What Happens When Companies Forget About the Product

The One Thing You Must Do to Preserve Your Innovation Mojo

I used to watch Apple’s product events with eager anticipation. But when I watched the most recent one, I was disappointed. I’m a serious Machead. But if I’m honest, I think they’re losing their mojo. It’s a cautionary tale, one that Steve Jobs actually warned about.

Using IBM and Xerox as examples, Jobs explained the evolution of large, successful companies in two stages. In the first stage companies focus on products that solve customer problems. In the second they focus on sales and marketing.

The shift from Stage 1 to Stage 2 happens in the natural growth of a business. As companies experience greater success, the focus shifts from products to greater distribution. This can be a plus, but there’s also a risk.

The Stage 2 Trap

As sales and marketing people rise in the organization, they can edge product people out of leadership. But when expansion trumps innovation, there’s only so much time before the product stops serving customer needs. Jobs warned:

The product genius that brought them to that monopolistic position gets rotted out by people … who have no conception of a good product vs. a bad product.

This is what happened to Microsoft when Steve Ballmer took over from Bill Gates. Innovation took a backseat, and competitors—like a reinvigorated Apple—were able to take marketshare.

Now it looks like Apple is in the Stage 2 trap. Arguably, they’ve lost their product mojo. Several tech writers I follow are saying so. I hope they’re wrong, but Apple’s ho-hum MacBook Pro announcement last week would indicate they’re right.

Stage 3 Is Even Worse

One thing Jobs doesn’t mention in the video above is what happens after the reign of sales and marketing. From my experience in the book publishing industry, the finance people take over next.

When I first started in the industry, publishing was a Stage 1 business. Product people drove the key business decisions. The sales department did not predetermine what we published. We assumed if the books were great, we could figure out how to sell them.

But gradually, we shifted to Stage 2. Sales and marketing cast the deciding votes on what got published. It all came down to what they thought they could sell—or not. And sadly, lots of excellent books didn’t get published.

But then it got worse. With the triple tsunami of the Great Recession, ebooks, and social media, the finance people took over. I call this Stage 3. Everything became about cutting costs. Product quality suffered. Marketing budgets were slashed. Predictably, sales fell even more.

In many publishing companies today, there is no real growth strategy. It’s simply about managing the decline. During the recession, publishers quipped, “flat is the new up.” Today, “down is the new flat.”

So what’s the way out?

The Microsoft Example

Whatever business you’re in, you can find yourself in one of these three stages. The one thing you must do if you’re in Stage 2 or 3 is shift back to Stage 1.

Surprisingly, Microsoft is moving back into Stage 1 under the leadership of their new, innovative, and product-focused CEO, Satya Nadella. Microsoft scooped Apple by hosting their own product event the day before Apple’s.

They introduced the Surface Studio, a stunning new device that blends the best of tablet computing with incredible desktop innovations.

Everyone was blown away, me included. Several pundits commented that Apple’s event was like an older Microsoft event—boring and predictable. Meanwhile, Microsoft’s event was like an older Apple event—exciting and innovative.

Back to Stage 1

With the release of the Surface Studio, Microsoft models three actions we can all take to shift back to Stage 1 if we’ve lost our way:

1. Reconnect to real needs. Did you notice the concern for the way designers and creatives work? Microsoft dialed into their needs.

2. Imagine a better solution. To meet that need, Microsoft imagined a way to radically change the way designers interact with their work. And then, they directed their innovation to make that possible.

3. Execute with excellence. Microsoft still could have fumbled the Surface Studio if they executed as they did under Ballmer. Instead, the new device is as elegant as it is functional.

I’m not suggesting sales and finance people are not important. Far from it. But if there’s no balance with the people who innovate and address customer needs with creative product solutions, companies will kill their chance of long term health and vitality.

As I said at the start, this is a cautionary tale, and worthy of further reflection. It doesn’t just apply to technology or publishing companies. It also applies to those of us in other growth industries, too.