John Sculley: Minding the Design Gaps, Changing the World

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Moonshot coverJohn Sculley earned a name for himself in the world of business leading Pepsi and Apple, but his ambitions encompass far more than the C-suite. A lifelong entrepreneur, he’s now working with several startups, but is most focused at this moment on pushing into the smartphone game with a company called Obi Worldphone — which is not, he assures us, trying to compete for customers with the signature product of the tech giant he once led.

Recently, Sculley dropped by Wharton Business Radio on SiriusXM channel 111, to talk about technology, design gaps, and his book, Moonshot! Game-Changing Strategies to Build Billion-Dollar Businesses. He also discusses his views on the new film “Steve Jobs,” in which he is portrayed by actor Jeff Daniels, and what Jobs was like as a person. 

An edited transcript of the conversation follows.

Knowledge@Wharton: In late August, your company, Obi Worldphone, announced that its first two phones were ready to go on the market. How are they doing so far?

Sculley: We just launched them. The first market to go live with them is Dubai. We had a terrific first few weeks, and we’ll be probably in 14 countries by the end of this year. Our goal is to be in over 40 countries by the end of next year. By 2017, we expect to be in 70 of the fastest-growing smartphone countries in the world.

It’s a very different product than iPhone, which is positioned at the high end of the market, and has over 90% of the profits at that premium end of the market. We’re focused at prices hundreds of dollars less than the premium brands, but [we worked on the design with] the former design team that worked with me when I was at Apple and who most recently did Beats [by Dre’s headphones]. They are very excited, as I am. We’re building this product out with exceptional Silicon Valley design.

“A design gap strategy isn’t just finding a hole in the market…. It’s about expanding the market.”

Knowledge@Wharton: In your book, you talk about being a lifelong entrepreneur. You have also worked for big companies. But this is kind of your bailiwick right now. You really like being involved in projects like this.

Sculley: I’m not a financial engineer. I’m a builder. I help entrepreneurs in a few selected areas, where there are truly transformational opportunities to build their companies. I invest, and I bring in other capital [and] partnerships, as we have with Obi Worldphone. The real goal here is to look for design gaps in large, commoditized industries. Design gaps are these opportunities where you go in and build really unique, beautifully designed, great customer experience‒designed products or services, which can be differentiated from everybody else. That’s the opportunity we saw in this giant market around the world for smartphones. For the most part, the companies at the premium end of the market are — with the exception of Apple, which has done unbelievably well — hemorrhaging money. Because they are designing products for the high end of the market, they have huge overhead expenses in research and development and field marketing expenses.

We built a business that’s very frugal. We’re a new company, so we don’t carry the legacy corporate overhead. We’re a Silicon Valley team that brings the best talent together, people who worked with me at Apple years ago. We found the design gap, which is at a more affordable price point, but with no compromise in the technology or material finish of the products. That’s what Obi Worldphone is all about.

Knowledge@Wharton: You are going into a business that has incredible growth potential in a variety of emerging markets. We think almost automatically about the smartphone industry being focused here in the United States and Europe, and parts of Asia. But in so many parts of the world, smartphones are still an unbelievably new product and a market that hasn’t even been tapped at this point.

Sculley: Here’s the way to think of it. Around the world, there are a lot of really inexpensive smartphones. You could buy them for as little as $35, and buy them off the street. They may work for a month or two. We don’t pay much attention to that side of the commoditized market. What we’re focused on are these 70 countries that are converting from low bandwidth to higher bandwidth, as we’re well-accustomed to in the U.S.

The U.S. is a replacement market. It’s dominated by one company: Apple, with the iPhone. It has a very controlled distribution system: the major wireless operators. You go to the rest of the world, though, and it’s really quite different. There are huge opportunities to go in and get first-time buyers. In many of these countries, the population’s average age is 25 years or less, and young people are over 50% of the population. These people just don’t have $800 to spend on a premium-priced smart phone. So our smartphones are priced from roughly $129 up to about $199. It’s a spot in the market where we think we can do pretty well.

Knowledge@Wharton: You expect to be in a lot of countries in the very near future. With that business model, if you have success in all of these countries, then do you even think about trying to come into the market here in the United States and provide an option outside of Apple? Even though Apple is a huge brand name, with some of the choices they are making right now with the payment as you go and being able to switch your phone every year with the pay-by-the-month plan, I don’t know if it’s going to work.

Sculley: Oh, I think it will work.

Knowledge@Wharton: Do you?

