Wednesday, October 12, 2011

3 investing lessons from Steve Jobs - The Motley Fool

The business and technology worlds lost one of their brightest with the passing of Steve Jobs last week. The man who created – and recreated – Apple (Nasdaq: AAPL) was clearly both the driving force and marketing genius behind one of the world’s favourite consumer electronics brands.

Jobs, with partner Steve Wozniak, started Apple in the fabled garage, before famously being sacked by the Apple board some years later, only to return triumphantly to steer Apple through its second act.

In between, Jobs put his immense energy and creativity into the Pixar movie studio he bought from George Lucas for a relative pittance (around US$10 million including a cash injection into the business) in 1986. He later sold Pixar to Disney for US$7.4 billion!

The life of Steve Jobs has lessons for technologists and leaders, and I believe there are some key lessons to be learned by investors to improve the quality of our company analysis.

Passion Matters

Steve Jobs retained perspective throughout his life. His writings and videos of his speeches (of which his Stanford commencement address is the best known) show a man who was able to separate himself from the crowd – avoiding ‘groupthink’ and keeping a relentless focus on excellence.

In today’s sanitised business (and political) world, there is an abundance of market research. Many businesses and political parties continually research new ideas by asking groups of people in the ‘target market’ for their views on a new idea or a new product.

Steve Jobs may well have tested his new ideas in market research, I don’t know. What we do know is that he took a very single-minded approach to new products. He chose to be innovative and he chose to be creative. Jobs said “You can’t just ask customers what they want and then try to give that to them. By the time you get it built, they’ll want something new”.

Focus on the user

Jobs – and by extension Apple – had a very specific product development approach. They took a ‘Field of Dreams’ approach; if you build it, they will come. To that end, the team at Apple simply focussed on making a great product. They wanted to create something they were proud of; something they themselves wanted to use.

It takes a degree of guts (and perhaps arrogance) to assume that your own desires can be translated into a mass-market offering but for Apple, it worked. Importantly, Apple didn’t compromise on passion or quality, instead believing that excellence would bring its own rewards:

“A lot of companies have chosen to downsize, and maybe that was the right thing for them. We chose a different path. Our belief was that if we kept putting great products in front of customers, they would continue to open their wallets.”

‘The Vision Thing’

The business career of Steve Jobs was one of a visionary who knew what he wanted to create, a leader who could variously inspire and drive a team of like-minded individuals, and a marketer who built one of the most powerful brands of our time – twice.

Commentators (and investors themselves) tend to lump investors into groups – value vs. growth and technical vs. fundamental most common amongst them. I’m sure investors have bought and sold Apple over the years quite happily as members of the groups in this paradigm.

What none of these artificial divisions tend to prioritise highly enough is the organisation itself. Not the business or the brands – though these are important – but the leadership and culture.

Foolish take-away

Warren Buffett was right when he said “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”

However, as long as the business economics are attractive, management quality – and the culture it creates – can add immense value to an investor’s returns. Steve Jobs is likely to be an extreme example, but when you dig into the truly impressive organisations, the best of the best, you find management and a culture that is unusually strong.

Next time you go to the balance sheet, the growth numbers or the share price chart, take a minute (or more) to ask yourself whether you know enough about the company’s management and culture. You’ll almost certainly make a better decision when you can answer that question in the affirmative.

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The Motley Fool’s disclosure policy is bite-sized. This article authorised by Bruce Jackson.

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