Steve Jobs on Capital Allocation

Pixar began as the Graphics Group of Lucasfilm's computer division, and George Lucas, needing money for a divorce, searched for investors to spin it out. President Edwin Catmull and co-founder Alvy Ray Smith had been declined by thirty-five venture capitalists and ten large corporations, including a General Motors deal that fell through three days before contracts were to be signed. Steve Jobs, freshly edged out of Apple in 1985 and building NeXT, made an offer Lucas initially considered too low; with no alternative buyers, Lucas accepted. On February 3, 1986, Jobs paid $5 million of his own money to Lucasfilm for the technology rights and put another $5 million in as capital, joining the board as chairman of the newly independent company incorporated in Richmond, California. Catmull stayed as president, Smith as executive vice president, and animator John Lasseter kept making the short demonstration films that would quietly define the studio's future.

The original business plan — selling the Pixar Image Computer, a high-end visualization machine — failed. Sales were inadequate, losses grew, and Jobs kept increasing his investment in exchange for a larger stake, reducing management and employee ownership until his cumulative $50 million gave him control of the entire company. In April 1990 Pixar sold its hardware division to Vicom Systems, and early 1991 brought layoffs that cut the staff to roughly forty-two people, its original size. On March 6, 1991, Jobs bought the company outright from its employees and became full owner; he contemplated folding it into NeXT, but NeXT's co-founders refused. As late as 1994 he considered selling Pixar to Hallmark Cards, to Microsoft co-founder Paul Allen, or to Oracle chief Larry Ellison, and only after New York critics signaled that Toy Story would be a hit did he decide to give the studio another chance, take an active leadership role, and make himself chief executive.

In 1991, months after taking full ownership, Jobs closed a deal with Disney worth $26 million to produce three computer-animated feature films, the first of which was Toy Story. Released in November 1995 as the first entirely computer-animated feature film, it grossed nearly $362 million worldwide in its initial run and brought both money and critical standing. Pixar went public on November 29, 1995, under the PIXR ticker on Nasdaq, and the offering outdid even Netscape's as the biggest of the year: the stock ran from $28 to $45 within its first half-hour, delaying trading on unmatched buy orders, and closed the day at $42. The offering converted Jobs's $50 million rescue of a failing hardware maker into a public animation studio, and his roughly 80 percent stake made him a billionaire on paper just as his other company, Apple, was descending toward its crisis.

By March 1976 Wozniak had finished the basic design of the Apple I and showed it to Jobs, who proposed they sell it despite Wozniak's initial skepticism. On April 1, 1976, Jobs, Wozniak, and administrative overseer Ronald Wayne founded Apple Computer Company as a partnership in the Crist Drive house, the operation starting in Jobs's bedroom and moving to the garage; Wayne exited within days, leaving the two Steves as the active co-founders. The name came from Jobs's stay at the All One Farm commune in Oregon. To fund the first boards, Wozniak sold his HP scientific calculator and Jobs sold his Volkswagen van. The plan was fifty-dollar bare circuit boards for hobbyists until retailer Paul Terrell ordered fifty fully assembled units at $500 each; roughly 200 Apple I computers were ultimately produced, enough to convert a garage project into a company with revenue and a roadmap.

Apple's first outside money came from Mike Markkula, a semi-retired Intel product-marketing manager and engineer, who also brought the company to investor Arthur Rock; after seeing the crowded Apple booth at the Homebrew Computer Show, Rock started with a $60,000 investment and joined the board. Markkula next recruited Mike Scott from National Semiconductor to serve as Apple's first president and chief executive in February 1977, a decision Jobs openly disliked, an early lesson that professional managers rather than founders were running the corporate show. The pattern repeated across Jobs's career: he recruited or inherited successive chief executives, from Scott through Sculley, Spindler, and Amelio, before taking the title himself in 1997 and holding it until weeks before his death. The Markkula-Scott phase professionalized bookkeeping, inventory, and channel strategy while the founders kept product control, the division of authority whose collapse later produced the 1985 rupture.