The son of a Wall Street lawyer father and an artistic mother, John Sculley was born in New York City on April 6, 1939. His first job was as a labourer at an aircraft factory, which convinced him to pursue a more interesting career. A love of design led Sculley to study architecture at the University of Pennsylvania, but he was soon drawn into business. After graduating with a Wharton MBA in 1963, Sculley worked for a New York ad agency. Four years later, he moved client side to Pepsi, where as a young hot shot he eventually developed the Pepsi Challenge strategy that launched the legendary Cola Wars. That highly successful experience-focused advertising campaign — which powered the Pepsi brand to surpass Coca-Cola in market share — attracted the eye of Apple, which recruited Sculley to run the company and help Steve Jobs introduce consumers to computers — his “bicycle for the mind.” Under Sculley’s leadership, Apple revenue increased from US$800 million in 1983 to US$8 billion in 1993, but during this period the company also lost its most important asset, company cofounder Jobs. In this Ivey Interview, Silicon Valley’s former highest-paid executive talks to IBJ about his career, his recently published book Moonshot and what he learned about the importance of company founders after Apple let Jobs go in 1985, not to mention why it has never been easier for entrepreneurs to follow in Jobs’ footsteps and change the world.
IBJ: John, can you briefly describe how you spent your time since leaving Apple?
JS: Since leaving Apple, I have advised and invested in numerous companies across numerous industries, including mobile, advertising, software services and finance. I’m currently involved with a number of companies focused on healthcare consumerization.
IBJ: You’ve consciously avoided CEO roles, choosing instead to remain active as a mentor and work with your brothers as a venture capitalist, correct?
JS: Exactly right. I don’t actually want to run companies anymore. I am more interested in supporting roles. And I’m only involved with entrepreneurial companies in industries undergoing some form of transformation.
IBJ: On the book front, you’ve been there, done that, when you wrote about your odyssey from Pepsi to Apple. So what motivated you to publish Moonshot now?
JS: It wasn’t my idea. I had no intention of writing another book. One of my brothers motivated me by pointing out I am involved in so many interesting things these days that it makes sense to try to pass on some advice. And the more I thought about it, I realized the timing was right for a sort of conversation with today’s entrepreneurs, one that shared insights for new business founders looking to really change the world.
IBJ: So it is a book about business building in today’s market, right?
JS: Yes. It is all about game-changing strategies to build billion-dollar businesses. MBA programs tend to focus on the skills required to be a CEO of a large organization, not the challenges faced by entrepreneurs as they try to expand proof of concept into a viable business. I consider myself an okay manager, but this book isn’t about managing. It is about building transformative businesses. In other words, this book is for the risk takers who believe that there’s always a better way of doing something because I think that’s more true today than ever before. That’s why it is called Moonshot.
IBJ: For people unfamiliar with the term moonshot, can you explain the title?
JS: Sure, the metaphor has been used in Silicon Valley for decades to describe a product or service that changes the world. Steve Jobs and Steve Wozniak did it with the Apple II. Tim Berners-Lee did it with the World Wide Web. Google’s search engine was a moonshot. Apple did it again with the iPhone.
IBJ: And your book argues that today’s entrepreneurs have a never-before-seen opportunity to achieve a moonshot and build the next Google as a result, right?
JS: Indeed. Today’s environment for attempting a moonshot is just incredible, supported by a shift in market power toward consumers and a number of low cost and reliable new technologies. The cloud, mobility, data analytics, the Internet of Things. Never before have we had four major areas of affordable and accessible technology all growing at exponential rates. The ability to take advantage of all these things at the same time is the game changer of all game changers. I don’t just see a few moonshots in the works threatening established businesses. We will see wave after wave of new companies taking advantage of these technologies to focus on improving the customer experience and create extraordinary value by coming up with better products and services.
IBJ: So with the moons and stars lined up to support the rise of multibillion-dollar breakthrough companies, do you expect a tsunami of disruptors to hit the marketplace in the future?
