#420 Steve Jobs In Exile

14:20Steve Jobs:from the builders to the caretakers. That is from the individuals who created and grew a multi-billion dollar American industry to those who will maintain the industry as it is and work to achieve marginal future growth.

14:32Geoffrey Cain:I can guarantee you there is life after Apple. And again, this kind of spending reflects his priorities. It says so much of Steve's motivation at Next was about sticking it to Apple. At Apple, it was about building the best product. It was about building insanely great products.

14:49Steve Jobs:And about a year into this, Steve sits down for an interview. And there's just a few things that he said in this interview that I thought was interesting because it gives you an insight to how he thought about himself. Definitely not as a businessman.

14:57Geoffrey Cain:He says, whenever you do one thing intensely over a period of time, you have to give up other lives you could be living. You have to have a real single-minded kind of tunnel vision if you want to get anything significant accomplished,

15:10Steve Jobs:especially if the desire is not to be a businessman, but to be a creative person. And then he's asked, well, you're the CEO of Next. Isn't that the very definition of a businessman? And Steve responds, my self-identity does not revolve around being a businessman. Do I recognize that this is what I do? I think of myself more as a person who builds neat things. And that is very common if people are trying to build neat or great things. They want to retain control over the process as much as possible.

15:37Geoffrey Cain:And sometimes that instinct can lead to disastrous decisions, which in this case is them building their own manufacturing facility in Fremont, California.

15:47Steve Jobs:Steve thought that building a next operated manufacturing facility that was 30 minutes away

15:51Geoffrey Cain:would give him tighter control over the manufacturing process. He also had a ridiculous idea. This is one of the craziest ideas I've ever heard. He envisioned that this facility would enable an elaborate buying experience. Just like Ferrari customers fly to Italy to pick out their cars straight off the assembly line, so would Next customers. If you're going to buy a great sports car, what's the best way to do it, he would say. You fly to Europe, go to the factory, and buy it there. People are not going to buy their computers this way. That is crazy. And again, at the same time he's saying this, Nexus cash reserves were rapidly dwindling.

16:24Steve Jobs:The bank account balance was dropping every day, and it says revenue was nowhere on the horizon. And right as his cash balance is dwindling, he gets a lucky break on November 5th, 1986. Ross Perot happened to tune into PBS, and on came this documentary called Entrepreneurs. The next morning, Ross leaves Steve a voicemail and says, if you ever need an investor, call me. Steve didn't want to look desperate, so he waited a week, and then he picked up the phone. And they quickly hammer out a deal. Ross is going to put$20 million into Next for a 16 % stake in the company. He becomes the company's largest outside shareholder.

16:58Steve Jobs:But as one prerequisite of the deal is that Steve has to have more skin in the game. So he asked Steve to put in another$5 million of his own money. So in comes$25 million more to the company and a secret deal where the book says that Steve and Ross has struck a second secret deal. It would never appear in any press release or regulatory filing.

17:17Geoffrey Cain:They didn't even write the terms down. To sell the next computer, Ross was willing to mobilize his high-level government networks and his sales force from the company he was planning to start. This is a company called Perot Systems. It would build on his past success selling technology to the military, intelligence agencies, and the federal government. Remember this part for later. The word mercurial is used over and over again to describe this version of Steve Jobs. wait till you see some of the bizarre decisions he makes where he will torpedo deal after deal after deal when his company has no money and is producing just a handful of computers and so this

17:53Steve Jobs:version of steve has no trust in his team he's micromanaging every single thing he's essentially trapped in a prism of his own perfectionism and this is going to cause his company to just bleed tens of millions of dollars so it says in early 1987 steve's pursuit of perfection was devouring the timeline.

18:06Geoffrey Cain:Every revision pushed deadlines further back and every prolonged debate over this or that component drove costs higher. Yet no one could make decisions without Steve and Steve couldn't stop perfecting. While Steve demanded revolutionary technology, every delay allowed competitors to catch up, rendering the technology less novel. Steve was caught in his own trap. He believed that his vision was perfect and it didn't need changing, yet he couldn't stop tinkering with it. And again, this is where his words are not matching up with his actions because he's preaching to his team. This is what he's telling them at the time.

18:39Geoffrey Cain:The most important thing you're competing with is not another company, but it is your own ability to execute. He seems to be blissfully unaware that they are unable to execute at the moment. So this debate is raging on and we'll see this other reoccurring theme that Steve causes the problem, then shifts

18:55Steve Jobs:the blame of that problem to somebody else and then fires that person. So he's just churning through people. So even as debate raged on, Nexus VP of manufacturing, Linda Wilkin, had to begin

19:04Geoffrey Cain:building the company's factory. With no firm decision on the circuit board, a choice that would dictate the factory's plan, Linda did the rational thing and prepared for both possibilities. When Nexus factory schedule inevitably slipped, rather than blaming his own indecision, Steve took out his frustration on Linda and he fired her. And the entire company gets stuck in this loop for months and years. Each time the chip designers got close to a final layout, Steve would change his mind. Add this, he say. Now move that. His perfectionism about the chip's appearance created months of delays. And no one around him is telling the truth.

