The key here is that great business breakthroughs occur at the intersection of what customers really want and what technology does well. True greatness is in that intersection. There are many things out there that technology does well but customers don’t want. Con-versely, I know I could sell shoes that make you fly, but I can’t quite get the technology to work.
What do I mean by what people want? People won’t tell you what they want. If they simply said they wanted X, you wouldn’t need a marketing department. Often they can’t verbalize what they want because they typically don’t understand things they haven’t seen much of. They will give you an answer, but it may not be the right answer. You must understand their fundamental motivations and attitudes. My answer is to use several techniques. Behavioral data is useful. That’s why you have usability labs. We used these to understand customers’ actual behaviors and found that the data completely supported our thinking that the existing products had completely missed the mark in terms of delivering what people wanted.
The amazing thing is that companies—particularly technology-based companies—often miss what customers really want because they focus on their technology.
Gordon Eubanks (of Symantec) recalled an old marketing adage: you can either convince a customer he has a disease and sell him your cure, or you can sell your cure for a disease he already knows he has.
They can’t verbalize what they want, particularly when it comes to new stuff. If you’re talking about a new kind of product, customers will do a lousy job of verbalizing when directly asked what they want.
To find the answer you must go to the fundamentals of their habits and practices.
For example, in the1920s nobody said that they wanted radio entertainment. People couldn’t imagine that sort of thing. In
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Pittsburgh, a group of entrepreneurs focused on this new radio technology. At the time, the technology hadn’t achieved significant usage because technologists focused on the technology instead of understanding what customers wanted. This group of entrepreneurs in Pittsburgh reasoned that, if they sold everybody half a radio—just the receiver, not a transformer—and if they transmitted just one way—
not two ways, as everyone was thinking—and if they broadcasted entertainment, and if they paid for it with commercials so that the entertainment was free to the listener—then, wow—a lot of people would want that.
That’s the kind of commercial innovation that causes technology to really explode and change our lives. Had those entrepreneurs walked around surveying people and asking them if they wanted to listen to music on the radio, people would have said no. But if you understand that people fundamentally like entertainment, especially if delivered for free, you have the opportunity to address a key set of fundamentals.
Technologists often use the Macintosh as an example of how true innovation doesn’t require customer feedback.
There was tremendous customer feedback with Macintosh. Anyone could see that then-existing computers were a bitch to use. As a consumer problem, it hit you in the face. And it was so obvious that they didn’t need to talk to consumers to notice that they found computers difficult to use. Any idiot could tell you they were difficult!
But you can’t hold up the Mac as a great example of fundamental invention because it leveraged so much stuff from Xerox PARC.
Instead, it’s a great example of commercial innovation—figuring out how to package technology and make it a commercial success. Xerox had everything, but they couldn’t make it a commercial success.
But the essence of your earlier assertion, the importance of customer analysis, focus groups, and feedback, was not a part of the Macintosh.
And it almost killed them. It got them going, but they couldn’t build a volume market. The corporate marketplace asked for several changes to the product architecture. And frankly, that tradition of Apple not listening to customers has bedeviled the company for a decade. In
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Microsoft, you see a company that’s constantly listening to, learning from, and implementing customer feedback. It’s one of the reasons why Microsoft has outstripped Apple’s success at Apple’s own game.
I’ve worked with both Apple and Microsoft and seen a tremendous difference. The Apple culture is insular. People there didn’t talk to the marketplace and were generally unaware of what was happening there.
I remember a meeting when we were trying to get Apple enthusi-astic about our products as a way to help households decide to buy computers. Of the three Apple people in the meeting, it was clear who the senior person was. He was very knowledgeable about the difficulty consumers had purchasing computers. The other two weren’t in touch with the market. At the end of the meeting we exchanged business cards and found out that the person who really knew what was going on was the summer intern—it was the Apple execs who were clueless.
What advice would you give to a startup company that doesn’t have the marketing budgets to do in-depth surveys?
You don’t need marketing budgets. The most important thing is to get your people to talk to customers. It costs you nothing but telephone charges. The worst thing to do is to have some survey company do the survey for you and then give you numbers. The most important thing is for you and the developers to talk with customers.
[ At this point in time, Eric Dunn, VP of Intuit’s Personal Finance group, walked past us in the Intuit courtyard. Cook called out to him. ]
Eric, how many of your engineers in the past year have visited customers directly or interviewed them over the phone?
ERIC: Over 80 percent. Probably closer to 100 percent.
That is remarkably high for a Silicon Valley company.
