That question naturally spills from the lips of those who attempt to reorient themselves after a journey into Waitt's frenetic inner sanctum. What is this man on? A mad ride, for one thing. At only six years of age, the precocious company is charging through an exhilarating adolescence. "Gateway is the best show in town," notes Bruce Stephen, director of PC-hardware research at International Data, "and Waitt knows it."
Just when Waitt realized Gateway's star potential is another question. These days he makes it sound almost plausible that after dropping out of two different colleges, he returned to the family cattle farm in August 1985, intending to take advantage of the low-cost locale to set up a PC operation that would slaughter all comers. More likely, Waitt and his partner, Mike Hammond, slowly discovered that -- holy cow! -- they could operate on astoundingly low costs. Since day one, Gateway has undercut its competitors on price, consistently by at least 10%. "We can't operate on the margins they are operating on," grumbles Lazere, whose company is based in Eden Prairie, Minn.
But Waitt didn't just put his faith on price to get Gateway off the ground. After his college stints, he spent roughly nine months working at a retail computer store in Des Moines. While there, he began to develop his notion of the "value equation," a pet theory whose name serves as a soothing mantra for Gateway's 1,100 or so employees. Essentially, Waitt says, it comes down to this: "The PC business is not about price, it's about value, or what you can give the customer for his or her money." From what Waitt could see, purveyors of PCs were selling either cheap bare-bones systems that nobody really wanted or computers stuffed with too much technology to be affordable. The middling strategy, he thought, would be "not to add technology for the sake of adding technology, but to go after it when it offers the best value for consumers." Timing was key.
So was holding the line on prices. Before leaving the computer-store job, Waitt stored a relevant observation in his flawless memory: the back room, where salespeople sat at phones. "I was fascinated to see that if you knew what you were doing, you could sell a $3,000 computer system over the phone," says Waitt. "Everybody seemed to be looking at those sales as just gravy." Waitt envisioned a national business that could be launched handsomely using almost exactly the same sum he had saved up. Namely, zero. After all, such a business required little inventory (assuming customers prepaid) and no showroom. And it could be based anywhere -- even in the middle of nowhere. Inaugurating the Gateway tradition of low overhead, Waitt took advantage of his father's shrinking cattle brokerage to occupy some empty office space in a farmhouse. Since Waitt was "never a techno-nerd," as he puts it, he brought along Hammond, a fellow salesman who had actually trained him. "He soaked in everything from day one," recalls Hammond, who now serves as Gateway's vice-president of product development.
So there they were, Waitt the marketer and Hammond the technical whiz, living upstairs while they launched a business downstairs. Sometimes their days were framed by the phone ringing with orders: they woke up with it, and they collapsed on their bedsprings when it finally hushed. There were three-day stints when neither one took a bath, which explains why most of their company consisted of two dogs, Jake and Bunky. With one two-legged exception: Norman Waitt Jr., Ted's older brother by nine years. Norm often arrived at the office before his brother or Hammond had even awakened, simply for the spectacle of watching one of them tear down the stairs, buttoning a shirt or pulling on a pair of pants while diving for the ringing phone. But around six months into the new business, in early 1986, Ted got to feeling that maybe he needed his brother's financial skills; he so hated opening bank statements that he had restricted his financial activity to calling the bank and asking about his balance. Norm agreed, but only if he could be an equity-owning partner. So the brothers split the company; Hammond has never owned any stock.
Though Ted Waitt had his sights on selling PCs, that was not the business he and Hammond started in September 1985. Until the end of 1987, they called themselves the TIPC Network -- set up as a division of the company Waitt dreamed about starting, Gateway 2000. As such, they sold add-on equipment by mail to owners of PCs made by Texas Instruments. The niche seemed obvious to Waitt: the store where he and Hammond had worked sold Texas Instruments computers but didn't support them in the aftermarket, since the company did not adhere to the industry standard set by IBM. With his phone operation, run from an Iowa farm, Waitt could undercut competitors' prices significantly. Within a few months, the direct-mail venture was bringing in $100,000. That would grow to roughly $1 million a year. And most of the start-up capital came from the $20 membership fee each customer paid.
In 1986 Waitt and Hammond tinkered with assembling some PCs, and they even sold them locally. But in mid-1987, Texas Instruments handed Waitt just the opening he had been hoping for: the company offered its PC users a trade-in program that required them to cough up $3,500 to get an IBM-compatible machine. "We figured we could do the same thing for $1,500," recalls Hammond.
As Hammond scoured computer publications for the best deals on such components as motherboards, monitors, and disk drives, Waitt began to apply his concept of the value equation in deciding what to build. The earliest Gateway model included such amenities as a keyboard with function keys across the top and a separate cursor pad. It had two floppy-disk drives, instead of just one, to accommodate two different sizes of diskettes. The monitor was color, not monochrome; the memory had greater-than-usual capacity. Gateway bundled it all into one fully configured system at one price, $1,995, instead of considering, for example, a hard-disk drive as an extra cost. Competitors offered fewer features at $1,950 or so. "We gave people more for their money," says Waitt.
