Today’s scale-up businesses are growing faster than we could have even conceive possible just a decade ago. To achieve 50 million users took the telephone 50 years, the television 22 years, the PC 14 years and Facebook just 2 years. It’s not just user-growth, but financially companies are scaling more rapidly, globally, than ever before. Slack, Groupon, Akamai and Xiaomi hit $1 billion valuations less than 2 years from inception and in just over a decade Facebook grew from a startup to having close to 2 billion active monthly users and a market capitalisation of over $400 billion.
Rapid growth is one of the greatest challenges a company can face, and requires extraordinary leadership skills.
One such leader is John Sculley who was President of Pepsi-Cola (1977-1983) before becoming CEO of Apple Inc, a position he held from 1983-1993. During this period, he led the growth of Apple from $800 million to over $8 billion in revenues, and is regarded as key in turning Apple into one of history’s most profitable businesses. Sculley is now a serial-entrepreneur and investor in his own right, and one of the world’s foremost experts in high-growth businesses and marketing.
I caught up with John to learn more about how to create businesses that scale.
Q: What does entrepreneurship mean to you?
[John Sculley] Entrepreneurship means the unrelenting belief that there has to be a better way.
There has to be a better way of doing things… I learned that back in my early days when we were creating Pepsi’s marketing campaign against the giant Coca Cola. I learned it when we were starting PepsiCo’s international snack foods business (now the largest part of its business). I learned it many times at Apple, and again and again since.
If it was obvious that things were already being done in a great way that couldn’t be improved? There wouldn’t be any need for entrepreneurs to step-in and create new ways of doing things that don’t rely on the baggage of the past.
Entrepreneurs are people who by nature are optimists, who can tolerate risk and who have huge curiosity.
Entrepreneurship is increasingly going to be the foundation for our world’s economy. As we enter a world of exponentially growing technologies like machine learning, the internet of things, mobility, big data, precision medicine and so many more areas; the possibilities of having a better way to do things is increasing too.
The challenge however is that many of these technologies like robotics and machine learning will replace many traditional jobs. Some predictions (which may not be far off the mark) even say these technologies will replace most existing jobs. Not only do we need a better way to do things, but we need to find a better way for society to work- to keep people in jobs.
It’s an amazingly exciting time to be an entrepreneur. For a long time, entrepreneurs used to be on the fringe of the economy- on the right side of the bell curve. They’re now right there in the middle, and it’s so exciting that entrepreneurs are now being seen as the absolute leaders of our economy, and our world.
Q: What are the characteristics of scale-up businesses?
[John Sculley] To scale? you have the stars aligned- timing is everything.
When we created the first personal digital assistant, the Newton, I wasn’t a trained electrical engineer or computer scientist and I didn’t realise at the time that while we were clearly pointing in the right direction towards mobility, handheld devices, and the amazing things you could do without a keyboard; they reality as we were probably 15 years too early. Even some of the best computer scientists in the world didn’t realise that at the time, we needed Moore’s Law to continue doubling processing power every couple of years for at least a decade before it was practical to build products like iPhones.
It’s important that you separate the entrepreneurial leadership that defines new industries from the entrepreneurial leadership that’s opportunistic and takes advantage of the derivative effects of new industries.
I had just left one of the most competitive markets in the world- the Cola Wars. In a decade, Pepsi had gone from being outsold 10:1 in 50% of the USA to passing Coca Cola, becoming the largest selling consumer packaged good in the United States. I had never heard about having a ‘noble cause’ in business- for me, it was about gladiatorial competition…. Someone wins, someone loses…
Here was Steve Jobs and Bill Gates- two young guys, under the age of 30, talking about their noble cause of empowering knowledge workers with tools for the mind, making them incredibly productive, and helping them to change the way things were done in our world; creating entirely new industries in the process.
I’d never heard that before… I’d never people talking in terms of creating new industries… in my world it was always about winning market share in existing industries.
There are very few people who genuinely have the leadership capacity to build businesses like this. In this decade it would be people like Elon Musk, Larry Page, Jeff Bezos and Mark Zuckerberg– people who are changing the future by creating new industries.
Every major new success has those types of brilliant entrepreneurs leading, and has significant derivative effects, and I’m particularly interested in how you take the derivative effects of brilliant, world-changing innovations, and turn them into global businesses.
In 2007, just 10 years ago, Eastman Kodak made the decision to double-down on their silver halide film processing business. They were in a brutal, competitive battle with Wal-Mart who had entered the single-use film camera market, and were outselling Kodak in their particular channel. Kodak decided to become more aggressive with their pricing, and doubled-down on silver halide film. Here’s the thing… Kodak was the company that invented digital photography… Kodak was the largest printer of photographic images in the world… they knew technology was going to eventually build an industry for digital photography… but they saw photography as being about memories, and about building albums of things you wanted to save. Kodak had been living in linear-time, something which is intuitive to most of us, where we think in days, weeks, months, years…
The world had already started to shift when people like Steve Jobs started to take-advantage of the fact that you could connect the dots, and take a mobile device running on a 3G network, and use that to send photographs. That eventually led to the IPhone and 4 years later, Kodak – which had been a $26 billion market-cap company, filed for bankruptcy.
