The Seeds of Success

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Engineers and designers at the headquarters of Apple Computer Inc. in Cupertino, Calif., are accustomed to seeing a slender figure saunter past their offices wearing frayed jeans, suede boots and a cowboy shirt. The boyish-looking fellow with the stringy mustache is Steven Jobs, Apple’s chairman of the board. At 26, Jobs heads a company that six years ago was located in a bedroom and garage of his parents’ house, but this year it is expected to have sales of $600 million. Like so many new entrepreneurs, Jobs is a child of California’s Silicon Valley. As a student at Homestead High School in Los Altos during the early 1970s, he was fascinated by technology.

After school, he attended lectures at Hewlett-Packard, the big electronics firm. One day he boldly called William Hewlett, the president, to ask for some equipment for a machine he was building. Impressed, Hewlett gave it to him and helped arrange summer employment. One of Jobs’ best friends at the time was Stephen Wozniak. Pooling their talents, the two Steves built and sold so-called blue boxes, which were illegal electronic attachments for telephones that allowed users to make long-distance calls for free. On one occasion, Wozniak called the Vatican and, pretending to be Henry Kissinger, asked for Pope Paul VI. As Wozniak tells the story, the Pontiff was summoned, and Vatican officials caught on to the ruse only after a bishop came on the line to act as translator. In 1972, Jobs entered Oregon’s Reed College, but he left two years later to ease his family’s financial hardships. He then took a job designing video games at Atari. Wozniak, meanwhile, had dropped out of Berkeley to become a designer at Hewlett-Packard. After hours, Wozniak worked hard building a small, easy-to-use computer. In 1976 he succeeded. The pint-size machine was smaller than a portable typewriter, but it could do the feats of much larger computers.

To Wozniak, the new machine was simply a gadget to show his fellow computer buffs. Jobs, in contrast, saw the commercial potential of the machine that could help families do their personal finance or small businesses control inventories, and he urged that they form a company to market the computer. The two raised $1,300 to open a makeshift production line by selling Jobs’ Volkswagen Micro Bus and Wozniak’s Hewlett-Packard scientific calculator. Jobs, recalling a pleasant summer that he spent working in the orchards of Oregon, christened the new computer Apple.

To build the company, Jobs adroitly tapped the network of support services that has made Silicon Valley such a fertile place for fledgling businesses. Says he: “We didn’t know what the hell we were doing, but we were very careful observers and learned quickly.” Jobs pestered Regis McKenna, the area’s premier public relations specialist, to take on Apple as a client. After refusing twice, McKenna finally agreed. For advice on how to raise money, Jobs consulted both McKenna and Nolan Bushnell, his former boss at Atari. They suggested that he call Don Valentine, an investor who frequently puts money into new firms. When Valentine came around to inspect the new computer, he found Jobs wearing cutoff jeans and sandals while sporting shoulder-length hair and a Ho Chi Minh beard. Valentine later asked McKenna: “Why did you send me this renegade from the human race?”

Valentine mentioned the company to A.C. Markkula, 40, a former marketing manager at Intel, a computer-chip manufacturer. When Markkula offered his expertise and $250,000 of his own money, Jobs and Wozniak made him an equal partner. Markkula helped arrange a credit line with the Bank of America and persuaded two venture capital firms to invest in Apple.

From the start, the Apple team did almost everything right. First they redesigned the prototype into a trim, spiffy model called Apple II. Jobs insisted that the cases for the keyboard and video display be made of light, attractive plastic instead of metal. They also wrote clear, concise instruction manuals that made the machine easy for consumers to use. Sales surged from $2.7 million in 1977 to $200 million in 1980.

The rapid growth, however, was hard to control. In the words of Markkula, the problem was “to keep the race car on the track.” The introduction in 1980 of Apple III, a more powerful version of its predecessor, was a fiasco. The new machines, plagued by production snafus, were full of bugs and had to be withdrawn from the market. Early last year some 40 employees were fired, and the project manager of Apple III resigned: Since then, Apple’s growing pains have eased. Sales of a retooled Apple III have improved, and those of the less expensive Apple II Plus, which is available for $1,530, total 15,000 a month.

Overseeing Apple’s growth has kept Jobs too busy to spend the millions he earned when the company went public 14 months ago. He took a few days off last year to go backpacking in Yosemite National Park. Except for some Japanese woodprints and a Maxfield Parrish painting, his unpretentious prints and a Maxfield Parrish painting, his unpretentious Tudor-style home in Los Altos Hills is largely bare because he has not decided how to furnish it. As an executive, Jobs has sometimes been petulant and harsh on subordinates. Admits he: “I’ve got to learn to keep my feelings private.”

Apple has now come to a critical juncture. The company, which last year garnered 23% of the $2.2 billion worldwide market in personal computers, has to fight off a host of aggressive competitors. Tandy Corp.’s Radio Shack, with its 8,400 retail outlets, has captured an equal 23% of sales. Xerox has a new entry that its engineers call the “worm” because they claim that it can eat an Apple. Most important, mighty IBM has joined the fray with its first personal computer.

Apple plans to outpace the competition by maintaining an innovative edge. Spending on research and development has increased from $3.6 million in 1979 to $21 million last year. The company is currently modifying the Apple II to reduce manufacturing costs and this summer will introduce a less expensive version called the Super II. It is also preparing to unveil early next year a new machine that already has the computer world abuzz. Code-named Lisa, after one of Jobs’ ex-girlfriends, it is both more powerful and easier to use than Apple III.

In addition to developing new products, Apple will have to prove that it has the management talents needed in a firm that this year will join the ranks of the Fortune 500. Though Wozniak remains a major shareholder, he has dropped out of company affairs and returned to Berkeley to finish his studies. Markkula plans to retire within two years to spend more time with his family. Jobs, who had the vision to build one of America’s foremost companies from a hobbyist’s toy, must show that he has the foresight and ability to guide a major corporation.