Wilderness years

Thursday, October 6, 2011 | Nepali at 11:26 AM |

Marriage

The years of 1991 to 1994 were the worst in Steve’s career. Paradoxically, they were some of the happiest years in his private life. In 1990, at age 35, after his girlfriend Tina Redse had turned down his proposal, he started dating a young Stanford MBA student called Laurene Powell. Laurene was a leggy blonde in the mold of Steve’s taste in women, but she was also very smart and independent — in addition to being a militant vegan. According to Steve, it was love at first sight: he canceled a business meeting to have lunch with her, and the following year, on March 18 1991, they got married in Yosemite. Steve only brought along a couple of guests in the lodge’s chapel, and the no-frills ceremony was conducted by his long-time Zen guru Kobun Chino. A few months later, Laurene gave birth to Steve’s second child, a baby boy named Reed Paul, after Steve’s alma mater (Reed College) and his father (Paul Jobs).

Troubles at NeXT

Throughout 1990 and 1991, it became obvious to NeXT’s management that something was wrong with their computers. They believed it was a strategic error; that they should position themselves as makers of an emerging kind of computers, personal workstations, i.e. computers as powerful as workstations yet as easy to use as personal computers. Their competitors were not Apple or other PC brands anymore, but Sun, the dominant player in the workstation business.

The re-positioning came too late, and it did nothing to improve the disastrous state of the company’s financials. They were still spending money like crazy, as exemplified by their new offices facing a marina in Redwood City and its free-standing staircase designed by I.M. Pei’s architectural firm. But they were hardly selling: their revenues for 1990 were as low as $28 million (in comparison, Sun made $2.5 billion that same year). In addition, NeXT’s deal with IBM was canceled, as it proved difficult for two such radically different companies to cooperate. Steve was still suspicious of Big Blue:

I’m not stupid enough to give you everything I have, when you have 27,000 salespeople.

quoted in Randall E. Stross’ Steve Jobs and the NeXT Big Thing

He was reflecting a common feeling in the company that giving away NeXT’s software to IBM was like committing suicide, as it was the company’s most valuable asset. Moreover, IBM asked for Steve Jobs to give up hardware if he were to work with IBM, which was out of the question for him at that time. This decision led to the departure of Bud Tribble, the brilliant developer who was heading software and had co-founded NeXT with Steve in 1985. All the other co-founders but George Crow eventually left in those pivotal years of the early 1990s.

The company’s other main partnership, the distribution deal with Businessland, also collapsed as the chain went bankrupt in 1991. NeXT, which had just expanded to the European market, had to turn to independent dealers worldwide, an even costlier solution. Profitability seemed like an impossible goal, and investors started to get angry: Ross Perot left by the end of 1991, after sales for the third quarter had proven abysmal. The company now relied solely on Steve and Canon, who kept pouring money in so that they wouldn’t lose all of their initial $100 million investment (and lose face at the same time). As a counterpart, the Japanese demanded that Steve hire an outside executive to help him run the company. The choice fell upon an experienced manager, Peter Van Cuylenburg, who was named COO in early 1992

A computer-animated feature film

Disney executive Jeffrey Katzenberg

While Steve was fighting to make NeXT a viable business, a crucial event happened at his other company, “his hobby”, Pixar. Remember the animation department had been struggling for survival for years, making TV commercials to make a little money. But it was also awarded several prizes for its short movies, mostly at the renowned SIGGRAPH animation conventions, but also an Academy Award for Tin Toy in 1989. John Lasseter was increasingly recognized as one of the industry’s most talented animator.

Starting in 1989, Disney’s new management (CEO Michael Eisner, but mostly his top aide Jeffrey Katzenberg) tried to hire Lasseter back to the Magic Kingdom. Yet despite Pixar’s precarious situation, he continually declined the offer: he realized that in no other place on earth he would find so many talented people who shared his vision of the future of computer animation.