It’s the most important thing. Initially, we spent nothing on market research because we just had our people spend time on the phone interviewing customers, spending time with them at work, and spending time watching them in usability tests—just sitting there and taking notes.
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Okay, but despite your initial market research, Intuit struggled because it tried to sell the Quicken product through banks. Wasn’t it out of desperation that you placed ads targeted directly at consumers?
Not quite. We were in a business where competitors were spending and losing millions of dollars marketing their products. We had no money. One of our competitors invested, and lost, over seven million dollars in two years. We couldn’t even raise $200,000. We did work with financial institutions for a while, but we knew that people bought their software from computer stores. Ultimately, we had to find a way to crack that channel or we’d remain a tiny company.
That’s when we learned to get good at direct advertising. That raises another issue: companies must figure out what core competence they need to get good at. There are generally one or two things that you must be really good at in order to grow and flourish. At that point in time we had to get good at generating demand through advertising. Since we couldn’t afford a sales force to cover the hundreds of thousands of stores around the country, I got some people to teach me direct response advertising. We were sick and tired of running a little company and wanted to either grow the business or get out. We took all the money we had saved from working with financial institutions and plowed it into advertising. Then I managed to get a distributor to carry the product and it worked. But none of this would have worked if the product hadn’t been designed right. And the product wouldn’t have been designed right unless we had understood the customer.
A really key thing for a growing company is to establish a repeat-able process. Establish and set the culture so employees can repeat the success. If you can’t keep repeating the successes, naturally you will flame out. The most important thing in growing the company is to build the culture and people so they achieve success on their own.
It’s important to distinguish between entrepreneurs and entrepreneurial companies. Often entrepreneur
s are so accustomed to making the decisions themselves they end up creating anything but an entrepreneurial company. No one else in the company feels entrepreneurial except for the entrepreneur because the entrepreneur is telling everybody what to do. As an entrepreneur, you can’t grow a sustainable company unless you can duplicate yourself. Others in the company must become entrepreneurs and push the business forward since you are typically stuck doing only what you comprehend. In my case, it’s not very much.
The most important thing I and Bill Campbell do [Intuit’s cur-
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rent CEO] is to grow the values and the people of the company. Our legacy is that, when we are dead and gone, the company can keep flourishing, growing, and applying the principles in ever-larger and more important ways.
Give us an example of how these principles translated into a successful product created by many Intuit employees.
With Quickbooks [Intuit’s product for businesses], we repeated in the business accounting market what we did with Quicken in the consumer market. First, a team of our people went and understood the customer’s needs. We found out that the existing accounting software companies totally misunderstood the key requirements of the majority of small businesses. Based on this, we invented a new kind of product and suffered huge, massive flaws in the product introduction. Do you know this story?
No.
This is fun. Accounting was about the oldest software category for PCs and we were just entering the market.
The example I’m setting up isn’t about marketing flourish. Some people think, because of my Procter & Gamble background, I focus only on stuff like PR and advertising. This is an example of how useful those things were. We entered the accounting software business in 1992 amidst twenty-plus competitors, some of whom sold complete accounting software products for $49. We introduced our product without a price advantage; we sold it for $99. We introduced it without a known brand name or novel promotion. We advertised, but the first ads we ran were lousy. They were the worst ads we had ever run. I can say that because I helped write the first one. We had an ad agency do a second ad campaign for us and that turned out to be the worst ad we’ve ever run in the company’s history. We got four responses to an expensive two-page color ad.
It was a pretty bad-looking ad.
Right. The ad was done in a National Inquirer format with a bald-headed lady and a family on pogo sticks. The agency thought that accounting was so dull they needed to grab people to get them to read it.
The ads were a disaster. Not only that, the product had bugs
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which caused your data to disappear. You’d spend a week typing the data and, poof!, it was gone. If it could have gone wrong on the launch, it went wrong.
But let’s look at market share. The first month that we launched the product, it became the leading accounting software in the country and has remained number one. That’s like introducing a new soft drink and having it pass as Coke. It was unbelievable, unfathomable.
But it clearly wasn’t the market launch that did it. The point is that we nailed the product and we nailed the service. We really had great, caring service.
There are two parts to the product offering, the customer service and the product itself. The only reason we were successful is that we had fundamental insights into customer behavior that competitors had missed. That’s an example of duplicating a successful process and enabling the rest of the organization to lead.
How do you instill these values in your people? Is it by just hiring smart people?
