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Why focusing on a few products is hard

“Focus is about saying no.” This quote is perhaps apocryphal but it’s credited to Steve Jobs. It’s not a novel idea. Many companies chant this mantra but do they really understand what focus implies?

Focus is the antithesis of portfolio theory. Portfolio theory is a great concept. Every pedestrian in New York City has experienced it. While the weather is fine, street vendors sell their regular wares, but when a rainstorm appears it seems everyone is selling umbrellas.

The idea that you keep umbrellas in stock seems very prudent. It’s a hedge that people will need a different product under different circumstances. Maintaining a product portfolio is a way of selecting a collection of products that has collectively lower risk than any individual product. The formulation of this even earned its creators the Nobel prize.

But “focus” is the willful rejection of this theory. By saying no to alternatives you increase risk disproportionally to the reward. If you have the means to maintain a portfolio it certainly seems imprudent not to do so.

So why would someone want to focus?

The answer is that too much diversification is dangerous. It’s dilutive to everything the company uses to create value: its resources, its processes and its priorities. It dulls the mind and tarnishes the brand.

So focus is not just saying no. It’s being supremely confident in what you say yes to. It’s having the ability to call the winners and the losers. A company that lives and breathes product gains this confidence. A company that puts markets or profit formulas first never obtains the confidence to focus, inflates its portfolio and thus risks everything.

  • http://standardimagination.com StdImagination

    if you have only point of purchase (a push cart vendor) you want to have everything the people around you want at the moment they want it.
    if you have a point of purchase on every desk and in every pocket (a web-based business) you can trim your portfolio to those items that are purchased with more thought. But not necessarily. Apple has a tight trim portfolio. Amazon sells dental floss and tractors.
    I guess focus is a virtue of manufacturers not retailers.

    • dchu220

      That's where retailers went wrong. They forgot that consumers are looking for solutions, not products. It doesn't help a consumer if you have 15 SKUs that are very similar and differ in price by $5. That's why the trend in retail is moving towards micro-stores that only carry a limited selection of each item. Think Trader Joe's, Aldi and Costco.

      • MattF

        Trader Joe's is an interesting case. They follow what's called a high/low strategy– the items they carry that you can find elsewhere (like cereal) are low priced and Trader-Joe's branded. But the unique items they carry (like Valhrona chocolate bars) are high-priced. So, you can buy staples at TJ's, and while you're there, you can splurge a bit too.

    • Frank

      This is the exact reason why I do not like shopping at Walmart. They have a huge breadth of items without having depth in any area. So what you are left with is the lowest common denominator for a huge proportion of the products in the store. Think about this, if you were looking to purchase a digital camera would you rather shop at Walmart or somewhere that only sells cameras? And we don't even need to go that far. I'm sure that most people would rather shop at Best Buy for electronics than Walmart. Walmart is the street vendor while just about anyone else specializes more than they do. Shopping becomes more of a pleasure (nod to Publix) the further you get away from the Walmart model.

      • Xavier Itzmann

        It is self evident that if you are looking for anything other than lowest common denominator (LCD), you don't shop at WM. But it should be also evident that you only look for other than LCD when you can afford it.

        Clearly, WM is not designed for people with ample disposable income. But it serves a major social function for millions whose only affordable product is LCD.

      • http://twitter.com/sandro1981 @sandro1981

        Not only that, but the Wal-Mart "model" has much more to do with their low-cost distribution and supply chain network than it does their product mix. They saw an opportunity in making rural and semi-rural communities profitable by becoming the one-stop-shop for those communities. They carry LCD products because it fits their cost structure, not because they are actively courting those without disposable income.

    • davel

      I do not follow Amazon much, but my impression is that Amazon allows you to buy things easily. It is not what they sell but the fact that you can search and buy easily that makes the site what it is.

      I believe Apple's store uses Amazon technology for its purchase features.

      So if this is the case Amazon and Apple are more alike than you realize.

      • dchu220

        Not everything on Amazon is actually sold by Amazon, but when they see a product that sells at a suitable rate, they will come in and buy in bulk. As the item sells faster, Amazon keeps lowering the price. They are more like a supermarket in that they aim for high turnover and a profit margin of about 2%.

        So in my eyes, I think Amazon is focused in their own way. They let other vendors sell less profitable items and focus their own inventory on products that are profitable to them.

