It was hardly a whisper when Steve Jobs died: Would Apple fail? I was one of those who thought the question was nuts. Apple was far more than a single person. There were huge reserves of talent and innovation. The company had massive resources and an incredibly loyal customer base. The iPhone was an unquestionable move of commercial genius and the iPad was under growing demand. And then there were the massive increases in revenue.
And yet, Apple is at a crossroads. The single biggest driver of revenue for the company -- the iPhone -- will come under attack as carriers stop paying subsidies for the devices, making them more obviously expensive for customers. Other product lines aren't even close to taking on the financial responsibility. The company has announced one initiative after another, but it's unclear how it can backstop potential slowdowns in the iPhone, as none of its initiatives to date have come close to the market acceptance.
The reason entrepreneurs should consider what is happening at Apple is because it sometimes seems like the world's largest startup. The product and service lines remain relatively constrained and there have been incredible leaps in revenue for a company of its size. But the big growth is all in the iPhone. And any entrepreneur one day has to face the question of how to grow beyond an initial star product.
In Apple's third quarter (ending in June) in its FY2015, iPhone sales were more than 63 percent of total sales. That's a problem for Apple, because it and its investors have become addicted to the flow of money that is completely dependent on one product line. Here's a graph showing the revenue split among product and service lines from 2013 through the present.
That includes the deal with IBM, the introduction of the Apple Watch, Apple's music streaming service, and anything else that's come up to date. When you factor in fluctuations in the number of apps people want and use and the gradual death of the iPod, even as the Watch comes into play (without any official indication of how it's actually doing), Apple is in a pickle. None of the new initiatives have begun to take off at an iPhone-like rate. Most show roughly flat to gently rising sales. The iPad continues on a downward coast. And even the iPhone has seen declining global market share.
Steve Jobs was a genius to be sure, but not someone with a magic touch. Things went wrong repeatedly. Others would prove to be the ones who developed the hardware and software that made Apple's fortune. But after his return as CEO of the company, he was able to ride over the swells and dips and keep moving forward. It may be that the iPhone was a freak. Some types of success can be predicted only by megalomaniacs, and the vast majority of such projections are wrong. In other words, even if Jobs were still alive, chances are that Apple would face the same problems.
For an entrepreneurial company of any size, there is no quick or easy solution in such a situation. You embrace the major success, but you can't let yourself think that it will continue on as such. Be sure to do the following, as Apple has done:
- Take as much of the profits as possible and squirrel them away. Build a large rainy day fund so that if things slow down, you haven't built an unsustainable cash burn.
- Keep working for new breakthroughs. It's an important type of innovation. Most won't capture the imagination of the public, but put enough out there and you've greatly multiplied your chance that one will.
- Work incremental innovation as well. Always keep improving what you have so you retain existing customers and attract new ones.
- Look to acquisitions and licensing that could add important knowledge, skills, and developments to bolster your strategy.
- Work hard to bring popular product lines into new territories, like Apple expanding sales in China.