Christopher Griffith / Trunk Archive

Exit the King

Aug 29, 2011 1:00 AM EDT

Alan Deutschman

How did Steve Jobs become a wizard among muggles? And what will Apple do without its willful inspiration at the helm?

If ever there was a showman who knew how to end on a high note—leaving his awed and adoring audience begging for more—it is the man in the trademark black mock turtleneck. Even as an ailing Steve Jobs announced to the world last week that “unfortunately, that day has come” for him to step down as chief executive officer of Apple, his timing was—yet again—impeccable. In the 14 years since Jobs regained control of his company in the summer of 1997 after a long, bitter exile, Apple shares have increased a stunning 110-fold. Having surpassed rival Microsoft a year ago, Apple’s $350 billion in market capitalization places it behind only ExxonMobil as the most valuable company in the world. Apple has made money so quickly and so prodigiously that it holds an outrageous $76 billion in cash and investments—an awesome sum thought to be parked in an obscure subsidiary, Braeburn Capital, located across the California border in Reno because the state of Nevada doesn’t have corporate or capital-gains taxes.

In his second time around at Apple, Jobs ultimately achieved what had eluded him in his early years there, from 1976 to 1985, when he was acclaimed as a visionary and a brilliant promoter but wasn’t respected as a businessman—not even by his board of directors, who pushed him aside for a more experienced executive. Now Jobs, 56, retires, having closely rivaled (or some might say eclipsed) Bill Gates as the most highly regarded business figure of our times. He proved himself the ultimate willful leader, forging his singular vision through a combination of inspiration, unilateralism, and gut instinct. Jobs didn’t just create products that instilled lust in consumers and enriched his company. He upended entire industries. Personal computing. The music business. Publishing. Hollywood. All have been radically transformed because of Steve Jobs.

It’s impossible to begin to understand the sources of Jobs’s success without looking to his unusual life story. Both his heroic posture as an inspired crusader striving to change the world and his famed passion for thinking differently sprang from the circumstances of his upbringing: like the fictional Harry Potter, he was a misfit, raised by adoptive parents, who ultimately discovered that he was a wizard among muggles. Jobs was born out of wedlock to two wizards, a.k.a. graduate students at the University of Wisconsin, Madison: Abdulfattah Jandali, a Syrian immigrant pursuing his doctorate in political science, and Joanne Simpson, who was studying for her master’s in speech. He was adopted at birth by Paul and Clara Jobs of San Francisco. Unlike Harry Potter’s guardians, the Jobses were loving, supportive parents, but they were muggles nonetheless—working-class folks rather than the rarefied breed of intellectuals and artists that the teenage Steve envisioned as his own true identity.

Four of the hallmarks of Jobs’s future business career—his extraordinary persuasiveness, his constant risk taking, his rare deal-making ability, and his fierce perfectionism—can be traced to his teenage years. The first three are sharply illustrated by his brief episode as a college student: Jobs would become known as one of the most famous college dropouts of our times, along with Microsoft’s Bill Gates and Facebook’s Mark Zuckerberg.

But in Jobs’s case the “dropout” image is all wrong. He was actually a “drop-in”: he matriculated at Portland’s Reed College, a bastion of the counterculture and leftist artsy intellectualism, even though he knew his parents couldn’t—and wouldn’t—pick up the tab. When the first bill came due and went unpaid, Jobs talked the dean of students into letting him stay in the dorms and attend classes for free. That’s how strongly he wanted to be at an elite school and obtain its validation that he was indeed a wizard rather than a muggle. And that’s how good he was at persuasion and dealmaking—and how open to real risk.

The perfectionism surfaced during his brief time at Reed, where his friend Elizabeth Holmes became concerned that Jobs suffered from an eating disorder: he consumed shockingly few calories on a “fruitarian” diet that left him constantly hungry. What Jobs ate had to be perfect because Jobs had to be perfect.