    • handleym

      These replies somewhat miss Jobs' point. (And this is not my belief as to what he meant, this is what he actually said when he made the speech where he said this.)

      The simple-minded view of econ 101 is that if your organization can make an item that sells for more than it costs to make, it should do so — profit is profit. Business school then adds that you should make a bunch of slightly different items, both to capture customers at the low end who don't pay for what they don't need, and at the high end via market segmentation.
      And so you get Sony and similar companies each making, back in the day, fifteen different PDAs, and pretty soon fifteen different tablets.

      The problem with this philosophy is that, especially when it comes to consumer electronics, it ignores a huge amount of real human issues.

      On the supply side, it ignores the long-term costs of creating all these different devices. Your engineering talent is spread thin, you are forced to maintain more inventory, you don't get a large number of your own engineers using every device you manufacture (and picking up on bugs and limitations) etc etc.

      On the demand side, it ignores the fact that almost all customers HATE having to choose between apparently identical products, and if they are forced in to this situation of feeling maybe they made the wrong choice, they will never feel delight in what they bought. It likewise ignores the fact that as soon as you ship a few products that don't measure up to the standard of the rest of your product line you pollute your brand. Sony did this some time ago and has never recovered — from a time when people would unthinkingly pay 15% more for a Sony logo because that was a guarantee of quality, you now have people comparing the Sony price to, say, the Samsung price and asking "Why should I pay more, I don't see any good reason".

      And so, for example in computing, Apple has had for a very long time as simple a product matrix as you could hope for Consumer vs Professional on the top, Desktop vs Portable on the side.
      Pretty much every buyer knows which of those slots they fit into, and at that point the choices are limited and obvious — what size screen, storage space and RAM do you want?
      Even the products that don't fit into the matrix are obviously different, in ways that are clear.
      Do you know what a rack-mount means? No, then you don't need an XServe.
      Does the thought of paying a lot of money for a slow macbook really upset you? Then you are not in the target market for the (old) Macbook Air. [New MacBook Air is very different and, mainly, I suspect, reflects a transition period as we move to flash storage, and as Intel get their act together with respect to GPUs. Presumably in two years the technology will have settled itself out and life will simplify. Until then, your guess is as good as mine as to how Apple will balance the MacBook, MacBook Pro and MacBook Air lines.]

      Likewise Apple has done a pretty good job over the last few years of not selling anything that dilutes their brand. [Though I do think they are skating on thin ice by STILL selling MacBook Airs with 2GB of RAM, and I think their AirPort base stations have long been a lot worse engineered — using way too much power and running way too hot — than they should be.]

      • dchu220

        Thanks for taking the time to write an informative post. I often think that the comments section of this blog is a mini-blog of sorts with lots of people smarter than me sharing their ideas.

  • Les S

    Focus as a competitive advantage. Whodathunkit? Evidentially not many.

  • dchu220

    This is where mathematics and the real world diverge.

    In the real world, the winners take a disproportionate amount of the pie. The values/priorities of a company have a huge effect on the bottom line. People are your greatest asset.

  • Xavier Itzmann

    Horace, your post is very apropos of Elon's memo.

    A nice commentary, conclusion and takeaway from the fable of the man whose oil rig is on fire, listing badly, and being hit by a hurricane all at the same time.

    BTW, Nokia should have bought WebOS. By going WP7, they'll end up as today's Dell within two years.
    If they are lucky.

  • Russell

    Horace,
    This lesson is spot-on and practiced under ours noses everyday across many disciplines: sports, entreprenuers, CEOs, hegefunds, Valley startups, etc. An old axiom on wall street that holds true in the field of finance is: "One diversifies to protect wealth, but one has to concentrate to create wealth"

    Steve's domain knowledge thus far have reduced his risk levels and created a lot of market cap. Would also note that, tech cycles by nature ,once the rising tide ceases, are very darwinian and value (market cap) tends to shift about 80% of the wealth to about 5% of the companies. If one invests in individual technology companies, keeping this in mind and knowing a lot about the little bit that you invest in is precious.

    Horace, great post with many good points. Impressed with the number of insights that you can continue to generate.

    • davel

      I second this.

