Tim Cook: Who Would Have Thought?

[00:00:09] Morning folks and welcome to today's episode. It's called Tim Cook. Who Would Have Thought? Because the fact is, I never gave this guy a chance. Of course, I was wrong. I was so wrong. So I was intrigued to find out how this humble but very, very smart guy who took on probably the hardest CEO role by having to follow in the footsteps of Steve Jobs, like how did he grow Apple's revenues from $108 billion in the future?

[00:00:39] In 2011 when he took over to $416 billion by 2025. How did he grow its market cap from $350 billion to nearly $4.9 trillion without actually bringing out any real blockbuster devices? How did such a low key, no ego guy come out of Jobs's shadow to be, I think rightly lauded as one of the best CEOs ever?

[00:01:06] I enjoyed researching this episode more than nearly any previous episode. It surprised me and it is a cracker of a story. Enjoy. Tim Cook was born 1st November 1960 in Mobile, Alabama. His father worked in shipyards as a dry dock rigger. His mother worked in a local pharmacy and Cook was quite, he was very good at maths, but he was also popular. This is a quote from a former classmate.

[00:01:33] He wasn't one-dimensional. He wasn't one-dimensional. I didn't know anybody who didn't like him. He had a great personality. Cook goes on to Auburn University, studies industrial engineering. This is basically about making systems work better. How do you move materials faster? How do you reduce waiting time? Where is the waste?

[00:01:52] He graduates in 1982, joins IBM, and the timing is really good because IBM had just launched the personal computer or its personal computer the year before and business is booming. And Cook's job is to make sure that all the right components arrive at the right time without IBM having all this expensive stock sitting around.

[00:02:14] And I'd never considered this in relation to computers. But of course, if a machine sits in a warehouse and a faster processor comes out, then the price of the computers sitting in the warehouses will have to be discounted. As Cook said of inventory, he said, you kind of want to manage it like you're in the dairy business.

[00:02:33] If it gets past this freshness state, you have a problem. And Cook impresses very quickly. This is a pattern I saw throughout the research. Every time he gets a new job, he impresses his bosses really quick. This is what his boss at IBM said. He took a project on and you could take it to the bank. He was going to get it done. While working at IBM, he does an MBA at Duke. And by 1991, he's been promoted to Director of North American Fulfillment for the personal computer business.

[00:03:02] But the PC industry is changing around this time. You have Dell and Gateway. They're selling computers directly. So they're moving them much quicker than IBM. And also around this time, IBM is changing. It's moving away from manufacturing computers and more towards services. And so in 1994, Cook left. He joined a large computer distributor. They got sold a few years later. And Cook then joined Compaq, which was the world's leading PC manufacturer.

[00:03:31] And once again, Cook gets results quickly and makes a big impression. A quote from his new boss in Compaq. Tim was the quintessential decision-making authority. He's not in it for the fame or the ego or the money. He's in it to win. And that reference to ego, I think it's very, very relevant. There just never seems to be any ego with Cook. Colleagues describe him as not being loud, not trying to dominate the room.

[00:04:01] They say that he listens and then he starts drilling into the numbers and details. So while everything is going really well for Cook in his new job at Compaq, there was another computer company on the West Coast that was in deep, deep trouble. Enter stage right, Apple. So we're in 1997. Sales at Apple had fallen from around 11 billion in 1995 to 7 billion by 97. And they've losses of over a billion.

[00:04:28] Then on February the 7th, 1997, Steve Jobs comes back. Now, I'm not going to get into the story of why Jobs left Apple in the first place, because that's another story altogether, a brilliant one. And it's one I will do an episode on. But by 1997, Jobs is back and immediately he starts cutting. You know, he gets rid of all the different Mac models. He cancels products like the Newton. He stops letting other companies license the Mac operating system.

[00:04:56] And he needs somebody who can fix Apple's supply chain. And the recruitment firm he hires, they zero in on Cook. Now, of course, from Cook's point of view, there is no reason in the wide earthly world to go work for Apple. He's a rising, star in Compaq. He's only been with them a few months. It's the biggest PC company in the world. While Apple is on life support and it's not expected to survive.

[00:05:25] Like, just a few months before Cook was approached by Apple, Michael Dell was asked at a tech event what he would do to fix Apple. And he said, I'd shut it down and give the money back to shareholders. And he wasn't joking. He was being serious. Regardless, Cook agrees to meet Jobs anyway. And at their meeting, Jobs is pacing around, talking about rebuilding Apple. And anybody who follows Jobs, you can just see Jobs pacing. You can feel the energy.

