When people go on vacation, they tend to take twice as many clothes as they’re going to need, and

half as much money. Young companies make the same mistake about money: They start out with too
little.
Now for the good part: Starting from scratch, a young company can grow very fast. It’s small and
it’s restless, and it has plenty of room to expand in all directions. That’s the key reason young
companies on the move can outdistance the middle-aged companies that have had their growth spurt
and are past their prime.

The Company in Middle Age

Companies that manage to reach middle age are more stable than young companies. They’ve made a
name for themselves and they’ve learned from their mistakes. They have a good business going, or
they wouldn’t have gotten this far. They’ve got a proven record of reliability. Chances are they’ve got
money in the bank and they’ve developed a good relationship with the bankers, which comes in handy
if they need to borrow more.
In other words, they’ve settled into a comfortable routine. They’re still growing, but not as fast as
before. They have to struggle to stay in shape, just as the rest of us do when we reach middle age. If
they allow themselves to relax too much, leaner and meaner competitors will come along to challenge
them.
A company can have a midlife crisis, the same as a person. 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.
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 by 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 one hundred
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 mouse, the Lisa didn’t sell. Apple’s earnings took a tumble, and so did the
stock price—down 50 percent in a year.
Apple was less than ten years old, but it was having a full-blown midlife crisis. Investors were
dismayed, and the company’s management was 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 expert, but he knew marketing.
Marketing is what Apple needed.
Apple was split into two divisions, 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 seventy thousand Macintoshes in three 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 interesting 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
easy 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 quandary. 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 hope that
the company can launch a comeback. In hindsight, it’s easy to see that Apple recovered, but at the time
of the crisis, the recovery was far from assured.

The Company When It’s Old

Companies that are twenty, thirty, fifty years old have put their best years behind them. You can’t
blame them for getting tired. They’ve done it all and seen it all, and there’s hardly a place they can go
that they haven’t already been.
Take Woolworth. It’s been around for more than one hundred years—several generations of
Americans grew up shopping at Woolworth’s. At one point, there was a Woolworth’s outlet in every
city and town in America. That’s when the company ran out of room to grow.
Recently, Woolworth has suffered a couple of unprofitable years. It can still make a profit, but it
will never be the spectacular performer it was when it was younger. Old companies that were great
earners in the past can’t be expected to keep up the momentum. A few of them have—Wrigley’s,
Coca-Cola, Emerson Electric, and McDonald’s come to mind. But these are exceptions.
U.S. Steel, General Motors, and IBM are three prime examples of former champions whose most
exciting days are behind them—although IBM and GM are having a rebound. U.S. Steel was once an
incredible hulk, the first billion-dollar company on earth. Railroads needed steel, cars needed steel,
skyscrapers needed steel, and U.S. Steel provided 60 percent of it. At the turn of this century, no
company dominated its industry the way U.S. Steel dominated steel, and no stock was as popular as
U.S. Steel stock. It was the most actively traded issue on Wall Street.
When a magazine wanted to illustrate America’s power and glory, it ran a picture of a steel mill,
with the fire in the furnaces and the liquid metal pouring like hot lava into the waiting molds. We
were a nation of factories then, and a good deal of our wealth and power came from the mill towns of
the East and the Midwest.
The steel business was a fantastic business to be in, and U.S. Steel prospered through both world
wars and six different presidents. The stock hit an all-time high of $1087/8 in August 1959.
This was the beginning of the electronic age and the end of the industrial age and the glory of steel,
and it would have been the perfect time for investors to sell their U.S. Steel shares and buy shares in
IBM. But you had to be a very farsighted and unsentimental investor to realize this. After all, U.S.
Steel was classed as a blue chip, Wall Street’s term of endearment for prestigious companies that are