      "Horace, great post with many good points. Impressed with the number of insights that you can continue to generate. "

  • HTG

    Interesting take on portfolio theory… but its a bit of a stretch to take it from its setting in respect of financial assets and put in into the real economy… but the idea behind what you are saying is pretty sound.

    There is a growing bunch of research in economics about the problem if too much choice… faced with 23 different types of cheddar cheese at the supermarket what does a consumer do? This was brilliantly parodied is Borat… The thesis is that if consumer face too much choice between marginally differentiated products then they don't make a choice… they may run away…

    On the other hand.. where there are clear and defined choices (such as in Apple's case) then consumer have a far easier time of it… Apple drives huge efficiencies in its organisation because if offers a few clear choices… only 2 models of iPhone4 (well more when the white one finally turns up) provides clear choice, as against Nokia's plethora of vaguely differentiated 'portfolio'.

    • Hamranhansenhansen

      A key thing that is missed by many observers is that even though when you buy an iPhone 4 you have limited choices — black or white and 16 or 32 gigabytes — you then have a cornucopia of apps, songs, movies, cases, and accessories that all just work because of the uniformity of the underlying platform. Through the life of the phone the user makes choices everyday and the phone becomes more and more unique and customized to the user.

      So what Apple offers is serial choice instead of parallel choice, not lack of choice.

    • Kizedek

      You're definitely right about the cheese for the most part, but I think you have touched on two different, but related areas (both of which could learn from Apple product lines and from Apple retail : number of lines/brands a big retailer will carry, and the actual number of products under each of those brands.

      BTW I love my cheese, so I do expect a supermarket (certainly a deli) to have at least 9-12 kinds of cheddar cheese : 3 or 4 strengths (mild, medium, sharp, mature) from three producers (low end/generic; own brand or exclusive farm supplier; high end). Wine and Coffee would be similar.

      But Apple certainly has struck a real chord with consumers and made choice simple, both in product and in retail. They have six product lines in three or four strengths each: hard cheese (Mac Pro), blue cheese (iMacs), smoked cheese (Mac Books), cheddar cheese (iPhones), soft cheese (iPods), goats cheese (iPads). And they have simple names. You know exactly what you are getting: cheddar cheese, highest strength.

      Partly, its all the new names for new lines and all the cryptic model names that get me about other computer makers. They name them like cars, and then add a few letters and numbers to further differentiate between build-to-order options, and I am totally lost.

      So, a large retailer might be well advised to keep it simple as well. Make a decision and supply three lines only : cheap; their own rebranded one or a popular one; and Apple. Maybe a computer dealer (deli) could carry a few more brands; but to me, if they are all running Windows (or mobile devices running Android), then there is nothing to differentiate them at all.

      Unfortunately, you usually find that the computer or phone department has put the cheese counter or wine aisle to shame: suddenly you have 23 strengths X 23 models X 23 brands, and what's that: 12,167 choices of computer in one store — all effectively the same. This is what I see when I see the computer department at Walmart or Best Buy, and I just turn right back around. It's plain crazy, and anyone should rightly run away.

  • http://www.johnmclaughlindesign.co.uk John mac

    Spot on again Horace. I often wonder why brands like Sony need to be in every market at a huge range of pricepoints. Look at their hi-fi gear. They sell some quite high end gear with pretty huge pricetags but also sell headphone for a few pounds/dollars.
    Just how much do they make on this low end stuff? Pennies? And how much damage does it do to the reputation of their big ticket items?
    This isn’t hard to work out, electronics companies must be some of the worst run in any market.

    • Hamranhansenhansen

      I love the story that the Nike CEO tells where he asked Steve Jobs for advice about the Nike Store and Steve said "you guys sell some great products and you sell some crappy products … get rid of the crappy products."

  • LeFaux

    Makes me wonder if Apple will kill the iPod Classic?
    It’s price point competes with the iPod Touch.
    It does not facilitate the purchase of apps or media.
    If the iPod Classic were not available, how many consumers would buy an iPod Touch? How many would buy a non-iPod?

    I think Apple should make a 10th anniversary iPod Classic with 128GB of Flash storage and price it at $499.
    Price it so it doesn’t compete with the Touch but still available for those who want lots of storage.

    • Hamranhansenhansen

      I don't think iPod classic competes with iPod touch, in spite of the similar names. iPod hi-fi also did not compete with either. Apple could have called iPod touch "iPhone Wi-Fi" and it would have been more accurate.

