Whatever it's been doing doesn't seem to be working anymore. It abandons the old routines and thrashes around looking for a new identity. This sort of crisis happens all the time. It happened to Apple.
1980: In late 1980, just after Apple went public, it came out with a lemon: the Apple III. Production was halted while the problems were ironed out, but then it was too late. Consumers had lost faith in Apple III. They lost faith in the whole company.
There's nothing more important to a business than its reputation. A restaurant can be 100 years old and have a wall full of awards, but all it takes is one case of food poisoning or a new chef who botches the orders, and a century's worth of success goes out the window. So to recover from its Apple III fiasco, Apple had to act fast. Heads rolled in the front office, where several executives were demoted.
The company developed new software programs, opened offices in Europe, installed hard disks in some of its computers. On the plus side, Apple reached $1 billion in annual sales in 1982, but on the minus side, it was losing business to IBM, its chief rival. IBM was cutting into Apple's territory: personal computers.
Instead of concentrating on what it knew best, Apple tried to fight back by cutting in on IBM's territory: business computers. It created the Lisa, a snazzy machine that came with a new gadget: the mouse. But in spite of the muse, the Lisa didn't sell. Apple's earnings took a tumble, and so did the stock price - down 50% in a year.
Apple was less than 10 years old, but it was having a full-blown midlife crisis. Investors were dismayed, and the company's management were feeling the heat. Employees got the jitters and looked for other jobs. Mike Markkula, Apple's president, resigned. John Sculley, former president of Pepsi-Co, was brought in for the rescue attempt. Sculley was no computer experts, but he knew marketing. Marketing is what Apple needed.
Apple was split into 2 dividsions, Lisa and Macintosh. There was spirited rivalry between the two. The Macintosh had a mouse like the Lisa and was similar in other respects, but it cost much less and was easier to use. Soon, the company abandoned the Lisa and put all its resources into the Macintosh. It bought TV ads and made an incredible offer: Take one home and try it out for twenty-four hours, for free.
The orders poured in and Apple sold 75,000 Macintoshes in 3 months. The company was back on track with this great new product. There was still turmoil in the office, and Jobs had a falling out with Sculley.
This is another intersting aspect of corporate democracy: Once the shares are in public hands, the founder of the company doesn't necessarily get what he wants.
Sculley changed a few things around and solved a few more problems, and the Macintosh ended up doing what the Lisa was supposed to do: It caught on with the business crowd. New software made it eary to link one Macintosh to another in a network of computers. By 1988, more than a million Macintoshes had been sold.
A company's midlife crisis puts investors in a quantdary. If the stock has already dropped in price, investors have to decide whether
- to sell it and avoid even bigger losses or
- hold on to it and hoe that the company can launch a comeback.
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