JS: This is not something that’s going to happen in the future. It’s already happening in a big way as the power in the marketplace shifts from established incumbents to consumers who appreciate new companies using technologies to better serve customers in new unique ways. How else can you explain why companies like Uber and Airbnb really haven’t spent any significant amount of money on marketing? They are taking over by word of mouth. They are creating value by servicing customers in better ways, and the people are saying to each other, “Hey, you’ve got to try this service.” Simply put, the new model for building so-called “Unicorns,” meaning companies with extraordinary valuations, focuses on coming up with an exceptional solution to some product or service issue that totally transforms the consumer experience, often at a disruptive price. If you can do that, customers will do your marketing by bragging about their experience. And doing it is easier today than ever before.
IBJ: Can’t the same model be used to reinvent existing companies?
JS: Sure. And some of the best companies out there are actually aware of the fact that they need to adapt or disappear.
IBJ: So what do you think existing market leaders should be doing to fend off new market entrants not saddled with legacy systems, legacy structures and legacy ideas?
JS: First and foremost, they can’t be complacent about the need to be customer-focused like never before. They need to remember business success stories come and go. Nortel was an industry leader before it disappeared. Blackberry launched an industry that left it behind. With the convergence of so many technologies empowering market disruption, it has never been easier to become a victim of your own success. Playing catch up isn’t enough to survive. Lights-out customer experiences are created by pro-actively raising the bar.
IBJ: In your book, you suggest established players should drive customer focused thinking by identifying one existing product or service and giving an internal team the task of blowing up everything about how it is created and delivered. Would you recommend creating a Chief Disruption Officer to oversee transitioning to a customer-focused strategy?
JS: I’d actually be a little skeptical of creating a department or position to manage the need to adapt because it gives the organization a sense of comfort by implying the issue is being addressed when you’re still exposed to the risk of disruption. Surviving what I see happening requires a company-wide sense of urgency along with curiosity and passion and the willingness to try radical new things. For big companies, I think the best way to do this is by making investments in new innovative companies that exist to change how things are currently done. Then you can see disruptive thinking in action and can hopefully learn from it or acquire it.
IBJ: Complacency is a hard beast to battle. But why do you think we are not seeing more executives moving to batten down the hatches and weather the perfect storm of innovative disruption that you see coming?
JS: The simple answer is smart people can be myopic. Look at Kodak. It had talented executives, the best engineers and chemists, and everyone knew digital photography was coming. But Kodak was focused on Walmart gaining market share with their single-use film camera, so it doubled down on its investment into film processing at the same time that Apple came out with the camera-enabled iPhone. The difference between Apple and Kodak thinking is that Apple realized film photography wasn’t just being threatened by digital technology. Wireless operators were moving from 2G to 3G and so you could send photos over a mobile device, and that was reinventing what consumers could do with photography. So while Apple was reinventing the mobile phone with multimedia capabilities that matched what was going on in the big picture, the world’s best brand in photography spent billions expanding its investment in an old technology. Disruptions like the one that the film industry experienced happen very, very quickly. Kodak got caught looking backward when it should have being looking forward and taking risks to reinvent the company. Now think about General Electric. It is selling off GE Capital, a major part of its former market cap, to double down on industrial equipment, locomotive companies, and similar investments. Why? Because they are big believers in riding the disruption that the Internet of Things is expected to deliver in those areas. In other words, GE is chopping off a growth engine to bet on innovation around manufacturing and heavy industrial equipment. There’s an example of a giant corporation not asleep at the wheel. We’ll have to wait to see how it all turns out, but it’s certainly a courageous big-picture move.
IBJ: With power shifting to consumers, you argue that it is time for customer plans to replace business plans. Do you really see that happening?