      The people who buy iPod nano specifically want a tiny workout music player, and the people who buy iPod classic specifically want a huge amount of storage space for media. Those are really the 2 choices in "real" iPods, with the shuffle just being a cheap nano. People put classic in their car or a home entertainment system dock and leave them there for months. They don't want to sync or buy media on them. They may not buy apps, but they probably buy 10 times the music of an iPod touch user. And I would bet a lot of them also have an iPhone or iPod touch as well, for entirely different reasons.

      • handleym

        Exactly. This is why you need people designing products who UNDERSTAND HOW PEOPLE USE THEM. It is all too easy for some moron exec who doesn't use an iPod (or who uses it in only one way) to assume that the entire world thinks like him and uses a product like him.

        And so it is tricky. You don't want to offer up fifteen essentially identical products, but you also don't want to chop products that are functionally very different. Personally I think Apple have done pretty well so far in the iPod space; but that the iPod nano touch was a misstep, born of not understanding the target audience.
        Right now we have classic appeals to hoarders, touch to people who want a mini-computer and all it provides, shuffle appeals to the very poor (eg kids), and those who don't mind losing it (eg take it to the beach or while skiing). Nano should appeal to those who want portability and lack of hassle — eg while exercising or running errands — but the touch screen is sufficiently finicky in most of these situations that it's not pleasant to use, unlike the old nanos which could easily be operated by not looking at them, just by touch, feeling where the controls were on the device. The controls built into the ear-buds help to some extent, but they involve another sort of finickyness. In general, it seems, no-one involved with the nano touch ever tried to use the thing while carrying two grocery bags.

        But the nano touch is (I suspect) a temporary misstep. In general, I think the point holds that the target markets are sufficiently different that few people find themselves agonizing over which model to buy, and that really is what you are trying to avoid, that agonizing. (Look, eg, at the market for hand-held GPD units, even within a single maker, and tell me which one is the one you really want.)

  • http://twitter.com/mortjac @mortjac

    Your post makes me think about our own priorities:
    – While we are having a complete ERP system running in the cloud, we only has opened the invoice part, for two countries and eco-systems. It is hard to do a thing really good. To do it simple enough and to make it nice and fast.

    I personally hate to say no, but I've said it a lot the last year, betting on simplicity all the way.

    Thanks Horace for posts that makes me think and act!

  • berult

    As complex as to how one can frame business options within decision making processes, there are times when the very nature of a man can run the course of an infatuated proposition. Apple aka Steve Jobs simply chose to sell unbounded human nature …and let human nature run its course.

    Just put an enabler onto my desk, in my front pocket, on my wrist, on my fridge, on my dashboard, anywhere I need sensual and intellectual enhancement, and I'm on an accelerated pathway to evolutionary self-fulfillment as a human being. The product I buy from Apple is a perpetually morphing key to fit any form of human endeavor, barring none of the highest.

    While the mechanistic focus rests on bells and whistles, Apple shortchanges the physics of solid and the economics of bewilderment in offering three billion uniquely designed, synapses-empowered, metaphysical, co-chairing elements …to cultural entanglement. It sells differentiated intelligence, the enhanced version. It sells Steve Jobs as best as three billion people can effortlessly emulate while being creatively different.

    Three billion plus people focus on unicity; Apple rides the coattails, it focuses on duplicity.

    • Hamranhansenhansen

      I'm hoping this makes sense later when I am high.

      • berult

        Don't ever doubt my resolve to sound common sensical to anyone but myself one day…! As to being high, …fair enough! That would indeed pull you up one step closer to my lowest point of view…

      • Kizedek

        I have read your posts on several sites, and I doubt I will ever be one step closer to your lowest point of view… on the other hand, I might be and never know it, because your lowest points seem to be perpetually obscured in a bank of cloud.

        Still, I am glad you don't take yourself seriously, as intimated in this post. Either that, or you are about 15. I used to write like this when I was 15; but it was knocked out of me in Grammar school in no uncertain terms, and I have endeavored to communicate clearly ever since, no matter how lofty my point of view on a given matter.

