Letter #2: Steve Jobs and Mike Markkula (1981)
1981 Apple Shareholder Letter
Hi there! I go by KG, and I love studying the history of business and investing. I’ll be sharing some notes from one Investor/Shareholder letter per weekday (mostly from my compilations) here.
Today’s notes are on the Steve Jobs and Mike Markkula 1981 Apple Shareholder Letter. I’m still playing around with the format here, but today’s format is an annotated tweetstorm. The original tweetstorm can be found here:
I’ll be uploading previous tweetstorms for the first few days as I figure out what kind of format I want: tweetstorms, annotated tweetstorms, essays, write-ups, or maybe something else. I’m not sure yet.
If you have any thoughts on what you’d like to see, let me know!
Would love to hear how you think today’s format compares to yesterdays (basically do you like the links and added comments?). Will potentially add more in-depth comments if people like them.
Notes
1/ Recently read this @andrew__reed tweetstorm on Don Valentine on the genius of Steve Jobs, and dug up the very first (1981) Apple shareholder letter, written by Steve Jobs (who notoriously avoided writing these in his later years) and Mike Markkula. My notes 👇
2/ 1981 was Apple’s fourth full year in operation, and first as a public company. Hardware definitely was more difficult + cost more to produce back then. Why are today’s software companies doing staying private for 10+ years? What’s going on??
Simple answer: Because they can.
I wonder if there’s any more research on when exactly this shift occurred, and why… (backed by data of course)
Where Have All the IPOs Gone? by Jay Ritter
Jay Ritter’s IPO Data website
It seems a lot of today’s enduring companies IPO’d within 5 years of their start…
Year 1: Teledyne (1960)
Year 2: Costco (1985)
Year 3: Intel (1971), Amazon (1997), eBay (1998), Home Depot (1981)
Year 4: Apple (1981), Dell (1988)
Year 5: Netflix (2002), Cisco (1990)
2a/ Questions:
1) Is VC capital causing startups to stay private longer + avoid reporting reqs?
2) Is this driven by VCs having friends mark up investments for “better returns?”
3) Is VC ultimately responsible for stagnation? (would be highly ironic)
cc: @bgurley @peterthiel @patrickc
3/ Sales nearly tripled, earnings more than tripled, total population of Apple computers approached 1/3 of a million (lets stop staying private guys, it won’t kill your growth)
4/ “We measured up to the problems of growth and environment and came out of the year stronger because of them.”
Don’t complain about micro/macro headwinds. What doesn’t kill you makes you stronger.
Build a company with a robust value proposition and you’ll be fine no matter what’s going on in the market.
5/ “In the past year, Apple transformed from small, single-product, single-nation, private company to a medium-sized, multi-product, multi-national, public company”… now a focused + healthy org with excellent tech, seasoned management, strong balance sheet (keys to success)
“Slowly at first, then all at once” — Although this quote is typically used for bankruptcy, works the same way for growth.
6/ Competition: bigger Co.s entering space (legitimization)
“we welcome such responsible competition because we are convinced it will stimulate mkt demand and help in the massive task of educating the potential user”
“we firmly believe in ourselves, our strengths and our abilities”
Modern day version would be Snapchat
Evan Spiegel refused a $3B buyout from FB in 2013 (when they were 2 years old) and a $30B buyout from Google in 2016 (when they were 5 years old) — supreme confidence in himself
Facebook rolling out stories was the best thing that could have happened for $SNAP… It legitimized them from “a sexting app” to “legitimate social media company/threat to FB”
7/ Sales rose 186% to record $334.8MM. Net income rose 237% to $38.4MM. EPS up 192% to 70c/share. Q4 profits slightly lower due to increase in marketing expenses (including Apple’s first national tv ad campaign ft. Dick Cavett)
8/ “Apple has been known for its marketing emphasis, with a resultant identity which we consider memorable and strong”… awareness rose 10% (silly to ignore marketing even if you have “product-led growth”)
Steve Jobs on Marketing in 1997
9/ R&D tripled to $21MM from $7MM… measure of determination to lead in the technology of our industry as well as in markets… Apple has a greater # of eng + tech personnel concentrated on PC products than any other co
Reminded of @djiglobal’s massive eng+tech percentage + R&D focus
10/ Major new product: ProFile hard disk mass storage unit, introduced for Apple III. It supplies electronic storage capacity of up to 5MM bytes (computer characters), providing 35x the capacity and 10x the speed of standard floppy disk drives
Was this the start of 10x better?
