How Apple Computer contributed to the founding of more than 100 companies by its employees.
The real economic impact of growth stars like Apple Computer isn't their on-the-books creation of jobs and wealth -- it's the way they breed countless entrepreneurs who build companies of their own
When a start-up starts to grow, it doesn't grow by income statement alone, as financial convention would have it. A start-up's growth also influences commerce and community through off-balance-sheet channels: opening new markets, motivating others to create new businesses, enriching employees, rewarding investors. It does those things many times over, affecting the economy more profoundly than most observers -- politicians, social commentators, even economists -- acknowledge.
Inc. calls those hidden aspects of small-company expansion the multiplier effect, or ME for short. On the face of it, toting up the collective worth of a given company's ME through years of growth seems beyond analysis. Not so, we decided: an ME would be calculable simply as a total of revenues for all the companies that exist only because the original grower does -- but only if we could identify the ways in which a business's growth encourages people to build companies of their own. Once you do that, you can calculate how big an ME is.
Well, how big is one? Inc. wanted to know. We decided to flesh out the branches of growth as they parted from the core company and became progenitors of growth themselves. We would hunt down all businesses that could claim lineage from the initial seed.
Businesses that came to exist only because the core company existed; businesses that employees of the core company went out and started; businesses that employees of those businesses subsequently went out and started; companies that venture-capital profit from investments in the core company helped create; any social or cultural entities engendered; and so on -- all would be fruit on the family tree.
We chose Apple Computer Inc. as our growth-company trunk and gave two reporters eight weeks to construct the branches. Those resources, it turned out, weren't nearly enough. Given eight reporters and two years, we still wouldn't have been able to close the book on that particular company's ME, once we began tracing its spread through the economic countryside. All those branches -- and dozens of others yet to be counted -- from a seedling conceived in a Cupertino, Calif., garage barely 17 years ago. (See "Branching Out," page 5.)
Still, Apple represents any dynamic grower, not just some high-tech celebrity. (Garbage collector WMX Technologies Inc., formerly Waste Management Systems, was founded in 1968 and has grown faster than Apple has -- but trash disposal doesn't make for such a pretty tree.) To be sure, from first-year revenues of a scant $774,000 in 1977, Apple has become one of the nation's largest high-tech manufacturers. Bear in mind, however, that Apple is still so young that had it been born a human, many municipalities today wouldn't let it take a drink, sign a contract, attend an NC-17 movie without adult supervision, or get married.
Uncle Sam wouldn't allow this precocious adolescent to serve the country, either. Yet, as its genealogy shows, it already has -- in often underappreciated ways. To wit:
The Seattle Opera has become a world-class troupe, thanks largely to the support of Michael Scott, who endows it from the millions of dollars he stockpiled as Apple's first president.
Start-ups seeking seed capital collectively have received about $30 million since Apple's own venture-capital arm was established, in 1989.
The day Apple stock went public, the company turned about 40 employees into millionaires. And the average price of a Cupertino home as of December 1992 was $355,000.
Inc. weighed several proposals for how to convey most convincingly one company's total economic impact. No less central a player than the person who helped launch Apple, cofounder A. C. "Mike" Markkula Jr., sent us this one, which we reluctantly dismissed: "I don't think anyone on the planet knows all of the relationships you're trying to identify. An interesting angle would be to calculate the cumulative amount of corporate income tax and personal income tax -- payroll and taxes on stock-options profits -- paid to the state and federal governments by companies spawned by Apple and employees of those companies. I think people would be stunned by the answer."
From its founding, Apple liberally sprinkled stock options among employees. It's impossible to determine how many dollars' worth have been converted over the years, but here's a hint: as of June 1993 Apple's current officers and directors held more than 9 million shares -- nearly half a billion dollars' worth of buying power waiting to be unleashed. And that's in addition to what's already been unleashed: Apple's three cofounders alone have provided capital for five additional companies in less than 10 years.
The inclination for an option-holding nouveau riche to plow that new money into his or her own new business is documented here. So's the audacity that drives those upstarts to start another round of businesses after the first. And business siring may not end there. Former Apple marketing director William M. "Trip" Hawkins III has already founded -- before age 40 -- two companies with a combined market value of $1.3 billion.
The ME also includes return on human capital -- the pool of special techniques and skills acquired at the growth business and reinvested later in other businesses. Take the nonoperations labor force at Radius Inc., a graphics-systems manufacturer started by former Apple software developer Michael D. Boich. At least 25% of the 200 or so employees in Radius engineering and sales "have Apple in their backgrounds."