      • berult

        Thanks for your generosity. You tailor your hand to fit your thought process. You pick grammar school over sweet fifteen, linear over non linear, euclidian geometry over non euclidian, rational numbers over irrational, charted over uncharted, a grid over a cloud, transparence of reductionism over opaqueness of uncertainty. I pick them all, with a head start to the latters.

        I do take myself seriously, and I do try my darnest to carry a teen's uncertainty. Your grammar school bullying won't carry my day…!

      • dchu220

        If you insult someone but they can't understand your insult, did you really insult them at all? :P

      • berult

        If you insult someone but they can't understand your insult, did you really insult them at all? :P

  • Joe_Winfield_IL

    I also believe that network effect is easier to achieve with a couple very well conceived products than with dozens of half-baked ones. There are fewer variables to manage in a tightly controlled, integrated world, and the UX can become an integral part of the product itself. A company has to have the courage and conviction to choose the right products and only the right products, and this courage is difficult. However, once in execution, continuing focus on a few products is easy.

    I think it's important to consider the behavior and incentives of the individuals who decide on product offerings – management. Incentives play a huge roll in the unnecessarily over-diversified product portfolios that most companies manage. A typical compensation structure has salary and bonus. Salary is fixed, and a large percentage of a typical bonus is typically outside the direct control of its recipient. The only part of pay that is effected by performance (outside of promotions) is often the remaining balance of an employee's bonus. A product manager has a better chance of maxing out bonus by littering the market with options than by developing one magical product. Spelled out as algebra:

    Salary = X
    Bonus = Y (beyond employee's control) plus Z (individual performance metric)
    Total take home pay = X plus Y plus Z

    PORTFOLIO APPROACH
    A smattering of sub-par products will get an employee X, Y and some percentage of Z.
    A smattering of sub-par products with one or two pretty good ones will get an employee X, Y, and Z.

    FOCUSED APPROACH
    A focus on one product that flops will get the employee X and Y, but not Z.
    A focus on one spectacular product will get an employee X, Y, and Z..

    The implication is that a manager can more easily max out the bonus while mitigating downside risk by pushing more products. Reliance on a single product or small family of products increases the risk with no opportunity for a piece of windfall profits. Thus, typical compensation structures incentivize employees to engage in behavior (portfolio building) that may be detrimental to their companies.

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  • John

    I always wonder about Sony. They must have 10,000 products if you count all the batteries, headphones, radios, TVs, connectors, cameras and such that they sell. Do they really need Sony branded AAA batteries or 3 ft long headphone extension cables?

    • dchu220

      That's how diluted their brand. A lot of those products were developed and manufactured by OEMs and Sony just slapped their name on it. These OEMs didn't care about quality or the Sony name. They were just out to make a quick buck, as was Sony.

  • Hamranhansenhansen

    It's not just focus that leads to fewer products, it's also high standards. You can try a lot of things, but you have to be honest and put some in the trash.

    It's also patience to put some things on the shelf for later. According to Steve Jobs, iPad was shelved for a few years while they did iPhone, and during that time big screens got cheaper, cheap flash storage got higher capacity, ARM chips got fast enough for PC's, and Apple cultivated a line of mini touch apps that could grow into bigger touch apps. They waited for iPad's day to come.

  • handleym

    “Focus is about saying no.” This quote is perhaps apocryphal but it’s credited to Steve Jobs

    It is not apocryphal. Steve Jobs said it at one of his first meetings to the Apple employees in One Infinite Loop after he returned — I know because I was there in the audience.

    It's possible, of course, that someone said it before him.

    • dchu220

      Please. Give us some more good nuggets if you have them. I know a lot of people here are really interested in what it was like to work for Steve in the earlier days.

    • asymco

      Thanks for the confirmation.

  • 21tiger

    And too much differentiation means your brand means less and less. Look at OS X and iOS.. Look at the dock. Look at what Lion is doing. Apple is setting it up so you already know how to use a particular product (like the first time a picked up an iPad) the very first time you use it. That also means, you don't have to 'try something out' before you buy it. That's how Apple sold est. 15 million iPads in the first year. Before that most had never considered a tablet device, but they loved their iPod touch/ iPhone.

  • FalKirk

    I think many of the commentators are misunderstanding what "focus" is. Focus doesn't necessarily just mean "fewer" or "less".

