Steve Jobs was 28 years old in 1983 and already recognized as one of the most innovative thinkers in Silicon Valley. The Apple (AAPL) board, though, was not ready to anoint him chief executive officer and picked PepsiCo (PEP) President John Sculley, famous for creating the Pepsi Challenge, to lead the company. Sculley helped increase Apple's sales from $800 million to $8 billion annually during his decade as CEO, but he also presided over Jobs' departure, which sent Apple into what Sculley calls its "near-death experience." In his first extensive interview on the subject, Sculley tells editor Leander Kahney how his partnership with Jobs came to be, how design ruled—and still rules—everything at Apple, and why he never should have been CEO in the first place.

You talk about the "Steve Jobs methodology." What is Steve's methodology?



What makes Steve's methodology different from everyone else's is that he always believed the most important decisions you make are not the things you do, but the things you decide not to do. He's a minimalist. I remember going into Steve's house, and he had almost no furniture in it. He just had a picture of Einstein, whom he admired greatly, and he had a Tiffany lamp and a chair and a bed. He just didn't believe in having lots of things around, but he was incredibly careful in what he selected.

Everything at Apple can be best understood through the lens of designing. Whether it's designing the look and feel of the user experience, or the industrial design, or the system design, and even things like how the boards were laid out. The boards had to be beautiful in Steve's eyes when you looked at them, even though when he created the Macintosh he made it impossible for a consumer to get in the box, because he didn't want people tampering with anything.


Now if you leap forward and look at the products that Steve builds today, today the technology is far more capable of doing things; it can be miniaturized; it is commoditized; it is inexpensive. And Apple no longer builds any products. When I was there, people used to call Apple "a vertically integrated advertising agency," which was not a compliment.

Actually today, that's what everybody is. That's what [Hewlett-Packard (HPQ)] is, that's what Apple is, and that's what most companies are, because they outsource to EMS—electronics manufacturing services.

Isn't Nike (NKE) a good analogy?



The Mac factory was exactly like that. They didn't have colored uniforms, but it was every bit as elegant as the early Sony factories we saw. Steve's point of reference was Sony at the time. He really wanted to be Sony. He didn't want to be IBM (IBM). He didn't want to be Microsoft (MSFT). He wanted to be Sony.

The Japanese always started with the market share of components first. So one would dominate, let's say, sensors, and someone else would dominate memory, and someone else hard drives and things of that sort. They would then build up their market strengths with components, and then they would work toward the final product. That was fine with analog electronics, where you are trying to focus on cost reduction—and whoever controlled the key component costs was at an advantage. It didn't work at all for digital electronics, because you're starting at the wrong end of the value chain. You are not starting with the components. You are starting with the user experience.

And you can see today the tremendous problem Sony has had for at least the last 15 years as the digital consumer-electronics industry has emerged. They have been totally stovepiped in their organization. Sony should have had the iPod, but they didn't—it was Apple. The iPod is a perfect example of Steve's methodology of starting with the user and looking at the entire end-to-end system.

I want to ask about Jobs' heroes. You say Edwin Land was one of his heroes?


And Steve said, "Yeah, that's exactly the way I saw the Macintosh." He said, "If I asked someone who had only used a personal calculator what a Macintosh should be like, they couldn't have told me. There was no way to do consumer research on it, so I had to go and create it, and then show it to people, and say now what do you think?"

Both of them had this ability not to invent products but to discover products. Both of them said these products have always existed—it's just that no one has ever seen them before. We were the ones who discovered them. The Polaroid camera always existed, and the Macintosh always existed—it's a matter of discovery. Steve had huge admiration for Dr. Land. He was fascinated by that trip.



You say in your book that first and foremost you wanted to make Apple a "product marketing company."


One of the things that fascinated him: I described to him that there's not much difference between a Pepsi and a Coke, but we were outsold 9 to 1. Our job was to convince people that Pepsi was a big enough decision that they ought to pay attention to it, and eventually switch. We decided we had to treat Pepsi like a necktie. In that era people cared what necktie they wore. The necktie said: "Here's how I want you to see me." So we have to make Pepsi like a nice necktie. When you are holding a Pepsi in your hand, it says, "Here's how I want you to see me."




