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  Table of Contents

  Title Page

  Copyright Page

  Dedication

  Acknowledgements

  Introduction

  BOOMTOWN BY THE BAY

  SUPER SECRET SKY SPIES

  CARBURETORS AND MICROPHONES

  THE CREAM SODA COMPUTER

  THE CONDUCTOR

  THE LITTLE BLUE BOX

  HONEY AND NUTS

  BUCKETS OF NOISE

  STANLEY ZEBER ZENSKANITSKY

  HALF RIGHT

  A LOT OF POOP

  MERCEDES AND A CORVETTE

  WHAT A MOTHERBOARD

  UP TO SPEC

  THE BEST SALESMEN

  THE BOZO EXPLOSION

  THE PLATINUM CREDIT CARD

  WELCOME IBM, SERIOUSLY -

  EPILOGUE

  INDEX

  Also by Michael Moritz (with A. Barrett Seaman)

  Going for Broke: The Chrysler Story

  The Overlook Press, Peter Mayer Publishers, Inc.

  141 Wooster Street

  New York, NY 10012

  www.overlookpress.com

  Copyright © 1984, 2009 by Michael Moritz

  The author gratefully acknowledges Fortune for permission

  to reprint content included in the Prologue here.

  This book, excluding the Prologue and Epilogue,

  was previously published in a slightly different form under

  the title The Little Kingdom: The Private Story of Apple Computer

  (William Morrow & Co, 1984).

  All rights reserved. No part of this publication may be reproduced or

  transmitted in any form or by any means, electronic or mechanical,

  including photocopy, recording, or any information storage and retrieval

  system now known or to be invented, without permission in writing from

  the publisher, except by a reviewer who wishes to quote brief passages

  in connection with a review written for inclusion in a magazine,

  newspaper, or broadcast.

  Cataloging-in-Publication Data is available from

  the Library of Congress

  eISBN : 978-1-590-20364-4

  http://us.penguingroup.com

  For the best additions since

  the first edition:

  HCH JWM WJM

  ACKNOWLEDGMENTS

  Dozens of people agreed to be interviewed for this book. Many did not. I hope that those who opened their doors and interrupted more profitable pursuits don’t feel they wasted their time. Others kindly let me rummage through filing cabinets and peer at photograph albums while the editors of the San Jose Mercury News made me welcome in their morgue. Dick Duncan, Time’s chief of correspondents, tolerated another of my disruptive excursions and gave me a leave of absence. Ben Cate, Time’s West Coast Bureau chief, provided the unwavering support that those who have worked for him will understand. Catazza Jones improved a first draft, Julian Bach took care of business, and Maria Guarnaschelli applied a deft and graceful touch.

  —MICHAEL MORITZ

  Potrero Hill

  Spring 1984

  PROLOGUE

  When Time engages in its annual ritual of announcing the selection for its person of the year, I am inevitably reminded of an occasion, almost thirty years ago, when a similar bulletin caught me in its crosshairs. At the dawn of 1982, while I was on leave from my position as a correspondent in Time’s San Francisco bureau, the magazine’s editors decided to nominate the computer as its “person” of the year. Buried inside this issue was a profile, to which I had contributed, of Apple’s co-founder Steve Jobs. It was there that my troubles began.

  It was hard to say who was more incensed by Time’s story—Jobs or me. Steve rightly took umbrage over his portrayal and what he saw as a grotesque betrayal of confidences, while I was equally distraught by the way in which material I had arduously gathered for a book about Apple was siphoned, filtered, and poisoned with a gossipy benzene by an editor in New York whose regular task was to chronicle the wayward world of rock-and-roll music. Steve made no secret of his anger and left a torrent of messages on the answering machine I kept in my converted earthquake cottage at the foot of San Francisco’s Potrero Hill. He, understandably, banished me from Apple and forbade anyone in his orbit to talk to me.

  The experience made me decide that I would never again work anywhere I could not exert a large amount of control over my own destiny or where I would be paid by the word. I finished my leave; published my book, The Little Kingdom: The Private Story of Apple Computer, which I felt, unlike the unfortunate magazine article, presented a balanced portrait of the young Steve Jobs; honored my obligation to Time and, at the first opportunity, fled to become, at the outset, half of the entire workforce of a specialty publishing business that many years later—long after I had entered the venture capital field—was acquired by Dow Jones.

  In the three decades since, I have sometimes wondered about the quirks of fate that have connected me with Steve. Had I not been in my twenties, Time would probably never have posted me to San Francisco, where I happened to be of the same generation that was starting computer, software and biotech companies. Had I not met Steve, I would not have encountered Don Valentine, the founder of Sequoia Capital, and an original investor in Apple. Had I not met Don, I would never have found myself interviewing to become the lowest man on Sequoia Capital’s short totem pole. Had I not written about Apple, where I became obsessed with the then-unchronicled tale of its very early days, I would never have thought hard about the traits and accidents that shape a company. Had I not started learning the ropes of the venture trade in the mid 1980s, I would never have had the good luck that has flowed my way. And, had I not met Steve and Don, I would never have understood why it’s best not to think like everyone else.

