k is not about how to come up with a brilliant business idea, but about how to organize the work of a company so that its employees function as a genuine team and are capable of implementing a worthwhile idea. Experience shows that the brilliance of an idea is undoubtedly a plus, but if you look around carefully, you will find that most flourishing companies are not actually based on any revolutionary idea. What is revolutionary about McDonald's fast food, Starbucks coffeehouses, or products sold by the majority of chain supermarkets? Every business has its own expertise, of course, but the most successful companies offer their clients fairly ordinary products. Why then, of hundreds of competing fast-food chains, have only a few achieved great success, and of hundreds of grocery stores, why have only a few grown into large chains? In most cases, the secret is not in some special know-how or secret formula; it is in how a company is run.
It’s been twenty years now since my friends and I opened our first company. We were extraordinarily enthusiastic about having our own business and felt like travelers setting out in search of adventure. We all were in our early twenties, recently graduated from a higher education military institution, and knowledgeable about computer technology. The computer industry was just beginning to take shape, and it seemed to us at the time that our knowledge and skills were all we needed to create a successful business. Of course, we were apprehensive about the obstacles we faced, but the prospects were alluring. We had no money to buy ourselves equipment to show to clients, to create a minimum inventory, or to fulfill the other requirements of an official Apple dealer in Ukraine. We therefore decided to begin by selling users and official dealers all sorts of auxiliary devices such as external hard drives, scanners, and software.
We decided to deliver to order: We simply took orders, accepted prepayment, and then supplied whatever was needed. There was no talk at all of any sort of serious planning; we simply grabbed any order on which it was possible to turn a profit. No matter what the client wanted – instructional programs for preschool children, a professional scanner for a publishing house, a portable printer or a batch of modem cables – we took on the order. We very quickly earned the reputation of being fellows who could get anything for Macintosh computers. We found a suitable supplier in the United States – a small computer firm that bought everything we needed from various manufacturers and shipped it to us. Then we would deliver these goods to our customers. Our own equipment, meanwhile, consisted of nothing but a single computer on its last legs (good only for printing documents), a fax machine, and an electric kettle. A company that procured equipment used by oil refineries gave us a room in its office.
After several months of working by the maxim “We get what you need,” we already had good connections with authorized dealers, and thanks to this, we were able to land our first big fish. Even before we were an authorized Apple dealer, we purchased a shipment of computers from a dealer – a shipment that the customer had for some reason refused to pay for – and we sold that lot to another official dealer. Payment for these computers went from Switzerland to Turkey for some reason, in exchange for Hilal chocolates. Our profit from this transaction consisted of two computers, which became our primary asset and served us for many years to come.
After a while, we became an authorized dealer, and this enabled us to obtain new clients, which at the time were mainly western companies and organizations that had opened offices in Kiev. They were importing a significant portion of their computer equipment from abroad. The computers were mostly old and arrived the worse for wear, and they needed servicing and repair, so we earned a lot by providing such maintenance. Laser printers back then were very expensive and frequently broke down, and spare parts for them were expensive, too. So I simply went to a worker I knew at one of the Kiev metalworking plants and ordered a bag of spare printer gear wheels from him for twenty dollars, which enabled us to repair laser printers at a staggering profit. Electronics specialists whom I knew would repair computer power sources, which saved us from waiting a month for deliveries of spare parts and enabled us to solve a client’s problem quickly and earn something in the process.
Within a year is we rented separate premises in the city center and opened our own office. We had no money for redecorating, to be sure, so my partners and I refurbished the place ourselves, and we were able to buy office furniture for a song from a failed business. There was no money for an alarm system or guards for the office, either, and for several months my partners and I took turns spending the night in the office, doing guard duty. Business proceeded, and after a while, we began to earn good money on deliveries of desktop publishing systems, video processing, and computer animation. We were incredibly excited by our success, our profits were growing, the company gradually began to expand, and our first employees were hired. In our very first year as an Apple authorized reseller, we were first in the country for quantities of equipment supplied. That moment was the peak of our enthusiasm for the future of the company. But even then the first signs of impending problems began to appear.
From the first day of the company’s operations, my partners put me in charge of management, but I had no idea what it meant to run a company. It seemed to me that it took just a few things: agreement among partners and employees, personal competence, and personal example. But when we hired our first employees, I found that it was also necessary to allocate areas of responsibility, plan the work, and demand high quality performance.
Until then, the company had been essentially a sort of club, where everyone chose his favorite area of activity and pursued self-fulfillment in that area. And that was great! After all, if a person chooses his own area of activity, he usually acts it with the utmost responsibility. Look at how hard a person can work tending his own garden or engaging in his favorite hobby. It does not even occur to him that he may have worked too much or been paid too little for this work. When a person freely chooses the work that he is going to do, he feels really good about it and does his best. If he is forced to do something that he finds useless and unnecessary and does it under duress, he will, at the very least, be unhappy with the work. His productivity will also be very low; there is a good reason why they say that the lowest labor productivity was in slave-owning societies and prisons. Wise parents know that if they force a child to wash the dishes, that child will come to hate washing dishes more and more with each passing day and will, at best, grow up and hire himself a maid, and is at worst – is will spend his whole life with mountains of dirty dishes piled up in the kitchen. To get him a child to wash dishes on his own initiative, it is necessary first and foremost to inculcate a desire on his part to do so, to make an interesting game of it, and then the dishes will be clean and the child content, as well.
Managers often forget that a company’s most valuable asset is the creativity of its employees and their earnest desire to work. It must be noted that is actually not so much that managers forget to motivate workers to be productive; they just don’t know how to do it. Areas of responsibility need to be clearly defined, after all, and not only the dream jobs must be allocated but unpopular work, as well. So it was that in my first computer company I came up against the need both to clearly allocate functions and, strange as it may be, to require positive results from employees and partners alike. At the same time, I had no precise idea whatever of what the subdivisions and the functions should be, and therefore, in attempting to bring order to this work, I encountered many problems. And when I tried to manage the work of my partners, I came up against the idea of universal equality, which thwarted my attempts to impose order on their work. To some extent, I felt like a ceremonial VIP – formally acknowledged as chief executive but effectively without the power to insist on achieving positive results, since we were all equal partners.
By this time, the company was already three years old, we began to contend with tough competitors, and customers were becoming more demanding. In order to keep up and to develop, we needed more than just knowledge of computer technology and the desire to work. As in any other area of activity, increased competition led to decreased profitability. The standard markup when selling Apple computers was 32 percent when we began our work but fell to one quarter of that over these years. Of course, demand also grew during this time, and gradually this technology went from something exotic to a popular tool for desktop publishing. But in order to develop in this market, we needed real organization and effectiveness. We had no precise division of labor, and no system for planning and monitoring the execution of plans, and
