On May 29, 2003, Steve gave a talk to MBA students about his experience as CEO of Pixar and Apple. Two years later, he would deliver his seminal Stanford commencement address on the same campus.

Speech Transcript

Pixar is a very different kind of company than Apple. Apple is a company that has new products every few weeks. It’s a company where you make ten important decisions a day, but if some of them are wrong, most of them are not terribly hard to correct a few months down the road.

Pixar is a company that has one new product a year, at best. That’s the holy grail for us: to have a movie a year, and we are just about there. As CEO, you make a few important decisions a quarter—maybe three—but they are very hard to change if you decide you want to change them.

So, they are very, very different sides of the spectrum. However, you can look at Apple and say Apple is the most creative of the technology companies, and you can look at Pixar and say Pixar is by far the most technical of the creative companies, and in that sense, maybe they are striving for some ideal in the middle, coming from different ends of the spectrum. ✂

If we [Apple] come up with a dozen innovations in a year, we can maybe advertise four or five of them. We can’t advertise more than that because, even if we had all the money in the world, the customer would get very confused with all these messages coming at them on TV. What do you do with the other half-dozen innovations you come up with? You know: six, seven, eight, nine, ten innovations? You have to communicate those with the customer at the point of sale. And it [the existing distribution channel] was not capable of that. So we decided to start our own. So that’s why we got into retail.

We did things a little differently. Our goal in retail was not just to sell to the 5 percent of people who own our products today; it was to go for the other 95. And we decided they would not drive ten miles to look at an Apple Store if they weren’t at all interested in buying our products.

We decided we had to ambush them. What that meant was that we had to go to high-traffic locations and put stores there. They [customers] didn’t have to take the risk of driving ten miles to find out they weren’t interested. They just had to take the risk of walking ten feet because they were walking by anyway, and they knew they could escape rapidly if it was something they hadn’t wanted. So we paid extra money for great locations and put them on great streets like University Avenue [in Palo Alto] and the A [-grade] malls across the country. And the real estate we’ve got is just A+. ✂

I learned this at Pixar: technology companies and content companies have absolutely no understanding of each other. None. It’s worse than you’d ever imagine. In Silicon Valley, most people think the creative process is a bunch of guys in their early thirties sitting on a couch, drinking beer, and thinking up jokes. Really. They really do.

And yet I’ve watched people at Pixar making these films, and they work as hard as I’ve seen anybody in a technology company ever work. The creative process is as disciplined as any engineering process I’ve ever seen in my life. And they’re as passionate about it as any technical person I’ve ever seen.

On the other hand, the content companies have no appreciation of the creative process in the technical companies. They think that technology is something that you write a check for and buy. That’s it. And they do not understand that there’s a wide, dynamic range of capability and elegance. They don’t understand the creativity in the process. So these are like ships passing in the night. ✂

The most important lesson I ever learned was that you have to hire people better than you are. […] In normal life, the difference in dynamic range from average to best is usually 30, 40, 50 percent. Twice as good: rarely. So the difference between an average meal in downtown Palo Alto tonight and the best one—maybe it’s two to one. Flight home, if you’re going home for the holidays: 50 percent difference. Rental cars, breakfast cereals. I don’t know, pick one.

But I saw that Woz [Apple co-founder Steve Wozniak]—one guy—having meetings in his head could run circles around two hundred engineers at Hewlett-Packard. That’s what I saw. And I thought, “Wow.” And I didn’t really understand it at first.

Then I started to understand it. It took me about ten years to actually try to put it into practice. Because you’d try to hire and find those people. And they’re really hard to find. And everyone says they are all prima donnas. But it turns out that when they work with each other, they’re not prima donnas. They really like it. The first time I tried to build that organization—that was the Mac team. And it really worked. I saw a team of fifty people do something that literally hundreds, or thousands, of people at other companies couldn’t do. And so I’ve since then always tried to find really great people who love what they are doing and are extremely good at it. And sometimes they have experience, and sometimes they’re really young. They’re diamonds in the rough—and you hire them and take chances on them. But that’s been the most important lesson I’ve learned in business: that the dynamic range of people dramatically exceeds things you encounter in the rest of our normal lives—and to try to find those really great people who really love what they do. ✂

I was basically fired from Apple. And that was really hard. So I’m sure I learned a lot from that. [Audience laughs.] I did. I did learn a lot from that. And as a matter of fact, there would have been no Pixar if that hadn’t happened. Life’s funny in this way. Sometimes your greatest strengths are your greatest weaknesses. Sometimes your greatest adversities, you learn the most from. I don’t know.

But there wouldn’t be a Pixar if it hadn’t been for that. But life is funny, you know? I never would have thought I’d end up back at Apple, but here I am. So it’s a circus world, and you never know what’s around the next corner.