19:41Geoffrey Cain:When Steve asked how long it would take to finish the ever-changing design, the engineers knew the honest answer. About a year, working seven days a week. But they also knew that that timeline would never fly, So they lied. One more month, they'd say, each time Steve asked.

19:56Steve Jobs:And so Steve comes up with this thing called the deep shit list. It's a list of existential threats that he said, if we don't solve these threats, we're going out of business. And so he would light into the two engineers. They're called Big Dave and Little Dave in front of the entire company and say, if you guys don't figure this out, we're going out of business. And this is the crazy thing that happens next.

20:13Geoffrey Cain:So a week or two later, Big Dave and Little Dave, they have an announcement. Guess what? We're ready to ship the master chip design to Japan. We solved everything.

20:22Steve Jobs:Steve goes on the hero shithead roller coaster, says, oh my God, you guys are geniuses. We're going to give you$25 ,000 bonuses each. At the time, that's equivalent to half a year's salary. So he hands them the check.

20:33Geoffrey Cain:The two Daves are like, this is great. They leave. They go back to their office. They pack up their belongings. They walk out the door and they never come back. 90 days later, the final chip arrives from the manufacturer.

20:43Steve Jobs:The team snaps it into the computer to try to test it. Nothing. It doesn't work.

20:48Geoffrey Cain:As a result of this, the release schedule, again, they don't have a product. They have no revenue. The release schedule for the computer has to be pushed back a full year. And this just continues.

20:57Steve Jobs:As time went on, the deep shit list started to look less like an existential priority list and more like Steve's personal wish list. He kept piling on features, adding costs, and making last-minute demands. So at the very beginning of Next, Steve has this advisory council of all these people that work in academia. They're advising him on the kind of technology they need. But they also talk about, hey, it's really, really, really important that your computer cannot be more than$3 ,000 per computer.

21:21Geoffrey Cain:You have to stick to that. And so Steve does something bizarre at the next meeting with this council. He keeps the details of the cube hidden and instead distributes this beautifully printed 18-page brochure about the next logo. Let me read you this note when I first read this about what's going on here. We still don't have a prototype to show you. The finished product won't come anywhere close to the price you've stated you're willing to pay. But hey, here's 18 pages on how our logo was designed. This is why I refer to this time period. This is like bizarro Steve Jobs. It is a version of Steve Jobs that's just making the opposite decision that an intelligent entrepreneur would make.

21:55Geoffrey Cain:And he's doing it at the time where his company, remember we're in the 80s, his company is burning through a million dollars a month. And yet, just like with the story of Ross Pro randomly seeing this documentary and saying

22:05Steve Jobs:I haven't put 20 million to this company, Steve winds up next to the CEO of IBM at a dinner and IBM wants to license operating systems for their computers. And this is the deal that Steve sold to the CEO of IBM.

22:17Geoffrey Cain:It says IBM agreed to$30 million on signing the contract and another $30 million on shipping and then royalties on every copy they ship.

22:25Steve Jobs:A total investment of$60 million, which is three times how much Ross Perot put in, and a windfall that brought them years of

22:31Geoffrey Cain:runway. Now let's fast forward a year. The more he raises, the more he spends. And so we're back in a bad position. Nexus Financial Outlook was also looking seriously gray. The company had 25 million in the bank, but needed 27 and a half million to survive the year. To make it worse, they needed to sell 16 ,000 machines by year end. They'd never do that, by the way. And at this time, the team could barely get a single computer to boot up properly. Keep in mind as I read this next sentence to you, they haven't shipped a single thing yet. He decided that, Steve Jobs, decided that Common Spaces would be outfitted with$2 ,000 chairs and$10 ,000 sofas.

23:09Geoffrey Cain:Every desk would bear the highest quality phone Steve could find, priced at$450 each. Remember, we're in 1988.

23:18Steve Jobs:And so he has at least one person trying to tell him the truth. It's one of his co-founders, a guy named Daniel Lewin. So he writes this memo to Steve.

23:24Geoffrey Cain:He goes, we are over a year late. The competition has progressed more than we expected. Our product is at twice as expensive as we imagined. The computer is still not working. you must reset expectations. Steve woke up to this reality after spending a week with the computer on his desk. The computer takes several minutes. My guess is five plus minutes to boot. My computer crashes every hour or two. With the current state of our software, the industry will laugh us into bankruptcy. We are running out of time. And again, I think these two paragraphs are super important to understand that if Steve never changed, there's no way he would have had the success he had when he went back to Apple for months.

