Return to the Little Kingdom

by Michael Moritz

  To provide most of his share, Wozniak decided to sell his HP 65 calculator for $500. He knew that Hewlett-Packard was about to announce an enhanced version, the HP 67, that would be available to employees for $370. “I figured I had a profit and a better calculator.” The buyer, however, paid Wozniak only half the agreed price. Jobs had a similar problem when he decided to use some of the $1,500 he made from selling a red and white Volkswagen bus. This particular piece of foreign machinery had never been given the parental seal of approval. Paul Jobs had accompanied his son on the original purchase mission, taken one look at the Volkswagen, and concluded, “It was a tired, gutless thing that wouldn’t go anywhere.” He told his son that Volkswagen vans tended to have problems with wheel bearings and the reduction-gear mechanism but his advice wasn’t heeded. The younger Jobs planned to fix any problems and bought a book called How To Keep Your Volkswagen Alive! A Manual of Step-by-Step Procedures for the Compleat Idiot. Eventually, when the van proved too troublesome he buckled to his father’s advice and sold the van after it passed some checks at an automotive diagnostic center. Paul Jobs chuckled quietly when “two weeks later the guy came back with the engine in a bucket.” Steve Jobs promptly offered to share the cost of repairs and his $1,500 nest egg dwindled.

  Jobs, never coy about offering his opinion, watched Wozniak make some modifications to the computer. Rather than rely on somebody else’s board of memory chips, Wozniak decided to build his own. For the hobbyists the design of a reliable memory board was a persistent bugbear and the memory frequently came to mean the difference between a reliable and erratic machine. The memory chips were just as complicated to manage as the microprocessor and marrying the two—the most important parts of the machine—brought no end of trouble. A defective memory chip could blow out the computer and the quirks lurking in the rows of memory chips were notoriously tough to pinpoint. Wozniak was choosing his memory chips at a time when all the leading semiconductor companies were fighting to establish an industry standard for them. There were pronounced differences in technology, performance, and price among the chips, so picking the right chip was a bit like betting on a poker game. Wozniak plumped for a chip that he had spotted at the Homebrew Club, one that was made by American Microsystems Inc., a Santa Clara company. Jobs was appalled by the choice, thought Wozniak could do better, and embarked on a search for a brand-new Intel chip that hadn’t filtered through to the electronics-supply stores.

  Both the chips were dynamic RAMs and far superior to the static RAMs that were the standby of most hobbyists. Dynamic RAMs consumed less power than static RAMs and, in the long run, were also cheaper. However, they were far more complicated and most computer hobbyists clung to the adage, “Static memory works; dynamic memory doesn’t.” The crucial difference between the two parts was that information stored on dynamic chips would disappear unless it was refreshed with bursts of electricity every two thousandths of a second while the static RAMs didn’t require regular shock therapy. The Intel chip was also compatible with the logic used by microprocessors, had fewer pins than the AMI chip, eventually became the industry standard—and Jobs’s instinctive choice turned into a considerable triumph. Wozniak recalled long debates about the proper memory chip—“Steve was pushing to use the right part. We were lucky to be on the right track. It was one of the luckiest technology steps on the whole development. All the other hobby computers were using 2102 1K static RAMs.”

  While Jobs was pushing from one direction, Wozniak found that Alex Kamradt was tugging from another. In the spring of 1976 Kamradt and his small team were still trying to convert the terminal Wozniak had designed during the summer of 1975 into a reliable product for Computer Conversor. Kamradt telephoned Wozniak at work and at home and buttonholed him at the Homebrew meetings. But he found that Wozniak was more interested in adding features to his new computer than in completing an old design. Kamradt also had to contend with the full persuasive power of Jobs who was imploring Wozniak to place his faith in Apple rather than in the uncertain prospects of Call Computer. To add conviction to his argument, Jobs introduced Wozniak to Ron Wayne, a field sales engineer at Atari responsible for making sure that prospective video-game distributors were up to snuff. Wayne had casually agreed to help Jobs come up with a motif for Apple and to draw schematics to accompany the printed circuit board. Jobs argued that Wozniak’s computer was doomed if he placed it in Kamradt’s hands. He insisted that the prospects for the machine were far brighter if it was produced by an alliance of Wozniak, Jobs, and Wayne.

