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Steve Jobs on what happens to companies when the sales people take over the product people

Wednesday, November 2, 2016 6:38
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Here's a great quote from Steve Jobs (from this interview) about what happens when technology companies, and especially ones with a monopoly, pivot from being product-driven to sales-driven. The italics are mine.

“The technology crashed and burned at Xerox. Why? I learned more about this with John Sculley later on. What happens is, John came from Pepsico. And they—at most—would change their product once every 10 years. To them, a new product was a new sized bottle. So if you were a ‘product person’, you couldn’t change the course of that company very much. So, who influences the success at Pepsico? The sales and marketing people. Therefore they were the ones that got promoted, and they were the ones that ran the company. 

Well, for Pepsico that might have been okay, but it turns out the same thing can happen at technology companies that get monopolies. Like IBM and Xerox. If you were a ‘product person’ at IBM or Xerox: so you make a better copier or better computer. So what? When you have a monopoly market-share, the company’s not any more successful. So the people who make the company more successful are the sales and marketing people, and they end up running the companies. And the ‘product people’ get run out of the decision-making forums. 

The companies forget how to make great products. The product sensibility and product genius that brought them to this monopolistic position gets rotted out by people running these companies who have no conception of a good product vs. a bad product. They have no conception of the craftsmanship that’s required to take a good idea and turn it into a good product. And they really have no feeling in their hearts about wanting to help the costumers.”

I have noted a similar quote by Jobs regarding the decline of Microsoft before, but this quote really fleshes out the problem in detail. What Jobs is saying about technology companies applies equally or even more to science-driven companies like pharmaceuticals and biotechnology. Nobody is saying that sales and marketing are not important, but when your company's basic foundation is fundamentally based on new products like drugs, then sales people can only get you so far, and beyond a point they can even destroy your raison d'etre. Interestingly, Microsoft itself is a good recent example of how a product-driven strategy can actually shore up a company's fortunes: a lot of the recent uptick in Microsoft's recent stock price and performance has come from the development of a new product - their cloud computing platform Azure. 
OpenEye CEO Anthony Nicholls has noted how the decline of Big Pharma's fortunes from the 90s onwards tracks well with the replacement of product people at the helm with sales people and lawyers. That seems to be too much of a coincidence. CEOs and CSO definitely set the tone for what's important, and it's hard to see how a lawyer from a company that has nothing to do with making drugs can truly appreciate how to improve a drug-making company's core competency. Nor does being product-driven entail sucking up other firms in mergers and acquisitions. The problem is that while your company's fortunes may get a brief shot in the arm because of new products developed by other companies, at some point those companies' products may themselves run out. More importantly, if your primary goal is to simply acquire other companies, then you are no longer a pharmaceutical R&D organization, you are more like a holding house for other companies' products which you simply acquire and sell. At the very least you should then call yourself a holding house.

Of course, all this is more comprehensible (although still not excusable) when you consider how skewed the incentive systems are. When a new CEO is given a mandate to make a hefty profit in five years by impatient investors, their goals are totally limited to satisfying that narrowly defined demand, and since drug discovery (new product creation, that is) almost always looks at ten year horizons, the likelihood of that particular activity meeting their requirements is slim. Instead, acquiring the small neighborhood biotech and keeping investors happy for five years is the primary goal; after that you and your ten million dollar bonus are out anyway, so who cares?

In some sense Jobs' wisdom can be summed up very simply: if your company is based on a product, you should make better and more product. Selling it is important, but that comes next. If you invert the order or make sales your exclusive focus, then the very thing you are selling will one day cease to exist.

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