Features

Steve Jobs: The Wilderness, 1985-1997


On May 31, 1985, a few hours after he had been stripped of all authority at the company he had co-founded, Steve Jobs sat bewildered and puffy-eyed on a mattress in his nearly furniture-less 30-room mansion. Apple Computer had subsumed his entire adult life. He was 30 and unmarried. With no one to come home to, Jobs spent hours that evening talking to whichever of his friends picked up the phone. He sounded desperate enough that former Apple (AAPL) executive Mike Murray raced over to the mansion. “I didn’t think he should be alone,” says Murray.

A month later, Jobs had recovered sufficiently to travel with a girlfriend through Russia and Italy, flirt with California’s Democratic Party bosses about a possible Senate run, and, after a conversation with Nobel laureate Paul Berg [footnote 1] about the need for more powerful computers for science students, muse about creating a new kind of computer company. In September, Jobs announced that he was quitting Apple and its board, where his role was almost entirely ceremonial, to start NeXT Computer. NeXT machines would power the world’s top brains by simplifying powerful UNIX computers for the higher education market. That was the plan, anyway.

Despite promises not to compete with Apple, Jobs wooed some of Apple’s best managers, including Bud Tribble, who’d led development of the Macintosh operating system; education market chief Dan’l Lewin; and Susan Barnes, a graphic artist who had created many of the Mac’s famous icons. He either called his targets from the remote office to which he’d been banished or invited them for long neighborhood walks, where he made the NeXT pitch. Jobs ended up landing six recruits, who joined him most days that September at his mansion for brainstorming sessions and meals prepared by a married couple, both chefs, who lived in Jobs’s guest cottage. Nothing at these meetings was put on paper. Jobs knew he was daring Apple to sue him—and Apple did just that a few weeks after NeXT launched, accusing Jobs of “nefarious” raiding of Apple staffers who were armed with trade secrets. The company pulled the suit a few days after filing rather than risk revealing trade secrets in the discovery process.

Jobs had sold $14 million of his $100 million Apple stake. (He would soon sell the rest.) He poured most of it into making NeXT look less like a startup than an immediate Apple competitor. Millions went into the construction of a state-of-the-art factory [footnote 2] in Fremont, Calif., so posh that Jobs hosted dinners there. It would pay for itself, provided NeXT could sell more than 150,000 of the workstations it planned to offer each year. He also rented airy office space in a Palo Alto building that had an I.M. Pei-designed stairway, [footnote 3] and he loaded the place up with $10,000 sofas and $5,000 chairs. Famed graphic designer Paul Rand received a $100,000 fee to create the company’s logo.

NeXT had style in abundance, and it had funding. Electronic Data Systems (EDS) founder H. Ross Perot invested $20 million, and Canon later put in $100 million. What it lacked was discipline. Apple’s 21st century dominance has been built on a limited product line and Jobs’s insistence that Apple use only proven outside technologies. At NeXT, by contrast, Jobs crammed the Hartmut Esslinger-designed cube-shaped computer with every shiny new toy he could find. There was an Ethernet port for easy networking; a microphone and speech-processing software; a patented, hard-to-manufacture monitor stand; and a magneto-optical drive he predicted would be faster and cheaper than a floppy. The result was a computer that cost $10,000 to make—and wasn’t worth the price. “We had 350 employees,” recalls Chris MacAskill, who ran developer relations for NeXT. “And 349 didn’t want to bet the company on that stupid magneto-optical drive.”

Jobs received ample feedback that his strategy was as muddled as his product vision. Former Sun Microsystems CEO Jonathan Schwartz sparred with Jobs about software. NeXT didn’t run the Microsoft Office suite. Instead it relied on a handful of companies, such as Schwartz’s Lighthouse, to make knock-off apps. Jobs wanted the software guys to sell their wares for $99, similar to PC packages at the time. “When you sell your computer at PC prices, I’ll give you PC pricing on my software,” Schwartz told him, before pricing Lighthouse software for NeXT at $1,000. According to former NeXT managers including MacAskill, Lighthouse ended up being one of only a handful of software firms to make money from its NeXT products.

