How They Started Page 3

  “By this time, I had experience working with prima donna software development geniuses and realized these are really creative people,” he recalls. “I began to realize I could work with them as independent artists, and treat them as artists.”

  Enter the crocodile

  At just this time, Trip read in an airline magazine about venture capitalist Don Valentine of Capital Management (which would soon become legendary Silicon Valley firm Sequoia Capital). The article related that Valentine was so intimidating that one young entrepreneur actually fainted in his office during a pitch. His management style was likened to that of a crocodile, lying in wait and listening and then rearing up to rip everyone’s ideas apart.

  While this might have cued most would-be business owners to pitch someone else, the article prompted Trip to call Valentine and ask for a meeting. He admired Valentine’s attitude and thought he could get frank advice from him, which was exactly what Trip wanted. He wasn’t afraid of Valentine’s bite.

  Knowing Trip’s track record at Apple, Valentine readily agreed to a meeting, and Trip arrived at the Sand Hill Road office with some trepidation. He had no written business plan yet for the company he had christened Amazin’ Software, and Apple was gearing up to launch the Lisa computer. He thought Valentine would urge him to fulfill his commitments at Apple and finish his launch work. But that wasn’t Valentine’s opinion at all.

  “He said I should quit Apple right away,” Trip says. “He offered me free office space, which is like saying, ‘If you pull this together, I’ll want to fund it.’ It was the encouragement I needed to take the final step.”

  Amazin’ software in the hall

  Trip quickly wrapped up his work and left Apple in April 1982. Before taking Valentine up on his offer of free office space, Trip spent several months working out of his house, refining the business plan. He incorporated the company in May 1982 and funded it initially with $200,000 of his own Apple stock profits.

  During this time, Trip worked on learning about the music-industry business model he planned to emulate. He flew to Los Angeles after a venture contact introduced him to legendary A&M Records co-founder Jerry Moss. Trip also spoke with a music-industry lawyer and got a copy of a recording contract to learn how to structure contracts for his software “artists.”

  While still working from home, Trip made his first few hires. The first was experienced PR man Richard Melmon, whom Trip knew from a stint at Apple. Melmon left his job at VisiCorp, maker of early spreadsheet product VisiCalc, to join the nascent company.

  “He was by far the most important and highest-ranking guy I hired that year,” Trip recalls. “I hired him because I felt I should have someone older than me around to provide a little adult supervision.”

  Melmon and Trip would turn out to clash, and their versions of events differ—Melmon’s biography suggests that he, not Trip, raised the funding money for EA, for instance. In any case, Melmon would end up departing EA after just a few years.

  The budding company quickly outgrew its one small room in the back of Valentine’s office suite, with some staff camped at card tables in the hallway.

  From Apple, Trip drew product manager Dave Evans, gaming fan Joe Ybarra, and one of the rare women in tech at the time, Pat Marriott. The trio would be Amazin’ “producers,” working with talented game designers to create products and bring them to market.

  The team was rounded out by an office manager, Stephanie Barrett. In August, the small troupe took up residence in Valentine’s Sand Hill Road offices. The budding company quickly outgrew its one small room in the back of Valentine’s office suite, with some staff camped at card tables in the hallway.

  Playing hardball

  Trip kept paying the bills: for payroll, equipment, and software development in-house, as well as fees to outside software “artists.” He had the resources to keep going in this fashion for another year or so but felt he needed to bring in investors to tap their business expertise and accelerate the company’s growth.

  Several investors were interested, but Trip zeroed in on those he wanted on board, starting with Valentine, and Ben Rosen from Sevin Rosen Funds, whom he knew from Apple. Others came knocking: Trip recalls picking up the phone at his home in the Portola Valley to find future legend John Doerr, who was then new to Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers.