    Amazon sells tens of thousands of products but they are focused on one thing – their store. If you think about it, they have one single store. Amazon spends all of their time and energy thinking about how to make that single point of entry better. That's focus.

    I don't know Walmart as well, but I'm guessing that Walmart is focused on the systems that allow them to sell products for less while still making more. Their ruthless efficiency is a sign of their intense focus. The number and variety of products they sell has nothing to do with focus. The fact that the prices and margins of each and every one of the products they sell is controlled to the nth degree DOES have to do with focus.

    People think Apple is focused because they basically only sell four products – iPods, iPhones, iPads and Macs. And I'm a big advocate of their clean and minimalist product lines. But that's not Apple's focus. Apple's focus is on the user experience. Everything, everything, everything revolves around that.

    I'm a big believer in focus. And I like what Horace said. But I think people are confused. There are limitless ways in which a company can focus without having to emulate Apple. Companies should strive to copy Apple's desire to focus and the intensity of that focus. But the specific way each company focuses should be uniquely theirs.

    • dchu220

      Hey FalKirk. I saw that you posted on ZDNet the other day. Seriously… why do you even bother? =P

      • FalKirk

        Slumming.

        Honestly, I'm always looking for a good intellectual discussion. I don't often find it. That's why I hang around here so much. You guys are courteous, fair and chock full of great ideas. And, frankly, you're smarter than I am. It's always a pleasure to be schooled by folks at Asymco.

    • Kizedek

      You have a point. Sounds good. But I think "focus" does inevitably lead to "fewer" or "less" (of something). That's basically what the word means anyway — when you focus, you put your attention on one or a couple of things (within the same field of view), and inevitably there are other things which are therefore not receiving your attention or focus.

      No, it doesn't have to be all about the number of models. And, yes, Apple focuses on User Experience. But, I think these are intimately related at Apple.

      You can't tell me that Dell or HP has a focus on producing 1000 models of computer. No, if they are indeed focusing on more than capturing dollars where ever they may, by selling a product, some product, any product for more than it costs them to produce it, you might press them to articulate their focus in some kind of mission statement: they might well say that they focus on "delivering a solution for every circumstance." Wow. Is that therefore focus? If it is, is it a good focus, which is in fact, focussed?

      I think it goes back to their choice of producing modular products, versus Apple's producing integrated products. Can Dell or HP, in fact, ever use the modular approach to hope to "deliver a solution for every circumstance." Well, it's jolly difficult, isn't it? Because, without controlling the whole product vertically, from start to finish, they must almost by definition be forced to produce a separate product for every circumstance. And that is what they are trying to do.

      Whereas, Apple can meet more circumstances, and therefore provide more solutions with ONE product. It doesn't matter if I am a granny, a 5 year-old, a student, a high-power corporate executive or a free-lancer: one Apple product may meet all of our circumstances because of Apple's focus on user experience (and made possible by its choice to integrate).

      Let's at least say: "a focus on the RIGHT THING will inevitably mean fewer or less of SOMETHING." In an industry where actual products are produced, you would think that would mean producing fewer products. But, granted, it might mean fewer something else, and each company might need to find out exactly what that is: fewer ideas developed, fewer developments brought to market, fewer applications, fewer colors, fewer employees, fewer managers, fewer teams competing, fewer focus groups…

      In Apple's case, it seems to mean fewer of all these things.

      • FalKirk

        "I think "focus" does inevitably lead to "fewer" or "less" (of something)."

        Agreed. Focus means saying "no". But it means saying "no" to things that aren't important to you (or your company). That doesn't necessarily mean product and that doesn't necessarily mean the same thing to all companies. The thing that makes one unique may be distribution (Frito Lay) or image (Nike) or customer service (Nordstoms) or or cachet (Rolex) or luxury (five star hotels) or trustworthiness (Consumer Labs) or safest/best engineered (Volvo) etc. Once you find the thing that makes you both unique and uniquely valuable, focus, focus, focus and say "no" to anything that might divert your resources, distract your attention and dilute your message.

    • Kizedek

      Actually, I do agree with you. I just wanted to bring out the "fewer" nature of true focus. In your post you are saying Apple has a single-minded focus on UX rather than merely having a streamlined product line for whatever reason. I agree. I think having their focus on such a major *aspect* of a product and doing it well, inevitably leads to fewer products, for two reasons:

      1) less need to produce a greater number of products to fit different circumstances, because the UX leads to more universally usable products.