Sculley: I think it’s a very smart move by Apple. The iPhone is so successful that they’re saying, “Well, where else can we get profits?” They are cutting into the wireless operators’ revenue stream by saying they will offer, for $32 a month, an iPhone and an automatic upgrade when the new one comes along. They have developed a pre-owned market. A lot of people can’t afford to buy the first iPhone at the $800 price point, so they’ll buy a used iPhone at maybe a $500 price point. That’s a smart strategy from Apple’s standpoint.

Going into the U.S. is not the place we would start because Apple is so strong — and by the way, we’re not trying to compete with Apple. Our products don’t look anything like Apple’s. They are entirely different. It’s like in the fashion industry, how you can have several different brands, each successful, but they don’t necessarily take away from each other. A design gap strategy isn’t just finding a hole in the market that you can compete with to take share away from someone else. It’s about expanding the market. Twitter 

Our goal with Obi Worldphone is to find that design gap where we can actually expand the market. We may, at some point in the future, be able to see a way of putting some services together with Obi Worldphone. We might, at some point, even consider coming into the U.S., but only after we have demonstrated strong success in these fast-growing countries around the world.

Knowledge@Wharton: Is the smartphone the popular choice in other countries around the world because of its portability for the consumer? I ask because there are a variety of pictures — and you may have seen some of them — of refugees who have been making their way out of countries like Syria. You would see them coming up onto different shores, and … one of the last things they had was their smartphone.

Sculley: Oh, that’s so true. I can give you many anecdotal stories that we’ve seen in Africa and the Middle East. For example, when I was with the incoming president of Tanzania — we were just launching there recently — he said, “John, look, we have no consumer infrastructure in our country. For us, the hierarchy of life is water, food, shelter.” Then he pauses and says, “Smartphone.” Because the smartphone can be the way that payments are made. It can be the way that people get information who don’t have information. It could be consumer health. It can be all kinds of things.

“Moonshots are those moments of change that just change everything.”

I’m really focused on the next billion people in the middle class. These people are coming from these developing markets, and their model of the middle class has got to be different economically than ours. They aspire to many of the same things we have become accustomed to. They just don’t have as much money to spend. That’s why the Obi Worldphone, which is priced aggressively — way above the cheapest phones, but hundreds of dollars below the premium phones — is so interesting. Because it means that we can give them a no-compromise fit, finish, materials, technology product. Because we work directly with the major component vendors, and we know how to run a frugal expense model, because we own supply chain and distribution companies all over the world. We have the ability to do something that the big premium brands just can’t do and make money at.

Knowledge@Wharton: You also published a book about year ago: Moonshot! Game-Changing Strategies to Build Billion-Dollar Businesses. If you would, let’s start with you explaining the concept of the book. The term “moonshot” is one that’s been around in the tech industry for quite some time.

Sculley: Absolutely. It all goes back to John F. Kennedy in 1961 saying we’re going to put men on the moon and return them safely to earth before the end of the decade. When he said that, the reality was no technology existed that would enable anyone to do that. But … those technologies became the foundation for the digital economy we have today.

“Moonshot” is like when Google introduced relevancy-ranking search. The world was never the same again the next day. Or when Steve Jobs introduced the iPhone — the next day, the world was never again the same. Moonshots are those moments of change that just change everything. There are many of those that are still going to happen. The biggest one that I talk about in my book, Moonshot, making that Silicon Valley metaphor, is the combination of big data analytics, of cloud computing, of mobile devices. The derivative effects of those exponentially growing technologies are that they shifted the power from the producers to the customers.

The large incumbent companies in industry after industry, all over the world, have had entrenched positions. Now, suddenly, new better, faster, cheaper types of products and services are coming along thanks to these technologies. Because of social media and the transparency of information today, people are paying more attention to the opinions of other customers than they are to the advertising campaigns of the entrenched companies. That’s enabling these new companies to, in just a few years, be worth tens of billions of dollars, and they don’t spend any money on advertising. Why? Because their customer experience is so good. It could be Airbnb, it could be Uber, it could be other companies that are able to build franchises in a matter of just a few years, in a way that would have been inconceivable in the past. That’s the moonshot we’re talking about. And these are just the early days.

Knowledge@Wharton: Uber was the one that I was thinking right off the top and Airbnb as well. But it’s interesting, because you touch on the fact that there are other sectors that are starting to see these as well: healthcare and education, for example.

