“You know, we want to really enrich people’s lives at the end of the day, not just make money. Making money might be a byproduct, but it’s not our North Star.”
James and I have an argument. It goes like this.
I say that Apple’s number one priority is making good products, and they assume that if they succeed, they will make money.
James says that Apple is a corporation, and the goal of corporations is to make money. James believes that Apple has found a novel way to achieve the ultimate goal of making money—by focusing on making good products.
What’s the difference? Does it matter?
The Power of One
These questions call to mind one I had to answer a few years ago—Stanford’s business school application essay. The prompt is ingrained in the mind of anyone who has taken it on:
What matters most to you, and why?
My essay hinged on another quote: "Do you want to spend the rest of your life selling sugared water, or do you want to change the world?" (1)
The thoughtful reader might ask if you can do both. You can. But the point is that while every person or organization has a list of priorities, there’s always one at the top. What matters most to you, and why? Selling the most sugared water, or changing the world?
I believe enumerated priorities follow the power law. The top priority is more important than the rest of the priorities combined. The reason is that when the chips are down, when push comes to shove, when you’re deep in the weeds, you can really only hold on to one thing in your mind as the deciding factor. One principle demarcates the line—is the answer “yes,” or “no?”
Human nature is to resort to “gut” decision-making for the hard stuff. Your gut can only retain so much. But I believe it can be taught one thing—your top priority. Your North Star.
One other thing I got out of business school (before dropping out) was a great definition of company culture. It’s not ping-pong tables or vacation policies. It’s the set of principles by which decisions are made when the boss isn’t watching. If you’re the founder/boss, you better make sure you nail these down early.
What are we about? What determines why we did this instead of that? What determines why we’re going to do this instead of that?
What matters most to us, and why?
If you believe the power law, as I do, what really matters is getting the top priority right. Finding your North Star. Then, at least you can have confidence that in those dark rooms at 2 a.m. when some drunk 22-year-old is hammering out the key product feature or doing the analysis that’s going to guide your next project, he knows what the ultimate goal is. If you can drill that into his head, you’re most of the way to having a focused company.
But here’s a paradox: choosing “shareholder value” or profit as your North Star will eventually lead to the demise of your business. Disruption, short-term greediness, whatever you want to call it—you will die. To paraphrase Clayton Christensen, you fail by getting too good at pleasing your best customers, while companies that were once beneath contempt eat you from below.
I was reminded of the dilemma reading this piece. It seems that companies that survive multiple business cycles aren’t aiming to extract the most value from them. Why?
I have a couple of hypotheses. One is that short- and long-term profitability are fundamentally different. Long-term profitability is really just survival. And, given that survival is really just not dying, focusing on anything else, like making more money, will ultimately fail. Setting a goal other than profit might be like caloric restriction; you live longer, but don’t ride as high.
The second hypothesis is more interesting. Perhaps the company that is culturally built to extract profit can really only do so from a small set of product-market combinations. Perhaps the company that is built on loftier, more abstract goals, like “making great products,” or “pleasing customers,” is a different kind of organization entirely. (2)
The former, even if it achieves its goals, can fail when the product no longer serves the market. The latter cannot fail if it achieves its goals, because there are always great products to build and customers to please.
It cannot ever succeed like the profit-oriented company can, though, because it’s a different kind of organism. Like hardy strain of bacteria, it has to mutate to gain new skills and replicate those mutations across generations. It might have to change so much that its founders wouldn’t recognize it. Nokia started out making pulp paper and galoshes. IBM made punch clocks and scales.
One organization is running a mine whereas the other is building a city. Mines get depleted. Cities almost never die.
To come back to the initial argument, I believe Apple has chosen to focus, above all else, on making great products that delight customers. Profitability is a priority, but it’s not the first.
You get to choose, too.
If you focus on making money, you will probably make more, but your company will die sooner.
If you focus on something else, you’ll have a shot at living longer, but the organization will have to change, sometimes dramatically, to continue pursuing its top priority.
One’s not better than the other. But don’t assume the choice doesn’t exist.
What’s your North Star?