Born To Grow

Five phenomenal years made Apple Computer number one. For them, or anyone else, it's a tough act to follow.
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Back in May 1979, in its very first issue, INC. ran a major feature about a privately held, two-year-old small business called Apple Computer Inc. One of the things that sparked INC.'s interest was the company's cheeky prediction that it would reach $100 million in sales by the end of the year.That expectation sounded all the more presumptuous in view of the fact that the company had been co-founded by a couple of college dropouts in their twenties and was being quarterbacked by a mid-thirtyish vice-president with no formal training in accounting or finance.

To make a long story short -- which is what such media luminaries as Newsweek and Time finally chose to do its year -- not only did Apple reach its '79 goal, but it went on to post a five-year sales gain (from $774,000 in 1977 to $334,783,000 in 1981) of 43,154%. The personal-computer manufacturer became a household word, turning INC.'s prescient article into very much of an understatement.

Apple's initial public offering of December 1980 was one of the most widely watched debuts in Wall Street history. At $22 a share, co-founder Steven P. Jobs was suddenly worth nearly $166 million on December 15; the other founder, Stephen G. Wozniak, held stock worth almost $88 million; and A.C. ("Mike") Markkula, Jr., then the company's chairman of the board and executive vice-president, held shares valued at some $155 million. Apple's stock then traded as high as $36 over-the-counter, enhancing paper holdings by another 64%.

Wall Street seemed to be impressed. In March 1982, institutions and mutual funds were holding over 7 million shares of Apple stock -- 13% of the shares outstanding -- despite the wholesale dumping of other high-tech issues that was occurring. The reason who money managers were confident was obvious: Apple's growth rate. This statistic handly won the company first place on the 1982 INC. 100 list.Its 43,000% gain is phenomenal by any standard and is almost four times the growth shown by the company in second place.

The question investors and other interested observers have to answer is not whether Apple can continue to accelerate at so giddy a pace. (Arithmetically, it can't; at the same five-year increment, by 1987 Apple's sales would be nearly two and a half times General Motors's.) Instead, the question is whether it can even keep pace with the rapidly growing market in personal computers. By September 1981, Apple shares had fallen under $15. A once-clear track now was crowded with competing machines. Major competitors like IBM and Xerox were joining the fray, Tandy's Radio Shack line still had a head of steam, and a number of other manufacturers were getting ready in the pits, including, inevitably, some from Asia.

Apple doesn't scare easily, though. Chief executive officer Markkula (pronounced MAR-koo-la) reportedly will be spending a hefty $15 million -- close to 5% of sales -- this fiscal year on marketing and promotion. Markkula is a firm believer in the power of the full-page bleed. "Strategize the use of advertising dollars so that you get the most from them," is a Markkula tenet. And, still adhering to the framework of the plan that had carried it so far so fast, Apple is prepared to spent what it has to. Neither the number nor the nature of the competition was unexpected. "We foresaw this when we wrote our business plan," says Markkula. "In fact, most of it has appeared a little later than we figured, but none of the competition has taken us by surprise."

Anyone who fears, however, that Apple's hectic upbringing has left it vulnerable to marketplace surprises can take comfort in its surviving 1981's product-introduction fiasco -- an adolescent misstep that might have killed off a less hardy company. Markkula rightly claims that he and top management have made mighty few mistakes along the way. (Markkula denies the Wall Street Journal's allegation last fall that "the company has experienced wide inventory fluctuations.") The most visible mistake was the premature debut of its new professional and managerial computer line, the Apple III, before manufacturing bugs had been ironed out. When it was discovered in the field that prospective customers were being sent scurrying, marketing timetables were thrown off, and Apple stock wilted to its low. But Markkula explains that it was simply a matter of bad judgment in thinking that dealers could act as a quality control mechanism. "We tried to use our dealers to insure that we had a good product," Markkula explains. "We assumed that if there was a problem, they would tell us about it, and we could correct it before it got to customers. But it didn't work that way. It took us a year to turn the negative impression around."

A central element in the Apple growing plan is designed around having the smallest number of employees producing the largest amount of goods, a condition Apple accomplishes largely through subcontracting. So far, growth in this area is on an upswing, too. In 1977, 10 employees averaged about $77,000 in sales each; in 1981, each of 2,400 employees averaged $139,500.

With figures like these, Apple obviously no longer is small potatoes (it expects to make the Fortune 500 at the end of fiscal 1982). As the business gets bigger, Markkula notes, the problems become quite different. From the comfortable bedroom-and-garage of its infrancy, Apple has grown into a corporate adult with all the attendant problems. The part that feels the loss of innocence first, he says, is management. Coordination has become much more complex; it's harder to keep team effort going. "Good management is difficult to find at any level," reflects Markkula, "whether it's at IBM, Apple, or XYZ Real Estate down on the corner."

Right now, Apple is feeling no growing pains, but Markkula views the future realistically: The spurt phase is winding down.Now Apple has to maintain a share of the market, and look to be first with another, perhaps not yet revealed, product.Each with nearly 25% of the total, Tandy Corp. and Apple are neck-and-neck in a personal-computer industry that is expected to tally over $2 billion in sales this year. By the end of 1985, experts foresee a $5-billion to $8-billion market worldwide. Apple is holding its own. Sales for the first quarter of fiscal 1982 (ending December 25, 1981) exceeded $100 million for the first time. In the spirit of the season, rejoicing management gave employees an extra week of paid vacation.

One problem Apple could conceivably face in the near future is pressure on prices. Already several personal computers are drastically lower priced than Apple's. Commodore Business Machines Inc. of Valley Forge, Pa., expects to introduce a budget machine that will be, at least in part, Apple-compatible. Osborne Computer of Haywood, Calif., has a low-priced portable unit. Franklin Computer of Pennsauken, N.J., has announced a machine that will accept Apple software and Apple peripherals. Undoubtedly there are others in the wings, each hoping to bite into Apple's share. Many won't be able to boast the capabilities, software, or distribution of the Apple line, but as the various entrants jockey for position, prices could tumble as they have in other sectors of consumer electronics.

Nonetheless, Markkula expects Apple to be able to keep pace with the market and perhaps gain a little within it. "We're not looking to triple our share," he admits. "That's not logical. The industry is too large and diversified." With the powerful Apple III now straightened out and undergoing test marketing, and an impressive list of peripherals and software to back it up, it's on to the next. That, reports have it, is codenamed "Lisa," Apple's most-powerful-yet machine, designed for data- and word-processing functions and graphics editing. Beyond that, Markkula is mum. But he did not disagree when asked if networking -- the interconnection of terminals, programs, and peripherals to optimize cost-effectiveness of equipment -- might be the coming thing. And if Apple partakes proportionately in the predicted fivefold increase in personal computer sales, by 1985 it will be grossing over $1.5 billion.

Wall Street, however, remains unconvinced. As the spring of '82 approached, Apple stock was still dawdling at less than half its high of last year. Perhaps it simply had gotten swept along in the out-rushing tide that did in just about every stock remotely connected with technology. At least Markkula thinks so. "I'm surprised that there wasn't more selectiveness in what has happened to the market," he says. "Just because one company has problems doesn't mean that they can be applied to all the others. Each company is unique and different."

Everything about Apple, from its uncommon birth, to the superslick magazine it puts out for owners, to the name itself, has always been different. When you're born to grow, you'd better be.

Last updated: May 1, 1982




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