Founder and chairman, Gateway
Born: January 18, 1963, in Sioux City, Iowa.
Education: Attended University of Iowa, 1982–1984.
Family: Son of Norman Waitt Sr. (cattle broker); Married Joan (maiden name unknown); children: four.
Career: Century Systems, 1984–1985, salesman; Gateway, 1985–, founder and chairman; 1985–1999, 2001–2004, chief executive officer.
Address: Gateway, 14303 Gateway Place, Poway, California 92064; http://www.gateway.com.
■ Theodore W. (Ted) Waitt revolutionized the personal-computer (PC) business in the 1990s. His company, Gateway, succeeded by keeping costs low with a direct-marketing model, assembly-on-demand, and innovative marketing. Following Waitt's creative and customer-savvy instincts, Gateway grew into a $10-billion company before declining along with the slowing U.S. economy.
Ted Waitt was born in Sioux City, Iowa, into a family that had been in the cattle business for four generations. After a reportedly wild period in high school (during which he failed computer science), he ended up at the University of Iowa majoring in marketing. During a trip to Des Moines with some friends he met someone who worked for the computer retailer Century Systems. Intrigued, Waitt decided to drop out of school and learn the computer business on the job. During his nine months with Century Systems, he learned the basics and became fascinated by the fact that some of his colleagues could sell $3–thousand systems over the phone, without ever meeting the customer. Together with Mike Hammond, a fellow salesman, Waitt hatched a plan to start his own company, focusing initially on a niche market of Texas Instruments computer owners. Unable to secure financing from a bank, Waitt
convinced his grandmother to put up a $10-thousand CD as collateral. With this financing, a vacant office on the family cattle farm, and two aliases (due to noncompete clauses in their contracts with Century Systems), they started business in 1985 as TIPC Network.
TIPC Network supplied add-ons for Texas Instruments computers that allowed them to run software written for the IBM PC. Waitt and Hammond charged users a $20 membership fee, which provided them with more capital. Waitt was the sole owner at first; after six months his brother Norman became a 45 percent owner and financial manager (he later became a silent partner). Hammond was the technical expert, while Waitt drove the marketing and strategic vision. In mid-1987 Texas Instruments offered owners of their computers a new IBM-compatible PC for $3 thousand. Waitt and Hammond knew they could beat this price and rolled out a system with two disk drives and other features for only $1,995. By the end of 1987 Waitt renamed the company Gateway 2000 and moved the growing operation to the Sioux City, Iowa, Livestock Exchange Building.
Waitt's strategy for selling PCs was simple: provide the most bang for the buck, which Waitt called the "value equation." The strategy worked, as sales rose from $1 million in 1988 to $12 million in 1989 and $275 million in 1990. To keep prices low, Waitt strove to keep costs and overhead to a minimum. PCs were assembled after they were ordered, and the inventory of components was kept very low, reducing storage costs and allowing Gateway to always offer current technology. Gateway had no research and development budget at all. As the company grew, Waitt kept it in the low-cost area, moving across the border to South Dakota where there was no personal- or corporate-income tax. Gateway's first employees were paid $5.50 per hour, and labor costs stayed low even including profit-sharing bonuses for employees that Waitt instituted in 1988.
Waitt also kept marketing and advertising in-house. From the beginning he emphasized Gateway's unusual location by asking, "Computers from Iowa?" The focus on its Midwestern location and its black-and-white spotted-cow theme were designed to establish Gateway as a stable, trustworthy company at a time when many PC vendors started and failed in a matter of months. Waitt designed, executed (with in-house and local help), and starred in several unusual ads, with Robin Hood, saloon, and other themes not related to PCs. These ads went against the consventional wisdom of the advertising world, but they were very effective. Waitt was the visionary behind most of these ads, gambling on his instincts and winning.