We did it just as color television was coming in and when large-screen TVs were coming in, like 19-inch screens. We didn't go to people who made TV commercials, because they were making commercials for little tiny black-and-white screens. We went out to Hollywood and got the best movie directors and said we want you to make 60-second movies for us. They were lifestyle movies. The whole thing was to create the perception that Pepsi was No. 1 because you couldn't be No. 1 unless you thought like No. 1. You had to appear like No. 1.

Steve loved those ideas. A lot of the stuff we were doing and our marketing was focused on when we bring the Mac to market. It has to be done at such a high level of perception of expectation that he will sort of tease people to want to find out what the product is capable of. The product couldn't do very much in the beginning. Almost all the technology was used for the user experience. In fact, we did get a backlash where people said it's a toy. It doesn't do anything. But eventually it did as the technology got more powerful.

Apple is famous for the same kind of lifestyle advertising now. It shows people living an enviable lifestyle, courtesy of Apple's products. Hip young people grooving to iPods.

I don't take any credit for it. Steve's brilliance is his ability to see something and then understand it and then figure out how to put it into the context of his design methodology—everything is design.

An anecdotal story: A friend of mine was at meetings at Apple and Microsoft on the same day. And this was in the last year, so this was recently. He went into the Apple meeting (he's a vendor for Apple), and as soon as the designers walked in the room, everyone stopped talking, because the designers are the most respected people in the organization. Everyone knows the designers speak for Steve because they have direct reporting to him. It is only at Apple where design reports directly to the CEO.



He's a minimalist and constantly reducing things to their simplest level. It's not simplistic. It's simplified. Steve is a systems designer. He simplifies complexity.

If you are someone who doesn't care about it, you end up with simplistic results. It's amazing to me how many companies make that mistake. Take the Microsoft Zune. I remember going to [the Consumer Electronics Show] when Microsoft launched Zune, and it was literally so boring that people didn't even go over to look at it. … The Zunes were just dead. It was like someone had just put aging vegetables into a supermarket. Nobody wanted to go near it. I'm sure they were very bright people, but it's just built from a different philosophy. The legendary statement about Microsoft, which is mostly true, is that they get it right the third time. Microsoft's philosophy is to get it out there and fix it later. Steve would never do that. He doesn't get anything out there until it is perfected.


It's O.K. to be driven a little crazy by someone who is so consistently right. Looking back, it was a big mistake that I was ever hired as CEO. I was not the first choice that Steve wanted to be the CEO. He was the first choice, but the board wasn't prepared to make him CEO when he was 25, 26 years old. They exhausted all the obvious high-tech candidates to be CEO. … Ultimately, David Rockefeller, who was a shareholder in Apple, said let's try a different industry and let's go to the top headhunter in the United States who isn't in high tech: Gerry Roche.





They came back and said it doesn't make any difference which RISC architecture you pick, just pick the one you think you can get the best business deal with. But don't use CISC. CISC is complex instruction set. RISC is reduced instruction set.

So Intel (INTC) lobbied heavily to get us to stay with them … [but] we went with IBM and Motorola (MOT) with the PowerPC. And that was a terrible decision in hindsight. If we could have worked with Intel, we would have gotten onto a more commoditized component platform for Apple, which would have made a huge difference for Apple during the 1990s. So we totally missed the boat. Intel would spend $11 billion and evolve the Intel processor to do graphics … and it was a terrible technical decision. I wasn't technically qualified, unfortunately, so I went along with the recommendation.


I wanted to leave Apple. At the end of 10 years, I didn't want to stay any longer. I wanted to go back to the East Coast. I told the board I wanted to leave, and IBM was trying to recruit me at the time. They asked me to stay. I stayed, and then they later fired me. I really didn't want to be there any longer.

The board decided we ought to sell Apple. So I was given the assignment to go off and try to sell Apple in 1993. So I went off and tried to sell it to AT&T (T), to IBM, and other people. We couldn't get anyone who wanted to buy it. They thought it was just too high risk, because Microsoft and Intel were doing well then. But if I had any sense, I would have said, "Why don't we go back to the guy who created the whole thing and understands it? Why don't we go back and hire Steve to come back and run the company?"

It's so obvious, looking back now, that that would have been the right thing to do. We didn't do it, so I blame myself for that one. It would have saved Apple this near-death experience they had.

I'm actually convinced that if Steve hadn't come back when he did—if they had waited another six months—Apple would have been history. It would have been gone, absolutely gone.



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