When Evan Spiegel created Snapchat, he saw photography in an entirely different way from Kodak; he was from a different generation. Evan saw that smartphones could take photos to use for communications, not for archiving into an album. He turned Snapchat into something young people loved! They could do very risqué things with photos that would disappear… they could add effects and emoji’s to communicate how they were feeling… This was a better alternative to phone calls and texts and it created a whole new derivative industry that came out of iPhone and Android. This derivative industry has led to its own multi-billion dollar companies.
The ability to understand derivative effects of major new industries that are being created by these exceptionally brilliant handful of leaders is very important for entrepreneurs.
These derivative effect opportunities for entrepreneurs are going to increase because of the exponential growth of these 5 or 6 major technologies which are compounding in growth at an accelerated rate.
Q: How do companies survive rapid growth?
[John Sculley] When you look at companies that survive growth, you are seeing the importance of people- not just ideas.
One of the big surprises to young people when they show up in Silicon Valley and say, ‘hey, I was top of my class and have all these great wonderful ideas…’ is that there are literally thousands of people just like that across Silicon Valley who were top of their class and have incredible ideas.
Successful companies that scale stand out because of their people! You have to have incredibly talented people leading the company, and within it.
Noble cause businesses like Apple, Facebook and Tesla are doing more than just making money. They are inspiring everyone who is involved with them- from customers to employees and partners- to say, ‘this is so important that everything else is secondary…’
That’s why you see these charismatic leaders as being so crucial to the success of these scaling companies.
Let’s take Facebook as an example… 4 years ago, a lot of people were writing Facebook off saying, ‘well… it was a cool idea to have social networks on your big-screens, but now everything is moving mobile, and Facebook doesn’t have a position in mobile…’ – Guess what… 4 years later, Facebook gets almost 80% of its profits from mobile products and services. Some of this came through the acquisition of businesses like WhatsApp and Instagram, but a lot came through organic growth. Facebook is a story of exceptional leadership. Mark Zuckerberg and Sheryl Sandberg perfectly compliment each other, and the business has been able to attract truly exceptional talent- not just people who code but people who know how to run and scale businesses.
Q: What is the role of mentoring and support in high-growth businesses?
[John Sculley] Look at Uber where you have a very talented Founder CEO who is having very real challenges that he’s having to learn enough about to enable him to take an amazing company to reach its potential as a real profit-making business. Last year, Uber did about $4.4 billion in revenue, but it lost around $2.2 billion at the bottom line. This is an amazing business, but he simply hasn’t had the experience of leading companies through this kind of growth.
Steve Jobs was always brilliant, all the ideas that Apple does today were pioneered by him back in the early 1980s. Steve Jobs 1.0 was not the same savvy executive as Steve Jobs 2.0 who became the world’s greatest CEO 15 years later.
The greatest entrepreneurs need to either team-up with the right skills at the right time around them, or realise that they may not be ready at a specific time in their lives, but could be brilliant a few years later.
Q: How can strategic vision help scale businesses?
[John Sculley] I learned zooming from Steve Jobs, it was something he practices all the time. Steve zoomed out to look beyond how industries are defined presently to see what the possibilities might be.
I remember one of my favourite Professors was Marvin Minksy at MIT Media Lab and he used to say, ‘you don’t really understand something well until you understand it more than one way…’
The way to accomplish this is through zooming. You need to go beyond the defined description of an industry today, and look at it from all angles, and all contexts. Don’t forget… entrepreneurship is about finding a better way.
Steve Jobs looked beyond how other people were thinking about computers. He had already released the Apple II which did- for a couple of thousand dollars, what people thought could only be accomplished on computers costing hundreds of thousands of dollars. People were thinking about making computers personal and inexpensive- but Steve Jobs loved calligraphy, and saw the possibilities by zooming out when he was invited to Xerox Parc, and saw the $80-100,000 engineering workstations they were building that used a graphical user interface. Steve had this experience at Reed College where he fell in love with beautiful fonts, he was a designer at heart and he started to connected the dots. He saw that you could take personal computers- which were just less expensive versions of big computers- and change how they were conceptualised into something that was so easy to use, that you could sell it to a non-technical person, allowing them to do creative things. Nobody had thought of that! He took the technology Xerox invented and took all the cost out of it, making it affordable and accessible to non-technical people… that was the Macintosh.
That ability to completely take the same set of facts that were available to anyone, and see them in a different way? That’s zooming out… Steve Jobs was a minimalist, and believed simplification was the ultimate sophistication, and that’s where he started to zoom-in, reducing the number of steps to do things.
