Atari & Chuck E. Cheese's: Nolan Bushnell (2017)

Before he turned 40, Nolan Bushnell founded two brands that permanently shaped the way Americans amuse themselves: the iconic video game system Atari, and the frenetic family restaurant Chuck E. Cheese's. PLUS in our postscript "How You Built That," an update on H2OPS, a non-alcoholic take on craft-brewed – a fragrant sparkling water made with hops. (Original broadcast date: February 27, 2017) See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Guy Raz?

  Hey, everyone. Just a quick note about this episode. It first ran about a year ago, and it was actually a pretty tough story to squeeze into a single podcast because it's really two stories, two amazing stories. And we didn't want to cut anything out, so we kind of didn't. And we let it go a little longer than usual, which I think you will enjoy. So here it is.

• 0:26Speaker 01

  We started out essentially designing this little game-looking thing out of wood and painting it so that it looked like plastic, but it was really wood. And our idea was to take it to the toy show in New York.

• 0:43Guy Raz?

  And you showed this at the toy convention, and were people like, "This is amazing! This is going to change the world."

• 0:48Speaker 01

  We sold zero.

• 0:56Guy Raz?

  From NPR, it's How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.

• 1:08Guy Raz?

  I'm Guy Raz, and on today's show, how Nolan Bushnell took his love of arcade games and built an industry, two industries, in fact, that shaped the childhoods of millions of Americans.

• 1:23Guy Raz?

  If you grew up in the US in the 1980s, then you were probably playing a little bit of this.

• 1:32Guy Raz?

  And then, when your birthday rolled around, maybe you celebrated, you know, like this.

• 1:45Guy Raz?

  OK, so these are two very iconic sounds: Chuck E. Cheese, the pizza joint with the games that kept you distracted for hours, and an Atari video game, which could frankly distract you for a lot longer, days perhaps. But what's incredible is that both of these childhood experiences were created by the same person, by the same guy, by Nolan Bushnell. He founded Atari just a few years out of college, and he started Chuck E. Cheese just a few years after that. And for Nolan, it all began when he was a kid in Utah in the 1950s, and he learned a very simple lesson about business.

• 2:22Speaker 01

  At dinner one night, mom said, "Boy, we've got so many strawberries, we're not going to be able to eat them all. Maybe we'll give them away." I didn't think that much about it. The next day, I happened to go to the grocery store with her, and I saw that in the store, in the grocery store, they were selling strawberries for 50 cents a basket.

• 2:44Speaker 01

  And I looked at that and I said, "Hmm, that's what the market is." So, I went home, found all the extra little baskets that were around the house, went out, picked a bunch of strawberries, and went up and down the street, selling the strawberries for a discount off of what the grocery store was selling. And I sold out in an hour. I mean, I don't even think I made it all the way to the end of the block. And all of a sudden, I had more money than I would make on allowance and mowing lawns for a year.

• 3:18Guy Raz?

  Nice. You're a young entrepreneur.

• 3:20Speaker 01

  Yeah.

• 3:21Guy Raz?

  And I read that, like, later on, when you were in college, you worked at, like, carnivals?

• 3:26Speaker 01

  That's correct. I started out, actually, on the midway, selling balls to knock down milk bottles and guessing people's ages, weights, and occupations, and, you know, being a carny.

• 3:41Guy Raz?

  Like, shouting at people, like, "Come on down," throws them, yep?

• 3:44Speaker 01

  You got it. And, and I found out that I was kind of, kind of good at it.

• 3:51Guy Raz?

  How do you get into arcade games? Does that start at the carnival?

• 3:55Speaker 01

  Yes. That was sort of where I got indoctrinated, because you end up, a lot of people don't realize how much coin-operated games earn. It's actually quite surprising. And so, when you look at each of the coin-operated games as a little business, typically, you go into Joe's Cafe and say, "Can I put my machine in your location?" And I'll split the income with you. These locations would very often do $100 to $200 a week.

• 4:29Guy Raz?

  And at that time, these are mainly like pinball machines, right?

• 4:33Speaker 01

  Pinball machines. There were mechanical games, but yeah.

• 4:36Guy Raz?

  No video games at this time. We're talking about the late 60s.

• 4:40Speaker 01

  Correct.

• 4:40Guy Raz?

  Yeah.