After becoming rich and famous in his early 20s, he realized that he needed colleagues who weren’t awed by his myth and could assert themselves forcefully against him—especially since he was at once strong-willed but undereducated and inexperienced and still insecure about his judgment. He found that by delivering brutal putdowns of his co-workers he could test the strength of their conviction in their own ideas. If he said “this sucks” or “this is shit” and they fought back fiercely, he would trust their passion, especially since he often lacked the necessary technical acumen or aesthetic confidence. (Even though he instinctively grasped the importance of design from early on—he had wanted to enclose the Apple I in a case of beautiful blond koa wood—he remained uncertain about his taste for many years before he settled on the safety of austere minimalism). He found that many of the most brilliant engineers and creative types actually responded well to cruel criticism, since it reinforced their own secret belief that they weren’t living up to their vaunted potential. Jobs’s relentlessly high standards inspired their own maniacal work. And Jobs became a master of psychological manipulation, playing the roles of both good cop and bad cop as he alternated lavish praise with terrifying scorn. His colleagues called it the “hero-shithead roller coaster,” and it often inspired them to do the best work of their careers before ultimately they could no longer take the brutal psychological toll.

Jobs took scary risks when he launched innovative new products, relying solely on his own instincts rather than the usual crutches of focus groups and market research, which he shunned. He had many humiliating failures but always rebounded: he sold few Apple I’s, but the Apple II was a blockbuster. The Lisa failed, but the Macintosh eventually succeeded after a slow start.

Now that Apple is preeminent, it’s hard to remember that only a decade ago, Jobs was embattled. It seemed that the heralded comeback he had created since his 1997 return had only been short-lived and unsustainable. The product that had brought Apple back—the boldly colorful, shockingly curvilinear iMac computer—was suffering from dramatically slowing sales. Jobs’s putative next big thing, the Mac Cube computer, was a critical success—reviewers loved the remarkably little white box that housed the circuitry and looked like a piece of minimalist sculpture—but it quickly became a commercial flop. From late September to early December, 2000, Apple shares fell from $53 to $14. The company lost $247 million in the last quarter of 2000. CBS Marketwatch named Jobs one of the year’s biggest losers.

But at the Macworld conference in San Francisco in January 2001, his annual venue for making oracular pronouncements in front of thousands of his most loyal fans, Jobs was as optimistic and visionary as ever. And, in hindsight, we know he was absolutely prescient. In his keynote speech he heralded the beginning of “the age of the digital lifestyle,” when the personal computer would be merely a connecting hub for an array of more nimble gadgets that would change how we lived: music players, cell phones, digital cameras, and camcorders, handheld organizers, and other small, mobile devices. By November, Apple had released the iPod, heralding the very world that Jobs envisioned. There’s an old saying in Silicon Valley that you have to eat your own lunch before somebody else comes along and eats it. In more concise terms, it’s known as “cannibalizing” your products. That’s exactly what Jobs did when he followed the iPod with the iPhone. One of the little icons at the bottom of the phone’s screen said “iPod” and had a tiny drawing of the device. An actual physical product that had cost $399 was turned into one of many free software programs, or “apps,” that ran on the iPhone. The new product was so powerful and versatile that it ate the old one for breakfast. Jobs was being a cannibal. Even though everyone in the Valley said that’s what you should do, only very rarely did they actually follow their own folk wisdom. It’s incredibly hard and painful to make obsolete one of your most profitable products by introducing a newer product that may or may not be as big a hit. That kind of terrifying risk taking is Steve Jobs’s hallmark—and a key to his success.

One of the other truly remarkable things about the iPhone was a feature called “multi-touch” that let people touch the screen with a combination of thumb and index finger and act as if they were pinching it to zoom in or out on the content. While Apple touted multi-touch as its own innovation, it was actually developed not in-house in Cupertino but by a smaller company that Apple acquired in 2005. As he had with the original Macintosh, Jobs had a genius not only for spotting innovation hatched elsewhere but for bringing it to his fans while it was still astonishing.