  Wayne was in his early forties, a portly man with boyish curly hair that was turning gray. At the end of the sixties he had started a company in Nevada to design and build slot machines, but it had failed during the business recession in the early seventies. Strapped for money, Wayne had borrowed $600 to finance a trip to California and eventually earned enough to pay off his debts. By the time that Jobs approached him for advice about Apple, Wayne believed he’d “had enough failures to be a very smart fellow.” He was also a strong believer in the permanent mark that engineers could leave on the world and liked to talk about “multifaceted, holistic engineering.” A bachelor, Wayne lived alone in Mountain View where he was reading books about economic disasters and debasement of currencies. He had become convinced that the global economic system was on the brink of collapse and had started to protect himself from imminent doom by collecting rare stamps, old coins, and gold. He was also building an eight-foot-long replica of a Jules Verne nautical clock from carefully carved slices of cardboard. Though he found semiconductors and integrated circuits objects of complete mystery, Wayne was lassoed into helping Jobs muster arguments to prevent Wozniak from falling into Kamradt’s grasp. Wayne consoled Wozniak and explained that the skilled engineer would always be remembered if he teamed up with the right marketer. He pointed to the way Eiffel had left his name on a tower, and Colt his name on a gun.

  Wozniak was not easily swayed. The trio sat up late into the night arguing about the form of the proposed partnership. Wayne suggested they should balance the equity of their investments with the merit of invention. It was an idea that appealed to Jobs, but Wozniak had problems coming to grips with twentieth-century notions of property. He wanted complete freedom to use his design tricks and was worried that Hewlett-Packard would assign him to a project where he would need to rely on some of the ploys he had used in the Apple. Wayne thought, “It was almost as if Wozniak would condescend to allow Apple to use these principles but he wanted to reserve the right to sell them to other people.”

  Eventually Jobs prevailed and Wayne drew up a ten-paragraph partnership agreement liberally sprinkled with “therefores,” “herewiths,” and “thereins.” The agreement stated that none of the trio could spend more than $100 without the consent of another. It also laid down that Wozniak would “assume both general and major responsibility for the conduct of Electrical Engineering; Jobs would assume general responsibility for Electrical Engineering and Marketing, and Wayne would assume major responsibility for Mechanical Engineering and Documentation.” Once Wozniak had been persuaded to agree to the venture, he had no qualms about giving Wayne 10 percent of the company and dividing the remainder with Jobs. He was convinced that if Jobs performed all the commercial donkeywork the split was equitable. What the agreement didn’t say, but what they all understood, was that Wayne would act as tie breaker if Wozniak and Jobs couldn’t agree on something. On the evening of April Fool’s Day, 1976, at Wayne’s Mountain View apartment, with Wozniak’s friend Randy Wigginton looking on, the three signed the agreement forming Apple Computer Company. Jobs signed the document in a wide, faintly childish hand with all the letters in lower case. Wozniak scribbled a cursive signature, and Wayne’s pen left his name illegible.

  While they were sorting out formalities, Jobs had pressed ahead. He had used the $1,300 that he and Wozniak had pooled to commission the artwork for the printed circuit board. He visited Howard Cantin, who had prepared the artwork for Atari’s game b
oards (and had laid out the original Pong board) and asked him to prepare the board for the Apple computer. Cantin complied—“I did it as a favor for Steve.” Once Wozniak had loaded the first printed circuit board with chips and completed the wiring, he and Jobs made a formal introduction of the Apple computer at the Homebrew Club in April 1976. Their remarks revealed the division of labor. Wozniak described the technical features of the machine: such things as the size of the memory, the BASIC that was available, and the clock speed of the memory. Jobs asked the members how much they were prepared to pay for a computer that, unlike the Altair, had all the essential features lodged onto a single printed circuit board. The overall reaction was muted. The majority of other engineers at the Homebrew Club didn’t even bother to inspect the Apple. A few, like Lee Felsenstein, looked at the black-and-white computer with its 8K bytes of memory and concluded that “Wozniak might very well be heading for a fall. I thought if he was going to fail he was going to fail big and I wasn’t going to step in the way.”

