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The magic of 007 broke when “M” downed whiskey after whiskey in his office. We know fiction is an invention, yet still feel disappointment when that becomes obvious. Today smoking in the office is verboten and the head of British Intelligence is knocking back Macallan at work?
The narrative logic for a film series is brand consistency, not innovation. Bond is a formula; profit creates an impediment to innovation. The same is true for the established company. A tried and true structure and solid results give the appearance of permanence but also sow the seeds of collapse. Knowing this is critical for both investing and career management.
I wrote before about how All Companies Die. The median time a company is in the Dow Jones Industrial Average is 10 years. The latest 007 film is a reminder of why. Like the Bond films, the profitable corporation is often the vision of an eccentric, self-promoting creative. Once a formula is discovered, however, significant creativity ends and tinkering begins.
Consider the parallels between Apple founder Steve Jobs and 007 creator Ian Fleming, both of whom died young and left cash flow empires. Each re-imagined an existing idea. Ian Fleming made Eric Ambler’s understated hero suave and wry, added gadgets, beautiful women, cartoonish bad guys and locations more aspirational than Eastern Europe. Jobs looked at Epson laptops and Motorola cell phones and realized they could be much better designed. “He liked the notion of simple and clean modernism produced for the masses,” biographer Walter Isaacson wrote.
Both died at age 56 having invented a score others now play, over and over. In Job’s case the direct descendent is Tim Cook. In Flemming’s, it is Michael Wilson and Barbara Brocolli who own Eon Productions and retain creative control over the 007 films.
The chart below from Rose (thanks Rose!) shows the return on the 007 franchise, which is profitable and seeing gradually diminishing returns per dollar invested. The empire is fading but not to such a degree as to provoke real innovation.
Playing the music requires a) scale and b) great musicians. Followers are different than founders. It takes arrogance and impulsivity to create an empire and humility and consistency to work in one. Jobs’ reality distortion field is familiar to anyone working as an entrepreneur; you need to summon confidence in something that doesn’t yet exist. In the orchestra, scope for creativity exists but is far more constrained. This is not to denigrate the orchestra. All work is noble and it takes unbelievable discipline to learn to do something well, like play the violin.
About 147,000 people work at Apple. You can analyze Apple’s numbers in different ways. One of them is how many business lines were created after Steve Jobs. Most Apple sales come from the Mac (released in 1984), iPhone (released in 2007), and iPad (2010), or services tied to these products, like Apple Care. By this measure, post-Jobs innovation is close to zero, as the chart shows.
Yet, profits were almost $60 billion in 2020, more than twice what they were when Jobs died. Apple is not an isolated example. Microsoft replaced the typewriter and graph paper with word and excel. This cash flow supports 163,000 employees. The meaningful evolution post-Bill Gates is cloud computing, perhaps forced because Google, Apple and others began to encroach on Office.
While stock valuations are elevated now, going forward something will shift (though exactly when I don’t know), profits will fall and, in the case of companies that die collapse. Could a hardening of trade barriers between China and the US and a government led push for self-reliance eviscerate a large swath of these companies’ profits? The very people that make existing operations run smoothly are the same type of people unlikely to undertake radical adjustments.
For those early in their career, this means you need to match your gifts with the right type of company. If you work in a company as established as 007, the music has already been written. The company needs excellent violin players, not composers. Creativity is, if anything, a problem. If, however, you are a tight operator and excellent violin player, these corporations can be a great place to work, until conditions shift.
As an investor, I try to be open minded to disruption. The rewards for knocking down a giant are massive. This is the reason why Elon Musk has achieved cult status. The market is saying in 15 to 20 years we won’t have gas driven cars and he more than anyone else has made this happen, a true composer, though I suspect he has largely hired violin players.
Let me know your thoughts, paul@paulpodolsky.com. Reader feedback helps shape subsequent posts. And please consider becoming a paid subscriber, which helps support my team.
Great business empires will eventually perish, but I think this is just a common sense of history, not the real problem, the problem is how to foresee real challenges and threats in the intricate business competition, if you and the most intelligent people around You haven't foreseen it yet, the price of assets will continue to improve, like AAPL trees sometimes really grow to the sky, we don't see it because we are stuck in history.