Waitt's instincts also guided crucial decisions regarding which products and features to offer. In the rapidly evolving PC business, the timing of bringing new technologies to market was crucial for success. Waitt's gut feelings, supported by the knowledge derived from the company's direct contact with consumers, seemed almost foolproof. Gateway was the first to offer many features as standard on their systems, including color monitors and CD-ROM drives. These new technologies, offered at a price comparable to or even lower than the competition in the burgeoning PC market, fueled Gateway's tremendous growth in the early 1990s.
Gateway's sales soared to $627 million in 1991, passing Dell as the leader in direct marketers, and then to $1.1 billion in 1992 and $1.7 billion in 1993. In 1991 Gateway moved to a new 44,000-square-foot production facility and suffered order backlogs and quality problems due to the explosive growth. In February 1992 Waitt hired several managers from Compaq to set up quality-assurance programs and help with the transition from a small operation to a large company with thousands of employees. Gateway started selling software and peripherals such as printers and also worked to improve support for corporate buyers. Shortages of sales and support staff and order backlogs were still concerns, but low costs and overhead enabled Waitt to keep a 9 to 10 percent profit margin on the still-increasing sales.
At the end of 1993 Waitt decided to turn Gateway into a publicly traded company. Gateway's initial public offering (IPO) was a success, making Waitt, who had been paying himself only $200 per week, an instant billionaire. From 1994 to 1999, despite a few down quarters, Waitt, now CEO and board chairman, expanded Gateway's sales, staff, facilities, reach, and focus. In 1999 Gateway brought in $9 billion in revenues and employed 19,000. It entered the world markets, building production facilities in Ireland and Malaysia. Gateway Country Stores, showrooms offering support, service, and training, debuted in 1996 and grew to the hundreds in the United States and 40 overseas. Gateway tried to increase its revenue from sales to large businesses, with mixed success. In 1996, 35 percent of U.S. revenue was from major accounts, but a targeted ad campaign and the acquisition of Advanced Logic Research (a server company) failed to overcome concerns about support, quality, and standardization. Waitt, recognizing that the PC business was changing, shifted Gateway to a diversification "hexagon strategy," which included systems, software and peripherals, service and training, Internet access, portals and content, and financing. Gateway was the first to "bundle" PCs with software, printers, and other peripherals as a package. In 1998 Gateway became an Internet service provider for its customers, later making a deal with AOL to administer Gateway.net while Gateway promoted AOL on its PCs. Gateway also instituted the YourWare program, which offered PC financing, software, Internet access, service, and a trade-in option for a fixed monthly charge.
To achieve these goals and manage the growth of Gateway, Waitt brought in a succession of executives and managers from other companies. In 1998, feeling that a drastic change was needed to continue Gateway's growth, Waitt changed the Gateway 2000 name to simply Gateway, moved the company's headquarters to the San Diego area in order to attract more executive talent, and replaced 10 of the 14 top-level executives. One of the new hires, brought from AT&T to be Gateway's president and chief operating officer, was Jeff Weitzen. Waitt and Weitzen worked closely together the next two years, becoming close friends and collaborators. Gateway's stock went up 200 percent in 1999, and Waitt bought a $14-million home on the ocean. Feeling secure in Gateway's future under Weitzen's leadership and worth more than $8 billion, Waitt stepped down as CEO at the end of 1999.
Through the first half of 2000, everything seemed to be going smoothly, with Waitt serving as board chairman and long-range visionary. He left the general operation to Weitzen, who Waitt described in BusinessWeek as "probably a better manager and CEO" than himself (June 5, 2000). After a disastrous performance in the second half of the year, however, Waitt ousted Weitzen and was reinstated as CEO on January 24, 2001. Weitzen had attempted to change the corporate culture through very unpopular policies, which lowered morale and caused many long-term employees to quit. He also instituted commission and support policies that cost millions and hurt customer satisfaction. Anticipating continued growth in the market, Weitzen opened more than a hundred new Gateway Country Stores and stockpiled a large inventory for the holiday season. When demand fell and Gateway was unable to match Dell's prices, it posted a $94 million loss for the fourth quarter of 2000. Waitt became increasingly frustrated with Weitzen's decisions through the year, culminating in Weitzen's retirement in January. Waitt immediately fired eight top managers, rehired or reinstated his earlier staff, and revoked a series of initiatives and policies.