Sculley: Yeah. Well, I would start with some of the ones that are actually doing it and have created “unicorn” businesses, as is happening in consumer telehealth. I’m involved with one called MDLIVE. We’re building a unicorn business there. Another one is in consumer cloud, big data analytics. I co-founded a company called Zeta Interactive. We just raised $125 million from Blackstone on a billion-dollar valuation. One of the most exciting of all is in the consumer fin-tech space, where I’m involved with a company called NEFT, which is building out the next platform for consumer credit — again, a multibillion-dollar valuation opportunity.

So it’s happening all over. Unfortunately, education doesn’t have those examples yet. It’s an obvious one, but education is so entrenched in special interests and labor unions and other issues, that it’s been very, very slow to get to the point where the industries I’ve just mentioned are, where they have created so much value. I hope education gets there. It should. But it hasn’t yet.

Knowledge@Wharton: Education is moving forward, albeit slowly. Charter schools have popped up all across the United States. But a lot of cities are having trouble properly funding their public education systems….

Sculley: The reality is the charter school model does work. Parents are clamoring to get into them for their kids. The teachers unions are adamantly against them, and so that’s been a counter-balance to it. Teacher unions are worried about, “Well, what happens to the other public schools?” The reality is that a lot of philanthropic groups are stepping in to help charter schools. It’s inevitable that the charter school model is going to get more important, even with these counter-forces that don’t want to see any change.

But the reality is that technology can enable better and better ways to deliver education. Whether it’s done inside of the existing education system or whether it’s done around the education system, as so many things have happened in high tech, we’ll just have to see. But let me just point out one interesting fact. The fact is, when I went to school, all of the metrics of performance were around, what did you remember? What did you memorize?

Today, the answers come for free. Go on Wikipedia. Go on Google. It’s the questions where you learn the most.  Twitter It’s learning how to ask smart questions. Having curiosity, and being able to turn that into the context of smart questions. So I think that the real breakthrough in education with digital technology is going to be helping us restructure education around smart questions, around discussions, around kids learning together as teams, as opposed to worrying about, is a kid cheating by getting help from another student? These are cultural behavioral changes that are taking much longer to happen than the technology. The technology’s here, now, ready to go. It’s the other obstacles that are causing the challenge.

Knowledge@Wharton: You’ve talked about innovation in four areas. The cloud being one. Mobile being a very important part. Data being one. But also, you talk about sensors. That’s part of the collection of data that we really are seeing a lot more of in the last 5 to 10 years or so.

Sculley: Absolutely, and it’s only going to increase. Think of it this way. Many major corporations, including McKinsey and Company, Intel, Cisco, IMB, and GE are betting their whole future on what they call “the Internet of Things.” They are estimating that there will be 50 billion wireless-connected devices — these are sensors — by the early 2020s. Well, there are only 6.5 billion people on the planet, so who is being connected to what? It’s really machines connecting to machines. This means that we’re moving into an era of machine learning, where we’re going to have the ability of machines to — not replace humans, this is not a cyborg — get smarter and smarter, able to take over more of the work that has been traditionally done not just by the heavy lifting in factories. We saw that with robotics and the first generation of technology…. We’re moving into a new era, where many of these smart machines are going to replace a lot of the skills that we have been rewarding people with high income over the last 20 years.

How does the nation adjust to that change? Because it’s going to mean that we’re going to need people with new skills. They’re going to have to have the ability to adapt as innovators to a new world. I predict that in the next five years we’re going to see so many changes in so many industries, from precision medicine to the industrial Internet, to the ability for more and more services to be delivered by mobile devices. These things are going to dramatically change the world. Yet we have education trapped back in the 20th century, and we’ve got to do something about that. Otherwise, a lot of people are going to be left out.

Have you noticed that the percentage of people who say they’re in the middle class is going down further and further? And have you noticed that it’s not the unemployment figure of 5.1% that we should be focusing on? It’s that we’ve never been at a [higher] percentage of people who are capable of work, who have dropped out of the work force…. They aren’t looking for jobs. This is what we ought to be worrying about as a nation. But of course, it’s not what the politicians want to talk about.

Knowledge@Wharton: I would be remiss if I didn’t talk to you for a couple of minutes about the Steve Jobs movie. How would you say Jeff Daniels did portraying you in the movie?

Sculley: Jeff Daniels is a great actor. Aaron Sorkin is probably the best in the world at writing snappy, smart dialogue. And Danny Boyle is an Academy Award-winning director, who won an Academy Award for “Slumdog Millionaire.” You don’t get better talent than that. The movie is incredibly entertaining. Jeff Daniels did a great job of showing the relationship and, in many places, tension between Steve and me at important moments.

