Impute

Jobs and Wozniak are typically known as the co-founders of Apple. Lesser known is the third co-founder, Mike Markkula, whom I found to be one of the more fascinating people in Walter Isaacson’s biography of Steve Jobs.

A quick history lesson: When Jobs and Wozniak realized they needed capital, they went first to Nolan Bushnell of Atari, who passed on the opportunity to invest. (Bushnell later said, “It’s kind of fun to think about that, when I’m not crying.”). Bushnell referred them to Don Valentine of Sequoia Capital, who was interested in investing but concerned that Jobs knew nothing about marketing. So Valentine referred Jobs to Mike Markkula, who was a successful marketing manager from Fairchild and Intel. Markkula eventually became Apple’s third co-founder, joining the company as employee number three, investing $250,000, and taking a third of the equity when Apple Computer Company was officially incorporated on January 3, 1977.

As a side note, a fascinating tidbit is this comment from Jobs about Markkula’s investment: “I thought it was unlikely that Mike would ever see that $250,000 again, and I was impressed that he was willing to risk it.” In contrast, Markkula made a prediction at the time: “We’re going to be a Fortune 500 company in two years. This is the start of an industry. It happens once in a decade.” The implication to me is that Markkula believed in Apple more even than Steve Jobs, at least at the time.

Markkula taught Jobs about marketing, writing down the “The Apple Marketing Philosophy” as follows:

Jobs, of course, learned these principles well, becoming world-class at marketing. While the first two principles seem to have received wide acknowledgement (if not adoption), the third principle, Impute, is still unknown.

As Jobs said to Isaacson: “When you open the box of an iPhone or iPad, we want that tactile experience to set the tone for how you perceive the product. Mike taught me that.”

Psychologist Daniel Kahneman explains why this is important in his book Thinking Fast and Slow in the chapter, “Answering an Easier Question,” setting up the dynamic as follows (emphasis mine):

A remarkable aspect of your mental life is that you are rarely stumped. True, you occasionally face a question such as 17 × 24 = ? to which no answer comes immediately to mind, but these dumbfounded moments are rare. The normal state of your mind is that you have intuitive feelings and opinions about almost everything that comes your way. You like or dislike people long before you know much about them; you trust or distrust strangers without knowing why; you feel that an enterprise is bound to succeed without analyzing it. Whether you state them or not, you often have answers to questions that you do not completely understand, relying on evidence that you can neither explain or defend.

The last sentence is the link to Markkula’s Impute principle. People make decisions based on evidence they can neither explain or defend. The key theme of Kahneman’s book is that there are two modes of thinking, an easy, automatic System 1 and a harder, deliberate System 2. In the chapter, Kahneman describes an implication of this framework: people will unknowingly substitute an easy question for a hard question and answer the easy question in place of the hard question, believing they have answered the hard question.

Kahneman goes on to offer a series of examples, but the link to Markkula’s framework is clear. The hard question consumers have to answer is, “Is the product good?” The easy question they often substitute for that question is, “Does the packaging feel nice?”

Starbucks, too, realized this early, investing in the stores and employees as much as, if not more than, the quality of the coffee. Ultimately, everything is the product—the environment, the people, the packaging, etc.—because we, flawed as we are at assessing value and making hard decisions, impute value. Per Markkula, we do judge a book by its cover.