The Second Coming of Steve Jobs - Alan Deutschman [48]
Even with the smoke and mirrors, there were few buyers. Pixar donated ten machines to leading hospitals, and it sent marketing people to doctors’ conventions, but the efforts seemed futile. Medical professionals were very conservative about spending money for expensive technology.
Disney was Pixar’s main customer, spending millions of dollars to purchase a few dozen machines for its 2-D coloring system, which its animators were putting to use for the first time for inking and painting the characters of The Little Mermaid. A few of the boxes were bought by highly funded research centers in academia and the Washington intelligence organizations, which liked to keep up with the latest in technology. But there wasn’t much of a market. By early 1988, Pixar had sold only 120 computers.
“Pixar really struggled to find some profitable business in its early days,” recalls Pam Kerwin, who joined Pixar as a marketing executive. She thought that Steve’s costly move to put salespeople all around the country was “foolhardy,” a “disaster.” Steve was investing huge sums in marketing, and still the only buyers were the short list of usual suspects: the professors and the spies.
With 120 employees, Pixar was burning through more than $10 million a year. It was bleeding money. And all along, the company was accumulating a terrifying debt. Astonishingly, Steve had never given any cash to Pixar, not a single dollar of capital. He had merely gone to a bank and opened a line of credit for the company. His financial adviser Susan Barnes had argued for the strange idea. She thought that the bank’s seal of approval would show that Pixar was a real business, not a rich guy’s hobby.
It was a great deal for the bank but an incredibly bad deal for Steve and Pixar. The bank had nothing to lose: the line of credit was fully secured by Steve’s tens of millions of dollars’ worth of Treasury bonds. Meanwhile, Pixar sank into debt from the first week it met payroll, and every week the debt got deeper and deeper. Before long, Pixar’s revenues hardly covered the bloated interest payments.
The company was a technical and artistic triumph, but it was a financial disaster.
“We were in debt from the start,” recalls Pam Kerwin. “That was no way to run a business. There were no business brains at Pixar.” Ed Catmull was a warm, big-hearted soul and a brilliant engineer, but he wasn’t a businessman or a negotiator. He was completely nonconfrontational. “It was so cute, how he’d say yes to almost anything,” Pam Kerwin says. One time, as an inside joke, someone at Pixar asked Ed to sign an authorization to purchase a sailboat for $250,000. Ed played along and signed.
Ed was a pushover, but Steve wasn’t. Whenever Pixar ran out of money, Ed and Alvy had to go back to Steve and ask him to draw more credit from the bank. Before long, Steve made the two founders give back all of their stock in the company in exchange for Steve’s continued financing. They had each started with 4 percent of the shares, and they wound up with zero percent. Cruelly and unnecessarily, he reduced them to serving as his hired hands. They accepted the deal. They were motivated by their enduring dream and their commitment to their colleagues, even if there was no hope of ever making real money.
They hesitated to turn to him for more funds. Pixar’s employees tried to scrounge by. Lisa MacKenzie recalls that Pixar’s people would beg their peers at Sun Microsystems to lend them expensive equipment for free because Pixar never had any cash. They couldn