      2) this focus on UX may be but a symptom of their company mantra/philosophy, which itself may be the focus that any other of Apple's possible foci distills down to: "make insanely great products". And making something great is just the flip side of "not making other stuff that is not-so-great" (it's saying no and making fewer things, because there will always be fewer great things than not-so-great things).

      • FalKirk

        Agreed. We're totally on the same page. We may be saying it differently, but that's good. We're just coming at it from different angles.

        "you are saying Apple has a single-minded focus on UX rather than merely having a streamlined product line…"

        It's cause and effect. Apple has a streamlined product line BECAUSE it helps the consumer to decide; makes purchasing decisions easier. The streamlined product line isn't the goal, it's a result of the goal. The goal is to take full responsibility for making every aspect of the customer's ownership of Apple products – including the purchase of those products – easier and more pleasurable.

  • Jay

    I am not sure author understands FOCUS in case of Apple & Steve Job's vision is mostly best referenced to development and design of a specific singular product. Of course you could argue that the Steve's FOCUS is also attributable to the delivery of a bunch of products within the ecosystem they are trying to deliver now a days. But primarily FOCUS is about achieving the best final-cut of a product like iPhone or iPod or iPad, and that will involve 'saying no' on equal front with 'saying yes' to get the best usability factor for that particular product in FOCUS.

  • dchu220

    One thing that hasn't been touched in this thread yet is that Portfolio Theory assumes that the market is efficient and that you can't predict the direction that a stock will go. This type of mentality has also infiltrated into the minds of many companies in regards to their product pipeline. They place a bet on a new product thinking that there's a 10% chance that it will succeed and if it does we will make a return of 1000% so there is a positive ROI of 100%.

    On paper this is a very logical way to look at things, but in reality, getting a new product to succeed requires putting a lot of ducks in a row. You have departments in the company fighting for resources and if the top brass doesn't take active involvement to remove red tape, most projects will go nowhere.

    Portfolio Theory is super useful and I encourage everyone to study it, but it has always frightened me how many people treat it like it is the bible of finance.

    • Kizedek

      yes, and "removing the red tape" and "putting a lot of ducks in a row" might get the product to market: however, it still does not guarantee the product will "succeed".

      So, it goes back to WHY an Apple product usually succeeds. Will the Dell Streak succeed merely because the iPad has succeeded? Will borrowing some ideas from the iPad make it succeed? Will being merely "good enough" cause it to succeed?

      A 1000% return makes the product look like a great risk, and the product itself looks like a winning bet because the company has done its market research — but are they not nevertheless putting in as much R&D, as much resources, as many people, as much advertising for this one derivative product as Apple is putting in to make the successful category-defining product for which Apple is getting a practically guaranteed 10,000% return?

      A company's investment in the development process, especially for multiple products, has to be factored in to the risk. But perhaps part of the mentality you reference is that product development is regarded as "just another cost of doing business", and we have to get something, anything out there just to see what sticks. "We'll just make that cost up some other way — sell two for one, or bury the cost in a column offset by our successful products like Office and Windows."

      Whereas, a lot of us are all agreeing that if companies focussed on the right things, and at an earlier stage in the process, there would be less need to use the Portfolio Theory as something to fall back on; and the bet would be less of a bet and more of a sure thing.

      • dchu220

        Sorry about not writing clearly. I'm working on it.

        My point is that many companies have been influenced by Portfolio Theory to believe that they cannot accurately predict if a new product will be successful, so they divide their R&D budget to chase 20 different projects instead of concentrating it on a few.

    • Russell

      Good points you put forth here. Mutual fund managers are bound by many laws in terms of the amounts of money they can invest into anyone comapny, but, come on, just how much faith should one put in your 149th stock pick in your fund that represents .01% of assets. You essentially become an index (average) very quickly once you go beyond a handful, whick almost guarantees average results but with fees that exceed passive index amounts.

      They are very aware of what they are doing, but the uninformed continue to give them the money. Diversification too often nowdays is basically INSURANCE FOR IGNORANCE.