So Disney agreed to sign a contract with Pixar for a full feature film, made entirely with computers. This had been Pixar’s dream for years, back in the late 1970s with Ed Catmull and Alvy Ray Smith (who had since left the company because he could not stand working with Steve Jobs). The story line John Lasseter proposed was some sort of buddy movie involving toys. Jeffrey Katzenberg agreed and in May 1991, the contract was signed. Steve negotiated for Pixar to make three movies and keep 12.5% of the revenues from ticket sales. It was a very cheap price for a film, but Steve and the rest of Pixar didn’t know better: it was a huge amount of money for their struggling studio! Steve Jobs’ investment finally seemed it was going to pay off.

Nadir

Everything seemed to collapse professionally for Steve in 1993, the year he turned 38.

It started with NeXT. In January 1992, he had already made the huge compromise of accepting to license the company’s advanced operating system, NeXTSTEP. It would no longer be restricted to NeXT’s black boxes, but would also run on Intel’s 486 IBM-compatible family of processors. To many experts he should have done this from the beginning, but to Steve, this was the first sign of his failure, as he always felt personally attached to hardware: he had always been a hardware freak, fanatical about his machines’ design, spending hours in NeXT’s factory watching robots put together his beautiful computers.

But it turned out even worse the following year. COO Van Cuylenburg, who was hired to please Canon, betrayed Steve, in a cruel reminiscence of what had happened at Apple some seven years earlier. He called up NeXT’s competitor Sun, and asked its CEO Scott McNealy to buy NeXT and install him as manager of the new entity. Fortunately, McNealy had some sense of honor and told Steve about the outrage. Van Cuylenburg left, but Steve was devastated, especially since all the company’s co-founders but George Crow had abandoned him.

A couple of months later, the coup de grâce came as NeXT had to face reality and give up its hardware operations altogether. The decision was taken on February 11, a tragic day when 300 of NeXT’s 530 employees lost their job. The automated factory was transferred to investor Canon, which sold all its furniture in a memorable auction in September of that year. The dream of a multi-billion-dollar business had given birth to a small software company, NeXT Software Inc., specialized in application development and server technology for the UNIX and Windows platforms.

As if destiny was working against him, Steve also had to face trouble with Pixar in that same awful year of 1993. While the work on the animated feature with Disney seemed to stall for a while, Disney’s Katzenberg abruptly put an end to it in November 1993. Together with the majority of Disney’s creative staff, he declared that the characters were unappealing jerks and the dialogues inappropriately cynical for a children’s movie (while he was the one who pushed for such characteristics early in development). Pixar was back to making TV commercials just so it could survive — but it was obvious it would disappear if the work did not start again.

Steve had reached the bottom of his career. To use his words, he was in “ankle deep shit.” He didn’t even go to work regularly anymore and spent most of his days at home, playing with his two-year-old son.

In this rare photograph, you can see how Steve Jobs looked at the lowest point of his career.
It was taken for Andy Hertzfeld’s birthday in April 1993.
From left to right: Mac programmer Andy Hertzfeld, Lisa and Mac programmer Bill Atkinson, Mac programmer and NeXT co-founder Bud Tribble, and Steve.

Saved by toys

Toy Story

Fortunately enough, “it’s over” didn’t have the same meaning in Hollywood as it did in Silicon Valley. John Lasseter and other Pixar employees worked very hard at the script, and in February 1994, they turned out a new, improved version that won Jeffrey Katzenberg’s approval: production could resume. Steve was not overwhelmed, as he kept trying to sell Pixar to outside investors until late fall 1994. At the time he came very close to selling the animation studios to... Apple’s arch-rival Microsoft.

But he progressively started to sense Pixar was going to be a lot more important to his career than he ever expected. According to many, the revelation came in January 1995, when he was invited to a Disney event in New York. In the middle of Central Park, the movie studio had set up a gigantic tent with a movie screen showing previews of the two upcoming Disney films, Pocahontas, to be released in the summer, and Toy Story, for Thanksgiving 1995.

