Tim Cook: Replacing Steve Jobs successfully

Who is he who can replace Steve Jobs? Everyone doubted Tim Cook when Jobs appointed him as the CEO while going on a medical leave. All the critics said he would be the next Steve Ballmer and innovation and growth would die at Apple too just like it died at Microsoft under Ballmer.

But is there anyone else who could have grown Apple the way Cook has done after Steve Jobs? Taking a 348 billion dollar company to 3 trillion in a decade?

What was it about Tim Cook that Steve Jobs found to be a worthy successor? What did Steve Jobs understand that other executives don’t?

The path to balance

Steve Jobs loved zen philosophy. He understood that balance is required for growth. He had personally recruited Tim Cook to come work for Apple from Compaq in 1998 – within a year of Jobs returning to Apple. It was Tim Cook that balanced Steve Jobs’ personality and helped grow Apple from a 6 billion dollar loss making struggling company in 1998 to a 348 billion dollar profitable behemoth by 2011. 

It was that journey that made Jobs realize that there was no one who could lead Apple as well as Tim Cook after him. But why is balance essential for growth and how do you find someone who can balance you?

Let’s take a detour and get a Nobel laureate to teach us.

What investing and risk management teach us about working with the right people

Harry Markowitz is a graduate student in the University of Chicago in 1952. When he has an interesting conversation with a stock broker. “Success in investing is all about diversification.” Merkowitz decided to use maths and statistics to develop a framework and test how diversification helps.

His paper became the foundation of the “modern portfolio theory” and won him a Nobel in Economics.

The first thing that Markowitz showed? Diversification is not enough to reduce your risk. If you invest in an airline stock and a hotel stock and covid hits, your portfolio will still crash spectacularly!

What you have got to do is diversify in uncorrelated assets. What does uncorrelated mean? When one thing changes, the other is not affected. 

When the same forces of nature don’t affect the same two things, the risk of your portfolio reduces.

Diversifying and investing in multiple uncorrelated assets reduces your risk. But do you know the unintuitive magical thing? When you balance the uncorrelated assets regularly, your entire portfolio does better than any single individual asset.

For eg: over a period of 10 years, gold may appreciate by 3% per year on average. And equities may appreciate by 7% per year on average. But if you balance gold with equities once a year, your portfolio will appreciate by 9% per year! How is that possible?

It’s possible because gold and equities don’t appreciate at the same time. 

This unintuitive logic is easier to understand with a simple farmers fable.

Farmers fable

There are two farmers living on two different continents: Ann and Bill. They each start farming with 1 bundle of wheat. 

In the first year, Ann triples her harvest: 1 bundle becomes 3. 
While Bill merely breaks even: 1 bundle remains 1.

In the second year, Ann breaks even: 3 bundles remain 3.
And Bill triples his harvest: his 1 bundle turns to 3.

After two years, both Ann and Bill are left with 3 bundles each. But what if they had decided to share and balance each other’s harvest at the end of each year?

Balancing Ann and Bills harvests

In the first year, Ann triples her harvest: 1 bundle to 3. 
And Bill breaks even: 1 bundle remains 1.
But they balance their harvests. And start the second year with 2 bundles each.

In the second year, Ann breaks even: 2 bundles remain 2.
And Bill triples his harvest: 2 bundles become 6.
When they both balance their harvests again, each ends up with 4 bundles at the end of year 2!

When you balance uncorrelated assets, your portfolio grows more. But this principle is not relevant for investments alone. It’s also relevant when it comes to balancing human skills – as Steve Jobs found out!

Steve Jobs vs Tim Cook

Jobs hired Tim Cook to come to Apple and streamline its supply chain. When both of them started working together, the growth was stronger than what any single one of them could have achieved. Their uncorrelated skill sets completely complimented each other.

Steve Jobs was the master of creating demand. Of designing products that the masses loved. Launching and marketing them in a way that the whole world paid attention.

At the same time, Tim Cook was the master of the supply side. Cook closed down unprofitable factories and outsourced smartly – reducing inventory costs. He kept the costs under control. And tied up with suppliers in a way where competitors could not get the raw material to build products that would compete with Apple!

Without Jobs’ vision and product ideas, Apple would have gone bankrupt. But without Cook, Apple would have simply been a moderately profitable company that could not invest as heavily in new product development. It was the combination of their uncorrelated skills that created magical growth.

But what happened when Steve Jobs passed away?

How did Tim Cook balance the Steve Jobs role?

Cook divided what Steve Jobs did and created 4 roles in the company. Jony Ive, Craig Federighi, Bob Mansfield, and Eddy Cue were needed to fill the shoes of Steve Jobs. To continue product innovation with design, software, hardware, and services.

Cook realized that no one person could do what Jobs could. But finding 4 people with skills uncorrelated to his own, he managed to grow Apple to the richest company the world has seen.

Action Summary:

  • Audit your skills. And build your team with people who have uncorrelated skill sets. Who will act differently given the same circumstances. You can have a well balanced team only if all the team members think differently.
  • Diversifying with uncorrelated people reduces risk as one will perform well when other falters. Balancing and combining their strengths will help you grow faster than any single one of them alone could manage.