    • Joe_Winfield_IL

      I can attest personally to exactly this mindset! My former employer implemented a system called… "Focus 21." We were asked to generate and maintain exactly 21 sales leads, broken into three groups of seven. The groups were cold, warm, and hot – and again there were exactly 7 new account opportunities in each category. Once a salesman closed a new piece of business, it was removed from Focus21 and prospects were moved up the ladder to fill its place.

      Besides the fact that it is idiotic to assume that all salespeople have exactly 21 leads, or that 21 leads is the opposite of focus (making the name itself an oxymoron), this system was rife with flaws. All prospects had to be updated weekly to reflect their status, along with a percentage-based chance of closing the business and the potential gross profit. The (Fortune 500) company then aggregated all of this "data" to forecast growth. If an account was a 10% prospect with $100,000 in potential annual GP, it was valued as a $10,000 account. The salespeople themselves were asked to assign hypothetical profits and probabilities, and individual incentives pushed different departments to rate their prospects differently.

      Ultimately, the company had to know that Focus21 was garbage. However, it gave them a tool to use for forecasting earnings and for holding managers accountable. From what I can tell, the executives who pushed the system felt that having a bad system is better than not having a system at all. It was Portfolio Theory at its worst.

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  • arv_leo

    Focus is hard because the people at the helm of the firms making the strategic decisions are driven (incentivized) through revenue…more diversification/inventory means(generally) more revenue(though not profitability). The markets(wall street) demands unrealistic QoQ growth to which many firms succumb and CXOs make decisions keeping the next quarter in mind not the next decade. Apple is an outlier…and due to Steve Jobs larger than life stature can get away with certain decisions that mere mortal CEOs can't.

  • http://twitter.com/wanha @wanha

    Horace, this is an absolutely, positively great piece of writing. Perhaps it can still be taken a level higher by observing the fundamental reason why companies exist. In most cases, this is probably for the monetary rewards (especially listed companies), but in a few cases, like Apple's or Google's, it seems that the primary reason is to create something truly great, to change the world or simply to provide a great experience to their customers.

    Firms that prioritize making money (i.e. sales) tend to neglect the fundamentals of their business and look for shortcuts and levers to maximize short-term profits. It takes incredible discipline to stick to working on the often boring, mundane fundamentals when it's not the the exciting thing you most covet. Perhaps the decision to focus or pursue portfolio thinking arises from this fundamental mindset.

    • FalKirk

      Great post wanha. Now you've got me thinking (and that's when I'm really dangerous). So many companies lose their way because they focus only on money. If money is your only goal, then what makes you different from every other company? And why would I want to do business with you?

      Other companies lose their way because they focus on an ideal that conflicts with making money. If I'm an investor or a shopper why am I giving you my money to forward your ideals? If I want to help a cause, it's a lot more efficient to simply donate to that cause rather than to buy their products or services.

      I guess (because I've never seriously considered this question before) that the best company is the one that can make money by pursuing a cause that's bigger than they are. When a company makes money and I get a good product, that's a win/win. But when a company makes money and I get a good product and the world becomes a better place, that's a win/win/win.

      Some people object to Apple's high margins. When I buy their products, I get great value AND I think they're making the world – or at least the computing world – a better place. Apple's extremely profitable? I say, "Good for you! Go for it!"

    • dchu220

      Walt Disney once said, "I make money to make more movies."

  • super-b

    You didn't mention:
    The forerunner to the rejection of portfolio theory is having a vision. SJ has a vision and a company who can organically synthetize new ideas. For example, lets say you and only knew for a fact that pedestrians in NY really wanted a mango instead of hotdogs. If you are confident in this synthesis, you can skip diversification and just start selling mangos because of whatever divine intervention told you so. One with vision does not see their vision as a risk because they believe it to be true regardless of what the market says.

    In absence of a vision, when you are doing business in the commodity space (PCs or street vending), portfolio theory makes sense.

    • Tim

      In this case, vision means knowing your current and potential customers better than the competition and having the sense to act on that knowledge.

  • http://twitter.com/Shankar_M @Shankar_M

    Strategy is also about making choices. For every strategic/product that you decide to proceed with, a simple test should be done. Ask the question – what are we not going to do ?
    The logic is simple. Resources are finite. And the easiest way to fail is to keep dividing the same money/people into multiple projects to compensate for one.
    I shared some of my own experience and thoughts at http://shankarmeembat.com/2011/04/product-portfol….

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