  As he wasn’t desperate for the cash, yet, Trip was feeling cocky. Thinking that Valentine wanted too rich a deal, Trip played the venture capitalists off against each other to get a better valuation for his company, lowering the percentage of Amazin’ the venture capitalists’ money would buy. In the end, he raised $2 million in the first round at the end of 1982, half from Valentine, with the other half split between Sevin and Kleiner.

  Amazin’ moved to a small office in Burlingame, California, in October 1982. During the company’s short stay there, Trip continued hiring, luring Stanford pal William Bingham (“Bing”) Gordon. Other early hires were Tim Mott, David Maynard, and Steve Hayes, all from Xerox PARC. Shortly, Amazin’ moved to more spacious quarters in San Mateo, California, where the company would remain for more than a decade.

  Becoming Electronic Arts

  Around the time of the move from Valentine’s office, the newly hired team began to agitate for a new company name. Some team members disliked the Amazin’ moniker. In one early business plan, Trip had used the name SoftArt as an amalgam to convey both software and artistry. But both Trip and Melmon knew Dan Bricklin, founder of VisiCalc maker Software Arts, and thought it best to avoid such a similar name.

  Trip wanted to include the word “Electronic,” and suggested it might be called Electronic Artists, in part as a tribute to independent movie studio United Artists, whose model of artist-driven production he sought to emulate. But Hayes reportedly objected, saying that the developers were the artists rather than the staff. Finally, the team settled on Electronic Arts as the new name.

  Bad timing

  Despite all of Trip’s years of planning for his launch, the newly renamed company’s timing turned out to be a bit off. The technology needed to play truly full-featured electronic games had arrived, but had not yet been widely adopted by consumers. The dominant game system at the time was an 8-bit Atari console, which offered a puny amount of memory.

  Trip knew from the start he didn’t want to create games for the Atari. While waiting for the game-console industry to mature, the company would focus on creating games for PCs. This posed its own challenges as the most popular PC of the time, the Commodore 64, did not yet come with an external disk drive. One would be added in late 1983, but at an extra charge that would discourage many home users.

  To counter this problem, Trip devised a workaround that ended up being used in Europe for the company’s first game releases: the games were converted to audio signals on a tape cassette. With the help of an A/B adapter cord, the data could then be input to the computer to play the game.

  In 1982, EA’s producers had released their first games for the Apple II—Hard Hat Mack and Axis Assassin—as well as a few games for the hated Atari 800 console—Pinball Construction Set, Archon, M.U.L.E., and Worms?. In keeping with Trip’s record-artist philosophy, each game was packaged like a record album with an eye-catching, graphical cover. This immediately set EA’s products apart from competitors, whose packaging was less slick-looking.

  Rather than signing a distribution deal with an established company or competitor to get the games into stores, Trip and the entire team set out to meet thousands of mom-and-pop computer store owners to sell them, one by one. It was hugely time-consuming, but paid off in new relationships—and a distribution scheme in which there was no middleman distributor and EA kept more of the profits. Of the first group of games, Archon and Pinball Construction Set emerged as the big sellers.

  A key game was released in 1984 that would set the course for much of EA’s future success. The basketball-themed Dr. J and Larry Bird Go One on One took Trip
’s record-artist theory one step further, leveraging the name recognition of the two sports stars to sell games. Fans loved the chance to essentially be one of their sports idols, and the game went on to be EA’s best-selling release for the Apple II.

  In keeping with Trip’s record-artist philosophy, each game was packaged like a record album with an eye-catching, graphical cover. This immediately set EA’s products apart from competitors.

  During the scramble of the first few years, Valentine fulfilled Trip’s expectations, offering universally critical feedback and never making a positive comment. In July 1984, he sent Trip an EA budget with two numbers circled: burn rate and cash reserves. “Two months left!” it said. But Trip knew sales of Dr. J were going to avert a financial crisis.

  Trip quickly learned that while he was envisioning the game designers as the prime selling point, gamers were loyal to the game, not the designer, a revelation that would shift the company’s marketing focus for good. Sales that first year were $5 million—the company was off and running.

