Steve Jobs' Message to Unicorns: Count the Nickels

It is easy to forget that, when he was a student, the man who brought us the Macintosh, iPhone and iPad (and, with his little finger, Pixar) collected bottle caps to make ends meet. The need to stretch every nickel informed the way Apple was run during the early days. It is on that spell, rather than the enormous public profile commanded by Steve Jobs in his later years, that would-be emulators should dwell.

Lost in the millions of words devoted to Jobs since his sad and untimely death is what established Apple in the first place — an approach to business far removed from the techniques employed by the managers of the three- or four-year-old subprime “unicorns” that command billion-dollar valuations today.

Peruse Apple’s initial public offering prospectus, and the numbers are startling. In the year preceding its flotation in 1980 Apple recorded sales of $117m, and pre-tax income of $24m. It did this in a market cluttered with dozens of companies making personal computers and with a payroll of about 1,000 — almost half of whom, believe it or not, were engaged in manufacturing. Apple’s initial public offering, which raised $90m, valued the company at about $1.2bn. (Multiply these numbers by three if you are comparing them with current dollars). Apple’s two founders and their chosen chief executive owned about 40 per cent of their creation, largely because they had been so efficient (and parsimonious) with the small amount of outside capital they had raised. Apple became a public company in a month when the prime rate stood at 21.5 per cent (yes, the decimal point is in the correct position) and the capital markets were bruising.

All this is most germane in the era of the subprime unicorn because the habits adopted during the formative years of a company have such an influence on its eventual operating performance. Apple’s tone in its early years was influenced not just by Jobs but by a management team composed of several alumni of the semiconductor industry — a milieu where the consequences of an operating mistake are harsh.

Some will argue that Apple’s lineage is irrelevant and, in some respects, they are right. Open source software and Amazon Web Services make it far easier and cheaper to start a company, or at least build a product, than it was when Jobs co-founded his business. On the flip side, at least in Silicon Valley, it is also more difficult and expensive to build a company up than it was at the end of the 1970s and early 1980s.

The fact that there are more technology behemoths — Amazon, Apple, Google, Facebook, Microsoft — than at any time in history makes life tougher for the start-ups. These companies, together with a raft of smaller, rapidly growing, profitable ones (and, increasingly, several Chinese businesses with Silicon Valley outposts) are run by people eager to conquer new frontiers. That has had a dramatic effect on the cost of start-up labour.

Every capable person, whether their forte is engineering or sales and marketing, will be keenly fought over; and the large companies, with their ample profit margins and huge cash-flows, are prepared to pay king’s ransoms to retain their best and brightest or recruit the smart graduates. Add to that a large rise in the cost of property and the look-a-like companies sprouting up all over the world, and it is clear Silicon Valley is more expensive, in real dollars, than 40 years ago.

None of this means that the laws of business have suddenly been reversed. That Apple is now the world’s mightiest company is because its principal founder (and re-inventor) was always aware that his large public profile rested atop a meticulous operating machine — something that those who aspire to replicate his success might bear in mind.

This article originally appeared on the opinion page of The Financial Times.