JS: Sure. The traditional business-planning process largely begins with where you are and what you have accomplished and then makes projections based on assumptions as to where you want to be next year. That really is just about infighting over resource allocation based upon what happened last year. And that makes it almost irrelevant today. Customer plans are better business building tools because the look forward and focus on customer metrics. How can you better engage the customer? How can you improve customer acquisition and retention? What can be done to improve customer satisfaction? How can we solve a really big problem that customers need solving? This sort of customer-focused planning is something that brings talent across the organization working together toward retaining and growing recurring revenue. And that’s always been how great leaders succeed. If you don’t focus on what it takes to get customers to stick with you, then the cost of customer acquisition becomes incredibly expensive and you end up losing money.
IBJ: So that is another way for a big established company to try to weather the storm of disruption, right?
JS: Yes, I think so. I think to me the need to focus on customers is just obvious. But it is true that many businesses are still looking backward and a customer plan would change that. It would be interesting to know what would have happened if Kodak used a customer plan that focused on improving the consumer experience and customer metrics instead of a business plan designed to fend off Walmart. But Kodak got caught completely off guard because it didn’t think about would the world would be like when digital was the only way that people wanted to make photographs, not just one of the ways. The focus remained on making pictures, when it should have been on what consumers could do with pictures once they were made in a digital format. Transmitting pictures over a wireless network, enhancing them with software, creating slideshows and digital albums. Kodak failed to see how all of these things that digital photography enabled made taking digital pictures a better experience than traditional photography.
IBJ: If customer plans are obviously superior planning tools why are they not more common?
JS: Well, there is one thing that every large organization has in common no matter what industry they’re in and that’s middle managers empowered with the authority to say no. And middle managers are typically measured on keeping everything going, not saying yes to change. This is true at old companies that have been around for 100 years. It is true at large tech companies like Apple or Microsoft or Google. All large successful companies ultimately fall into the middle management trap, which makes it next to impossible to get new ideas approved. That’s one reasons why so much innovation is getting done in newer companies. It is also why I was pretty negative on the idea of creating a Chief Innovation Officer, who would have to battle middle managers empowered to say no.
IBJ: You’re basically arguing that it’s never been easier to launch a company that really hits it out of the park like a Jeff Bezos or Steve Jobs. But you’re not claiming it’s easy. So what do you think it takes on the character front?
JS: It’s pretty clear to me what it takes. Keep in mind that nothing is guaranteed in business and so moonshots are typically achieved by a certain type of person, one willing to take risks. It isn’t about intelligence or hard work or common sense or expertise. It all comes down having a willingness to take risks combined with an insatiable curiosity and an incredible sense of urgency, not to mention a firm belief that there has to be a better way and a real passion for improving the customer experience. It also takes being good at explaining why you are all of the above so you can attract really good talent to your cause. If you have those attributes, it’s amazing how far you can go. If you don’t, you probably aren’t going to get very far.
IBJ: Our publication recently interviewed North Face founder Hap Klopp, who you quote in your book because you two have virtually identical opinions on failure. You both see the option to fail as one of America’s big competitive advantages, correct?
JS: Yeah. I do business all over the world, and if you fail in many other cultures, you’re done, finished. The first thing that people in Silicon Valley say when you fail is, “So what did you learn?” I think the latter attitude is an advantage because, like Hap Klopp, who is a terrific role model, I see failure as a very important part of learning. Failure is painful, it can really hurt. You can also be really embarrassed by failures. But in this day and age, it is relatively common for entrepreneurs in America to be open and honest when talking about their mistakes. And that helps others avoid making similar mistakes and it helps make others less worried about failure, which is good for risk taking. There was a time not long ago that business leaders could never admit they weren’t omnipotent. They couldn’t admit making mistakes. The fact that today’s entrepreneurs and CEO are willing to talk about screw ups helps drive success. It also helps leaders be more open to seeking help in areas where they have weaknesses. Nobody is perfect, so everybody needs help as a leader.
IBJ: What do you see as your biggest failure?
JS: Lots of things have gone wrong over my long career, and I expect more things to go wrong in the future. I’ve made bad judgements about people and I have struck out at market timing. Bad timing can kill a really good idea. That’s what happened with the Newton when I was at Apple. It was a handheld digital device way ahead of its time, about 15 years too early. The company actually made money on the product development, because Apple eventually sold the microprocessor developed for Newton for about US$800 million. But while Newton was successful as an investment, it clearly failed in the marketplace despite being based on core technologies that you find in smartphones today.