I remember many times at the Macintosh engineering lab, a year before the Mac was a commercial product. Someone would bring Steve a piece of code and say, ‘Steve, I’ve taken it down from 6 steps to 4…’ Steve wouldn’t even look at it and said, ‘bring it back when it’s 2 steps…’
Those first principles that Steve created in the 1980’s… that you focus on non-technical people, that you enable people to do amazingly creative things, that you don’t compromise on design, that you focus on experience not technology…. Those principles he defined back in the early 80’s are still the same today.
A truly great entrepreneur not only defines a noble cause, and attracts huge talent to join them, but they also create a set of principles that can survive decades and remain relevant even when a company is as old, big and successful as Apple is today.
Q: What would be your advice to the next generation of entrepreneurs?
[John Sculley] There are so many ways you can participate in the entrepreneurial economy. You can be a fan or advisor… you can be an investor, an employee… not everyone needs to be Elon Musk, Larry Page or Steve Jobs.
Brilliant entrepreneurs need talented people around them to build their businesses, and take advantage of the derivative business opportunities that are created.
One of the most impressive companies in the world right now is Amazon. Jeff Bezos keeps creating new industries, and is winning in every single one of them. Amazon could become the world’s first trillion-dollar market-cap company.
I spend a lot of time talking at technical universities around the world, and it’s truly incredible how much talent there is in the world, and that keeps me optimistic about our future.
As a boy, John Sculley loved to tinker with electronics; when he was five, he asked Santa for a dry-cell battery, a buzzer, and hookup wire. At ten, he was dismantling radios and converting them into intercoms. As a teen, he invented a color cathode-ray tube that, if someone hadn’t beaten him to the patent, would have been the prototype for the Triniton color TV tube.
The son of a Wall Street lawyer father and an artistic mother, John Sculley was born in New York City and grew up in Bermuda and on Manhattan’s Upper East Side. As college approached, he was more interested in architecture and industrial design than in marketing or technology. He earned an undergraduate degree from Brown University and enrolled at the University of Pennsylvania’s School of Architecture. But a summer internship at a New York industrial design firm convinced Sculley that marketers, not designers, were calling the shots. So he switched to Wharton, Penn’s prestigious graduate school of business.
After earning his MBA in 1963, and taking advantage of his interest in math and statistical modeling, Sculley worked in market research for a New York advertising agency. Four years later, as big corporations began moving their marketing operations in-house, he joined the Pepsi-Cola Company as a trainee.
Sculley describes his first few months at Pepsi as a whirlwind of different jobs in different cities as he learned the rules of corporate culture and the ropes of the soft drink industry. By 1970, at age 30, he was Pepsi’s youngest vice president of marketing, managing a staff of 75. In 1977, after heading the company’s International Foods division and then serving as senior vice president for US sales and marketing, he was named the youngest ever President of Pepsi-Cola.
Sculley credits his years at Pepsi for the evolution of his marketing approach. He says, “My ideas about marketing revolved around building the best possible consumer experiences and then helping find the most creative ways to tease a consumer’s curiosity to become our loyal user.”
In his 1987 book, Odyssey, Sculley says that it was a speech by anthropologist Margaret Mead that inspired the revitalized Pepsi Generation campaign. Mead noted that the single most important factor for marketers since the end of World War II was the emergence of an affluent middle class. Sculley focused on how Pepsi could tap into the children of this generation by associating Pepsi via television with the Baby Boomers’ lifestyle activities.
The Pepsi Challenge was another consumer-experience-centered campaign, designed to capture the surprise of Coca-Cola drinkers when they discovered that they had chosen Pepsi over Coke in a blind product taste test. By the time Sculley left Pepsi in 1983, the Pepsi brand had become the largest-selling consumer packaged goods brand in America, surpassing Coca-Cola in market share.
The partnership of Steve Jobs and John Sculley has been well-documented in Sculley’s own book, in countless interviews, and, most recently, in the biography of Jobs written by Walter Isaacson, published shortly after Jobs’ death in late 2011.
Why did Jobs hire Sculley? Says Sculley, “Steve wanted to be CEO, but the Apple board felt he wasn’t ready. Steve was still over a year away from launching the Mac and the company needed the aging Apple II to continue to provide cash flow for the next three years.”
Today, John Sculley is focused on sharing his considerable experience with corporate executives, “serial entrepreneurs,” and third-wave companies that are not afraid to take risks, to adapt to change, or to use technological advances to achieve their goals.
Sculley has a lot to say about the emergence of third-wave companies – not only high-tech companies, but others with the ability to transform their products and organization in response to changes in the economy, social habits, and customer interests.
First-wave companies were built in the agricultural age, says Sculley. Second-wave companies were built for growth; hence, their strength lies in stability. In contrast, the strength of third-wave companies lies in change: These are what Sculley calls “the adaptive companies.” He is currently working with a handful of start-up companies that are using advanced digital technology to produce health-care-related tools – tools that have the potential to decrease dramatically the $2.5 trillion spent annually on health care in the United States.