If Jobs knew NeXT was a loser, he rarely let on. He remained demanding, confident, and grandiose. Asked to deliver the keynote speech at a computer trade show at the Javits Convention Center in Manhattan, Jobs told MacAskill to ship out Jobs’s own desk—complete with the vase and red rose he always kept there—for him to sit at onstage. He insisted that the desk be placed at a 28-degree angle, to match the angle of Rand’s box-shaped logo, which was tipped to one side. A few minutes before the curtains opened, MacAskill begged Jobs not to introduce a new Lotus spreadsheet that hadn’t been cleared by Lotus. “Fine,” Jobs said, “then you do the speech,” and walked off “only to return as the curtain opened.” MacAskill says he and everyone else put up with the volatility and withering personal insults because “we really thought we had the chance to change the world.”

 

The hopes of the NeXT team would remain just that, however. The seeds of Jobs’s renaissance actually trace back to a different source. While Jobs was still at Apple, he and Alan Kay, a technologist at the company, took a limo to visit a small special-effects outfit in Marin County owned by Star Wars creator George Lucas. Lucas was going through a divorce and looking to spin off the company, which would come to be known as Pixar. It aspired to create the world’s first feature-length animated movie made entirely on computers. Given the state of computing power at the time, the goal was years away, but Jobs left the meeting convinced that Apple should buy Lucas’s company to help extend its lead in graphics.

Following his ouster from Apple, Jobs made a $5 million offer. Pixar founders Ed Catmull and Alvy Ray Smith thought it was too low, and worried that Jobs was more interested in computers than movies—and more focused on repairing his legacy than supporting their dreams. “We didn’t want to be the first woman after the divorce,” Catmull later explained to staffers.

Catmull and Smith instead pursued deals with SGI (SGI), Microsoft (MSFT), and EDS, then a subsidiary of General Motors (GM). None of them worked out. (GM’s joint bid with Philips Electronics was all but inked, but fell through when EDS founder and future NeXT investor Perot was booted from GM’s board.) In the end, Jobs bought Pixar for $10 million—roughly a tenth of the opening weekend box office for 2010′s Toy Story 3 and 0.13 percent of the $7.4 billion Walt Disney (DIS) would pay for Pixar [footnote 4] in 2006.

Jobs’s initial approach to running Pixar mirrored his approach to NeXT. The suspicions of Catmull and Smith were correct: Jobs wasn’t that interested in making movies. Rather than special effects, Jobs focused on a corporate-sales business, which he believed was more vital to the company’s future. He positioned Pixar to sell $150,000 computers loaded with Pixar software to corporate graphics departments—and gave the cash-strapped company $100,000 to hire Esslinger’s Frog Design to design the machine. Jobs indulged former Disney animator John Lasseter by forking over a few hundred thousand dollars a year to create three-minute shorts—Luxo Jr., Red’s Dream, and Tin Toy, in which metal objects such as lamps, unicycles, and drummer-boy toys came alive. The shorts wowed the crowd at the annual graphics industry convention each year, even if Jobs remained somewhat indifferent to them.

By 1990, Jobs and co-founder Smith were warring for Pixar’s soul. At a board meeting that year, after screaming at each other from just inches apart like an umpire and manager, Smith tried to grab a whiteboard marker from Jobs. “You know how Jobs loves to control that whiteboard, but I’d had enough,” says Smith, who says Jobs began making fun of his Southern accent. “He was street-fighting. It was ugly.” Smith left less than a year later, when Jobs O.K.’d his plan to use a Pixar technology to create a new graphics company. Then Jobs wrote him out of Pixar’s history, says Smith. You won’t find any mention of him on the company’s website. “It’s all true—the good and the bad,” says Smith of working with Jobs. “Even if we don’t like each other, he financed us when nobody else would.”