  Jobs, who by the spring of 1976 had taken to religiously attending meetings of the Homebrew Club, was busy sorting out people with a commercial bent from the engineers. That wasn’t difficult since members were allowed to advertise their interests during the meetings. Paul Terrell was one of the more prominent salesmen and had become an influential figure in the murky world of distributors and kit suppliers. He had been selling peripherals for minicomputers until he had seen a demonstration of the Altair—after which he had quickly arranged to represent MITS in Northern California. At Homebrew meetings Terrell had pushed the Altair machines and ran afoul of the delicate sensitivities of the Homebrew members when he tried to charge $500 for a version of BASIC on paper tape.

  Like others, Terrell had underestimated the enthusiasm of the hobbyists and when word of the Altair spread, he found engineers waiting outside his office door at the start of business while his regular customers started to complain that they couldn’t negotiate his jammed switchboard. So Terrell buckled. “I decided we should go up on El Camino, open a store, hang out a shingle, and get all the guys who were sitting in traffic jams at four P.M.” In December 1975 he transferred $12,700 worth of MITS inventory from his sales company to a computer store in Mountain View which he called the Byte Shop.

  But Terrell’s ambitions stretched far beyond the parish. He examined and planned to emulate Radio Shack’s enormous chain of distributors and hoped someday to stock his stores with computers that he would manufacture. In private he chatted about a nationwide chain of Byte Shops like an enthusiastic goose breeder. He talked of “force-feeding the pipeline” and “pumping the product out” but he had to start somewhere and El Camino was a longer, if not better, strip than most. So El Camino, where almost every idea in search of a market was sure to find a temporary home, housed yet another. By the early summer of 1976 there were three Byte stores scattered along El Camino among the hot-tub emporiums, hi-fi stores, automobile dealers, and fast-food outlets. For the hobbyists, and for anybody hoping to sell a microcomputer, the imprimatur of the Byte Shop had become a seal worth having.

  Terrell was one of the few Homebrew members with the means to buy more than one computer, so Jobs, hoping to obtain deposits before placing a firm order for one hundred printed circuit boards, visited the Byte Shop. Terrell had been wary of Jobs at Homebrew meetings. “You can always tell the guys who are going to give you a hard time. I was always cautious of him.” Nevertheless, when Jobs slopped into the store, Terrell made time for him. Jobs showed Terrell a prototype of the Apple and explained his plans. Terrell told Jobs that he had no interest in selling plain, printed circuit boards and said that his customers didn’t have any interest in scouring supply stores for semiconductors and other parts. Terrell said he was interested in buying only fully assembled and fully tested computers. Jobs asked how much Terrell would be prepared to pay for a fully assembled computer and was told anywhere between $489 and $589. The Emperor of the Byte Shops told Jobs that he would be prepared to place an order for fifty fully assembled Apple computers and would pay cash on delivery.

  Jobs could not believe either his ears or his eyes—“I just saw dollar signs”—and rushed to telephone Wozniak at Hewlett-Packard. Wozniak, equally dumbfounded, told his colleagues around the lab who greeted the news with disbelief. Wozniak placed Terrell’s order in perspective—“That was the biggest single episode in all of the company’s history. Nothing in subsequent years was so great and so unexpected.” Terrell’s order entirely changed the scale and scope of the enterprise. The size of the business had expanded tenfold and instead of contemplating costs of around $2,500 for one hundred printed circuit boards, Jobs and Wozniak were looking at a bill of around $25,000 to cover the costs of one hundred fully assembled machines. Fifty would go to Terrell and the Byte Shop while Jobs and Wozniak would try to sell the other fifty to friends and members of the Homebrew Club. Wozniak recalled, “It was not what we had intended to do,” and Terrell’s order touched off a scramble for parts and a search for money.