People say you learn more from failures than you do from successes, and that’s probably true. And I’ve made more mistakes than most people I know. But getting older does that [helps you grow] too. You get married. You know, you have a family. And your perspective starts to change on things.

When I was young, if I had to fire somebody, I didn’t think—to be honest, I didn’t think twice about it. When you get a little older, and maybe you have kids, you realize that the person you have to fire—even if they totally screwed up, they should be fired, you should have fired them months ago, anyone else would have fired them last year—even so, you realize that that person is going to have to go home to their wife and their children and tell them they got fired today and that they don’t have a job anymore. You realize that.

So part of it is nothing that you do yourself, no accomplishments you achieve. It’s just the process of getting older and kicked around, and maybe a little wiser in the process. That’s, more than anything, probably what it is. ✂

[When I returned to Apple in 1997,] the individual contributors were phenomenal. And I asked a lot of these guys, “Why did you stay?” And they said, “Because we bleed six colors.” I heard that from a lot of people—there were six colors in the old Apple logo. It was management that was a problem. So we actually got rid of most of the management team and promoted a lot of these young people into management positions.

And what I found is that nobody in their right mind wants to be a manager. [Audience laughs.] It’s true. It’s a lot of work, and you don’t get to do the fun stuff. But the only good reason to be a manager is so some other bozo doesn’t be the manager—and ruin the group you care about.

Really. And if you’ve lived through a bad situation where you’ve had bad management, you’ll do anything to not have your group destroyed by that again. And you will even step up and be the manager yourself, even though you don’t want to do that.

And I talked a few hundred people into doing that. And 90, over 90 percent of them have turned into extraordinary managers. Extraordinary. So that’s what saved Apple, those people right there. And it’s been one of the great experiences of my life to have the privilege of working with them. ✂

There’s a lot of management techniques. I’m sure you study a lot of management techniques. When I was younger, it was management by objective. It’s all a crock. They’re all after-the-fact management techniques: “You’ve failed, and I know that because we are going out of business tomorrow.” All after the fact. “You’ve ruined this department; all the good people have left. So now I’m firing you.” “You’ve accomplished none of your objectives.” It doesn’t work.

And a really smart guy I met a long time ago who used to teach at Disney University—Walt Disney recruited him to run Disney University, actually—he told me about his point of view, which I’ve remembered to this day. He called it management by values. What that means is you find people that want the same things you want, and then just get the hell out of their way.

The way I describe it is, let’s say we’re all going to take a trip together. The first thing is to figure out where we all want to go. The worst thing is if we all decide we want to go to different places. You can never manage it. [Pointing] You want to go to New Orleans. You want to go somewhere else. I want to go to San Francisco. You want to go to San Diego.

It doesn’t work. Right?

But if we all want to go to San Diego, that’s the key. Then we can argue about how to get there. [Pointing] You think it’s better to walk. You think it’s better to take a plane. You think it’s better to take a train. We’ll figure that [part] out. Because if I say, “I want to take a train to San Diego,” and somebody goes, “That’s really stupid! It will take three days! We can fly and be there in an hour,” I’ll go, “Oh. OK.” Because, actually, I want to go to San Diego. So if I can get there in an hour [flying], I’ll ditch my idea about the train.

That’s what management by values is. It’s finding people with passion that want to go to San Diego—who want to go to the same place you want to go to! Right? That’s the key.

And so, what happened at Apple was that Apple’s goals used to be to make the best personal computers in the world. And then the second goal was to make a profit so we could keep on doing number one. Right?

What happened was that, for a time, those got reversed: “We want to make a bunch of money, and so, OK, to do that, we’re going to have to make some good personal computers.” But it didn’t work. It never works. And so things start to fall apart.

Those subtle changes in values can mean everything. The higher up in the organization they are, the more pervasive influence they have. So if you want to preserve something, what you want to do is have a good enough place to go, that’s got a long enough focal length that it will survive over time, that everybody agrees on—and not codify how you’re going to get there. So that each generation can argue anew about the best way to get to San Diego, and they’re not just taking your footsteps on how you got there. You see what I’m saying? But all the people want to go to the same place.

And that’s one of my mantras around Apple and Pixar: that recruiting is the most important thing that you do. Finding the right people—that’s half the battle.

Well, thank you guys for the chance to be with you. I appreciate it very much.

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See Also

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• Who was Steve Jobs? Wisdom From The Man Who Built Apple and Pixar.
• Steve Job's "The Lost Interview from 1995"
• Jony Ive's "CCA Commencement Address and Advice for the Graduating Class"
• Steve Jobs “Stanford Commencement Address“ in 2005
• I, Steve: Steve Jobs In His Own Words
• Make Something Wonderful: Steve Jobs In His Own Words
• Insanely Simple: The Obsession That Drives Apple's Success
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