 

For a while it appeared that both of Jobs’s new companies would fail. When he was finally ready to unveil his first NeXT prototypes in October 1988, Jobs pumped up expectations by renting out San Francisco’s Davies Symphony Hall. The machine played a duet with one of the symphony’s violinists. The first NeXT wouldn’t go on sale until a year later, and when it did, no amount of showmanship could distract from its $6,500 price—which was many thousands more than the price target in the original NeXT business plan. (Jobs never made the mistake of pre-announcing a product again.)

Jobs tried to find more customers by signing distribution deals with IBM (IBM) and Businessland, a chain of computer stores, and releasing a new 1990 model priced at $5,000 that at least nodded to consumer needs with a traditional floppy drive. By 1992 key staffers, including Tribble and hardware engineering chief Rich Page, were leaving. At one board meeting around this time, Perot [footnote 5] was discussing how NeXT needed to do a better job listening to consumers. Jobs walked out on him. “Did the CEO of this company just walk out on me?” asked Perot, according to a former NeXT executive. “Does that mean I get my $20 million back?” NeXT kept Perot’s money but lost him from the board. He resigned in June 1992. (Perot did not respond to requests for comment.)

The situation at Pixar was just as dire—and financially worse for Jobs. Without a steady source of revenue, he was forced to write more than $40 million in personal checks to keep the business afloat. “It was not an insignificant portion of my net worth,” [footnote 6] he told BusinessWeek in 1998. “There were times that we all despaired, but fortunately not all at the same time.”

What changed everything was not Jobs’s intuitive sense of the market nor his vision as a product guy but a cowboy and an astronaut. After more than a decade of annual treks to Disney’s headquarters in Burbank, Pixar had pushed the state of the art to the point that it finally landed a three-film production contract in 1991. By early 1994 it was clear that the company’s first movie, Toy Story, was going to be extraordinary.

Jobs wasn’t born to the movie business, but he’d surrounded himself with creative people during his days at Apple and, as he explained in 1998, it merely took time to adapt that experience from one discipline to another. “Hollywood and Silicon Valley exist in the same state, but they have absolutely no idea about each other,” said Jobs. “It’s hard work [making good movies]. That’s why so much of it isn’t any good—just like with software.” Jobs would also win respect for knowing the limits of his expertise. After a few unsuccessful attempts to stick his fingers in the movie-making process, he took the hint from Pixar staffers and agreed to stay out of all story meetings, according to several former Pixar staffers. Former Walt Disney Studios head Joe Roth remembers that, before Toy Story came out, Jobs argued it should be marketed as the first fully computerized movie. Roth and others disagreed. “I said we’re going to sell it as a great story, and let people be wowed by the tech,” Roth told BusinessWeek. “And you know what? He said O.K.”

In the weeks before Toy Story‘s Nov. 22, 1995, release, Pixar was more than $4 million in debt, with revenues of just $10 million, according to SEC filings. The company was tiny. Only the advance buzz about Toy Story gave Pixar’s future any shape. Former Pixar Marketing Vice-President Pamela Kerwin says that Larry Sonsini, Jobs’s friend and the chairman of Silicon Valley law firm Wilson Sonsini Goodrich & Rosati, told her and other Pixar executives that Jobs’s idea of an initial public offering at that point was delusional. Yet for the first time in years, Jobs was telling people he felt he had a great product in his back pocket—and one that wasn’t aimed at the suits and academics he’d targeted with the NeXT cube, but at the upscale, mainstream consumers he’d won over at Apple.

Jobs told Goldman Sachs’s bankers to time a Pixar IPO around the debut of the movie. Ten days after Toy Story opened to long lines and soaring reviews, Pixar went public at $22 a share. When the stock closed at $33 that afternoon, Jobs celebrated by sampling 150-year-old balsamic vinegar. With an 80 percent stake in the company, he was a paper billionaire. He called his friend Larry Ellison to say he’d made it to the B-club.

