Betting the Farm

Betting the Farm

Mail-order computer maker Gateway 2000 doesn't offer state-of-the-art technology or provide extraordinary support or run expensive ads -- and it does have hundreds of furious competitors. So how has it earned the top slot on this year's Inc. 500?

Just how brutal is the competition in the personal-computer business? So brutal that Craig Dwayne's idea of a relaxing holiday weekend is to load his young son and daughter into the family Toyota Forerunner, set out with them and his wife on the 12-hour drive from suburban Chicago to North Sioux City, S. Dak., spend a grand total of 90 minutes there, then reboard and head home.

It's not that Dwayne's company, PC Pros/Touché, couldn't live without its founder and chief executive for longer than that. Rather, it's that Dwayne, whose company sells direct-mail PCs, had set aside the recent holiday weekend for a very personal fact-finding mission. He made the trip only so he might peep through the windows and prowl about the gravel parking lot of a company he considers his nemesis, Gateway 2000. "You have to know what your competition is doing," contends Dwayne, whose company claims annual sales of $35 million. "This is warfare."

If he's planning to battle Gateway, Dwayne had better radio for reinforcements. There is hardly an adjective that would adequately describe Gateway's growth over the past five years. Astounding? Dizzying? Unparalleled? Well, yes, all of those. And also perplexing. From sales of about $1 million in 1986, Gateway has grown to $275 million in 1990 -- a five-year compounded growth rate of 26,469% -- earning it the top spot on this year's Inc. 500 (a one-slot promotion from last year). That brings us to the perplexing part: Gateway has grabbed a commanding share of the market for mail-order PCs without offering state-of-the-art technology or even extraordinary support. Gateway's ads are hokey; its name isn't especially catchy. And there are, at last count, some 400 other companies nipping at the same market, from bellwether Dell Computer to countless contenders that fall into the category that Ted Waitt, Gateway's cofounder and chief executive, dubs "Billy Bob's Bait & Computer Shop."

How on earth has Gateway prevailed?

Dwayne's makeshift investigation -- he has carried on so much about Gateway that even his wife wanted to see it -- didn't yield many solid answers. After wandering around the shipping and receiving docks, and peering through the windows into Waitt's empty office, Dwayne took out a bunch of the "GateBuster" T-shirts he had designed and put them everywhere he could: he tied them around door handles, laid them on the seats of trucks, and set up a crude mannequin that stood like "a little GateBusters ghost" outside Waitt's office window. "It was exciting to be there and leave gifts," says Dwayne, who is 31. "But I never got a thank-you note."

He never really got what he came for, either. But then the key to Gateway's success isn't really something he could have spied. To be sure, Waitt often answers -- or graciously deflects -- hard questions about Gateway's growth by pointing out visible symbols. The company's gravel parking lot, for example, serves as testament to its low-overhead religion. "People try to make things more complicated than they are," argues Waitt, clad in deck shoes and a polo shirt. "There's no magic formula. It all revolves around the way we do things."

That sounds like less of an answer than it actually is. Gateway's growth, and Waitt's genius, can't be reduced to just one overwhelming advantage. America's fastest-growing private company got there by managing, practically without exception, to come out on the right side of several dicey gambles. Waitt has gambled on his gut to figure out what customers want; he has gambled on his own taste regarding how best to advertise it to them; and he is gambling on his brain to make sure the company's growth doesn't smother its clearest impulses.

Fueled by that ever-dangerous propellant called instinct, Gateway's speedy trip to the top has left the company at a treacherous intersection. And there are plenty, like Dwayne, who would like to see it crash. "There is a brick wall out there waiting for everybody who grows this fast," notes Arthur Lazere, the 59-year-old chairman of Northgate Computer Systems, another competitor. "It's invisible before you hit it. I don't know what Gateway's brick wall is, but there is going to be one. There always is. Remember, I'm not a 25-year-old kid."

Maybe it's not worth quibbling about, but neither is Ted Waitt. Just for the record, he's 28.

Here is an important difference between Ted Waitt and the Diet Cokes he constantly guzzles: the sodas spend time chilling.

Waitt, on the other hand, is always wired. He pops in and out of his chair, tearing open another carton of Camel Lights, his ponytail bouncing, his dimpled grin flashing. "Ted is very emotionally involved with this business," says his brother, Norman Waitt Jr., who stepped down as vice-president this past March. To picture Ted Waitt, just imagine Woody Harrelson, who plays the bartender on the TV show "Cheers." Except instead of exuding goofy midwestern naïveté, Waitt seems nourished by . . . well, what is he on, anyway?