[00:05:53] And Cook said of this meeting with Jobs, No more than five minutes into my initial interview with Steve, I wanted to throw caution and logic to the wind and join Apple. My intuition already knew that joining Apple was a once-in-a-lifetime opportunity to work for a creative genius. And yeah, Jobs was a creative genius. But even more than that, Jobs was always driven by a sense of purpose

[00:06:21] that was much, much bigger than simply making and selling computers or devices. When he returned in 1997, this is what Jobs told staff about Apple's purpose. What we're about isn't making boxes for people to get jobs done. Apple, its core value, is that we believe that people with passion can change the world for the better. And it's by having this kind of elevated sense of purpose,

[00:06:49] I believe that's the reason, the main reason, why Jobs was able to develop the types of devices that have had such a huge impact. And it's also why he was able to inspire massively talented people like Cook to leave safe careers and go work for Apple. You see, they're not just joining a company. They're joining a mission. And that's really powerful. And Cook bought into this mission, this vision, this purpose.

[00:07:17] It's what drives him in the exact same way that it drove Jobs. And so in March 1998, Cook joined Apple as Senior Vice President of Worldwide Operations, salary of $400,000 a year, a signing on bonus of $500,000. And man, does he earn his money? Because Apple, it's in a mess. It has more than 100 component suppliers. It has different shipping systems all over the place.

[00:07:44] It has huge amounts of inventory just sitting around losing value. So Cook starts cutting suppliers, cutting inventory, linking production much more closely to what customers are actually buying. And he gets results fast. Within his first full year, he cut the value of unsold inventory from $437 million to $78 million. Within two years, he gets that down to just $20 million.

[00:08:14] Then, in October 2001, Jobs launched the iPod, which became the fastest-selling music player ever. And for Cook, this means that suddenly he has to find enough parts, enough factories, to make millions of these iPods. And he does it. Then, in 2004, Jobs emailed Apple staff to let them know that he had undergone surgery to remove a cancerous tumour, and that Cook would be taken over while he was recovering.

[00:08:42] Now, Jobs returned just a month later, but this is the first clear signal to everyone, that Cook is number two. And by 2006, Apple was thriving. That year, it sold over 39 million iPods, 5.3 million Macs. Annual revenue was up at 19.3 billion. And then, in January 2007, Jobs launched the iPhone. Within three years, Apple is selling nearly 50 million of them a year.

[00:09:11] And it's down to Cook to build a supply chain fast enough to keep up. And, of course, he does. As Jobs said of Cook, He had the same vision I did. We could interact at a high strategic level, and I could just forget about a lot of things. So, while everything is going, you know, gangbusters on the business front, Jobs' health, it was becoming a major concern.

[00:09:35] At an Apple event in September 2008, he comes on stage, and I remember seeing the video at that time. He was looking so painfully thin. And investors are worried, because by now, Apple and Jobs, they're impossible to separate. Apple's revival over the previous decade, it had been built on Jobs bringing these fantastic blockbuster products to the market. And the view is that Jobs is irreplaceable.

[00:10:02] But because of his visibly poor health, the discussion around succession, it's inevitable. And this puts a spotlight on Cook. Magazines start running profiles of him. And one of them, it tells a great story from an operations meeting, where executives are explaining manufacturing problems. And Cook listens and then says, This is really bad. Somebody should be in China driving this. 30 minutes later, as the meeting is coming to a close, he looks at his operations director and says,

[00:10:32] Why are you still here? The operations director jumps up, drives straight to the airport without even going home to pack, and gets on a flight to China. And that's the culture that Cook is building. You don't waste time discussing a problem. You go and fix it right away. In January 2010, Jobs unveiled the iPad. It sold a million in its first 28 days. 3 million in 80 days.

[00:10:57] So once again, Cook has to take another wildly successful Jobs product and make sure they can get enough into the store on time. And again, he does. But to meet all of these manufacturing needs, Cook has, over the preceding years, pushed more and more manufacturing out to companies like Foxconn in Asia. And this leads to big labor issues.

[00:11:22] For example, in 2006, there were reports of excessive hours and workers living in these huge, crowded dormitories. Then in 2010, there's a cluster of worker suicides at Foxconn, with reports pointing to long hours, repetitive work, very strict management, low basic pay. And you have these young migrant workers as well, who are living far from their families. Now, in fairness, Cook does take this very seriously.