24:00Geoffrey Cain:When Daniel tried to raise these exact concerns, Steve had dismissed him, saying that you're not spending enough time with the product. Now Steve was seeing the problem for himself. The sales team had a name for this Steve phenomenon. They called it Go North.

24:13Steve Jobs:The joke went like this. Steve hires a salesman and tells him, go north. He goes to Sacramento. Keep going, Steve says. He goes to Oregon. Go north, Steve says. He's in Washington now.

24:24Geoffrey Cain:Go north, Steve says. Finally, the guy's calling from the Arctic Circle. What the hell are you doing up there? And Steve explodes. And Steve has another problem. His biggest investor is losing patience.

24:37Steve Jobs:When Ross Perot goes to these board meetings, he penetrates Steve's reality distortion field. This is what he says. You shouldn't introduce a product before you can ship it, he said.

24:45Geoffrey Cain:What is it going to take to get the sales? How are you going to build the rest of the company? These are very simple, straightforward answers that more than one person will come from the outside and ask, and they don't have answers to. Ross's newfound skepticism worried the team. He was their main benefactor, the company's largest investor and a source of outside credibility. And so they finally have a computer that they're ready to start manufacturing. Remember, the price is supposed to be$3 ,000.

25:11Steve Jobs:They're supposed to be selling to universities. The price comes in anywhere from$10 ,500, or if you want a larger hard drive, it's$12 ,500. To put in context, that's more at the time. It was more than the average year of tuition at a private university. And so it says in November, the first cubes finally shipped by the end of the year. Next had shipped a measly 205 computers, even with rock bottom production targets. The factory couldn't keep up. Steve would get phone calls like this. You know, the 12 machines we promised you today. Well, there's only eight because four of them didn't pass the paint test.

25:45Steve Jobs:So it talks about his perfectionism also he didn't take into account that all his design changes added complexity which made running his factory nearly impossible and in this case steve had insisted that the cube had this magnesium casing and the problem with that is the magnesium casing was prone to microscopic air bubbles which would be revealed because steve also insisted that every cube had to be painted matte black and this is a problem that his engineers had foresaw before production and they warned steve about it during development and steve brushed aside those concerns. And so now you fast forward many months to even years later, and it's impossible for him to scale.

26:19Steve Jobs:Remember, he said he was going to be doing, you need to do 16 ,000 in a year. They can't even do 12 in a day. And then the ones that are shipped out, a ton of them are being returned

26:28Geoffrey Cain:because they have defective parts. And then they're returned. And Next doesn't have a system for tracking why the machines failed and why they were returned. And so a summary of where we are in the history of Next, it says the company was set to run out of money in a matter of three months.

26:43Steve Jobs:They had flawed, expensive hardware running unfinished software. And yet Steve is doing stuff like this at this point. One day, Steve appeared in Bert's office in a panic. We're selling everything we can make, he said. Bert laughed. Next was making eight computers a day. Before we get back into this episode, in the last two minutes of this episode, or some of my favorite parts of the entire episode, I need to tell you about two tools that you should be using for your business. The first one is Axon by AppLovin. Steve Jobs had this great quote where he says, A small team of A players can run circles around a giant team of C and B players.

27:15Steve Jobs:Given that you're well advised to go after the cream of the cream, you need to build a team that pursues the A players. And that is what Applovin has done.

27:23Geoffrey Cain:Applovin has built a$150 billion public company with just a few hundred people because their ad platform converts ads into revenue for your business. Their advertising platform, Axon, connects you with over a billion potential new customers. Axon allows you to capture undivided attention. Axon ads are full screen videos that are watched for an average of 35 seconds.

27:45Steve Jobs:That is retention that blows other ad platforms out of the water and you can launch in minutes. You set the goal. Axon achieves it. There's no complex setup, no expertise needed. And Axon scales quickly.

27:57Geoffrey Cain:Other businesses have seen immediate results, scaled to hundreds of thousands of dollars of spend per day and increased their revenue by millions. So you want to get started quickly before all of your competitors are on Axon.

28:09Steve Jobs:And you can do that by going to axon.ai forward slash founders. And then I want to tell you about Vanta. Vanta, Vanta, Vanta.

28:17Geoffrey Cain:Vanta helps your company prove you're secure so more customers will use your product or service. Vanta is an AI-powered security expert who scales with you.

28:26Steve Jobs:The more your business grows, the more complex your security needs get. And that complexity can turn into chaos. Vanta tames that chaos for you.

