Steve Jobs Returns and Apple Learns to Say No

The story

Steve Jobs co-founded Apple in 1976, but in 1985 he was pushed out after a power struggle. He went on to start a new computer company called NeXT. Meanwhile, Apple struggled. By the mid-1990s, it was losing customers to cheaper computers running Microsoft Windows. Its sales fell from about $9.8 billion in fiscal 1996 to about $7.1 billion in fiscal 1997. It lost about $816 million in 1996 and about $1.04 billion in 1997.

Part of the trouble was that Apple made too many products. It sold many versions of the Macintosh computer, plus printers, a digital camera and the Newton handheld. Even people inside the company had a hard time explaining the differences. Apple also had 16 separate advertising budgets, which Jobs later combined into a single, stronger one. In February 1997, Apple bought NeXT for about $427 million, and Jobs came back as an adviser. In July, CEO Gil Amelio left after another large loss. On September 16, 1997, Apple named Jobs interim CEO. People started calling him the "iCEO."

Jobs moved fast. One famous story is that he asked managers a simple question about all those products: which ones should I tell my friends to buy? They couldn't give him a simple answer. So he drew a grid with four boxes. One side said consumers and professionals. The other said desktops and laptops. Apple would make one great computer for each box, and that was it. Most other products were dropped, including the Newton and the printers. Apple cut thousands of jobs as well. Jobs later summed up his thinking this way: "Deciding what not to do is as important as deciding what to do."

Jobs also made a surprising deal with Microsoft, Apple's longtime rival. At the Macworld show in Boston in August 1997, he announced that Microsoft would invest $150 million in Apple by buying shares that carried no voting power. Microsoft promised to keep making Microsoft Office and its Internet Explorer browser for the Mac for five years. In return, Apple made Internet Explorer the default browser on Macs, and the two companies settled long-running legal disputes and agreed to share patents. When Jobs announced it, some Apple fans in the audience booed. But the money mattered less than the message: customers and software makers could trust that the Mac would survive.

Focus started to pay off quickly. In 1998, Apple introduced the colorful iMac for the consumer desktop box of the grid, and it became a hit. Apple returned to profit in early 1998 and earned about $309 million for its 1998 fiscal year. Jobs later said that when he came back, Apple had been about 90 days from running out of money.

The rescue of 1997 was the start of one of the greatest turnarounds in business history. Apple later went on to create the iPod, the iPhone and the iPad. But those famous products came after a less glamorous first step: cutting back, choosing what matters most, and doing that one thing really well.