• 4:41Speaker 01

  Then I was working summers at the amusement park, winters pursuing an engineering degree at the University of Utah. And wow, one day I saw Steve Russell's Space War.

• 4:55Guy Raz?

  What's that?

• 4:57Speaker 01

  A guy named Steve Russell at MIT programmed this game called Space War, and I was mesmerized by it.

• 5:08Speaker 01

  Let me put a little more context. My fraternity brother says, I gotta show you something that'll knock your socks off. He says, meet me at 1 o'clock at the Merrill Engineering Building. And I said, 1:00 in the afternoon? And he said, no, no, night.

• 5:24Speaker 01

  And so 1:00, show up at the Merrill Engineering Building, and there was Space War. He handed me a box that had four buttons on the top. Rotate left, rotate right, fire, and hyperspace.

• 5:41Speaker 01

  Those were the controls, and we played until literally 5:00 in the morning. And I thought, wow, if I could put this game in my arcade, it would make money. But then you divided 25 cents a play into a half a million dollar computer, and the math didn't work. But I did think to myself, maybe someday, the cost will come down, and this would be cool.

• 6:07Guy Raz?

  So you graduate college, I guess, in like the late 60s, like '68, '69, something like that?

• 6:11Speaker 01

  Yeah.

• 6:12Guy Raz?

  And what did you do? Did you, you're in Utah. Did you start a business, or did you decide to move? Like, where did you go? What happened?

• 6:20Speaker 01

  My wife's sister lived in Silicon Valley. And I was a little bit of an anarchist. At that time, you'd call me a lapsed Mormon, or failed Mormon, or whatever. And I kind of wanted to get out of Utah and see the world a little bit. And so California seemed like a cool place to go. So that Thanksgiving, we drove to California, stayed with my wife's sister. And I papered the street with my resume and got a job at Ampex.

• 6:52Guy Raz?

  And Ampex was a, like, tape, right? They made like electric, like...

• 6:57Speaker 01

  They invented the videotape machine and the instant replay. I worked there for two years. But about 18 months in, I discovered a computer that looked like it was fast enough to do a video game.

• 7:12Guy Raz?

  So you're thinking, I'm gonna start something?

• 7:15Speaker 01

  It started out a little bit as a research project. And then I said, yeah, I'm gonna start something. And in fact, it was almost prescient that when I was driving down the Sierras towards Silicon Valley, I told my wife, I said, you know, in two years, I'm gonna start my own company. I just knew that that was kind of on my trajectory. I didn't know at that time it was gonna be a video game company. I just thought I'd do it, you know? And in the back of my mind, and I always kind of had this entrepreneurial itch. I think I've always had it.

• 7:48Guy Raz?

  Yeah.

• 7:49Speaker 01

  Since eight.

• 7:50Guy Raz?

  So how did you start this computer company, this like game company?

• 7:54Speaker 01

  My office mate was a guy named Ted Dabney. This was at Ampex. And I said, I'm gonna start a company, let's form a partnership. We had this computer. And the computer was mind-numbingly slow. And in order to make the economics work, the computer cost like 5,000. Coin-operated games at the time needed to be less than $1,500. So the way I was going to do it is I was going to time-share that one computer across three screens with three coin slots, and I felt that I could get the $1,500 that way.

• 8:33Guy Raz?

  So you were trying to design, basically, what would become an arcade machine, like a giant machine that would be installed somewhere, and people would put in a quarter and they could play a game?

• 8:43Speaker 01

  Exactly.

• 8:44Guy Raz?

  Were you trying to do like a knockoff of Space War?

• 8:47Speaker 01

  Yeah.

• 8:48Guy Raz?

  And where did you install this arcade game? Where was it?

• 8:51Speaker 01

  We put it in a bar called The Dutch Goose. It was in Menlo Park. It was right next to Stanford University. The game was a smash hit at The Dutch Goose. I licensed the game to a company called Nutty Associates and realized that it did really well on college campuses. So, I mean, it sold a couple of million dollars in units, which was, to me, a big hit, but to the industry was kind of a mediocre flop. But I had a 5% royalty, and so that was, you know, $100,000, which was a massive amount of money.

• 9:30Speaker 01

  Put this in context: I came to work at Ampex for $825 a month as an associate engineer.

• 9:37Guy Raz?