28:34Geoffrey Cain:Vanta automates compliance, continuously monitors your controls, and gives you a single source of truth for compliance and risk. So whether you're a fast-growing startup or an enterprise company, Vanta fits easily into your existing workflows. Ramp actually uses Vanta, which is a huge positive indicator for me because Ramp is so stringent on buying software instead of building it themselves. Vanta helps you build a company that your customers can trust. Many companies will not sign contracts unless you're certified, and this is causing you to lose out on the sales, which is why the average Vanta customer reports a 526 % return on investment after becoming a Vanta customer.

29:11Steve Jobs:Automate your compliance, security, and trust with Vanta. Go to vanta.com forward slash founders and you'll get$1 ,000 off. That is vanta.com forward slash founders. And then we see Steve's deal-making ability. So early on, he decided, hey, we're not going to use a floppy disk. Instead, we're going to use an optical drive. The optical drives barely work, by the way, but they buy them from Canon. And so he convinces Canon to put$100 million into Next. In return for their$100 million, they get 16.67 % stake in the company. And then we get to one of the most serious underlying problems that he has is the fact that no one around him is telling him the truth.

29:46Steve Jobs:No one around him is telling him the truth. At the time, the company doesn't even have a COO. He's getting a lot of pressure because now Canon also has a board seat that you need to find a COO. He doesn't even have an HR manager. so he hires this guy Phil to become HR manager to then hopefully also help him find a COO. And so Phil meets with all the executive team for about an hour without Steve. And so over an hour, all the company's leaders open up about next culture issues and their frustrations with Steve. Then unannounced, Steve walks in. He perches himself on a chair at the end of the table and says nothing at first.

30:16Steve Jobs:Then he breaks in. Well, everybody at this table feels very free to tell me everything that's on their mind, Steve said. The room filled with silence. Phil turned to Bud, who was sitting next to Steve. Bud, what's on your mind? Bud's eyes dropped, said nothing. Phil moved to the next person. Gary, what about you? Gary looked down at the table. One by one by one. They all froze. Seconds ago, they had been griping about Steve. The moment he entered the room, everyone clammed up. When Phil conveyed the team's harsh feedback to Steve, he was very much taken aback. And so again, we have Daniel Lewin being the one fighting back.

30:51Steve Jobs:At the time, their operating system, next step, is not finished. And so they had previously agreed, hey, we're not going to ship more than 2 ,000 units until this operating system is finished. And Steve decides, no, we have to sell 25 ,000 computers or we're going out of business. And so Daniel's like, I'm not placing that order. And so Steve said that if you're not ordering the inventory as the marketing chief whose department is running sales, then you're not going to be making those decisions anymore. And then the marketing department now belonged to Steve.

31:17Geoffrey Cain:This decision to fire the head of marketing leaks to the press. Daniel, who is still this is the funniest part. Daniel still remained next to his primary spokesman. So the man who had just been stripped of his marketing role now had the unpleasant task of explaining to reporters while it was actually a promotion. After Daniel finished spinning his own demotion to the press, Steve stripped him of that press job too. And Daniel is looking back on it.

31:41Steve Jobs:He said, there were no adults in the room except for me. We're now four to five years into the history of Next. The company's in deep, deep trouble. And yet they keep messing up the basics. When Steve ran an ad in the Wall Street Journal offering anyone who wanted a life-size brochure shaped like the cube, it turned into a self-defeating blunder. With 5 ,500 requests waiting, the team realized the brochure didn't fit into any standard envelope.

32:02Geoffrey Cain:millions in advertising spending and no goddamn envelopes. After rush ordering custom envelopes, the team then discovered at the post office that special envelope sizes required special postage. By 1990, they felt the only choice was to scrap the cube and start over with a more advanced machine. They looked at the alternatives, lose$54 million over the coming year, retreat and retrench, or sell the company. The time has come to look at our business proposition Every operating assumption we had has been proved wrong. The product wasn't ready.

32:38Steve Jobs:The budget has collapsed and the strategy keeps shifting.

32:41Geoffrey Cain:We are set up for continued failure. Now, keep that in mind because what Steve does next, you're just not going to believe. A month later, Steve pulls yet another rabbit out of his hat, announcing a new higher margin IBM deal. They are now going to give him another$30 million. But this deal doesn't ever happen. Why?

33:03Steve Jobs:So Steve and one of the salesmen are traveling to Dallas to make a presentation about the IBM deal. At the airport, Mark says, hey, we have a problem. The venue's huge. There's projection screens on both sides of the room. They needed two sets of slides. They only have one set. It is not clear to me why they couldn't just duplicate this. But Mark suggests, hey, why don't we just skip the slides entirely and we can just launch straight into the demo when we get there. Remember, they're at the airport. And this is Steve's response. So Mark, what you're telling me is I don't have the tools I need to get my job done today.

