From the Very Beginning, Apple Was Born to Grow
Apple Computer founders Steve Jobs and Steve Wozniak always expected to get big. Their company was staffed, financed, and designed as if success was a certainty.
Steve Schmitt
First Impressions: The first issue of Inc. magazine featured this cover story on Apple Computer, which was then two years old and doing $15 million a year in revenue.
A lot of small company managers talk about planning for fast growth. Professors and consultants preach the need for it. Apple Computer does it. "We've been running Apple like a $100-million company from the word go," says A.C. ("Mike") Markkula, 35-year-old chairman and 20-percent owner of the two-year-old, privately held make of personal computers. "We anticipate growth, we count on it, and we plan for it."
All this might seem like so much bravado except that it's working precisely according to Markkula's script. Even in Apple's hometown of Cupertino, in the heart of California's booming semiconductor industry, the company is conspicuous for the speed and the orderliness of its growth. At the time the company was incorporated, in January 1977, its sales were negligible. By the end of that first year, sales totaled less than $2 million. In 1978, sales were about $15 million. And in 1979, Apple expects to top $100 million.
"I told employees, at a company meeting, that I'd take them all to Hawaii for a week if we break $100 million this year. I can hear the 'alohas' now," says Markkula. Meanwhile Apple is installing in-house data processing capacity that will serve its needs even when it hits $500 million.
Apple's emergence as a planned company began in late 1976, when a friend introduced Markkula to two self-taught inventors, Steven P. Jobs, then 21, and Stephen G. Wozniak, then 26. They had invented an inexpensive computer, actually a keyboard built around a microprocessor. Hooked up to a TV set, the keyboard enabled computer-savvy hobbyists to work out engineering problems, manage home finances, or play video Ping-Pong.
In a scene familiar to many entrepreneurs, demand soon outstripped the capacity of Jobs and Wozniak's garage production area, which had been established with about $1,200 from the sale of a used Volkswagen van and a programmable calculator. The inventors were capital poor and had no management experience.
Enter Markkula, who had help key marketing jobs at Intel and Fairchild Semiconductor. At the age of 30, he had retired, a millionaire from astute stock market investments. A skier, tennis player, gymnast, ukulele player, and guitarist, he was fast getting bored with excess leisure time.
"I was just going to help these guys write a business plan," he recalls. Instead, he decided to go into business with them.
For about three months, working mainly at a table in his backyard cabaña with Jobs and Wozniak, Markkula researched the personal computer market and assessed Apple's chances to crack the field. At that time, only a few competitors had surfaced, but the numbers were growing rapidly. Then as now, explosive growth potential was the lure. Early entrants included such heavyweights as RCA and Tandy Corp.'s Radio Shack. By July 1978, more than 100 companies has jumped in, most of them small concerns with name like Parasitic Engineering and GNAT Computer. Creative Strategies International, a San Jose, California, consulting firm, predicts that dollar sales in the personal computer industry will rocket from 1977's figure of $172 million to $3.5 billion in 1982.
Markkula was convinced that product breakthroughs would give Apple a strong competitive positions—but only if they plunged in and made a commitment to grow very big, very fast.
"It was go for broke," says Markkula. "We had to dominate the business or go bankrupt trying." He was sure then, and he still is, that Apple's most serious competition will come from Texas Instruments and IBM—both giants committed publicly to marketing personal computers but are not yet in the race. Markkula reasoned that a start-up company such as Apple would eventually be crushed if it simply tried to carve out a nice little niche for itself. "In this explosive market, just aiming to a 10-percent market share is not viable. We anticipated extreme rates of growth. We took high risks," he says.
Planning for adequate financing was the first order of the day. Markkula invested $250,000 in the newly incorporated company in return for 20 percent of its stock and undisputed command as chairman. He then secured a line of credit, which was recently increased from the Bank of America. He also drew up contingency plans to deal with start up financial strains, which, as it turned out, did not develop. "We even planned for the slowest possible rate of payment to us by our distributors, coinciding with as high a production rate as possible. We tried to foresee everything that could go wrong, and discussed it with our banker," Markkula says.
Because his own money was invested in the company, says Markkula, he was able to approach venture capitalists from a position of strength. He raised a little more than $600,000 from such sources as the Rockefeller family's Venrock Associates, Continental Illinois Bank, Arthur Rock & Associates, and Teledyne founder Henry Singleton. "We've selected venture capitalists with a record of supporting investments, who agreed to ante up a second time if equity financing was needed," he says. He estimates that he could raise $5 million to $8 million from these sources, beyond Apple's bank credit line. But no additional financing has been needed. Retained earnings have financed the company's growth to date.
With financing secured, Markkula's planned growth strategy called for spending heavily to build a senior management group that's unusually broad in background and experience for such a small company. The first key staff decision had actually been made at no cost, at the time of incorporation, when Jobs and Wozniak agreed to let Markkula run the show. The two founders accepted positions as vice president for new products and vice president for research and development. Each owns 20 percent of Apple, the same as Markkula, and the remaining 40 percent is evenly split among venture backers and other employees.
"Jobs and Wozniak were young and bright, and also mature. They realized they had zero experience in management and if Apple was to grow as fast as we projected, we'd need able people with experience in big companies," says Markkula.
Although Markkula is chairman and clearly the top policymaker, he decided against taking over as president, as would usually be the case. "I didn't want it," he says. Instead, he reserved for himself the job of vice president for marketing, and hired Michael M. Scott, 35, from National Semiconductor Corp. for the job of president and chief executive officer. "I wanted a strong general management executive with significant experience to oversee the rapid growth I knew we'd soon have," he says. At National Semiconductor, Scott, a physicist with a marketing background, had supervised more than 6,000 production and support people in one of the company's largest efforts.
Markkula also hired Thomas Whitney from a 15-year planning career at Hewlett-Packard to be executive vice president. F. Rodney Holt was recruited from a competitor, Atari, as vice president for engineering, and an experienced patent attorney was hired. Markkula believe patient protection is critical for a growth company because under-protection in the early days can slow process later.