  I’m sure that when Steve was a teenager, growing up in Los Altos, California, he could never have imagined that some day he would be at the helm of a company whose headquarters, according to Google maps, is three street turns and 1.6 miles from the front gate of his high school, that has sold over 200 million iPods, a billion iTunes songs, 26 million iPhones, and over 60 million computers since 1996; or that his face would have adorned the front cover of Fortune on twelve occasions; or that, almost as a sideline, he would single-handedly finance and help shape Pixar, the computer animation company that has rung up more than $5 billion in cumulative box office sales from ten immensely popular movies. He might wonder too about those twists and turns that helped make him what he is: the fact that his boyhood was spent in an area that, back then, had not even been labeled Silicon Valley; that Apple’s co-founder, Stephen Wozniak, was a boyhood chum; that he worked one summer as a lab technician at Atari, the maker of Pong, the first popular arcade video game; that Atari’s founder, Nolan Bushnell, had raised money from Don Valentine; and that Nolan was one of the people who steered Steve towards Don. Such are the haphazard breadcrumbs strewn along the trail of life.

  These days, thanks to the rough and tumble experiences of almost twenty-five years in the venture capital business, I have developed what I hope is a more refined perspective on the extraordinary accomplishments of Steve’s business life—one that deserves to be ranked amongst the greatest of any American, living or dead.

  Steve is the CEO of Apple but, much more importantly (even though his business card does not say this), he is a founder of the company. As the history of Apple shows, there is no greater distance known to man than the single footfall that separates a CEO from a founder. CEOs are, for the most part, products of educational and institutional breeding. Founders or, at least, the very best of them, are unstoppable, irrepressable forces of nature. Of t
he many founders I’ve encountered, Steve is the most captivating. Steve, more than any one other person, has turned modern electronics into objects of desire.

  Steve has always possessed the soul of the questioning poet—someone a little removed from the rest of us who, from an early age, beat his own path. Had he been born at a different time, it’s easy to see how he would have hopped freight cars and followed his star. (It is not a coincidence that he and Apple helped underwrite Martin Scorcese’s No Direction Home, the absorbing biopic of Bob Dylan.) Steve was adopted and raised by well-meaning parents who never had much money. He was attracted by Reed College, a school that exerts an unusual appeal for bright and thoughtful teenagers, and which, in the 1970s, was tailor-made for any child who wished he had been at Woodstock. It was there that a calligraphy class sharpened his sense of the aesthetic—that influence is still apparent in all Apple products and advertising.

  Jobs’s critics will say he can be willful, obdurate, irascible, temperamental, and stubborn—but show me someone who has achieved anything meaningful who, from time to time, doesn’t display these characteristics, who is not a perfectionist. There is also the mischievous, calculating, suspicious twinkle of the souk about Steve. He is an insistent, persuasive and mesmerizing salesman—about the only man I know with the audacity to adorn bus shelters nationwide with advertisements for a product as mundane as a wireless mouse. But he is also a man who, decades ago, was kind enough make visits to a hospital to visit a CEO felled by a stroke and who, recently, in an avuncular fashion, has offered younger Silicon Valley CEOs generous advice.

  About the time I entered the venture business, Apple’s board fired Steve in favor of a man from the East who was a creature of convention. Characteristically, Steve sold all but one share of his holdings in the company and, at Sequoia Capital, we shook our heads as we watched him shape the company that he came to call NeXT. He raised money from investors (including Ross Perot) at a massive valuation and I remember visiting its headquarters, which bore all the hallmarks of a fiasco-in-waiting. There was a logo designed by Paul Rand and a floating staircase in the lobby—echoes of which are visible in the staircases that you can see today in many Apple stores.

  NeXT took Steve out of his natural milieu. He was trying to sell computers to large companies—entities not swayed by products with visceral appeal. It also meant he was removed from the fray of the consumer business at a time when computer companies were beginning to demonstrate that, thanks to their edge with software and silicon, they had a natural advantage over consumer companies struggling to become computer companies. Steve persisted at NeXT when weaker beings would have thrown in the towel, but eventually when the death rattle started to emanate from the company, it appeared that he too would be consigned to occupy a footnote in history.

  It’s hard now, twelve years later, to appreciate the dire straits that Apple was in after it bought NeXT at the end of 1996 in a desperate effort to revivify itself. The Silicon Valley cynics chuckled at the way Steve was able to sell NeXT for more than $400 million even though it only had sold about 50,000 computers. Steve returned to Apple hardened by years of commercial adversity.

  Many are familiar with the re-emergence of Apple. They may not be as familiar with the fact that it has few, if any parallels. When did a founder ever return to the company from which he had been rudely rejected to engineer a turnaround as complete and spectacular as Apple’s? While turnarounds are difficult in any circumstances they are doubly difficult in a technology company. It is not too much of a stretch to say that Steve founded Apple not once but twice—And the second time he was alone.

