The Man Who Made Apple Famous On The Danger Of Frothy Startup Narratives

Regis McKenna is Silicon Valley’s original storyteller, the closest thing it has ever had to a shaman-in-residence. McKenna, 77, had a notable hand in shaping the strategy and marketing of some of tech’s biggest companies, including National Semiconductor, Intel, Genentech, Electronic Arts, and perhaps most notably, Apple. All are companies that started small, grew big, and had to wrestle painfully with their own identity along the way. McKenna consults occasionally, often for startups, and knows every step of the Silicon Valley corporate assembly line, from university innovation competitions to the corner office of tech behemoths. He recently spoke with editor-at-large Rick Tetzeli about corporate narratives in Silicon Valley:

Have companies in the Valley always had some sort of corporate narrative?

They have, and until recently the best ones have adhered to this rule: History matters. That’s true for the Apples, Intels, Oracles, Ciscos, and so on. On the other hand, we watched HP over the past 15 years forget who they were. They put people on the board who had no connection to the history of the company, and they weren’t really investing in R&D, when HP Labs had produced so much innovation. The people that came in weren’t connected to the history in any way, shape, or form. You need some history, so that you can always dig back down and say, ‘What is our story?’

What do you mean?

You have to ask, ‘Is it a story of innovation? Is it a story of reliability?’ Oracle, for example, has acquired many companies and absorbed them successfully into their culture. The strength of its culture is a way of expressing a certain narrative that goes on throughout a company, that keeps everyone on track, knowing what their motivations are, and why they are there. Companies that lose that can’t dig down and find their history.

Where else have you seen this?

I was on Toyota’s international advisory board for five years. There were 10 or 12 people on it. We would go over to Japan for two or three days and do nothing but dialogue about Toyota’s role in the world. They didn’t want us for our automotive expertise, but for a sense of what’s going on in the world, so they could better project who they are onto that world. They had a deep, rich sense of themselves. That allows you to stay on track. This doesn’t mean they wouldn’t do radical or innovative stuff, they just did it in the context of, ‘This is who we are.’

Brand, by definition, has a history. You can’t have a brand that has no history, because brand is a memory. That memory builds your brand, it’s more of who you are than a label on a product. The quality of the product, the reputation of the company that produces it, the way in which they implement it in the marketplace, all of that becomes part of their brand. You can’t have a brand without a history. It’s impossible.

You’ve been talking about companies that have a past, and have been around for many years. But today’s startups often seem to feel the need to create narrative to attract press and investor attention. And sometimes they overreach.

Oh, yes, absolutely. Many of them are run by very young people, with no history in the marketplace, no history of having worked places and seeing the evolution of those companies. They intend to be serial entrepreneurs, and their goal is to make a product that will make them a lot of money. Steve Jobs once said to me, ‘Doesn’t anybody want to build a company anymore? The young entrepreneurs just flip their companies.’ So many of them just want to build something and flip it, without any knowledge of where they’re going. I see that a lot. I’ve gone to a lot of innovation festivals, at universities, or business or engineering graduate schools, where the students present products, and you judge it. I’ve got to tell you, I see more and more startups coming out of the business schools, not the engineering schools, and they’re terrible. They have no experience in the field whatsoever.

You’ve got to look at outcomes. There are thousands and thousands of companies in Silicon Valley. But the ones that dominate the culture are a couple dozen companies that have over $5 billion in annual sales. Those are the Apples, Intels, Ciscos, and so forth. They dominate the culture. They employ most of the people, they spend most of the money on R&D, and they’re also the companies that spend a lot of money on venture or development, and on acquiring companies. When you also look at the companies that have between $1 billion and $5 billion in sales, you get a big, influential group of profitable companies with an average age around 28, 30 years old. Startups, on the other hand, are not making money: They’re working off invested capital, not market-earned capital. They want so badly to get into that bunch that they try to create a perception with words rather than with deeds.

Doesn’t that catch up to you eventually?

Yes, yes. Reality does eventually catch up with perception. In marketing, there is this concept that what you’ve got to do is to get people to have a perception, and you do that by constantly sending a ‘message’ out and basically selling a message. But that message must be grounded in reality. Reality always catches up with perception. You must perform in the marketplace, and it can be catastrophic if your performance is too far apart from perception. The distance between the two is credibility. And the biggest thing for a startup is credibility. How can you communicate the value of what you’re trying to achieve, or that you have achieved? At Theranos, Elizabeth Holmes created the perception of this multibillionaire whiz-kid genius who has this wonderful board of directors made up of all former government officials. It was completely disjointed from a narrative built on peer-reviewed science.

When you were working with Intel and Apple, were there as many frothy narratives floating around?

Back in the ’60s, there was one year when Fairchild Semiconductor, which positioned itself as an innovator, came out with a new product every week. I think they ran out of gas after half a year or so. Since Fairchild couldn’t deliver that innovation any more, Intel’s regional slogan became Intel Delivers.

At that point I guess it becomes time to ‘pivot’, right?

‘Pivot’ is a much more acceptable term than ‘I’m changing my story.’ Can you imagine getting a press release saying, ‘We’re changing our story?’

I’d like to ask you one more thing. I’m very interested in the autonomous car race, and there I’ve noticed a change in an industry-wide narrative. The Silicon Valley folks have come around to recognizing that making a car is a complicated manufacturing process that requires great expertise. You might say that some of them are even humble about that.

Let me tell you that back in the early days of the microprocessor—in the mid-’70s or so—[former Intel CEO] Andy Grove really did not like the automobile industry. He made a comment that he didn’t want to see his processors end up in the door handles of Ford and GM trucks and cars. Intel finally had to hire a guy to rebuild its relationship with the automobile industry. The automobile people were always in attendance at technology conferences. They could see ways of improving a car’s electronic systems digitally, and that made a huge change in cost and efficiency. The automobile companies learned to build alliances with the tech industry earlier than the tech industry learned to build alliances within the auto industry. Of course, each industry thinks they know more than the other. They all think they’re smarter than the people above them or below them in the chain. That’s true of just about all companies.

That sounds like Uber.

You know, I’m a little scared of Uber. A friend of my wife took an Uber recently, and she had a $280 bill show up. She tried to get hold of the company and could not reach a single person to talk about it. She got the credit card company easily, and they were finally able to get them to cover it, but getting any kind of service from Uber . . . I think Uber’s issue is that they are an implementer of technology, a service company. They are not an innovator in the sense of a fundamental technologies. To succeed, they’ve got to be a full-service company, and I don’t think they’re good at that. That’s what makes them vulnerable.

Anything else?

One last thing about the narrative. Most of us have too short-term perspectives. Those companies that have been around a while, they’ve learned stuff, they’ve have had opportunities to succeed and fail, and over time they apply those lessons. And they teach those lessons inside the company, by the way. I was talking to the guy who heads up Apple’s education effort not too long ago. One of his efforts is to analyze Apple’s past failures. The studies ask: Why did we fail? How do we not do that again? This overall industry narrative of how long it takes to build something, and what is the process, and what are the ebbs and flows of technology and the cycles of the market working through, and learning those takes some years of experience. If you look at that history you get to understand that. Too many young people in the Valley really do believe that Silicon Valley started with Apple, or with Google. They do! Somebody asked me recently, what did Apple do before the iPhone?

Learning the history isn’t a requirement, but people don’t understand that these companies have been doing this for a long time, and that’s how you reach $200 billion. You don’t get there by just waking up one morning.