  So how did you fund the company from the beginning? Like, did you have to go to outside investors and ask them for money?

• 9:43Speaker 01

  No. This was also at the time when venture capital was just getting started. And so Ted put in $250, I put in $250, and that's all the money that went into Atari.

• 9:58Guy Raz?

  Wow, 500 bucks to start Atari. And your first game was a flop? So how did you guys go on to do the next thing?

• 10:07Speaker 01

  Well, then came Al Alcorn, which was our first technical employee, because we were growing and we needed to get some more talent. And I gave him a simplest game I could think of, which was a ping-pong-type game.

• 10:23Speaker 01

  When you think you're going to be in the video, coin-operated video game, you write down every sport you can think of, every construct, and ping pong was one of them. And he went off and he basically had the thing working in one or two weeks. I mean, it was, it was really quick.

• 10:41Guy Raz?

  And we are talking about what, of course, became Pong, which was just like two lines with a ball bouncing around a screen between those lines.

• 10:50Speaker 01

  Correct. And it turned out to be, I thought it was going to be a throwaway.

• 10:55Guy Raz?

  Yeah.

• 10:56Speaker 01

  Uh, uh, there was just a training program. And it just turned out to be fun. We were staying after work to play the damn game. And then I get the idea, ah, maybe Bally wants this game. Bally, who was also a big coin-operated game player out of Chicago. And so I get in the airplane, fly to Chicago. I have a little mock-up that I can, a portable unit. And I show it to them and they don't like it. Because it's a two-player game. And the coin-operated world doesn't allow for a two-player game if there's not a one-player game at that time.

• 11:37Speaker 01

  That was sort of written in stone somewhere in the annals of coin op worlds. And I'm kind of dejected. On the way to get on the airplane to come back to California, I get a call from Alcorn, who was the engineer. And they had a service call because they had put a basic pong game in a cabinet and put it in a bar. And the game became so popular that it filled up the coin box that it couldn't take any more quarters. So I think to myself, maybe I don't want Bally to have this. Because the math were so outstanding that the machines could literally pay for themselves.

• 12:21Speaker 01

  I mean, the game was earning almost $300 a week.

• 12:26Guy Raz?

  Wow.

• 12:27Speaker 01

  And the total cost that we had was about $300.

• 12:32Guy Raz?

  So you're thinking, maybe we should just make these machines and license them ourselves.

• 12:37Speaker 01

  Exactly.

• 12:38Guy Raz?

  So was that what you did?

• 12:39Speaker 01

  So that's exactly what we did. I looked at all the cash we had, and we had enough cash to build like 12 units. You know, the minute I got off the airplane, I submitted the order for the parts, and we were off to the races. I get on the phone, I have literally orders coming in from all over the nation.

• 13:01Guy Raz?

  And of course, I mean, we think about Pong today, and it's such a basic, you know, rudimentary game. But in the context of the early 70s, this must have been revolutionary.

• 13:11Speaker 01

  Absolutely. To put it in context, people would come to me and say, how does the TV station know that I turned them off?

• 13:22Speaker 01

  And clearly, their construct was that if there was something on a TV screen, it came from a studio somewhere.

• 13:28Guy Raz?

  Yeah.

• 13:30Speaker 01

  And so that was kind of the construct that we were dealing with. But, you know, there's actually some very interesting psychology, looking back on it. And one of the reasons that I think Pong was such a massive success is that it fed into the narrative of what was going on at the time. You know, just after the Summer of Love, the hippie movement, women's liberation was starting to rear its head. And Pong, by its structure, made it ladies' choice, because it became very acceptable for a woman to tap a guy sitting

• 14:14Speaker 01

  at the bar on the shoulder and say, I want to play Pong. Would you like to play? I'll buy.

• 14:20Guy Raz?

  Who knew? Pong's role in the history of women's liberation.

• 14:23Speaker 01

  Exactly.

• 14:25Guy Raz?

  So we're, Nolan, were companies just calling you, or establishments just calling you, saying, we want a machine, we want a machine? Was that, is that what was going on?

• 14:33Speaker 01

  It was. And so our big problem, then, is we had no factory, we had no systems, we had no procedures, we had no employees. I mean, we had, there were four of us.

• 14:45Guy Raz?

  And you guys were all in your, like, mid to late 20s?