That was the moment Steve realized the Disney deal would materialize into something much bigger than he had ever imagined, and that Pixar was the way out of his morass with NeXT.

Pixar’s Ralph Guggenheim quoted in Alan Deutschman's The Second Coming of Steve Jobs

Steve started to get increasingly involved in Pixar’s affairs, stripping Ed Catmull of his title of President and naming himself President & CEO of the company in February 1995. He also hired an outside CFO, Lawrence Levy, to give Pixar a respectable image to Wall Street in anticipation of a possible IPO.

When Toy Story finally came out on November 22, it exceeded all the hopes that Pixar and Disney had put into it. It made $28 million in the Thanksgiving 3-day weekend alone, and eventually reached $160 million in US box-office receipts — a great number for a $27 million production.

Billionaire

But it wasn’t just about the movie.

When Steve started envisioning the possible success of Toy Story, he talked about taking Pixar public. Wall Street analysts and experts laughed at his face, since Pixar still hadn’t made a single profit during its nine-year existence. But, in August 1995, a small startup that had existed for only a year and was also unprofitable had made a huge hit by going public: it was Netscape, the software developer of the eponymous Web browser. Suddenly Steve’s idea was not that ridiculous anymore.

However, there was a legal concern because of profit-sharing agreements with some of the company’s most senior people: John Lasseter, Ed Catmull, and two other early employees, Ralph Guggenheim and Bill Reeves. Their contracts stipulated they were entitled to some of their movie’s revenues, a situation that was contradictory to being public. Steve Jobs arranged the deal by giving away large blocks of stock to the four of them, in addition to the newly-brought-in CFO Lawrence Levy. But he managed to keep 80% of the company for himself, translating into 30 million shares.

There were tensions in Point Richmond after this settlement was revealed. After the IPO, Steve Jobs would become fabulously rich, five senior people very rich, and the others would be left out. Many of them threatened to leave the company, shocked especially by Levy’s treatment, since he had just joined the staff and had made almost no contribution to Pixar...

Yet, on November 29, exactly one week after Toy Story had come out, Steve’s vision proved right. The IPO benefited tremendously from the movie’s media coverage, and on opening day, the stock’s price jumped from $22 to $49. It became the biggest IPO of the year, beating even Netscape’s numbers. Steve Jobs had made it: he was now a billionaire, worth almost $1.5 billion. It was ten times the money he had ever made at Apple in the early 1980s. He was finally vindicated, and enjoyed being back on magazine’s covers.

As for Pixar the company, it made $123 million in the IPO, going from $47 million in the red to $76 million in the black. Steve felt strong enough to go back to Disney and re-negotiate a deal that he considered a master-and-slave relationship.

Back to Burbank

This time, Steve decided, Pixar would not get ripped off by Disney. He came with very high demands for the new agreement: a 50/50 partnership, with split production costs and split revenues; total creative control for Pixar over its movies; and equal billing, i.e. the obligation for Disney to show Pixar’s logo on the screen and on any marketing artifacts as big or for the same amount of time as its own. That’s why you’re used to see Pixar’s Luxo Jr. animation at the beginning of every movie from the studio. Here again we can sense Steve’s flair for marketing: he had a vision for Pixar to become as powerful a brand in animation as Apple was in computing. He wanted it to become no less than the next Disney.

Steve Jobs and Disney’s CEO Michael Eisner

The amazing thing is that Jobs achieved to impose these new terms — and what’s more, to Michael Eisner, one of Hollywood’s toughest negotiators! Disney never treated its contractors the way it agreed to treat Pixar. All of Hollywood was stunned.

Steve had used a killer argument: he threatened to go to other movie distributors as soon as the three-picture deal would be over. Eisner understood Pixar was going to turn into a golden goose and was smart enough not to let it go.