Piloting Palm

The Inside Story of Palm, Handspring, and the Birth of the Billion-Dollar Handheld Industry
By Andrea Butter

John Wiley & Sons

Copyright © 2002 Andrea Butter
All right reserved.

ISBN: 9780471223399

Chapter One


By 1998, Jeff Hawkins would be called the "father of handheld computing." But in 1991, he had no intentions of launching an entire industry, or even founding a company. He only set out to create a new kind of computer.

    In Silicon Valley, where Hawkins lived, this attitude was bordering on eccentric. Over four decades of technology booms and occasional busts, the Valley had consistently spawned a petri dish of ideas from which new start-up high-tech companies were created. Since the arrival of venture capitalists (VCs) in the 1960s, a techie with a good idea didn't even have to risk his life's savings on his dream. Instead, he'd find a VC to fund his scheme, then he'd quit his job and voilà: A start-up was born.

    Driving from his home in Redwood City, Jeff Hawkins passed the office towers of Silicon Valley legends. To the south, there was Intel, the computer chip company that was on the verge of becoming a household name with its new "Intel Inside" campaign. To the north, Oracle, which Larry Ellison had founded in 1977 with a mere $2,000, had turned into a software juggernaut with $1 billion in annual sales. On the west side of the Valley, Apple Computer's sprawling campus alongside Highway 280 teemed with the enthusiasm of a company that hadn't yet lost its mortal struggle with Microsoft.

    Everywhere in between, the nondescript offices of unknown start-ups dotted the roads that crisscross the high-tech Mecca between San Francisco and San Jose. Only 1 in every 10 new companies would survive, but that didn't keep hundreds of entrepreneurs each year from striking out on their own.

    For Hawkins, it wasn't the business odds that kept him at his job as a high-tech executive. It was the personal toll life as an entrepreneur might take.

    "I'm not a start-up kind of guy," he says. "I don't like to work super-long hours. I knew that a lot of people who had started companies had failed marriages. Just observation said: This is a very stressful thing to do."

    Nevertheless, in the late spring of 1991, Hawkins, like so many entrepreneurs before him, was in the grip of an idea for a new type of a computer. He couldn't get the concept out of his head.

    At 34, Hawkins worked at GRiD Systems, a small computer company on the east side of the San Francisco Bay. It was his second stint there; he'd left his first GRiD job in 1986 in order to attend grad school. When he left UC Berkeley, GRiD was happy to welcome him back, this time as vice president of research.

    It was a job that was tailor-made to his interests, which included managing the development of new products, not people. Without employees of his own, he didn't have to deal with the drudgery of the day-to-day administrative tasks common to VPs with large staffs (or to CEOs of start-ups).

    One of the first ideas he presented to GRiD's management upon his return to the company was a new type of computer based on a concept called pen computing. Pen computing meant that you could write, using an inkless pen (stylus), directly on the computer screen.

    It wasn't a new idea by any means. Very likely the first pair to think of the idea was Jerry Kaplan, a technology executive, and Mitch Kapor, the founder of Lotus Development. In a cross-country February 1987 flight in Kapor's private plane, they hit on the notion of a computer that could be used like a paper notepad. Using a pen rather than a keyboard, they thought, would be attractive to people who aren't conveniently seated at a desk every time they need to use a computer, such as delivery drivers, claims adjusters, or sales reps in the field.

    Kaplan, an inspired salesman, pitched the idea to John Doerr, a partner at the elite venture capital firm Kleiner Perkins Caulfield and Byers. Doerr convinced his partners to invest in the idea, and Kaplan promptly got $1.5 million in start-up money for a new pen computing company called GO.

    Pen computers seemed tailor-made for GRiD, though. Not only did the company pride itself in being a technology leader, but it had experience in designing portable machines, and its customers already included companies who most needed portable, tablet-style machines.

    One of the keys to making a pen-based computer was, of course, handwriting recognition technology, which GRiD lacked—until now. Jeff's studies at Berkeley had provided an important asset to both him and his employer. He was the proud owner of a patent on an invention that stemmed, in part, from his brain studies. By taking the approach that a computer could mimic the brain's pattern recognition, he had written software that could recognize hand-printed characters.

    GRiD's management green-lighted the project and agreed to license Hawkins's handwriting recognition software, later to be called PalmPrint, for use in the new machine. Jeff would oversee the creation of a tablet computer called the GRiDPad.