“When I went to school, all of the metrics of performance were around, what did you remember?… Today, the answers come for free. Go on Wikipedia. Go on Google. It’s the questions where you learn the most.”

But keep in mind, this is not a biopic. This is not the history of Apple. This is not the ultimate story of Steve Jobs. The young Steve Jobs, the one I knew probably almost better than anybody else on the planet, was learning and developing and making mistakes like we all do. But he ended up being the most successful CEO in the world. But we aren’t born that way, day one. So this is an important aspect of Steve developing as a person. But keep in mind that the Steve Jobs who ultimately was known by the world, with all of his success, was happily married. He had three more children. He was a very good person.

To draw the conclusion that this is the complete story of Steve Jobs would be wrong. This is entertainment done at its best. It’ll probably win a lot of awards. But the reality is that this is not everything that made up Steve Jobs. By the way, a lot of the dialogue was written with incredible creative license. Because not all of it exactly happened that way.

Knowledge@Wharton: That’s what you have to have in Hollywood because you have to fit it in about an hour-and-45-minute format. You do see those creative liberties taken.

Sculley: Yes, the film is brilliantly done. I feel very lucky to have met Jeff Daniels. We spent some time together, got to know one another. I think he did a great job of trying to capture the intensity, the pain. Remember, Steve Jobs and I were incredibly close friends. Then it came down to, were we going to risk letting Apple go bankrupt and abandon the Apple 2, the only source of revenue for the next three years, or were we going to shift the money to the Macintosh as Steve wanted, when Morris Law said that we were still several years away from having anything that was powerful enough that people would be able to take seriously.

That was the dilemma that Jeff Daniels had to deal with when he was portraying me in this film. But it was a great piece of entertainment. It is not an accurate piece of reality of exactly how things happened. And Steve Jobs really was a very good person. I can tell you that, because I knew him so well.

Knowledge@Wharton: Let’s take the movie part out of our conversation for a minute. What was it about Steve that made him so unique, and ultimately so successful?

Sculley: Like all of us, he was an imperfect personality, and he had been adopted. It was a big deal that that had happened to him in his life, because Steve was a control person, and he wasn’t in control of that particular aspect of his life. The reality was, he was able to infuse into his products the personality. He wanted people to like the products. He didn’t care whether they liked him personally. But he wanted them to not just like the products, but love the products.

You’ll see that in the movie. As time went on, and Steve became more mature and more experienced and got over the early mistakes that he made in those first 20 years of his work life — he had amazing success. By the way, he had success as a father. He had success as a husband. People who knew Steve only in his more recent years are frustrated that the film talks about the imperfect side of his life, and misses the fact that he laid the groundwork for his greatest vision, for the products that he ultimately made perfect for the rest of us — but he also became a much better, more complete person himself over time. So, Steve Jobs’ life was successful on many bases, by the time he finally died.

Knowledge@Wharton: You have had the opportunity to hold unbelievable positions in a variety of different companies. You’re doing a lot of entrepreneurial work even today. Would you go back to being a CEO of a major corporation now, or are you well past that phase of your life?

Sculley: Are you kidding me? No. I have no interest to be the CEO of any corporation. I’m a founder of a number of very successful companies. I mentor CEOs, but I would have no interest in being a CEO myself. If I were starting out again, I wouldn’t be working at a large company. But in my generation, we didn’t have that choice. The role of entrepreneurs and the access to capital and all of those things, they just didn’t exist when I graduated from Wharton as an MBA.

Knowledge@Wharton: What do you tell to high school seniors and college kids now, in terms of being prepared for this changing economy and this changing world?

Sculley: It starts with having an insatiable curiosity…. Don’t worry about whether your first job is your ultimate career. You’re just getting experience at doing anything with other people. In school, everything is focused around doing things by yourself, and measuring your own competence, and memorizing so much information. That has almost nothing to do with what you will end up doing if you’re going to be successful in life. It’s about working with teams. It’s about hanging out with really talented people. Always look for people who are even better than you are, to work with.

Try out many things. You’ll have many careers during your working lifetime. For me, it’s always been about looking for the most challenging problems. There has to be a better way. Have a sense of urgency. Have a focus. And just have fun. It’s a great life ahead, and we’re just at the early days of an amazing change in the world for those people who care about those principles.

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