Gateway Founder and Billionaire Ted Waitt Stepped Aside When in His 30s. Now He's Back Trying to Save His Troubled Company.
By David Whitford; Ted Waitt

(FORTUNE Small Business) – Ted Waitt had it made. In 1985 he and a friend Mike Hammond, started a PC company on his family's cattle farm in Iowa. Armed with a $10,000 loan guaranteed by his grandmother, he built what is today the fourth-largest PC manufacturer in the U.S., with $9.6 billion in sales and 14,000 employees. His secret: Cut out the expensive middleman and sell custom-made PCs direct to consumers and businesses.

In December 1999, Waitt, already a billionaire several times over and still only in his 30s, happily relinquished day-to-day control of his company to his handpicked successor--AT&T alum Jeffrey Weitzen--and launched himself into the next phase of life. Though he remained Gateway's chairman, his attention shifted elsewhere. He scouted out investments, considered buying a pro basketball team, and spent more time running his charitable foundation.

But his new life didn't last very long. PC sales, which had been rising year after year since the mid-1980s, began to fall and Gateway's prospects fell along with them. To make matters worse, the company had also made an unsuccessful foray into retail computer stores.

Not wanting to see the result of his years of hard work disappear (he owns 30% of the company), Waitt reclaimed the CEO job early last year and began reinventing his business. To get Gateway growing again, he closed down its foreign sales and manufacturing, slashed its work force by more than 25%, pulled back from the commodity PC business, and directed the company more to selling training, services and accessories.

Fixing Gateway will take time. For the first three quarters of 2001, sales dropped 30% from the year before, resulting in a $1 billion loss. The stock followed, falling from a high of $80 just over two years ago to $8 by the end of 2001.

To find out what it feels like for a founder to return to his company, FSB's David Whitford visited Waitt at Gateway's new San Diego headquarters, a sprawling, loftlike hangar as big as two football fields, and with almost no walls. Here's his story.

So what happened to the walls?

Yeah, we had fun with this. I was trying to recapture some of the energy, some of the connectedness. You know, we're going through a big transformation. Everybody's got to understand at the deepest level what our strategy is. We don't want silos. We had to improve teamwork and change the culture, and there's no better way to change the culture than to change what everybody looks at when they walk in every day.

You stepped down as CEO two years ago. Was it your decision or the board's?

It was totally my decision. Originally the company was called Gateway 2000--part of the deal was that I wanted to do this until the year 2000. There was a succession plan that I engineered and I managed. And eventually I got to the point where I felt the company needed to grow up a little bit and be able to succeed without me.

What did you have in mind when you gave up day-to-day control?

I wanted to take a little bit of time off, clear my head, and look at other opportunities. I'm not wired in a kind of way where I could go sit on the beach. They say you go through the largest personal growth during periods of transition and change. I think I grew a lot as a person during that year, looking at a whole variety of opportunities, from my foundation on the philanthropic side to entertainment, politics, sports, high-tech areas. I spent a little bit more time with my kids. One thing led to another, though, and I'm back.

If the recession hadn't hit so hard, if Gateway hadn't tanked, would you still be on the outside looking in?


So the crisis brought you back?


Kicking and screaming?

I wouldn't say it was kicking and screaming. It was not something I planned on. I didn't feel that I really had an alternative. It was the best thing for the company, and for me too. If I had my druthers, it wouldn't be my first choice.


But now that I'm back, I've been having a great time. Sometimes you've just got to play the hand you're dealt.

But if you had your druthers, you wouldn't be here?

It's not like anybody told me I had to come back to work. I don't have to be here. I did it more out of a sense of obligation and duty. It was a decision I made based on the facts that existed and what the various alternatives were at the time I was considering whether to return to the company.

What did you miss most while you were away?

I missed when you wake up in the morning having one thing that you're focused on. In the shower, driving to work, you're thinking, Here's what I've got to do and what am I going to do about it? And being able to control the levers and see the results--I'm not a good passive investor; I'm not a good board member.

So is there some part of you that needed to resume an active role in the company you founded?

That's a really tough question. [laughs] I suppose. But there was another part of me too. At the end of the day, life's about balance. You know, I was chairman of the board, I was still involved in the company, but I wasn't part of the management team. I wasn't involved in the day-to-day operations.

As you are, deeply, now?

