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Staying Hungry

During the June 2005 Stanford University commencement speech Steve Jobs famously cited the farewell message placed on the back cover of the 1974 edition of The Whole Earth Catalog: “Stay hungry, stay foolish.”

That’s a nice, pithy statement. I interpreted “Being Foolish” in a Quora answer as “being naive about how things should be and thus allowing oneself to see how things could be.”

But what about staying hungry?

A clue comes from the recent Fortune article “Inside Apple” (currently only available in print or as an app). Even with nearly $70 billion in liquidity Steve Jobs claims “Apple is a company that doesn’t have the most resources.” A former executive claims “We’ve always fought for resources…Steve and Tim in general want to be sure you need what you’re asking for.”

Note that “resources” here does not mean capital. It means people. Apple is very constrained in the number of people it has available to put on projects. The evidence is in the company’s operational expenses. They make up only 9.5% of sales (nearly an all time low). R&D in particular is only 2.4% of sales ($581 million).

Although R&D doubled in three years sales nearly double every year.

Looking at the totals over the last full year, the company spent about $2 billion on R&D. A remarkably efficient way to generate $47 billion in sales or $13.3b in operating income. Another way of thinking about it is that every dollar spent in engineering resulted in $23 in sales.

So the way to interpret the “stay hungry” metaphor is as a low cost structure. It has great advantages beside efficiency. There is a constant demand for focus and justification of spending. There is a certain level of cross-fertilization as people are assigned to varying projects to maximize their utilization. Finally, there are the subtle but powerful influences of hunger: motivation, invention and intense attention to details.

For Apple this aphorism seems to be more than a motivational poster quote.