BLOG STARTUPS, VENTURE AND THE TECH BUSINESS

November 11 2011
by Todd Hixon

Steve Jobs And The Jobs Crisis

Homage to Steve Jobs’ exceptional qualities as a business leader has poured out since his death last month. I’ve been reflecting on the learning and inspiration that I draw from his career relative to the work I do and the economic challenge of this decade, which, ironically, has come to be called the “jobs crisis”.

Global Apple Customer

Apple has been criticized for creating too few jobs: with revenues of $100 billion, it employs only 50,000 people and outsources most assembly to China. This is shallow, misleading analysis, for two reasons. First, Apple has created an ecosystem with many high-quality jobs that are predominantly in the U.S.: the software developers who create Mac apps and the 500,000 iPhone apps written since 2008, the performers who sell their work on the iTunes store, the IT experts who help people use Apple products, and all the independent professionals who support Apple (design consultants, advertising execs, lawyers, etc.). And, I could argue, the Android ecosystem arose in response to Apple.

More important, jobs are a symptom of our problem, not the root cause. (However, politicians and much of the media are obsessed with counting jobs.) We have a demand problem and a wealth creation problem. We’re like a big family that has lived beyond its means for many years and maxed its credit cards. Now we have to cut back on spending to repay the bank. The spending cuts made the jobs disappear. We can reallocate some income within the family to create some value by getting more people working (i.e., the Obama jobs bill), but that does not solve the root problem.

The real solution to our family’s problem is to find new, well-paid work that brings income from outside the family. If we create wealth in the family, we can solve our problems, as the Germans do. If we try to make people better off without creating wealth, we get the Greek tragedy.

Jobs and Apple have done an amazing job of creating wealth for the U.S. Apple has created new demand for products on a huge scale (new work). It earns a 24% net profit margin (well-paid work). Critics focus on the outsourced manufacturing. They overlook the big picture. Apple’s $100 billion of revenue is global: about $60 billion from outside the U.S. (income from outside the family). The gross margin from that revenue ($20+ billion) mostly comes back to the U.S. and far outweighs the $5-$7 billion of assembly cost for product sold in the U.S. that was outsourced to China (i). And then there is the $375 billion of market value that Apple has created for its shareholders, which are mostly U.S. based institutional investors that invest for individuals and retirement funds (ii).

Steve Jobs’ ability to create demand is attested by all the products he introduced to the world: the practical PC, the GUI … the smartphone, the successful tablet, and a lot of good stuff I left in the ellipsis. Even more impressive is his ability, which developed over the course of his career, to create competitive advantage, which creates wealth. Apple’s interlocking system of devices, content (iTunes store), and going forward cloud services has been tough for competitors to crack. Note that ten years after the introduction of the iPod, Apple has over 70% of the MP3 player market, despite the ease with which an MP3 player can be copied.

As a CEO, Jobs led from passion for his business and his product, not from greed or ego. CEOs are in the penalty box politically (e.g., the “Occupy Wall Street” protests) just when we need strong business leadership to rebuild America’s wealth. This is deserved to some extent: there are bad examples out there. Jobs is the other example: he came from a modest background, overcame adversity, took huge personal risks when he put most of his net worth in to Pixar and NeXT, built a great company, and made a fortune, of course, but all the while he dressed in Levis and kept his personal life private. This is what I value most about Steve Jobs.

In the last week, many have called Steve Jobs a genius. I hope they are wrong because genius is fluke. We all need to take guidance and inspiration from Jobs’ career to raise our games and do it right. In the U.S. today we need more jobs: more people who can lead as Steve Jobs did.

(i) TLH estimate based on Apple’s financial reports.

(ii) Source: Yahoo! Finance

This post appeared first on my Forbes.com blog: http://blogs.forbes.com/toddhixon/.

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