33:32Steve Jobs:You know, I'm just really busy and I'm not going to go. Steve turned around and walked out of the airport. So Mark flies to Dallas and has to make a presentation to 800 IBM engineers alone. The fact that Steve didn't show up, it says the IBM executives read the no-show as a lack of commitment to the relationship. The deal was effectively dead. With IBM, Steve had overestimated his power and he knew it. Years later, he confided in Pixar co-founder Ed Catmull that he had learned a lesson from the collapse of the IBM deal. Never overplay your hand. He's doing that at a time he knows that his company is going to burn$54 million this year.

34:08Steve Jobs:This is crazy. He does it again. Remember that story I told you earlier? Ross Perot is like, hey, we're going to sell. I'm going to set up this company. We're going to sell next to the government. So it says after months of negotiations, the deal that could unlock hundreds of millions

34:19Geoffrey Cain:of dollars in government contracts was finally ready to close. Pat Horner, who is the CEO of Perot Systems, flies to Next, sits in the conference room with the contract spread across the table. Daniel Lewin goes up to Steve.

34:29Steve Jobs:Hey, we're going to sign the deal. You coming in? Steve looked up and said, no, I don't want to sign the deal. I don't want to do business with the government. Daniel walked back to the conference room and had to tell them that Steve wasn't coming and that there would be no deal. Within minutes of Pat leaving and getting back on the plane, Ross Perot calls. He is told Steve is unavailable. Daniel gets on the phone with Ross Perot instead. Daniel, this is Ross. You know, on any given day, I can call and speak to the head of the FBI or the head of the military of Panama or the White House, and they put me right through.

34:58Steve Jobs:I'm in business with you. Why can't I talk to Steve? Ross was done with the magic show. He had studied the company's fundamental, and he was completely concerned with what he saw. He ripped through the numbers. Next had burned$39 million while planning to lose just$3 million. Without$56 million from IBM and Ross, the startup would have been dead a long time ago. Steve employed 69 manufacturing staff for a company, barely shipping a product. And devoid of all reasons, Steve forecasted sales of 11 ,000 computers this year. And this is where Ross Perot finally realizes his initial mistake. You know what my mistake was?

35:30Steve Jobs:I gave Steve too much dang money. When you have too much money, you just don't have that hunger. And you start spending money on floating staircases and$10 ,000 chairs, which Steve did both of. And there's a great sentence about this a few pages later. He was choosing purity over survival.

35:48Geoffrey Cain:Let's go back to this idea that they are many, many years into the company and they still can't even handle the basics.

35:54Steve Jobs:So in the summer of 1991, Steve invites Andy Grove to the next offside retreat. Andy, who's the co-founder of Intel, had been a mentor to Steve. And it says Andy entered a meeting room with next senior leadership team gathered before him. He skipped pleasantries and posed a seemingly easy question.

36:08Geoffrey Cain:What business are you in? Hearing no response, he began pulling each person in the room one at a time. Andy asked profoundly simple questions, but revealing ones. After six years in business, Next Own Leadership couldn't agree on what business they were actually in. And not only that, they're lying to themselves. Remember, everybody around Steve's not telling the truth. Now they're lying to themselves. They have this accounting trick. And they said they were using this accounting trick because they wanted to hide the paltry sales figures from Steve. The team reported sales figures by determining the number of units given to distributors, not sales to final customers.

36:43Geoffrey Cain:Distributors didn't have to pay right away. They got the machines on credit. Next then immediately counted these as sales even though no money had changed hands and no actual customers had purchased anything. This practice was called channel stuffing and it made Next look successful on paper while machines piled up unsold in warehouses. When distributors failed to sell the machines, they couldn't pay Next either. Suddenly, Nex's reported sales tumbled, and the company was owed over$10 million from distributors holding all those machines.

37:17Steve Jobs:Nex was yet again on the precipice of bankruptcy. It had burned through the$100 million cash injection from Canon two years earlier. Now that Steve had alienated Ross Pro and IBM, the most straightforward paths to raising more money were shuttered. That left Canon as the last major investor standing. So they tell Cannon, if you don't extend another loan, Next might collapse, and your entire$100 million investment might go up in smoke. Cannon agreed to give them another$40 million. At the exact same time, Steve kept cycling through manufacturing leaders. He would find one VP of manufacturing, hire them.

37:57Steve Jobs:They'd be the VP for six months or nine months or ten months.

38:00Geoffrey Cain:Then Steve would get frustrated, and he'd get rid of them. Steve always seemed to blame them for his decision to build a machine for a market that didn't exist.