Gateway entered a long period of retrenchment and rein-vention. Waitt declared a "back to basics" plan in 2001, "selling one computer, one customer, at a time" ( Fortune , April 30, 2001). However, the lower demand and slim-to-nonexistent margins on PC sales resulted in a new emphasis on other products and services a short time later. Gateway's share price tumbled from a high of $80 at the beginning of 2000 to $2.10 in March 2003. Waitt lost more than $7 billion in personal net worth, but continued to search for a successful niche for his company. In 2003 he told Business 2.0 , "The glory days of the PC business are gone, over, done, finito" (August 2003). Instead, Gateway tried offering products and services to small and medium-sized businesses and hoped to transform itself into "branded integrator," offering consumer electronics for the digital home environment. Gateway had success with a top-selling plasma TV, but profitability still eluded the company, and in March 2004 it announced the purchase of eMachines, a company specializing in low-end PCs sold through retailers. Still hoping to regain profitability and increase the consumer-electronics line, Waitt once again stepped down as CEO, appointing eMachines CEO Wayne Inouye in his place. At least six other top eMachines executives took positions at Gateway, ousting many who were hired the year before to support Gateway's transformation to a consumer-electronics company. Waitt remained as board chairman. Inouye quickly announced the closing of all 188 Gateway Country Stores, a new headquarters location in Orange County, California, and the end of manufacturing at the South Dakota facility, although other functions continued to employ 1,500 there. As of mid-2004 the ability of Gateway to thrive or even survive was still in question.
Waitt was described by a Gateway shipping operator as "a normal dude, an everyday guy you'd go out and have a pizza with" ( Fortune , April 30, 2001). Charismatic and energetic, he was able to inspire loyalty from his employees with his laid back, rock-n-roll style. He often visited production, sales, and support facilities, sometimes jumping in to take customer calls himself. While always cost conscious and profit driven, he stuck with his basic values, which he even spelled out (respect, caring, teamwork, common sense, aggressiveness, honesty, efficiency, and fun) in 1997 when outside executives were being brought in to manage the company's growth. Said a source close to Waitt, "Anyone who really knows Ted Waitt knows that there are things more important to him than money. Two of those things are Gateway and its people" ( Time , May 19, 1997). He expected the same of his employees, according to Bart Brown, one of Gateway's early hires. "He's patient, but demands a lot of others," Brown told BusinessWeek . "If you miss a beat, you'll get a second chance. But if honesty and integrity are not there, he's got zero tolerance" (June 5, 2000). Waitt always embraced input from rank-and-file employees, holding company-wide pizza-party meetings at first, and then soliciting ideas for improvement through team meetings. When he reinstated himself as CEO in 2001, he offered employee bonuses for ideas that cut costs or improved service.
An entrepreneurial free spirit, Waitt gave up a $7 billion buy-out offer from Compaq in 1997, which would have personally netted him $3 billion, in order to remain the head of his company. Waitt's vision and instincts grew Gateway in the last century, but as of 2004 they had not succeeded as well in the new millennium.
See also entry on Gateway, Inc. in International Directory of Company Histories .
Brooker, Katrina, "I Built This Company, I Can Save It," Fortune , April 30, 2001.
Brull, Steven V., "Gateway's Big Gamble," BusinessWeek , June 5, 2000.
Heilemann, John, "Out of the Frying Pan," Business 2.0 , August 2003.
Kadlec, Daniel, "The Price of Freedom," Time , May 19, 1997.
Warshaw, Michael, "Guts and Glory: From Farm Boy to Billionaire: Ted Waitt's Inspiring Story of Incredible Growth," Success , March 1997, pp. 28–33.