11/ Over 40 software packages were introduced by Apple in the past year… including Apple III programs—Business BASIC, Business Graphics, Mail List Manager; Apple-Writer III (powerful word processing system)…
11a/ Access III—terminal emulator for comm between Apple III + other PCs; Pascal—compiled language that enhances the usefulness of Apple III for larger business, educational and scientific applications. The Apple III can also utilize most HQ Apple II software in emulation mode
12/ “During the past year we concluded important software publishing agreements with firms such as Scott Foresman and Co.”
Apple and publishing… talk about a match made in Heaven.
13/ Apple pioneered retail sale of computers strengthened its distribution expertise (Apple dealer + support infrastructure in the US exceeds 1000 locations backed by its own distribution + service centers at 6 US, 3 international sites).
14/ Launched Apple Expo (dealer seminar trade show and public expo in major US cities), created extensive merchandising aids and unparalleled training programs
Always be selling. Create demand. Talk to your buyers. Talk to your sellers.
15/ “Our marketing emphasis in the past two years has been on the business, professional and managerial segment, which today accounts for approximate 40% of revenues. We’ve also developed major programs with schools and universities”
16/ Apple sees greatest demand for PCs from 140MM people around the world who can justify the purchase of a PC if they truly understood its potential benefits. “In the future, the home will become an important factor in the process of bringing this tech to individuals”
Home has been, and remains, the holy grail for companies
Amazon — Ring acquisition (2018) (maybe Latch next)
Google — Nest (2014)
I wonder… with short attention spans these days, do people have the patience to learn complex tools? Roam Research is an interesting example… tough on-boarding, but those who get through it absolutely love it.
Always, always, always think about user education and user adoption (might write an entire post on this if there’s enough demand)
“Everything should be made as simple as possible, but no simpler.” —Albert Einstein
17/ Introduced the national account program — dealer based team effort between Apple + qualified dealers to provide sales + support to large organizations in all their user locations
18/ Apple expanded its manufacturing plant capacity. Assembly floor space in Texas + Ireland more than doubles and initial operations began in Singapore.
Apple now produces one computer every 30 seconds
Crazy when a few years back a computer cost $250,000
19/ Employment more than doubled, but “Our objective is not to have the most employees, only the best”
Read more on hiring/culture from @bchesky of @airbnb or check out @bhorowitz book What You Do is Who You Are
(Quality > Quantity) BUT < (Quality + Quantity)
20/ Many employees have Apple computers at home through a special program designed to make each of them proficient in personal computing
Make sure the people selling your product love and understand your product
21/ “We are committed to steady, profitable growth through advanced tech, creative marketing, and high-volume, low-cost manufacturing… highest standard of corp. citizenship and to contributing meaningfully to the expansion of social capital through the products we design and market”
Better, faster, AND cheaper
22/ The direction of the PC industry (and the inexorable path of Apple) “will involve ever-increasing education of the user and ever-increasing ease of use as it relates to our product. These are the strategic benchmarks which will guide your company in the exciting years ahead”
Clearly laying out the strategic vision and benchmarks of the company
End/ For more on Steve Jobs, check out my compilation on him at https://12mv2.com/compilations/
Book Recommendations
The Little Kingdom: The Private Story of Apple Computer, by Michael Moritz
Before joining Sequoia Capital, Michael Moritz was a reporter/journalist with Time Magazine, and had unparalleled access to Steve Jobs and Apple in the early days.
If you’ve got any thoughts, questions, or feedback, please drop me a line - I would love to chat! You can find me on twitter at @kevg1412 or my email at kevin@12mv2.com.
All compilations here.