38:10Steve Jobs:As Nexus leaders studied the problem, a consensus began to emerge. They should abandon high-cost hardware in favor of selling high-margin software. But Steve wasn't on board with this plan yet. That's obviously where they have to go. He clung to hardware like a lifeline. A software pivot would mean abandoning the beautiful objects that Steve loved to make. And the crazy thing is through all this chaos and dysfunction, they actually developed a great operating system. It just takes Steve a while to understand what he has.

38:40Geoffrey Cain:So Steve eventually acknowledged what everyone had been trying to tell him. Corporate America discovered that they could use Next Step to build their in-house mission-critical custom apps five to ten times faster than any other operating system. These companies came to us and said, you don't realize what you have. You have potentially the biggest breakthrough in the computer industry that we've seen in the last decade. Next was teaching Steve something he never learned at Apple, how to transform failure into fuel.

39:08Steve Jobs:Now, here's another example of good idea, bad execution. Steve wasn't going to give up. He's trying to recruit. We're going to call him PVC. That's what they call him. They refer to him in the company. He's going to be Nexus chief operating officer. So Steve wasn't going to give up. He learned that the best people were worth the wait.

39:22Geoffrey Cain:When you meet somebody that good, you know you're going to be settling for second best if you compromise. I've always found it best not to compromise and just keep chipping away. So Steve finally gets his man. And like a year or two later, this guy, PVC, tries to sell Next behind Steve's back.

39:39Steve Jobs:And so something that's obvious to everybody around Steve, that we have to stop selling hardware and just transform into a software company, is still something that Steve will not accept. Finally, the financial situation of Next gets so bad that he has no other choice. And I think this next section gives you insight into Steve understood how bad this was.

39:56Geoffrey Cain:because he's trying to recruit yet another CFO, and he refuses to let the incoming CFO see Next's books. And he says he told him that he wouldn't reveal his accounting books

40:08Steve Jobs:because he wanted to hire risk takers. Steve insisted that everything was fine, and this guy named Marcel believed him. Then Marcel gets hired, dives into the books, discovers the devastating truth that Next was effectively bankrupt, that Steve had been living in a financial fantasy, and then he quits. And it gets so bad that by December 1992, Steve has to pick up the phone and call Canon yet again. And by this time, they'd already poured$140 million into the company. And Steve says, if you don't deposit another check for$20 million by Monday, I'm going to shut the doors. In exchange for the$20 million, Canon would purchase Nex's hardware division.

40:44Steve Jobs:Nex would get the cash, which would give it enough runway to survive, and then hold on to its software operation. This is so important because this final failure of Steve having to relinquish

40:55Geoffrey Cain:what he loved the most, which is building hardware. This is when we, again, we're four years away

41:00Steve Jobs:from when Apple's gonna buy next. This is when Steve starts to change and to transform. And so it says, those who were closest to Steve noticed something changing. The pattern that had defined him for years

41:11Geoffrey Cain:was finally breaking apart. The wild emotional swings that colleagues had learned to brace for. Up, down, up, down. The crashes seemed to hurt more and the highs couldn't lift him as high. Each betrayal left him rawer than the last.

41:28Steve Jobs:Daniel Lewin pointed to a passage in Ernest Hemingway's novel, The Sun Also Rises, that captured what everyone was witnessing. How did you go bankrupt? One character asked another. Two ways. Gradually, then suddenly. Steve's transformation was following the same excruciating arc. And so the news of this failure is all over the media. And here's an example of what was being written about Steve Jobs at this time. Sometimes it's hard to tell whether Steve Jobs is a snake oil salesman or a bona fide visionary, a promoter who got lucky or the epitome of the intrepid entrepreneur. Jobs' dream of building another great computer manufacturer like Apple is dead, dead, dead.

42:08Steve Jobs:Steve had been trying to recreate past glories at Apple when the rest of the world had moved on. He took that lesson to heart. When the world changes, you have to change with it. And once they lean into what they're best at, this is the first time they actually have any kind of success. And the problem was, Steve was bored out of his mind. And so it says, even if Boring could pay the bills, it couldn't hold Steve's interest. As the company pivoted to enterprise software, Steve's attention wandered. He began stepping away from Next. He let us manage the company. It was a major shift for an infamous micromanager.

42:40Steve Jobs:That year, the company achieved its first profit of a million dollars on revenues of almost 50 million. After nine years of losses, Next was finally stepping into the black. And the previous year, Steve actually recruited Larry Ellison to join Nex's board, and he gave them some really good advice, which they follow. And Larry Ellison said, 70 % of the IT projects fail in the world. Larry advised the Nex team to start a professional services group to ensure that the success rate is 100 % on your projects.

43:08Geoffrey Cain:So Nex did exactly that, establishing an internal group to consult on company projects. It was a valuable addition. It gave us insights into what our competitors were doing. The group also came up with ideas for new products. Next survived the year 1994 by building practical solutions to mundane problems.