[00:11:52] And I really do believe that he's a very moral, very empathetic guy. He sends auditors and mental health experts into the factories. He tightens Apple's supplier rules, pushes much harder on improving workers' welfare. Foxconn also has to raise basic pay by more than 30%. But the problems don't disappear. Yes, conditions have improved most definitely.

[00:12:17] But even up to very recently, independent inspectors continue to find labor issues at Apple suppliers in Asia and India. Now, as I said, I do think Cook takes this very seriously and works very hard to enforce Apple's rules. But the reality is, if you want to make sure that the people making your products aren't being abused, you need to manufacture in countries where workers have strong protections that are actually enforced.

[00:12:45] And of course, though, if Apple moved production to countries with much stronger worker protections, the products would certainly cost more. And most of us are quite happy to buy them at the current price and not think too much about where or how they are made. Anyway, in August 2011, Jobs handed the CEO role to Cook. And just two months later, on October 5th, 2011, Steve Jobs died. Cook tells employees,

[00:13:12] Apple has lost a visionary and creative genius and the world has lost an amazing human being. His spirit will forever be the foundation of Apple. Now, plenty of people think Apple will struggle. Larry Ellison, who's a good friend of Steve Jobs, he famously said, he's irreplaceable. They will not be nearly so successful. And look, I agreed with Ellison. A lot of people did. Cook said that when he spoke to Jobs about taking on the CEO role,

[00:13:42] Jobs warned him, don't ever ask what would Steve do? And this ties very much into a quote from Cook in an interview where he said, I never had the objective of being like Steve because I can only be good at being myself. Now, on becoming CEO, Cook works even harder if that was even possible. And the following is from an article that profiled him after he took the top job. He gets up right before 4am every day.

[00:14:12] Then after a one hour workout, he begins his 5am ritual, reading the majority of the 7 to 800 emails that hit his inbox every day. And note, these aren't internal emails. These are emails from customers. Cook said that it keeps my hands on the pulse of what customers are feeling and thinking and doing. Now, no one is expecting Cook to, you know, come out of the gates with a blockbuster product straight away.

[00:14:40] And so for the first few years, he doesn't need to. Because the sales are coming in from the iPhone, the iPads, the laptops. They keep growing. Like in 2011, when Cook took over, revenue was $108 billion. By 2014, it was $183 billion. But I think it's fair to say that most of us weren't heaping praise on Cook at this stage. Everyone was waiting for the next big Apple product that would wow us.

[00:15:09] And so in 2014, Cook unveils his first major new product as CEO, the Apple Watch. I remember being underwhelmed by it. But look, I have to admit, I'm not a techie. I'm not into phones or gadgets. As far as I could see, there was nothing at all wrong with the Apple Watch. It looked nice. It did lots of cool stuff. But unlike the iPod or the iPhone, for me, there wasn't this wow factor.

[00:15:37] But what Cook and Apple did really well was that when they realized that a lot of people were using the watch mainly to track their fitness, they pivoted. They changed the focus and marketing of the watch from this high-end fashion accessory to a health and fitness accessory. And the pivot worked. Like for a company that had never sold a watch, Apple has now become the biggest watch seller in the world, selling 40 to 50 million a year.

[00:16:05] It sells more watches than the entire Swiss watch business combined. Now, the watch itself, it brings in annual revenues of about $16 billion. So, while it wouldn't be considered a blockbuster product compared to the iPhone, the watch does serve another purpose. It ties you more closely to the iPhone. Because once you've spent hundreds of dollars on a watch that only works properly with an iPhone, you're probably not going to switch to Android.

[00:16:35] And this is all part of the grand Apple ecosystem strategy that Cook is building. But in 2014, when the watch launched, this strategy was only at its very early stages. And I certainly wasn't aware of it back then. And I'll talk more about it in a few minutes. But a few weeks after the watch launched, Cook writes an essay for Bloomberg. And he publicly comes out as gay.

[00:17:01] He is the first serving CEO of a Fortune 500 company to do this. And it's a real surprising move, given that Cook is such a private person. So, why did he do it? Well, here's what he wrote. If hearing that the CEO of Apple is gay can help someone struggling to come to terms with who he or she is, then it's worth the trade-off with my own privacy. So, I think, good on him.

[00:17:28] And thankfully, it has zero negative impact on either him or on Apple. And over the next few years, Apple continues to grow under Cook. By 2018, revenues reach $265 billion. And Apple becomes the first company in modern stock market history to reach a valuation of $1 trillion. So, this was a huge story. Like, it's a huge milestone. And I really, really love Cook's reaction when he tells staff,

[00:17:57] financial returns are simply the result of Apple's innovation, putting our products and customers first, and always staying true to our values. This milestone is not the most important measure of our success. Like, what I really like about this statement is the humility of it. There's no ego. And when he says reaching a trillion dollars isn't the most important measure of success, I believe him.