  For anyone who would like to gain a better sense of Steve, I suggest going to YouTube and watching the commencement speech he gave at Stanford in 2005—which must rank as one of the more forthright and meaningful addresses ever given to a collection of young people. Among the sentiments he conveyed was the opportunity we all have to make our mark, do something special and, above all, follow our own path. He ended that talk with the admonition, borrowed from the final edition of the Whole Earth Catalog, to “Stay Hungry. Stay foolish.” This, I have discovered, also happens to be wonderful advice for anyone who wants to spend their life investing in young companies.

  —Michael Moritz,

  San Francisco, 2009

  INTRODUCTION

  Writing about companies can be a perilous occupation. For like people, companies are never what they seem to be. Both share a natural impulse to put their best foot forward but companies, particularly large ones, spend a lot more time and money on appearances than do most individuals. Advertisements are designed to portray the corporation and its products in the most appealing light. Public-relations agencies are retained to issue press releases, deal with reporters, and cope with uncomfortable issues. Security analysts, bankers, and brokers are sedulously courted to make sure that stock exchanges give proper attention to the company’s shares.

  There is then some charm about businesses that have not stepped into the public light. They don’t have to worry about the strictures of federal agencies or shareholders who appreciate only a cultivated notoriety. Their founders and managers tend to speak with fewer inhibitions than executives at larger organizations, and they guard their secrets with less anxiety. During their first few years most companies are content with whatever publicity they can get. But the stories that appear in large newspapers and magazines tend, by virtue of the subject, to be short and usually gloss over many aspects of a young company’s progress while the appeal of novelty tends to soften criticism. Yet by the time corporate histories are commissioned the details of those early stages are often lost. Myths spring up about life in the good old days and even the best-intentioned efforts turn from fact to fiction. Nostalgia, as the wise man said, isn’t what it was. So there’s much to be said for writing about a company before its founders and early employees die or lose details in a gin-mottled fog.

  While they remain small, companies are easy enough to describe but once they outgrow a garage or an office suite they become increasingly opaque. As employees are scattered in factories and warehouses across the country or overseas, one is left to deal with impressions that have to be recorded with the dots and dabs of pointillism. If sheer size is one obstacle there are also more mechanical obstructions. For trying to figure out the tone and nature of a large American corporation is a bit like charting the affairs of Gorki. Some stories can be gleaned from bitter refugees but a closer inspection is more hazardous. It’s difficult to obtain a tourist visa, simple to discover the official line, impossible to move around without being followed, and all too easy to get expelled.

  Sad to say, small businesses in a particular corner of California have an irritating habit of turning into large corporations. During the past thirty years the orchards between San Jose and San Francisco have been mowed down to make way for dozens of companies which now form Silicon Valley. Most of these make their money from some connection with electronics and have grown so fast that it’s easy to believe that the prunes and apricots shed some fertile residue. During the last decade, as developments in microelectronics have moved from the missile cone to the tabletop, these companies have attracted the usual parasitic herd of politicians, management consultants, and journalists eager to uncover a cure for the ills that have bothered other industries.

  To some extent the popular conception of these companies has been formed by contrived illusion. They are supposed to conduct their business in novel ways. They are considered to be informal and relaxed places to work, where unusual minds can be kept entertained. Their founders are supposed to share the wealth, while hierarchy and bureaucracy, the curses of conventional corporations, have somehow been abolished. The heads of companies, we are told, let employees wander into their offices and are reluctant to fire anyone but thieves and bigots. To listen to the publicity merchants these companies are started by people with daring imaginations and a yen for risk. They seem to introduce new products with the pre
dictable certainty with which Henry Kaiser once launched Liberty ships and the development of a new chip or a faster computer is invariably portrayed as the result of the march of destiny. They are rarely discussed without some invocation of God, country, or the pioneering spirit.

  There is no better example of all this than Apple Computer, Inc., which is Silicon Valley’s most precocious child. Within eight years it has gone from a living room to a yearly sales rate of more than $1 billion while the stock market has placed a value of more than $2.5 billion on its shares. It took less time to reach the Fortune500 than any other start-up in the history of the index and it stands a good chance of falling among the one hundred largest U.S. industrial corporations before its tenth birthday. Two of its stockholders are said to be among the four hundred wealthiest people in the United States and well over one hundred of its employees have become millionaires. By most conventional standards Apple has dwarfed the accomplishments of any company born in Silicon Valley. It is larger than enterprises founded decades earlier, it has designed and introduced new products, and it hasn’t had to seek help from a corporate sugar daddy.

  When I started to think about writing this book, Apple was already a large company. It was perched between the great success brought by the Apple II personal computer and the twin challenges of building and introducing a new round of machines and competing with the Juggernaut from Armonk, IBM. Apple’s early days were fast slipping into the stuff of folksong and legend and the personal-computer industry was maturing fast. Small companies that had managed to survive the early days were beginning to fall by the wayside. A few had emerged as leaders and Apple was one.