43:27Steve Jobs:So it's through this invention of new products that actually gets Steve excited again. So inside Next, they developed this thing called Web Objects. And in 1995, this idea was a revelation. So at the time, each and every web page was hand coded, resulting in an identical experience for every visitor. That made building the online future impossible.

43:45Geoffrey Cain:Every time an online store had a price change, you'd have to touch 10 ,000 web pages to rebuild. That's untenable.

43:52Steve Jobs:And that is what WebObjects would fix. He gathered a company together in an auditorium. We have this new technology called WebObjects, he announced. The internet is going to be the most important technology transformation of the next 15 or 20 years. We're going to burn the boats. The future of this company is WebObjects. Steve followed Larry Ellison's playbook. We are absolutely moving into the consultant selling mode Steve announced.

44:12Geoffrey Cain:Following in the footsteps of Oracle would be the best example. Instead of simply selling WebObjects software licenses, Next would deploy teams of consultants to work on site with clients for months at a time, implementing and customizing web objects for each company's specific needs. This approach would generate much higher revenue per customer and deeper client relationships. Steve had struck a chord. Everybody was lining up. We had meetings every 15 minutes with big customers. And one of the first people to see this potential was actually Michael Dell.

44:45Steve Jobs:And so it says Michael wanted to build a website that would allow customers to configure their PCs online. They could choose processors, memory features, etc. Then check out with a credit card. A complete vision for e-commerce before e-commerce existed. When he asked IBM to build a website, the company quoted Michael a two-year timeline. Then he tried next.

45:04Geoffrey Cain:They said we can get that ready for you in one week. Within a year, Dell's web objects powered online sales exploded, growing to$3 million a day and quickly becoming the core of the company's distribution strategy.

45:17Steve Jobs:Dell represented the next generation of tech manufacturers. The web was a clean slate that would place the aging behemoths and nimble challengers back at the same starting line together. So the person that worked with Steve Jobs for the longest consecutive time was Ed Catmull, the co-founder of Pixar. I think it was for 24 straight years. I actually just met Ed Catmull. I spent a few hours with him. I actually got to go to his house. You probably already know this, but I have another podcast besides Founders. That podcast is just my name. So if you just search David Center, if you're not already following that podcast, you should because my conversation with Ed Catmull will be out in a few weeks.

45:50Steve Jobs:And he told some incredible stories in the conversation we had about working with Steve Jobs. And there's incredible stories about Ed working with Steve Jobs in this book. So I want to read this section to you. Throughout their partnership, Ed had developed a unique approach to working with Steve that It avoided the explosive confrontations others experienced. I never had one of these loud yelling arguments with Steve ever. The secret is understanding how Steve's mind work.

46:13Geoffrey Cain:Steve did not want to be guided in his thinking. He wanted to know what the facts are on which to base something. Ed once had a disagreement with Steve that stretched across three months. He was just wrong, Ed said. The fact that he had a powerful personality and he could think and talk faster than I could didn't make him right. Rather than escalate, Ed would present his case and then wait. eventually Steve would say, oh, you're right. And that was the end of the discussion. The transformation was real and lasting. This is such an important part. This is, I love this section. This is, again, one of the most important parts of the book, the whole point of you and I sitting and talking about this today.

46:49Geoffrey Cain:The people who, this is what, this is Ed Catmull talking. The people who were with Steve by the end of 95 pretty much stayed with him for the rest of his life. By November, 1995, Steve had become the kind of leader people wanted to follow long term. And he was humbled. Now listen to the new Steve Jobs. There's no way the Steve that got kicked out of Apple would say what this Steve Jobs is going to say right here, which is directly related to the point

47:17Steve Jobs:that Ed Catman was making above. So this is what Steve said. If you don't treat talented workers right, they can go get another job in 10 minutes.

47:25Geoffrey Cain:So a strange thing happens, which is the sort of the hierarchy of power inverts and the CEO is actually at the bottom. So I sort of feel like I work for most of these people because they're the ones that are doing all the brilliant work.

47:39Steve Jobs:Now, the timing of this is so important because as Steve is transforming, as Next is now in the black, at the exact same time, Gil Emilio is the CEO of Apple and they are bleeding money. They can no longer create their own operating system. And Gil realizes we have to go out and buy another operating system. And there's two great sentences here that I think really summarizes the problem that Apple's having at this time. So it says, Apple had no hits of its own to speak of.

48:07Geoffrey Cain:It produced a mess of middling products with bewildering names like CyberDog, AppleScript, HyperCard, FireWire, OpenDoc, PowerPC. The old Apple had made two things, the Apple II and the Macintosh, and they had made them well. And here's this remarkable twist of fate that changes history. There is a product manager at Next, this guy named Garrett Rice. He's reading in the newspaper that Apple was prepared to spend tens of millions of dollars on this other operating system called B,

48:38Steve Jobs:which they thought was just a pale imitation of Nexus technology. And so Garrett Rice asked the question, why don't we just frickin' call Apple?

