Stratagem 16:Sometimes Running Away Is the Best Strategy.
“To avoid combat with a powerful enemy, the whole army should retreat and wait for the right time to advance again. This is not inconsistent with normal military principles.”
—From The Thirty-Six Stratagems
As 1997 came to a close, Apple Computer announced that it would lose money again; this represented its sixth straight quarter of losses. The company’s board had ousted Steve Jobs a decade earlier, and the procession of CEOs who followed him had eroded the company’s “cool.” Once a highly desired brand, Apple was becoming like any other computer company and risked bankruptcy as a result.
Apple’s fall and subsequent rise illustrates the principle behind Sometimes running away is the best stratagem. It seems logical that new products and markets will add to growth. But by resisting this logic—by “running away” from good businesses and attractive markets—companies can often grow more quickly.
The Apple board first chose a marketing guru, John Scully, the former president of PepsiCo, to replace Jobs. Scully began to move Apple away from its marketing roots while investing in new technology research projects including the development of the Apple Newton, the world’s first hand-held personal digital assistant (PDA). New product development projects flowered under Scully, but few bore fruit.
Scully repositioned Apple more deeply in the realm of high technology and focused on pursuing the same corporate clients that Microsoft, Oracle, and Sun Microsystems fought over. For example,
he took an expensive risk in translating Apple’s operating system into a platform robust enough for corporate use. However, Apple’s strengths were inappropriate for competing with the computing giants that were targeting corporate accounts. Apple was outstanding at building aesthetic products that appealed emotionally to consumers. Corporations bought computers through layers of procedures that prevented emotional purchases from slipping through. They did not care about,
or at least were not willing to pay for, more aesthetic machines.
The CEOs who replaced Scully, Michael Spindler and then Gil Amelio, sustained Apple’s expansion into head-to-head competition. This began to have an impact on Apple’s core consumer business,
because, as Apple’s attention broadened, it began to make mistakes. It recalled a new line of laptops in 1995 after two models caught fire. It ran into a component shortage that left consumers around the world waiting for $1 billion worth of computers.
Ironically, the more products and markets Apple took on, the less it sold. Between 1995 and 1997, the company’s share of desktops halved from 8 percent to about 4 percent while its share of laptops fell from 7.6 percent to 3 percent.
After the company announced its losses of $708 million in the first three months of 1997, its board decided to look for a new chief executive (the company’s third in four years). During the search, Steve Jobs took the role of interim CEO.
Jobs had been working with the company for about six months as an “informal advisor” and so had a good grasp of the direction in which Apple needed to head. During his first months as interim
CEO, Jobs held group meetings with hundreds of managers. He asked uncomfortable questions such as, “If you had to cut half your products, what would you do?” He was looking for projects to cut and told Apple managers he would keep only projects that were both strategic and profitable. Anyone who wanted to keep funding for any unprofitable strategic project would have to lobby for it.
Jobs’s goal was to cut 70 percent of Apple’s R&D efforts. “We’ve reviewed the road map of new products and axed more that 70 percent of them, keeping the 30 percent that were gems.”35 He cancelled some of Apple’s best-known efforts including the Newton, Apple’s revolutionary PDA. Some say he did so because the idea was not his own; rather, it was cultivated by John Scully. In the
end, Jobs cut more than the 70 percent he promised, reducing the number of R&D projects from 350 to 10.
By pulling out of contests Apple could not win, Jobs could now refocus on areas in which the company could dominate. He prioritized a few exciting new products (e.g., the iPod) and began
making the Apple brand “cool” again with investments in new marketing and branding initiatives.
In January 1998, Jobs was concluding a ninety-minute speech attended by 4,000 Apple fans. He began walking off the stage, but then, as if suddenly remembering, he stopped, turned to the crowd,
and said, “I almost forgot. We’re profitable.” This was Apple’s first profit in six quarters. The trend continued. Revenue began to march steadily upward from $6 billion in 1998 to $14 billion in
2005. By “running away,” Apple unleashed growth.
Surrendering to Return
In 1403, during the Ming dynasty, the Ming emperor was considering suicide. His stronghold had been surrounded by an enemy force and was about to fall. But one of his eunuchs stopped him. The eunuch explained that he had instructions from the emperor’s grandfather to direct any emperor who faced an apparently hopeless situation to open a particular chest.
The emperor agreed. He looked in the chest his grandfather had prepared and found a monk’s robe, a razor, a diploma, and some silver. His grandfather’s message was clear. He escaped through a hidden passage to a monastery, put on the robe, and shaved his head. Disguised as monk, the emperor fled the city as it burned down.
After the siege, the people assumed the emperor had died in the fire. But he had retreated to a remote monastery in the mountains where he lived in obscurity. For the next forty years, the emperor practiced the rituals and discipline of a monk.
A rumor began that the old emperor was actually still alive. To address this rumor, the new emperor launched an official inquiry. The inquiry concluded that the rumor was true. The reigning emperor found the old emperor and invited him back into the city, where he was treated with honor. The old emperor lived out the rest of his life in comfort and died a palace guest. He owed this comfortable ending to having run away.