  Just six months after the first venture capital round, Trip went back and raised $3 million more in investor funding, mostly from the same investors, plus A&M’s Moss. For the second round, with a few products out and several of them shaping up as solid sellers, Trip was able to obtain the funds at a company valuation four times greater than on the first round.

  The desert years

  As the company was releasing its first games, the hope was that soon game consoles would become a viable platform for EA’s games, too. But instead, the game-console industry collapsed. Atari’s system was dated and the company had failed to plan ahead to release a new, more robust version. Consumers lost interest, causing retailers to stop stocking the games and suspect electronic games might be just a fad.

  Trip remembers the next few years as a time of serious hunkering down. He imagined his team as the Fremen of Frank Herbert’s classic sci-fi novel Dune, recycling their own sweat to survive the desert. The company scored successes with more celebrity-driven games, including Jordan vs. Bird: One on One and Earl Weaver Baseball.

  By concentrating on games for computers and releasing popular titles, the company was able to bring in $11 million in sales in the company’s fiscal year ending March 1985. EA began to turn a profit in fall 1984.

  “We were profitable,” he recalls, “but we had to be disciplined about how much we spent. We made sure we didn’t overstep our bounds.”

  In 1988, Trip decided to try international expansion as a means to grow during the gaming-industry doldrums. The company acquired game-creation houses in Australia and France, opened an office in Japan, and in general overspent. Trip remembers the international foray as a “misadventure” from which the company beat a hasty retreat.

  Trip remembers the next few years as a time of serious hunkering down. He imagined his team as the Fremen of Frank Herbert’s classic sci-fi novel Dune, recycling their own sweat to survive the desert.

  Breakout success

  Fortunately, 1988 also saw the release of a game that would prove to be one of the company’s biggest franchises. Originally called John Madden Football and later Madden NFL, the game would go on to release annual versions and sell 85 million copies through 2010. Madden would be joined in 1993 by another major sports franchise, FIFA. Together, the brands would drive the success of EA Sports, one of the company’s biggest niche brands.

  On the heels of the Madden success, EA went public in September 1989, netting $8 million for the company and more for its investors. The IPO (initial public offering) gave EA a valuation of $84 million. Sales that year were $63.5 million, and profits were $4 million.

  Getting Sega on board

  As EA was enjoying its successful IPO, a glimmer of hope appeared on the game-console horizon. Nintendo had a successful 8-bit game machine over the previous few years which, like the Atari before it, EA mostly ignored. But now, the more robust, 16-bit Sega Genesis console was coming to America. Trip was determined to turn it into a gold mine.

  There was a major problem, though: it wasn’t known exactly what machine Sega would bring to the States. EA designers obtained a Japanese Sega console, in hopes the US machine would be identical. One big fear was that for the US market, Sega might implement a security “chip” on its games, a feature Nintendo employed.

  In analyzing the Sega machine, EA’s software designers found it used the identical 16-bit microprocessor the team was familiar with from its Sun workstations, as well as Apple’s Lisa and later models. Taking the gamble that a security chip wouldn’t be introduced and torpedo the effort, EA moved forward to reverse-engineer game designs for Sega’s console based on the team’s knowledge of the microprocessor.

  While this was in process, Trip also actively contacted other software design studios to offer EA’s help in creating games without Sega’s official blessing. At the same time, Sega was calling on Trip to negotiate a license agreement. But Trip didn’t want to pay through the nose for the right to be an official Sega licensee. He put the word out that EA would release its games with or without a license agreement with Sega.

  “I was rope-a-doping them,” Trip recalls, “being really polite, pretending to show some interest—then telling them what I didn’t like about their agreement.”

  The situation came to a head as May 1990 loomed. EA planned to unveil its Sega games at the Consumer Electronics Show that month. Sega caught wind that EA was setting itself up as an alternate channel for dozens of other Sega game producers. This idea terrified the Japanese firm, and then-chairman David Rosen was deployed to get Trip in line.