 

Suddenly, Jobs was no longer just a computer guy. There were changes in his personal life, too. In 1991 he married Laurene Powell, whom he had met while preparing to give a talk at Stanford Business School. Avi Tevanian, NeXT’s software chief, and another executive arranged for a low-key bachelor party at a well-known San Francisco eatery. After they sat down, Jobs decided they needed to go to a nearby spot that made only soufflés. The wedding, a small affair held at the Ahwahnee Hotel in Yosemite National Park, was officiated by a Buddhist monk. The newlyweds moved to Palo Alto and had their first child, Reed, named for the college Jobs attended but never graduated from. Jobs soon welcomed his estranged daughter, Lisa [footnote 7], back into his house, as well.

By all accounts, Jobs had entered a contented middle age, the Sturm und Drang of his Apple days now fading into history. During an appearance to promote Toy Story‘s DVD release on Oct. 30, 1996, Jobs was asked by Charlie Rose whether Apple could turn itself around. “It’s just a spectator sport for me now,” said Jobs. Rose didn’t buy it; he bet Jobs that he’d be doing something in computing within five years. “Oh, I tend to stay with what I start until somebody kicks me out.” Jobs wasn’t truly indifferent about Apple, of course. He told friends that the company was dying. When Ellison explored purchasing Apple in 1996, Jobs told BusinessWeek that he tried to talk him out of it. “I thought he’d lose his shirt.”

NeXT wasn’t performing any better. With money rapidly disappearing, Jobs had announced in early 1993 that NeXT would get out of the costly hardware business. Instead it would license its NeXTStep software, a variant of the powerful UNIX operating system that could work with many processors and more effectively handle sound and graphics. The move was long overdue, but according to Tevanian, Jobs lost interest once there were no more sleek machines to make. By 1995, Jobs told a family friend that he was prepared to let NeXT go bankrupt.

In 1996, a marketing manager at NeXT took it upon himself to call Apple to gauge its interest in NeXTStep. It was an open secret in Silicon Valley that Apple had given up on its own crumbling operating system and was in talks to buy tiny software maker Be Inc. so it could start fresh, replacing MacOS with BeOS. Jobs had no idea about any of this. He found out only when he happened to call a NeXT colleague at the same moment that a team from Apple arrived for a NeXTStep demo, say former NeXT executives.

It did not take him long to capitalize. On Dec. 2, 1996, Jobs demonstrated NeXTStep to Apple CEO Gil Amelio in a conference room at Palo Alto’s Garden Court Hotel. “He turned on the charm that day,” says former Apple CFO Fred Anderson. Apple ended up paying $430 million for NeXT, well above the $185 million price Be CEO Jean-Louis Gasse had agreed to sell his company for. Upon hearing the news, Gasse fumed to BusinessWeek that “Steve cast a homoerotic spell on Amelio and the Apple board,” though he says now, “It was the best thing for the world.” On the night of the deal, Jobs said: “I’ve been gone for 11 years. Apple’s a very different place, and I’m a very different person.”

The Jobs who returned to Apple’s Cupertino campus for the first time in a decade initially betrayed no signs of wanting to run the company. Although Apple dug up his original ID badge, he rarely came into the office, choosing instead to invite Apple executives for walks around Palo Alto. But as weeks passed he couldn’t hide his disapproval of Amelio’s strategy for keeping Apple out of bankruptcy. An executive remembers Jobs walking out of one meeting and calling Amelio “a bozo.” When Apple’s board ousted Amelio in July 1997, Jobs at first refused to take the job full-time, choosing to call himself “the iCEO,” for “interim.” He only dropped the “interim” in early 2000, when the board gave him a Gulfstream V jet and options for 10 million Apple shares which later turned out to have been improperly backdated, to artificially raise their value to the share price at an earlier date.