While the iPod and iPhone reached into the rarefied realm of pure fetish—selling hundreds of millions of units—neither was the truly revolutionary advance that launched Apple on the path to dominance in the Internet era. The greatest breakthrough was really the iTunes store, which went live in April 2003. The debut of iTunes marked the beginning of one of the most incredible winning streaks in the history of modern business, a breathtaking eight-year run that coincided almost exactly with Jobs’s struggle with cancer, which was diagnosed that summer.

At first the skeptics didn’t believe that iTunes could become much of a business, since Apple made only about a dime in profits from every 99-cent song it sold. But iTunes enabled Apple to make money endlessly over time. It was all about enabling “micropayments,” which the gurus had predicted and touted back in the early ’90s, when Al Gore was getting attention with his vision of the “information superhighway.” It took Jobs and Apple to finally make it happen, and the execution was brilliant. Through the iTunes store, Jobs would ultimately get more than 200 million consumers to entrust him with their credit-card information and let them make purchases with a touch of a finger. And they’re not just buying songs, they’re buying apps and books and everything else. That’s a terrific asset that Apple has going forward after the Jobs era.

In certain ways, Steve Jobs is superficially similar to his successor as CEO, his longtime No. 2, Tim Cook: They’re intense. They’re workaholics. They’re politically liberal (though not publicly aggressive about politics). They’ve been very private about their personal lives. Cook, at 50, is only six years younger. But at a more profound level, the two men represent opposite personalities that complement each other perfectly. In his insightful book The Productive Narcissist, psychologist Michael Maccoby describes “narcissistic” CEOs such as Steve Jobs as visionaries who are great showmen and have the commanding self-confidence to take incredible risks in their fervor to change the world. But these CEOs are also highly emotional and volatile, so it helps tremendously when they’re paired with No. 2 executives who are “obsessives”—steady, solid types who are great at working quietly behind the scenes to make things run more smoothly and efficiently. Though no one doubts Cook’s vital importance in Apple’s incredible success, the issue is that he’s the ultimate No. 2 while Jobs was the ultimate No. 1. Cook isn’t the type who changes the world. He’s the guy who makes it run on time. Just as Steve Ballmer proved to be no Bill Gates, Tim Cook is fighting the long odds.

Still, it’s possible that Cook will transform himself into a leader in the mode of Jobs. He’s gotten the closest view of how Jobs actually thinks and works, and that could provide a model. And Jobs himself is the best example of an executive who changed and grew. In his second tour of duty at Apple he mastered all the less glamorous but highly important aspects of business that had eluded him at first—things like inventory management. He became not just the visionary and the promoter but the complete executive who excelled at all of it—manufacturing, marketing, retailing, design, advertising, you name it. At one point he was envious of Bill Gates’s reputation as a businessman, but now Jobs himself is seen as the exemplar. Cook is a formidable individual, and it’s possible that he, too, will surprise us.

At the least the company should continue to perform well for the next couple of years. It will introduce the next iteration of the iPhone in the fall and the next iPad sometime in 2012. Moreover, Jobs has imbedded his cultural DNA throughout the company. And culture is a sticky thing. His people have assimilated his ways.

But it’s worth remembering that though Apple’s culture persisted for the decade when Steve Jobs was gone, it just didn’t matter without his kind of leadership. Who’s going to preside over whatever comes after the iPhone and iPad—who has the commanding self-confidence to think he knows what the next big thing is and the sheer nerve to pull the trigger on the i ... the iDon’tKnow? And if the next iThing fails, will that leader come right back and introduce the iThingAfter? Where can you find a leader with Jobs’s willingness to fail, his sheer tenacity, persistence, and resiliency, his grandiose ego, his overwhelming belief in himself?

Editor's Note: The print version of this story in Newsweek erroneously reported that Apple's stock had increased 57-fold since Steve Jobs regained control of the company in 1997. In fact, when stock splits are factored in, the shares increased 110-fold during his tenure.

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Alan Deutschman is the author of The Second Coming of Steve Jobs. His most recent book is Walk the Walk: The #1 Rule for Real Leaders.
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