[00:18:24] Because just like Jobs, for Cook, success isn't about short-term gains or monetary measurements. It's about Apple's mission. Improving and changing people's lives by creating great products. It's all about the customer, the products, the values. You know, you get the product right. You keep the customer happy. You keep people passionate about the work. And the money follows.

[00:18:53] And look, it's not just words. Remember, this is a guy who is reading hundreds of customers' emails at 5am every morning. He really is passionate about improving people's lives by creating great products. That's his driving force. And so I think it was around this time, 2018, when it reached this trillion dollar valuation, that it finally hit me. And I started to realize,

[00:19:22] OK, Cook hasn't produced another iPhone, and he more than likely won't. But this guy is actually doing brilliantly here. But I still didn't fully understand why Apple was so successful under his reign. As far as I could see, he'd been mainly focused on continually improving the iPhone and the iPad. And there was also some success with the watch. And they also had AirPods.

[00:19:46] But what I wasn't seeing is that Cook was building all of these other services around the hundreds of millions of people who already own Apple devices. And I suppose one of the other reasons I didn't see it is because I don't have an Apple. I use Android. So these services, you now have the App Store, iCloud, Apple Pay, Apple Music. And then in 2019, he launches Apple TV, or it's called TV Plus, but I'm just going to stick with Apple TV.

[00:20:15] And again, when this launches, I'm scratching my head. Because Apple says that this TV service could lose between $15 and $20 billion over its first 10 years. But when you dig into it, as I just did over the last few weeks for the very first time, you can see what Cook is doing here. Yes, Apple TV competes with Netflix for your attention. But Apple is playing a different game.

[00:20:40] Apple TV is just another reason to stay inside Apple. And that becomes even clearer in 2020 when Cook launches Apple One, where you pay a monthly fee for a bundle of Apple services. And this is the Cook model, this brilliant strategy, where most of us, or at least me anyway, have been looking at Cook and saying, this guy is simply selling newer versions of older products, which, to be fair, he has been doing. He has also massively increased the number of Apple devices in use

[00:21:10] from around $200 million in 2011 to $2.5 billion by 2025. And then he has made the people using those devices more and more likely to stay inside Apple by continually adding new services to the ecosystem. And crucially, these services, they give Apple a much steadier revenue stream than hardware sales, and they are far more profitable. So I'm going to throw some numbers at you.

[00:21:39] In 2025, services brought in $109 billion in revenue, with a gross margin of over 75%. So that produced $82 billion in gross profits. Hardware brought in a much bigger $307 billion in revenue, but with a gross margin of only 37%, it produced about $113 billion in gross profits. So, in short, services generate roughly a quarter of Apple's revenue,

[00:22:08] but more than 40% of its gross profits. So, huge kudos to Cook for this. And then another thing that Cook rightly gets a lot of praise for is his diplomacy or his political skills. Like with both Trump and Xi Jinping in China, Cook, he's managed both relationships brilliantly. He never rocks the boat. No drama. He just gets things done.

[00:22:36] So, it was surprising when he gets into this very public fight with Facebook in 2018, when the whole Cambridge Analytica scandal broke. And I like this story because it shows Cook's backbone, but it also shows a real cunning streak. So, for context, when the Cambridge Analytica scandal broke, Cook is asked what he would do in Zuckerberg's position. And he replies, I wouldn't be in this situation.

[00:23:04] And then he goes on to say that Apple makes money by selling products to its customers, while Facebook makes money by selling advertisers access to those customers, often using personal data the customers might not even realize is being collected. And Zuckerberg is reportedly so furious that he orders his executive team to switch from iPhones to Androids, and he declared internally, we need to inflict pain.

[00:23:32] But it's Cook who inflicts the pain. Because in 2020, Apple introduced app tracking transparency, which basically lets iPhone users tell Facebook and other apps, no, you can't track what I'm doing. And this one change cost Facebook about $10 billion in lost advertising revenue. Now, I think Cook knew exactly what he was doing here. By taking such a public stand against Facebook,

[00:24:01] and knowing that it would get headlines, this was a very deliberate, a very calculated move, because it generated huge publicity that highlighted one of Apple's strongest selling points, that Apple takes privacy far more seriously than other tech companies. And Cook has been saying this for years, and I quote, privacy to us is a human right. It's a civil liberty. We're not going to traffic in your personal life.