His first moments back at the helm certainly seemed like “Old Steve.” Minutes after Amelio gave his goodbye to the executive staff, Jobs—clad in shorts and scruffy as a beach bum—walked in and swiveled in his chair at the head of the board table. Rhetorically, he asked the group why Apple was in such poor shape. Before anyone could answer, he roared: “The products suck! There’s no sex in them anymore!” Amelio had a plan to vastly simplify Apple’s product line, but by the end of the day Jobs had done that and more. From then on the focus was on birthing the iMac, the product that saved Apple from bankruptcy, and before long he had O.K.’d work that led to the iPod, the product that changed the company’s trajectory for good.

Despite the occasional outbursts, a wiser, more effective Jobs was rapidly emerging. While NeXT veterans such as software chief Tevanian and hardware maven Jon Rubinstein were already on Apple’s executive staff, Jobs identified and promoted Eddy Cue out of customer service to build Apple’s online store. (Cue has run iTunes since its 2001 inception.) Jobs also discovered the design bunker of Jonathan Ive, which was located across the street from Apple’s main Infinite Loop [footnote 8] campus—a sure sign that it was seen as a lower priority than other corporate functions. In short order, Jobs moved Ive close to his own office and gave him cutting-edge equipment, his own kitchen, and hefty security to ensure secrecy.

What Apple seemed to have in Jobs 2.0 was all of the features that made the young Steve Jobs great—charisma, vision, rigorous standards—with some new functionality, too. Perot had counseled that the only way investors would let him pursue cool things was by delivering consistent profits, so Jobs became the business world’s most unapologetic sandbagger; Apple has beaten Wall Street’s expectations by 30 percent, on average, since 2006, according to Bloomberg data. If he wasn’t softer, Jobs was at least more considerate; he ended company speeches with thanks to employees and their families for putting up with the grueling hours.

And the simple elegance of his product vision was also coming into focus. A few months after taking over, Jobs called operations chief James M. McCluney and hardware engineering chief Rubinstein into his office and dramatically lifted a Styrofoam model of what would be the iMac out of a bowling bag. The duo reported back a few weeks later that it wouldn’t work, because they couldn’t find room for a floppy drive. Hardly missing a beat, Jobs said, “No worries. Disk drives are over the hill. CDs are going to get so cheap that no one will miss [floppies].” Says McCluney: “It was remarkable. It was a snap judgment.”

Before Jobs could begin wowing consumers and delivering profits, he needed some help from a once-hated rival. Microsoft was thinking of discontinuing the Mac version of its Office suite of apps—a move that might well kill the already shrinking Mac business. Amelio had already begun talks with Microsoft that were designed to win huge patent royalty payments. Jobs—the same emotional enfant terrible of years past—had a better idea, though many of his loyalists would initially think he’d sold his soul to the devil.
 
Footnotes:
1. Berg won the Nobel Prize in Chemistry in 1980 for his study of the biochemistry of nucleic acids.
2. A 1990 Fortune article reported that robots outnumbered people 13 to 5 on the NeXT production line. Jobs said, “I’m as proud of the factory as I am of the computer.”
3. The U.S. Patent Office shows two design patents for glass staircases under Jobs’s name; the staircases are a prominent feature at Apple Stores.
4. The highest-grossing Pixar film was Toy Story 3, which hit theaters in June 2010. It took in $1.1 billion worldwide.
5. In a 1988 BusinessWeek interview, Perot recalled introducing Jobs to the King of Spain at a party in San Francisco. Jobs sold the monarch a computer.
6. Jobs’s net worth as of September 2011 was an estimated $7 billion.
7. Apple introduced the Lisa computer, named for Jobs’s daughter, in 1983. Officially, Lisa stood for “local integrated software architecture.” It retailed for $9,995.
8. Apple has unveiled plans to build a new campus on a nearby 175-acre site. The main building, which is in the shape of a ring, will house up to 13,000 employees.

Burrows is a senior writer for Bloomberg Businessweek, based in San Francisco.

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