IBJ: So what did the Newton experience teach you?
JS: Well, aside from the importance of timing, it taught me that failure can be OK. I leaned that a failure can still ultimately contribute to a company, industry and society. I think that was true with Newton, and it is certainly true of many key technologies in the mobile world today that won’t make it as expected. In addition to timing, of course, successfully introducing tech products also requires brilliant design, which is actually more important than the technology inside. Steve Jobs, who I appreciate more and more as time goes on, understood this early on. He really knew how to make high-tech products beautiful by using design to make technology invisible. I’m now working with people I knew from Apple on a new mobile phone company. We’re going to enter a completely commoditized industry with an incredibly cool product design that will hopefully wow consumers, which is the key to success.
IBJ: What would you consider your biggest mistake at Pepsi and what did it teach you?
JS: That’s so long ago. I’m not sure I can even remember my biggest mistakes at Pepsi. I was young with big responsibilities, and I am sure I made all the mistakes people make early on.
IBJ: OK, then what about the success of the Pepsi challenge? What did that teach you?
JS: It really taught me the importance of selling the experience, not just the product. We were being outsold 10 to one by Coca-Cola, but we gained market share by using a blind taste test that showed most consumers actually had a preference for Pepsi. Even people who had always been a Coke drinker were choosing Pepsi and we captured that experience on video and used it in what became a very successful marketing campaign. When Steve Jobs saw that he said, “Wow, I’m developing this new product for computers which is all about the user experience. And he wanted me to teach Apple how to do experience marketing. That’s what brought the two of us together.
IBJ: Speaking of Steve Jobs. We all know that he wasn’t always the nicest guy to work with. Nevertheless, you once said that you regretted not trying to get Jobs to return to Apple a few years after his departure, when he had learned a few things that he needed to learn. Was letting Jobs get away one of the people–related mistakes you mentioned earlier?
JS: I have enormous respect for company founders, but when I first arrived in Silicon Valley in the early 1980s, I didn’t fully appreciate how important the passion of a founder can be to a company. Founders are all different. They can be annoying and drive you crazy. And they not always right about what is best for the company. But they are also the people who often end up making the big differences thanks to their passion. So I’ve learned to accept the bad with the good. I’d much rather adapt to work with a talented founder than to try to change the founder’s unique personality. It typically takes somebody who thinks different to disrupt an industry or succeed at something that other people think is impossible.
IBJ: What was your first job as a kid and what did it teach you?
JS: I was a riveter at an aircraft factory that made jets for the U.S. navy and the job taught me that I would go crazy trying to make it in life doing monotonous work. I was just 16-years-old at the time, but the experience really woke me up to the need, at least for me, to find an interesting career path, which eventually lead me to business. I actually started out in architecture.
IBJ: Aside from focusing on the customer, your top advice to entrepreneurs is always about the importance of seeking out a mentor. What’s your second best piece of advice?
JS: Surround yourself with great people. Anyone can have a great idea. But even if your timing for a great idea is exactly right, you don’t have a good chance at success if you don’t have the right people on your team.
IBJ: Anything else?
JS: Remain curious and current and be an optimist. You have to be positive to be an entrepreneur.
IBJ: Final question. You grew up in a household that was an amazing breeding ground for success. You were CEO of Pepsi and Apple. Your brother Arthur is former head of J.P. Morgan’s Private Bank. And your other brother David was CEO of H.J. Heinz. How do you explain this? Was there something in the water at your house?
JS: We had a very close family with amazing parents. As children, we spent summers in Bermuda where our mother’s family first settled in 1624. After our parents died when I was in my late teens, my brothers and I became each other’s support system. We talk almost every day. And we all have always had an incredible work ethic, great curiosity, and boundless energy.
by Thomas Watson via Ivey Business Journal