  “Rosen read me the riot act and told me there’d be a big scandal and a lawsuit if we released the games without a license,” Trip says. “But they were much more willing to make a deal than I realized, because they wanted this problem to go away.”

  On the eve of CES, a favorable licensing agreement was finally hammered out after a round-the-clock negotiation session between Trip and Sega’s attorney. Instead of paying the $8 per unit Sega wanted, EA would pay just 40 cents. The deal would be a bonanza for both sides—EA’s games helped bolster Sega’s market share in the US, and the alliance gave EA a huge market for product at a low fee.

  Whereas Nintendo didn’t allow any one producer to release more than five games a year, EA was able to introduce 40 games for Sega in the next two years, skyrocketing the company’s revenue. Another 23 games would come from independent studios affiliated with EA. Nintendo introduced a 16-bit machine the following year to compete with Sega, and allowed developers to adapt existing games for the new system, opening up another major revenue channel for EA. By the end of 1993, EA’s market capitalization soared to $2 billion.

  Where are they now?

  In 1991, Trip left EA to start a new gaming company, 3DO, but the effort failed. In 2003, Trip founded another multi-platform gaming company, Digital Chocolate, where he is CEO today. The 400-employee company had more than $30 million in 2010 revenue. Its hit games include Millionaire City. The company has had its games downloaded onto mobile devices more than 100 million times, and its online computer games have seen more than 100 million sessions.

  EA would continue to dominate its industry for two decades, the only gaming company to enjoy such an unbroken streak of success. The company would go on to introduce many more wildly popular games, including Need for Speed in 1994, and The Sims in 2002, which captivated female gamers and spawned many sequels. The company also grew through many acquisitions, including the 2011 purchase of online-game hit studio PopCap Games for $750 million.

  Toward the end of 2011, EA’s history of linking with well-known celebrities and brands continued with the planned launch of Star Wars: The Old Republic, a MMOG (massively multiplayer online game) in which players engage in battles on planets featured in the Star Wars movies.

  Pixar

  Doing the impossible

  Founders: Ed Catmull, John Lasseter and Steve Jobs

  Age of founders: 
41, 29 and 30

  Background: Computer graphics PhD, Disney animator and Apple computer founder

  Founded in: 1986

  Headquarters: Emeryville, California

  Business type: Computer-animated motion pictures

  At first glance, Pixar seems an almost magically successful company. It’s cranked out an unprecedented, unbroken string of hit animated movies: Toy Story, A Bug’s Life, Toy Story 2, Monsters Inc., Finding Nemo, The Incredibles, Cars and many more. It’s hard to imagine, but the company that is now Hollywood’s most reliable mega-hit factory faced a grueling, 10-year climb to success.

  Pixar’s founders faced a daunting obstacle: when the company started, their dream—to create a full-length, animated feature entirely on the computer—was simply impossible. The technology did not yet exist. It took a few strokes of luck, a very generous benefactor, and the combined talents of two of the founders to keep the company alive and to build the technology needed to make the first computer-animated film.

  Computer graphics meet animation

  Pixar grew out of a division of Star Wars creator George Lucas’s Lucasfilm production company. An early employee of the Computer Division was Ed Catmull, a computer graphics enthusiast and 1974 PhD graduate of New York Institute of Technology, then the cutting-edge hotbed for advances in the field. Ed was excited by computer graphics’ potential for use in animation.

  In the early 1980s, the Division worked on solving some of the technical challenges of animating objects on the computer, such as eliminating the jagged edges of computer-mapped objects, making realistic shadows, and creating lifelike “motion blur” as objects passed across the screen. There were hardware problems, too, as computers didn’t yet have the power and speed required to quickly process or “render” images. The Division developed useful tools for conquering these problems, including the software Renderman, which quickly became the industry standard.