As I am very deeply now.

So is that a good thing or a bad thing?

It's a good thing. I'm enjoying it. It's not easy. You know, the technology business is a tough business right now. We were very fortunate as we grew up through the late '80s and most of the '90s that we just had a vastly superior business plan, the direct-distribution model. PC prices, however, just continued to go down. But we can still be successful. At our core, we're a sales and marketing and service organization. There's a group of people out there--the small business world, the high-end consumer world--who are looking for more than just the cheapest box. They want to learn more, they want to get more out of technology. It's not like the game is over yet. There's still a tremendous opportunity if you're smart enough to find it and good enough to be able to execute it.

I'm curious about the business climate you're operating in today, now that the technology bubble has burst. Does it remind you in any way of the old days?

When we started our company, you were a failure if you actually had to go get venture capital. I think real economic development and growth comes from small businesses that have an idea and figure out a way to grow and change the rules. What happened in the last cycle, some of those small business owners, they wanted to get there so quickly. I mean, the capital markets allowed them to bypass some of the standard phases that a company usually has to go through. It takes five to eight years for a company to go from conception to IPO, on average. It doesn't happen in three months.

How long did it take you?

It took us eight years. We started in '85 and went public in '93. And one of the best things that happened to us was not having financing, and not having investment capital. For me, personally, because I have a larger percentage of the company. And culturally for the company, because we had to be very low-cost. But you know, there were times when there were ten or 20 people in the company making more money than me and my brother. That was okay, because we were owners.

In a way, you're back operating in a world you better understand. Are there certain kinds of competition that arose during the bubble that you don't have to worry about anymore?

Yes. It was competition that wasn't based on economic rationale. Now it's back to basics. You need a good economic plan. Then make it happen.

Gateway at one point had 20,000-plus employees, and now it has 14,000 employees. How does an entrepreneur who's been focused on growth deal with a business that's shrinking?

It's a totally different skill set. You probably shouldn't quote me on this, but my job now is more like that of a turnaround CEO. We had to prune the tree. We had to cut back and get out of certain lines that were driving revenue but that long-term weren't going to be profitable ways of doing business. And if we were really going to change, we had to get smaller before we got bigger again. It makes it so much more difficult to change the culture, and to change the mindset of people, if you're still deriving a huge portion of your revenue from things that aren't tied to the strategic transformation you're trying to move toward.

Did the world change, or was your original strategy just misguided?

I think what happened is the world changed and it accelerated the need for the company to change. If the world would have stayed the same, the company could have made it through that transition without me, and continued the top-line trajectory while building the underlying infrastructure to really transform the business. We would have had the air cover of this robust economy and the PC market growing 20% to 30% a year to make it through.

Interesting that you would use a military analogy. Does this feel like war to you?

Does it feel like war? [laughs] Well, I have a meeting that has the word "war" in it at noon every day.

What meeting is that?

It's our daily meeting, when we chart progress on a daily basis.

Can't you just tell us what the meeting is called?

It has the term war in it. I'm not going to tell you! [laughs] We fight the battle every day.

Are you sleeping less now that you're back on the job?

Probably about the same. I need a lot of sleep. I can go a couple of days with three or four hours, then I have to recharge. My head hits the pillow and I'm out.

So, no demons keeping you awake at night?

Usually it's the excitement that keeps me from sleeping. I'll wake up and I'll have an idea, and I'll have to go do something about it right away.

I should ask your wife this, but did she like you better when you were working full-time or when you were at home?

You should ask her. [laughs]

What would she say?

I think she would say I'm more focused when I'm working. I don't bother her as much.

You once told Fortune magazine that while you were away from your company you felt lost, like Dorothy in The Wizard of Oz.

Did I say "like Dorothy?" I like that. Yeah, I wasn't afraid to be lost. Life's a journey. I don't know if lost is the right term. It was more of a quest. I was searching for something.

What were you searching for?

Something that I could throw myself into, that would be fulfilling, that would be fun, that would be rewarding, that would leave the world a better place.

So do you expect to go back to your quest one day?

Back to being lost again? We'll see how I do with this. I used to tell my wife, "Two more years." Now I say five years.

Or maybe you'll become the next "Chainsaw" Al Dunlap and just do turnarounds from now on.

Aarggh! That ain't gonna happen.