48:46Geoffrey Cain:That's what he says. If Apple was looking at B, why not just buy the real thing? Garrett believed that Next stood on a dragon's horde of technology that everyone seemed to be overlooking. So Garrett calls this woman, Ellen, who's the CTO of Apple at the time, and pitches her on her answering machine. He did not focus on Steve. He instead talked about Nexus technology. And he argued that if Apple wanted to be thorough, it should at least look at Next. Ellen, who again is the CTO of Apple, said, I hadn't even thought about that. Imagine how different history could be if Garrett Rice didn't ask the question, why don't we just freaking call Apple?

49:23Steve Jobs:And so once Steve hears about this, he does the smart thing. he calls Gil directly and gives him a simple message. BOS was the wrong choice for Apple. Gil then in turn invites Steve to come make his case in person. And regardless of the time and

49:40Geoffrey Cain:place in Steve's job's life history, one place you don't want to be at is in a presentation duel with him because Steve's invited to pitch and the founder of BOS is invited to pitch.

49:49Steve Jobs:And look at the contrast in what they did. So it says Steve walked into Gil's conference room and he pitched Apple's leadership on an entirely new strategy built around Next. As he began to detail Next

50:00Geoffrey Cain:Step's innovative features, Gil noticed something different about Steve. He wasn't the same person as the self-absorbed entrepreneur Gil had once known. In his place stood a very pragmatic, specific, and precise executive. When the time came for a technical demo, he turned the floor

50:20Steve Jobs:over to Avi instead of doing it himself. This is Avi Tavani, I'm most likely mispronouncing his name, but he was the head of software engineering at Next.

50:27Geoffrey Cain:So it says, at a time when most personal

50:29Steve Jobs:computers struggled to play a single video file smoothly, Avi showed that Next Step could handle them and more. We had productivity apps, we had games, we had QuickTime movies, four of them on the screen, 3D models all going at the same time. The Apple team knew they were witnessing the future. And when Apple engineers would question or bring up concerns, it says Steve did not dismiss their concerns as he might have in the past. He acknowledged them, suggesting that they were the kind of solvable engineering problems that accompany all technological advances. Steve was very smooth. After a little more than an hour, the next team left the room.

51:02Steve Jobs:They had made a strong impression. The founder of B walks in and he pursued a different approach.

51:07Geoffrey Cain:He hadn't brought anyone else from his team. He wasn't carrying a laptop. In fact, he had prepared no presentation whatsoever. Because the two teams had been kept separate, he had no idea what Steve had just done. His pitch was, your technical people have met with my technical people,

51:23Steve Jobs:so you know the strengths of our solution. Steve had demonstrated his product's superiority through working code. The founder of B offered only entitled assumptions. Three days later, Steve invited Gil to his home, and they started the negotiation to purchase next. Steve opened, offering the company at$12 a share, which would have made the total acquisition price$500 million. $12 isn't possible, Gil told him. Well, what's the number you're looking at, Steve asked. I think I have a shot at convincing the board to take$10. I don't think I can get a penny more than that. The negotiation turned out to be speedy.

51:56Steve Jobs:Steve didn't care about squeezing every penny from the deal. The negotiation was different from any Gil had experienced. The traditional scene, a corporate boardroom, and the typical players, corporate lawyers, were replaced with two men haggling in a kitchen. Later, they called it the fastest acquisition I've seen in the world. The whole pricing discussion took five minutes. Even as he worked to seal the deal, Gil's allies gave him stark warnings about what Steve's return might mean for his own leadership. I remember sitting in a meeting and saying to Gil, if you buy next, Steve will end up running the company.

52:27Steve Jobs:But Gil didn't understand how much firepower Steve had. Either that, or he felt he could harness it. And you can't. Steve doesn't know how to do anything but lead. An Apple alumnus who had known Steve since the early 80s put it more colorfully. So this guy calls Ellen, who is the CTO of Apple, and says, Ellen, Steve is going to fuck Gil so hard his eardrums will pop. Gil felt he could hold his own against Steve. Next executive stock, Gil failed to grasp what Steve's 12 years in the wilderness had given him. Steve came away not only with better skills for building technology, but better strategies for getting exactly what he wanted.

53:07Steve Jobs:This is the crux of the book. I'm going to read it again. Next, executives thought Gil failed to grasp what Steve's 12 years in the wilderness had given him. Steve came away not only with better skills for building technology, but better strategies for getting exactly what he wanted. At 43 years old, Steve had returned to the former home that had thrown him out. Apple was his again. And this time, he was ready.