  Some ports of call were hopeless. Jobs strolled into a Los Altos bank, found the manager, asked for a loan, and was given a predictable rebuff. “I could tell that I’d get the same replies at other banks.” He went to Halted and asked Hal Elzig whether he would take a share of Apple in exchange for some parts. Elzig declined the offer, recalling, “I didn’t have any faith in these kids. They were running about barefoot.” Jobs approached Al Alcorn and asked whether he could purchase parts from Atari. Alcorn agreed but demanded cash up front. Jobs turned to Mel Schwartz, the Stanford physics professor, who had formed a small electronics company in Palo Alto and had an established line of credit at an electronics distributor, and Schwartz agreed to buy some parts for Jobs.

  Jobs then approached three electronics parts houses where he asked for credit arrangements that would allow them to assemble and deliver the computers to the Byte Shops, before paying for the parts. He was granted receptions that ranged from amusement to outright skepticism. At one shop Jobs persuaded the controller of the company to conduct a background check. Paul Terrell was surprised to find himself paged during a seminar at an electronics conference and summoned to the telephone where he assured the controller that the two characters sitting across his desk were not spinning fairy tales. Apple’s biggest break came when Bob Newton, the division manager of Kierulff Electronics in Palo Alto, met Jobs and examined both him and the prototype. “He was just an aggressive little kid who didn’t present himself very professionally.” Nevertheless, Newton agreed to sell Jobs $20,000 worth of parts and explained that if the bill was paid within thirty days Jobs would not be charged interest. Jobs, unfamiliar with accounting rubric, recalled, “We didn’t know what ‘net thirty days’ was.”

  Assured of a supply of parts, Jobs and Wozniak turned their attention to assembling and testing the computers. They were reluctant to rent a space in one of the parks of concrete and steel garages that dotted Sunnyvale and Santa Clara. Wozniak’s apartment, ballooning from the early months of marriage, was too small to take the strain of a miniature assembly line. Wozniak’s young wife, Alice, recalled, “The Apple was consuming all his time. I saw very little of him. He’d go off to HP and eat something at McDonald’s on the way home. He wouldn’t get home usually until after midnight. I was going nuts coming home from work and having things on the dining-room table that I couldn’t touch.” So with Alice resenting their presence, the founders of Apple resorted to the most practical spot which was the Jobs family home in Los Altos. Jobs, who was back living with his parents, commandeered the one unoccupied room in the three-bedroom house which had belonged, until she married, to his younger sister, Patty. The room was furnished with a single bed and a small chest of drawers and was fine for storing the plastic bags full of parts that arrived from the electronics distributors. The parts were assembled into Apple computers in that room and in Jobs’s own bedroom, where dripping soldering irons left scorch marks on a narrow desk.

  Th
e incoming parts weren’t subjected to exhaustive scrutiny. Jobs recalled, “We didn’t evaluate them too much. We just found out they worked.” The printed circuit boards were a great simplification over hand-wiring each computer. They sliced the assembly time for each machine from about sixty hours to about six. The boards also brought a new chore, known contemptuously in the electronics industry as “board stuffing,” which required that semiconductors and all the other parts be inserted into specially numbered holes on the lime-colored board. Jobs delegated the task to his sister, who was expecting her first child. He offered to pay her one dollar for every board she stuffed, and after some practice, she found that she could finish four boards in an hour. She sat on the living-room couch, boards and parts spread out in front of her on a Formica-topped coffee table, with the Jobses’ large color television providing background entertainment. The distractions of soap operas and programs like The Gong Show, along with telephone calls from her friends, meant that chips got plugged in the wrong way and some of their delicate gold pins wound up bent.

  While the boards were being assembled, Jobs and Wozniak chewed over ideas for a retail price. Wozniak was prepared to sell the computers to his Homebrew chums for slightly more than the cost of the parts or for around $300. Jobs had larger thoughts and did some rough-and-ready reckoning. He decided that Apple should sell the boards for twice the cost of the parts and allow dealers a 33 percent markup. The arithmetic was close to Paul Terrell’s offer and also happened to coincide with a retail price that had a euphonious ring: $666.66.