That’s part of it. The scary thing about entrepreneurial companies is that they grow up to be reflections of their founders. Unlike kids, where you can blame genetics, you hired all the people in your company. They follow your lead and, if they don’t work the way you want them to, it’s your fault—not theirs. It’s up to you, the founder, the entrepreneur, to create the culture you want. Employees learn this more from your behavior than from your words. So you must model the behaviors that you want them to follow and internalize.
Inc. magazine called me up to say they wanted to write an article on all the tricks you must pull and corners you must cut to survive as an entrepreneurial company in this rough-and-tumble world. Shaving on ethics and things like that. I told them that I totally disagreed with their premise. If you do shave corners, all you accomplish is teaching your organization that that’s how you win and that cheating is the right way to do it. You’ve now spawned a cancer far worse than anything you created. In my view, the only way to operate is to model the behaviors that you want your people to emulate. The same applies to decision making. If you want people to make database decisions, you must model database decisions. When employees can’t make a decision and need your call, you can’t just say, “I think it should be X. Go do it.” This is great for an entrepreneur, but you are modeling that it’s okay to make decisions by whim, as Apple did.
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Let’s move to competition. Everybody uses Intuit as an example of how a small company can compete against a larger company, i.e., Microsoft, and still manage to win. What’s the story there?
I don’t know, we’ve always competed against larger companies. I’d say that almost all entrepreneurs, by definition, compete against larger companies because the entrepreneur must start at zero. I’m not sure.
But Microsoft also paid a lot of attention to its customers.
They are good.
And seem as obsessively focused as you are. Given that, what was the distinguishing characteristic?
They are a good company. I have a lot of respect for them, obviously; we were willing to join up with them. You must simply have a manic focus on delivering the best to the customer and taking the best ideas wherever you find them. One of our values is “Seek the best.” We want the best people and we want the best ideas, wherever they are.
The most junior person in the company is often a great source of new ideas.
Yet, as you said before, if one of your much larger competitors had lifted their pinky, Intuit would have been history. Were they simply inept?
Why did the accounting software companies not recognize that two-thirds of small businesses don’t know a debit from a credit to save their life and don’t want to learn accounting? These are the customers who think that general ledger is a World War II hero.
So the competition never bothered to ask, and you did?
As far as I can tell. The most important thing to keep focused on is putting the customer first. When we pass out profit-sharing bonuses I tell employees that the check comes from Intuit, but the money comes from our customers. All the money we have comes from them.
I’ll give you a simple example to show you what customers value.
Let’s say there was a mad bomber and let’s imagine that he blew up my and Bill Campbell’s offices. Would customers care? No, they wouldn’t know and they wouldn’t care. On the other hand, if that
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mad bomber hit the phone system in one of our customer service centers, within two minutes customers would know and within five minutes they would really care. So who is more important? If you are on an airplane do you really care what CEO Gerald Greenwald of United Airlines does? Not too much. You really care about what the people serving you do. That’s the moral truth of business and it demonstrates the importance of great people.
The manager’s job is to create the kind of environment that gets great people excited about what they do. So excited they do great work. So excited they tell their friends Intuit is a great place to work.
That’s when you know you are doing it right.
Somehow it must be unsatisfying for people to hear you say that you beat Microsoft by just focusing on the customer. It would be so much more exciting if you had used a magic bullet.
We constantly learned and turned that learning into products faster than they would.
There is no magic bullet in competition because if there was, the other folks would use it too. There are no patents on this.
How do you hire people who are focused on and effective at conducting customer research?
It’s culture more than hiring. You want to hire people who are excited about what you are doing, but you must also ensure that the work excites them. Once employees get here, the company values are what allow them to learn what’s important. Hiring people is fairly easy because there are great people out there who want to do great things, only companies stand in their way. That entrepreneur who tells everybody what to do causes people to not feel ownership, responsibility, or the joy of leading a business themselves. Great people want to do that. They know they’ve got great ideas, they don’t want to be told what to do. They want to lead and, frankly, they should lead.
If they’re leading, how do you define your job today?
It would be interesting to ask our people how they define my job. In some sense our people are my customers. My job is to make them as effective, productive, and successful as possible. So they are the ones to evaluate how well I do it.
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How do you think they would define you?
I think they would say that I provide big direction, open doors, and make tough calls. If it were Bill Campbell and I together, they would add creating a winning organization, removing the frictions, and finally, enabling people to grow far faster than they ever dreamed they could on their own.
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Women who’ve both started and grown successful technology companies are hard to find in today’s computer industry. Women who accomplished this in an even more male-dominated industry in the 1970s are almost unheard of.
In the Company of Giants Page 10