The two founders of Atari, Nolan Bushnell and Ted Dabney, were both Engineers with a fuzzy vision of what they wanted to accomplish in 1972. They had no VC money, there was basically no market for the video games and consoles they finally decided to build, and Bushnell was sweating every payroll until Warner Communications acquired them in 1976. The young employees of Atari didn’t know much about how to build a Startup. Getting support from existing ecosystems was out of the question, because none existed, and senior advisors and Venture Capitalists who were interested in arcade gaming were absent. On their own, Atari developed a culture of free thinking, no hierarchies, and regular Beer bashes to celebrate key accomplishments. It was a culture that would clash fiercely with the business culture brought by Warner Communications through the acquisition in 1976. Engineers didn’t believe they were getting enough credit for their work, and the intervention by Nolan Bushnell didn’t suit Atari’s new Board, which lead to Bushnell’s departure in 1978. During the journey, Atari learned the hard way how established companies created huge barriers to entry if anyone tried to enter their market. It’s a lesson all Startups should learn, and the talk of disruption should be taken lightly. For Atari, it was better to enter a market that didn’t yet exist. The odds were significantly better, although the journey was still hard to make. To build a market, Bushnell started a few Pizza parlours where he installed his games. Atari experienced how Warner’s Business people didn’t understand how they were thinking; Warner saw the markets that existed, and they were only interested in establishing a foothold that could lead to a monopoly; inventing new markets was not on their mind.
Atari tried for four months to sell the Pong game before they got their first customer. When no one was interest, they believed they had a turkey on their hands. They also learned that the sales prise was a key issue. After they finally found their dream customer, they didn’t knew if they could manufacture 150,000 copies of Pong, but that was a minor problem. Most important was that they had secured the money and solved the cash-flow problem, at least for the moment. Bushnell had at this point learned how the business really worked. To dominate the arcade game business the price needed to be cheap. Something Apple and Steve Jobs didn’t learn in 1984 with the Lisa and Macintosh computers, until the Macintosh estimates were cut by 80% for the United States. Steve Jobs, who had worked at Atari in 1974, had a solution that could have been copied from his former employer: lower the price and double the advertising budget. But he couldn’t convince Apple’s board and CEO John Sculley, who made the strategic decision to continue with the Apple II computer and follow up with a failed Apple III. The Lisa computer was discontinued in 1986, but Jobs had left Apple at that time.
High-tech products have a life-span of perhaps three years, before the competition launches a similar product. During that time, a successful Startup, like Atari, has to develop and launch a product that is significantly better. Building a new market takes longer time, maybe as much as ten years. There is no guarantee that the original Startup will keep its position. The history is full of examples that contradict this belief. Laying the ground takes a lot more effort than anyone can understand, but once all the ground pillars are in place its easier to release the next generation.