[00:24:31] But there is an obvious contradiction here, because Chinese users, iCloud data is stored inside China, and under Chinese law, that data can be handed over to the authorities. Now, Cook's defence is that Apple has to obey the law wherever it operates, and that it has more of a chance of changing things by staying in China. Maybe, but.

[00:24:57] Like, there's an obvious contradiction or hypocrisy here, when you say that privacy is a fundamental principle, and then apply a different version of that principle, depending on the country. But look, I also understand the practicalities, the pragmatism here. You know, Apple relies heavily on China for manufacturing. The consumer market is worth around $64 billion a year in sales, and there's an estimated 5 million jobs in China

[00:25:26] tied in some way to Apple through its supply chain and its wider ecosystem. So, yes, I think Cook compromised his values in China. But I also think this is one of those very, very difficult decisions that leaders have to make, and it's very easy for people on the sidelines to criticise him. Now, in terms of growth under Cook's tenure, Apple's annual revenue grew from $108 billion when he took over in 2011

[00:25:55] to $416 billion in 2025, while its market cap in that same time period went from $350 billion to nearly $4.9 trillion. Now, that is some result. But, and I'm not being critical here at all, the following needs to be pointed out, just in order to put some context on those figures. Because, over the same time period, 2011-2025, the valuations and revenues of other tech companies has also grown significantly.

[00:26:25] Like, Microsoft's market cap went from $210 billion to $3.9 trillion. Amazon, from $80 billion to $2.8 trillion. Google or Alphabet rose from $170 billion to $4.2 trillion. Meta, $100 billion to $1.7 trillion. And NVIDIA went from $8 billion to $5.7 trillion. And again, it's just to put those Apple's numbers in context. Now, when Cook announced his retirement,

[00:26:53] I came across plenty of analysis with the same theme, like something that would have been unthinkable when he started out of CEO. And that was a lot of praise for not focusing primarily on big blockbuster products. And here's a quote from Dan Wang. He's a professor of business in Columbia. If you can predict next year's consumer tastes, then you enjoy all the riches. It's a winner takes all. But if you get it wrong, you bear that cost.

[00:27:23] And what Tim Cook did really well is to take Apple out of this cycle of having to search for a new hit product every time. And now, that's not to say that Cook didn't try to launch some very big products. He did. They just didn't work out. You know, for example, Apple spent 10 years and $10 billion on this secret autonomous vehicle project. They spent $20 to $30 billion on the Vision Pro headset.

[00:27:52] And I really don't see that product working at all. The difference is that under Cook, a product failure no longer threatens the company's survival. I mean, despite all the headlines that we see whenever one of these big failures happened, they never put a dent on Apple's growth. And while those products didn't work out, I still think, you know, fair juice to Cook. At least he was willing to try to launch a big product.

[00:28:20] But I think the idea that Apple can continue to thrive without being at the forefront of device development is false. Because you have to remember that all of those very profitable services that we talked about there that Apple has, they all sit on top of the hardware. It's the iPhone primarily that brings people into Apple. And while these services keep them there,

[00:28:48] that brilliant ecosystem relies on the popularity of the iPhone. And it might well be the iPhone that could be the most important device in the next few years, even with the emergence of AI, because people will still have to access AI through a device. But I believe it's inevitable that new devices will be developed. I mean, who knows what they look like or how they'll work. But if Apple isn't at the forefront of developing those new devices,

[00:29:17] then it could well lose its dominance and pretty quickly. Which is why I think Cook quite rightly stood down as CEO to make way for John Ternus, widely seen as a device or a products guy. Because the fact is that Cook was never a device guy. I mean, as he said himself, he knew he could only be good at being himself. And by being himself and holding true to Apple's values,

[00:29:46] he has done a remarkable job, taken over from Steve Jobs, was probably the hardest act to follow in the business world. And for 15 years, he has done it with such efficiency, such humility, no ego, and just brilliant, brilliant strategy and execution. Hats off to him. I think he has been a fantastic CEO

[00:30:14] and overall a very, very decent guy. Anyway, that brings us to listeners' emails. And this one, rather, was a comment that came in from David. And he would love me to do an episode on Jay-Z. I will definitely be doing an episode on David. I actually had him on my list. Thanks so much for the suggestion and for listening. And remember, if you have any comments, any corrections, or any story you'd like me to cover, email me at info at gbspod.com.

[00:30:44] All the best, folks. All the best, folks.