Lessons For New Apple CEO Ternus In Steve Jobs's Wilderness Years

One of those firms was O'Connor & Associates, a Chicago high-speed trading shop. NeXTSTEP let them write proprietary trading software fast, which gave them an edge on Wall Street. One day a principal from O'Connor showed up unannounced at NeXT's offices in Redwood City, California, and asked to see Phil Wilson, NeXT's human resources chief.

He closed the door.

“Phil,” he said,“you have to help me make Steve understand the value of NeXT computers to us is not in the hardware, it's in the software.”

O'Connor had done the math. Without NeXTSTEP, they'd lose their trading advantage, and without the NeXT computer, they'd lose NeXTSTEP. They were so dependent on the software that at the end of every quarter they called NeXT and ordered the most expensive workstations on the price list, overspecced, overpriced, whatever it took.

“O'Connor basically made payroll,” Mike Slade, NeXT's marketing VP at the time, told me. The firm was propping up the hardware business just to keep the software alive.

Phil Wilson went back to his office and wrote Jobs a long email laying it all out. NeXT should abandon hardware. Become a software company. The customers were telling them where the value was.

Jobs wrote back,“You're an HR guy.” Then a subtle threat. If NeXT became a software company, he wrote, it would have to downsize,“and we won't need a guy like you.”

It took Jobs two more years and two more rounds of layoffs and a near-bankruptcy to figure out what he needed to hear. On a day employees called“Black Tuesday” in February 1993, Jobs finally shut down the hardware division, laid off most of his employees, and sold what was left to Canon. Three years later, he told Terry Gross on Fresh Air that the door to start a new hardware company had closed before NeXT ever opened. He just hadn't seen it at the time.

Here's what I want to be careful about, because it's easy to draw the wrong lesson from this. Jobs's original NeXT vision, hardware and software built together as one integrated platform, was prescient. That vision is literally what saved Apple after he returned in 1997 and was later appointed CEO. The iPhone is the purest expression of it, hardware and software bound together, designed as one object, by a company that owns both stacks.

The mistake at NeXT wasn't betting on hardware-plus-software. It was insisting on selling that vision on Jobs's terms, in Jobs's form factor, at Jobs's prices, while customers were telling him what they actually needed was the piece they could afford and use. He wanted to show them his vision for the future, but they wanted a tool that solved their problems right now. It took him most of a decade to see that those were different things.