The Steven Jobs Reality Distortion Field

Discouraging Results at Next Inc

By Julie Pitta

April 29, 1991

UNLIKE A LOT of other business people, Steven P. Jobs can't complain about the way the media have treated him. He was young, he was iconoclastic, he wasn't buttoned-down. All that made good copy. First there was the portrait of Jobs the entrepreneur who helped usher in the age of personal computing. Then there was Jobs the cofounder of Apple Computer, earning sympathy as he was shoved aside in 1985 by the man he hired, John Sculley.

More recently, as the dismal sales at Jobs' new computer-making venture, Next, Inc., have become apparent, journalists have still been forgiving. Didn't Jobs score a coup by persuading IBM to license his NextStep user interface? And, even if Next is having trouble selling its machines to business, isn't it at least "scor{ing} big with campuses," as one recent headline trumpeted?

Here's another view of Steve Jobs: Sculley was right after all. Jobs is a terrible manager. And his technological sense is not infallible: Where he had a totally free hand (in the Lisa project at Apple), he produced a failure. Now, in complete control of Next, he has made fundamentally wrong decisions that could well doom the venture.

None of this is to deny Jobs the credit due him for what he did in cofounding Apple. But there are very few miracle workers in the business world, and it is now clear that Steve Jobs is not one of them.

His hero status following the breakup with Sculley, a beverage marketer, helped him raise a seemingly ample pot of money to fund Next. Ross Perot contributed $20 million for a 12.5% share, and later Canon Inc. put in $100 million for 16.7%. Other money came from Stanford University and Carnegie-Mellon. Jobs put in $12 million of his own, retaining a majority of the stock.

Now, three years after Next's workstation debuted in a splashy press event, the 36-year-old Jobs is in serious trouble. Next has sold only 15,000 machines in its history, according to Vicki Brown, vice president at market researcher International Data Corp., little more than 10% of the volume Sun Microsystems does in a single year. A large but unknown fraction of Next's sales have been at steep discounts to schools.

Jobs insists that his machine is gaining momentum in the market: "We have had a chance to suit up against Sun 15 times, and we've won all 15," he says, although he declines to name these customers. Doubt is cast on the accuracy of his numbers by the discrepancy between Next's claim that it shipped 8,000 workstations in the March quarter and impartial International Data's count of less than 4,000. When pressed, Jobs concedes that he actually shipped about 6,500 machines, the rest being upgrade boards sold to existing users. Omitted from the press release gushing about the 8,000 units: the fact that shipments in the last four months of 1990 were a meager 1,500.

Next needs more sales revenue badly. Costs at the Redwood City, Calif. company include a payroll of 550. Then there are lease payments on the lavish 200,000-square-foot headquarters building, built alongside a sailboat-lined marina to Jobs'exacting specifications when Next outgrew the first headquarters in Palo Alto.

If many startups are done in garages or lofts, Next was born in a mansion. The new building features bleached oak floors, designer furniture and a stylishly equipped kitchen resembling a cafe. Next also has taken on unanticipated costs in the form of more sales-people, because Businessland, once Next's exclusive retailer, was unable to move enough machines.

Next's highly automated, spotless showcase factory in Fremont, Calif. is designed to handle $1 billion of manufacturing volume a year; Next's product sales since its founding are probably less than a tenth of that sum. Bernard Lacroute, a partner with venture firm Kleiner Perkins Caufield & Byers, estimates that Jobs could run out of cash in another year unless sales pick up: "He goes first class. The manufacturing is very expensive."

Jobs dismisses the rumors that he is looking for another angel to keep his company going. But he concedes that he needs a big bulge in sales--and quickly. "Few companies get a second chance," concedes Next's chief financial officer, Susan Kelly Barnes, a Jobs associate since his Apple days. "We'd be pretty arrogant to think we'll get a second or third." Even Jobs, whose optimism verges on the fanatic, calls the next year "make or break" for his six-year-old startup.

Where did Jobs go wrong? He is an impassioned leader whose personality and reputation lend him charisma, but he tends to get impassioned about the wrong things. The perfectionist Jobs hired a West German designer to come up with the machine's sleek black magnesium casing, and he is said to have paid $100,000 for Next's pretty logo. But, while preoccupied with the appearance of his computer and his headquarters, he overlooked the inner workings of the machine.

The first model was expensive and slow; it was a graphics machine without a color display; and it lacked much in the way of packaged software. It didn't have a built-in floppy disk drive, an immense drawback to business users. Why no floppy? Because Jobs decreed that the slot would clutter up the machine. Some of these problems have been rectified. The new machines have a floppy drive, a color option and software available from WordPerfect and Lotus.

Yet the new Next, with an $8,000 list price for a color machine and 15 million instructions per second of processing speed, still uses an off-the-shelf Motorola processor rather than a more powerful reduced-instruction-set processor of the sort Sun puts in its workstations.

"The aesthetics of his machines always make statements," says Apple executive Deborah Coleman, who worked closely with Jobs during his Apple days. "He obsesses over details: No white is too white for Steve Jobs, whether you're painting a wall, packing a machine with styrofoam pellets or picking out the company's stationery. Where he waffles is on the big decisions."

True to his visual talents, Jobs put considerable effort into NextStep, the software that displays menus and symbols on the screen. Jobs seemingly scored a success in 1988 when IBM licensed NextStep for use in IBM computers. It is possible that IBM's motive was to cool down Jobs' archenemy William Gates III of Microsoft, whose dominance of the software business is worrisome to IBM. Three years after the deal, IBM has yet to introduce a computer with Jobs' software.

"Steve's problem is his blind spots: It's what we at Apple called the Steven Paul Jobs reality distortion field," says Jean-Louis Gassee, Apple's former head of research and development. This weakness is quite common among people to whom great success comes early. They begin to believe what they read about themselves in the journals.

At Apple, Jobs' talents were counterbalanced by those of Stephen Wozniak, a technician who designed the first Apple in his garage. On his own, Jobs has a tendency to surround himself with people who, though talented, aren't likely to question his vision. "A guy like Steve is able to generate momentum and speed, but go in the wrong direction," says Apple veteran William Hawkins III, who now runs electronic games company Electronic Art. He adds: "Steve is not a particularly good listener."

Perhaps too much was expected of Steve Jobs. "There are a lot of people who do one incredible great thing and then we never hear from them again," says Apple's Coleman. "J.D. Salinger wrote Catcher in the Rye, but what else has he done? Not everyone can be a Faulkner, Fitzgerald or a Joyce."

ILLUSTRATION: portrait CAPTION: Steven Jobs. (portrait)

Copyright Forbes Inc. 1991