    The GRiDPad was ready for prime time in 1989—and, in the specialized markets for which it was designed, it was a hit, even at 4.5 pounds and $2,500. To control costs and streamline the development time, Hawkins had bucked the high-tech trend of relying on expensive and unproven custom-designed parts and instead built the device from off-the-shelf components.

    GRiDPad's success gave him the confidence to express his views even when they differed from the industry's conventional wisdom—which they often did. Among GRiD's executives and technical staff, he had gained a reputation as a self-assured and brilliant product designer, which allowed him the luxury of plucking GRiD's best engineers to work on his projects. Most of the other GRiD executives respected him, though some considered him stubborn, the kind of guy who was likely to say, about one engineering issue or another, "I don't care what you say; I know I'm right." Even those put off by his self-confidence, however, had to admit that his intuitions generally were right.

    By early 1991, the pen-based Computing wave was the Next Big Thing. John Doerr's 1987 investment in GO had triggered a high-reck gold rush by other investors, who poured nearly $100 million into pen computing start-ups. The press added to the buzz with breathless articles about the high-profile start-ups, including GO and a free-spending company called Momenta. IBM, Toshiba, Canon, and NCR had each announced plans to bring pen computers to market.

    Where there's hardware, there's software, and a half-dozen small companies had sprung up to write programs running on the new computers. In March, Microsoft got into the game by announcing an operating system it called Microsoft Windows for Pen Computing.

    Yet, despite all of this pen computing frenzy, only a single pen computer was commercially available: Jeff's GRiD machines. Despite the spending and the flashy press events, no other models had even reached the market.

The success of his product designs gave Hawkins a modest amount of fame as a pioneer of the fledgling pen computer industry. GRiD often asked him to meet with potential customers, journalists called him for his observations on new pen technologies, and he became a staple speaker at computer industry conferences.

    But even as his public star was rising, privately, Jeff had begun to change his mind about the whole affair. He considered pen computers—even his own GRiDPad—too big, heavy, and expensive for everyday people to contemplate carrying around. Niche-market workers such as claims adjusters or meter readers may have found them useful, but these machines would never gain mass acceptance.

    What the world really needed, he thought, was a pen computer for consumers. He asked his GRiDPad customers at every opportunity: Would they use a similar computer for their personal use? The answer was always the same: only if it were a lot smaller and less expensive—under $1,000.

    The more he thought about it, the more obvious it seemed. Millions and millions of consumers would buy a small, inexpensive computer.

    Hawkins presented the idea to his employer, but knew that GRiD would have no interest in the concept; GRiD was firmly focused on the corporate market, and couldn't afford to divert its resources to a consumer business. His consumer product would never see the light of day unless he struck out on his own.

    He hoped to interest Tandy, GRiD's corporate parent for the last three years, in his idea. After all, Tandy had long been one of the giants in American consumer electronics sales. As the corporate owner of Radio Shack, Tandy operated nearly 7,000 consumer electronics stores; more than 90 percent of Americans lived or worked within five minutes of a Radio Shack store. If Hawkins could get Tandy to market his product, Radio Shack would inevitably sell it to the stores' millions of consumers.

    Jeff contacted Howard Elias, the executive responsible for Tandy's advanced technology businesses. The two had gotten to know each other during Elias's visits with GRiD's management. By a stroke of luck for Jeff, Elias was also directly responsible for Radio Shack's computer business.

    Tandy was always looking for new and unique products to put through its vast network of retail stores; Elias, cautiously interested, invited Jeff to a small brainstorming meeting. In that meeting, the project took further shape. The machine that Jeff had in mind would be small and come with built-in software to make it useful immediately.

    Soon after, Elias called again. He wanted Hawkins to meet a wider circle of Tandy execs at Tandy's headquarters. "Fly out here to Fort Worth tomorrow," he said. "And get me a brief of the project before we meet."

    Jeff had to work quickly. He wrote up a three-page overview about the project, which began like this:

Palmtop computing devices will be as ubiquitous as calculators by the end of this decade.... To get an idea of the market size for these computers, consider the possibility that most high school students, nearly all college students, and most professionals will own one. With prices starting at $200 (1995), it is entirely conceivable, and I believe likely, that 50% of those people will own or use a portable handheld computer at sometime in their life.

    Jeff searched for a code name for the project: He wracked his brain. "Consumer, consumer, consumer—zoomer! Why not?" He typed Project Zoomer at the top of the document and sent it off to Texas, never dreaming that his arbitrary code name would remain attached to the project all the way through its development—and even on the finished product.

    Hawkins's Zoomer project captivated the imagination of the Tandy managers—maybe too much. After a series of meetings, Tandy proposed to create a new subsidiary, led by Hawkins himself, to develop the product, with Jeff as its key employee.

