaw's account tells us how -- and leaves the implications of those changes for another account.

Elizabeth Corcoran is a contributing editor for Forbes magazine.

http://sfgate.com/cgi-bin/article.cgi?file=/c/a/2006/10/22/RVGIHLOC6K1.DTL

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©2006 San Francisco Chronicle

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Column: The Irony Of Large Numbers

Letter From Silicon Valley

10.09.06, 6:00 AM ET

Burlingame, Calif. -Call it the irony of large numbers.

It’s not just enough to make a fortune in technology these days. To be taken seriously, you’ve got to have a philanthropic cause. Bill Gates, of course, is saving the world from nasty diseases. John Doerr, the Valley’s über-venture capitalist at Kleiner Perkins Caufield and Byers, wants to save the planet from greenhouse gases. Jeff Skoll, eBay co-founder, is footing the bill for movies with a message, including An Inconvenient Truth, Syriana and Good Night, and Good Luck.

But in order to make those big fortunes, the venture firms that nurture entrepreneurs want to invest in Really Big Ideas--ideas that hold out the promise of making 30% to 40% returns, the kind of ideas that Google might be willing to fork over $1.6 billion or so for, such as YouTube. That means that technology that might do good for many people--but not quite enough to be a lucrative market--falls through the cracks.

“An idea that requires, say, $3 million upfront investment only to make break-even returns is a nonstarter in the for-profit world. But it could be a barn burner in the not-for-profit world,” says James Fruchterman, founder of the nonprofit Benetech, based in Palo Alto, Calif.

Fruchterman speaks from experience. He is one of a handful of people at the forefront of starting not-for-profit technology companies. Another such person is San Francisco-based Victoria Hale, founder of OneWorld Health. Both of them were among the John D. and Catherine T. MacArthur Foundation’s most recent pick of “geniuses.”

Both Fruchterman and Hale have traveled different paths to reach strikingly similar conclusions: There are orphaned technologies out there with great potential. They’re unlikely to make anyone fabulously wealthy--with patience, they could be break-even investments--but they could do a world of good. The trick is finding them a home.

Fruchterman has been a lifelong entrepreneur and technologist. He got his start by quitting a PhD program at Stanford University to join a commercial rocket launching company. (The rocket went up in flames.)
In the early 1980s, Fruchterman co-founded Calera Recognition Systems to commercialize a character-recognition system that let computers read printed text. It was a hit. But when Fruchterman proposed using the technology to build reading machines for the disabled, the idea was nixed. The market was too small.

Fruchterman wound up starting a not-for-profit venture to make the reading machines. Over a decade, the company began generating annual revenues of $5 million--enough to be slightly profitable and even attract a buyer. With the proceeds from that sale, Fruchterman started Benetech. This time, instead of just developing one technology, Fruchterman decided to try to incubate multiple ideas. “We’ve got an engineering team to develop the technology. We don’t give people seed money--we bring them in house and help them launch their idea.”

Benetech currently has six projects underway, including two aimed at promoting literacy for disabled adults. Another hopes to develop hardware to help farmers pinpoint live mines in their fields, based on technology originally developed for the U.S. military. “It’s our riskiest project,” Fruchterman says, “but has tremendous humanitarian payoff.”

Hale was a government bureaucrat--a pharmaceutical chemist working at the Food and Drug Administration in Washington--who got frustrated when she saw pharmaceutical companies shelving medically promising compounds because the anticipated profit margins would be too thin. (See: “Protecting The Orphan Drugs.”)

In the computer chip industry, squeezing more transistors onto roughly the same postage stamp-size slice of silicon means the cost of computer power has fallen dramatically. By contrast, the more complex pharmaceutical products have become, the more expensive the final drugs. “The pharmaceutical industry has created wonderful products for the West but not for the poor,” Hale says.

At OneWorld Health, Hale decided to look for drugs already developed by industry that could be targeted at devastating illnesses in impoverished countries. For instance, visceral leishmaniasis, also called “black fever,” is a parasitic infection transmitted by sand flies that causes blindness and death. About 500,000 people, many in India, are infected every year.

An established antibiotic, paromomycin sulfate, had been used to treat a range of parasites. It had been experimentally shown to combat visceral leishmaniasis, but again, given the relatively small (and impoverished) market, it was a nonstarter for any mainstream pharmaceutical company. OneWorld Health negotiated the rights to the abandoned drug, arranged a partnership with an Indian drugmaker to reformulate it and ran clinical trials to demonstrate its effectiveness against visceral leishmaniasis. In August, the Indian government approved the drug, which should go on sale by the end of the year in the state of Bihar for about $10 per treatment course.

Hale’s group is now working on a new generation of low-cost anti-malaria drugs. Researchers at the University of California, Berkeley and a startup called Amyris are developing novel techniques for creating an anti-malarial agent. So far, the science works: The scientists have shown they can use biotechnology techniques to produce materials that otherwise must be extracted from plants. Now OneWorld Health and Amyris must make the economics work by demonstrating they can manufacture the substance at affordable prices.

Come up with a novel way to distribute video clips these days and you’ll find no shortage of investors: The Silicon Valley support network that helps startups with big ideas works just fine in the for-profit world. But projects that payout in goodness, not gold, are a much bigger challenge. That makes Fruchterman and Hale true technology mavericks.

http://www.forbes.com/technology/2006/10/08/benetech-philanthropy-fruchterman-tech-cz_ec_1009valleyletter.html


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