    This wasn't the kind of involvement he had imagined. The more Hawkins thought of it, the more it seemed impossible to build a great product within the confines of Tandy or a Tandy subsidiary. To pull off the Zoomer project, he knew that he'd need the very best engineers; but for Silicon Valley's best and brightest, a vast Texan company like Tandy scarcely seemed like a cutting-edge innovator. With the arrogance of elite programmers who work on leading-edge technology, GRiD's engineers, for example, considered Tandy a dowdy operation that trafficked in boring technology, even if it was GRiD's parent company. Furthermore, building the Zoomer as a Tandy subsidiary would mean that his decisions would always be beholden to corporate needs rather than those of the Zoomer business.

    Fortunately, there were other options, particularly for a successful techie with a great idea. In Silicon Valley, men (and a very few women) with money were waiting for techies just like Jeff Hawkins:

From its modest beginnings in the early 1960s, the venture capital industry had blossomed into one that comprised several hundred firms. In just the first half of the 1990s—and even before the dot-com boom—the VCs of Silicon Valley had invested $2 billion in a wide range of start-ups. (In 2000, the final year of the Internet bonanza, over 1,000 venture capital firms spent $87.5 billion on more than 4,000 start-up companies.)

    Most of the venture capital firms that cluster in Palo Alto and Menlo Park, near Stanford University, are small partnerships of four or five partners, many of whom had been successful entrepreneurs or business executives in previous careers. The partners raise what one VC calls OPM (for other people's money), and invest the resulting fund in start-up companies, in exchange for shares of the new company.

    The venture capital business could be extremely profitable; in 1991, venture capital firms averaged a return of 20 percent on their investors' money. (Later, during the dot-com boom, that number seemed laughably small. Elite firms like Kleiner Perkins, heavily invested in Internet companies, returned more than 70 percent in some years. When the boom turned to bust in 2000, investment profits declined accordingly.)

    Successful VCs were bombarded with business plans and presentations daily, and had to separate the wheat from the chaff. In the space of a few hours, they had to make a decision that could make or cost the firm millions of dollars. If a start-up's leadership lacked the right business skills, even a good business idea could lose its value very quickly. That's why VCs are fond of saying that they like to meet good people even more than good ideas. "If it's a good person, the ideas will take care of themselves," they say.

In October of 1991, Hawkins had tagged along with a buddy who wanted to pitch an idea for a company to Sutter Hill Ventures, one of Silicon Valley's oldest venture capital firms. Jeff was there to act as an expert witness, a technical expert who could explain and vouch for the industrial-strength pen-based computer being pitched.

    It was Jeff, however, who stole the show. An introvert by nature, Jeff didn't have the natural charisma of Apple founder Steve Jobs, or the all-powerful arrogance of Oracle's Larry Ellison. What he did have was a dispassionately logical mind and a fervent conviction that his technology vision was right.

    When the venture capital partners asked Hawkins's opinion of the market for these machines, he described what he thought the future of computing looked like and painted a picture full of handheld computers. "It's inevitable that all computing will be mobile," Jeff told them. "There are so many colliding things that say, ‘small, cheap, robust, on-your-person is better than big, slow, clunky, on-your-desk.’" The VCs liked his "technical abilities coupled with a natural effervescent personality," as one senior partner put it—so much so that, instead of investing in the friend's idea, they asked Hawkins to stick around after the meeting. They had detected his ability to project himself and sell an idea, key attributes of the "good people" VCs look for. Would he care to come back again, they asked, and expand on his notions on the future of computing?

As any budding entrepreneur looking for funding quickly learns, Silicon Valley venture capital offices aren't generally opulent or grand.

    At Sutter Hill's headquarters there are no thick, soft carpets or oversized mahogany desks to put a visitor on notice. What makes the entrepreneurs nervous is the knowledge that their meeting will be their one and only shot to get heard by Sutter Hill. They will either pique the partners' interest or be back out on the street, peddling their business plans to any investor whose name they can dig up.

    Jeff Hawkins wasn't nervous, and he didn't carry a presentation crammed full with charts and financial predictions. The way he saw it, he was there to tell the VCs about his ideas for mobile computing. Starting a company with venture capital money was just one of his options, and not his favorite one at that. "I was acting like a happy-go-lucky kid, totally uninterested, probably because I was uninterested," he says.


Excerpted from Piloting Palm by Andrea Butter Copyright © 2002 by Andrea Butter. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.