• 14:48Speaker 01

  Correct. And in fact, Al, I think, was 23. He just graduated from Berkeley.

• 14:53Guy Raz?

  Wow.

• 14:54Speaker 01

  And we had a thousand-square-foot roll-up, which we thought was huge for the six of us.

• 14:59Guy Raz?

  This was in, what town was it?

• 15:01Speaker 01

  This was in Santa Clara, California.

• 15:03Guy Raz?

  Okay.

• 15:04Speaker 01

  Then we found out that we had a real problem. We could build these games, literally, in two days.

• 15:10Guy Raz?

  Like, literally by hand, not in a factory?

• 15:13Speaker 01

  Yeah, but we had neglected to buy shipping cartons. So we couldn't ship them on common carrier. And so to solve that problem, we bought an old furniture truck and started making deliveries without cartons to Los Angeles.

• 15:33Guy Raz?

  You tried, like, driving down the 101 or something?

• 15:36Speaker 01

  Yeah, yeah. But slowly, we were able to get procedures in place. We were able to get systems. And how we financed the company was we would sell for cash the machines. We had 30-day terms. Most of our parts, we had 60-day terms. So we'd get the cash, literally 60 days, before we had to pay for the parts for that.

• 15:58Guy Raz?

  Yeah. And how many, at its height, you know, how many of these arcade Pong machines were out there in the country?

• 16:06Speaker 01

  About 150,000, only of which Atari only did about 35,000 of them. We got massively copied.

• 16:14Guy Raz?

  Wait, you couldn't, you couldn't prevent these companies from basically stealing your idea and copying you?

• 16:19Speaker 01

  I didn't have patents yet. It was, in those days, patents were just slow boat for China.

• 16:24Guy Raz?

  So there was no, so basically, you could do nothing about these copycats?

• 16:28Speaker 01

  Nothing.

• 16:29Guy Raz?

  Wow.

• 16:29Speaker 01

  And when we were copied, we knew we didn't have as efficient a manufacturing.

• 16:35Guy Raz?

  Yeah.

• 16:35Speaker 01

  We knew we didn't have as much money. We knew we didn't have as good a relationship with the distributor chain that the competitors that had been dealing with them for 20 years had. And so I felt that my only tool was innovation and understanding of the technology because copying the technology and creating the technology was different.

• 16:58Guy Raz?

  So you were still not really profitable. You were just kind of breaking even?

• 17:03Speaker 01

  Cash was always our limitation.

• 17:04Guy Raz?

  Yeah.

• 17:05Speaker 01

  And I tried to get, you know, investors, but everybody thought that video games were kind of flaky.

• 17:10Guy Raz?

  They thought, who's going to pay for this thing?

• 17:12Speaker 01

  Yeah, exactly.

• 17:13Guy Raz?

  So how did you even come up with the idea that maybe we should sell this to people and they could do it at home?

• 17:20Speaker 01

  One day, we figured out that there was a new semiconductor technology called N-channel MOS. And these chips, once they were designed, you could buy them for five bucks. It occurred to us that we could put Pong on a single chip and hit a price point that would sell to the consumer.

• 17:40Guy Raz?

  And how did you even begin to think of ways to do this? Because you're talking about like building a cabinet for a giant arcade system. Like, how do you then shrink that down into something that would fit in someone's house?

• 17:55Speaker 01

  Well, once you had it on a single chip, then it was just a matter of putting two knobs on a piece of plastic. We started out essentially designing this little game looking thing out of wood and painting it so that it looked like plastic, but it was really wood. And our idea was to take it to the toy show in New York.

• 18:19Guy Raz?

  This is a toy convention in like 74, 75?

• 18:23Speaker 01

  Yeah, it's 1975 spring.

• 18:26Guy Raz?

  And you show this at the toy convention and were people like, this is amazing. This is going to change the world.

• 18:31Speaker 01

  We sold zero.

• 18:33Guy Raz?

  What?

• 18:34Speaker 01

  And it was a great demo and everything. But what we didn't know is that the toy business at that point in time did not sell anything that was more than $35.

• 18:46Guy Raz?

  And how much were you selling this Atari console for?

• 18:49Speaker 01

  Seventy-nine.

• 18:50Guy Raz?

  Which in 1975, that must have been a fortune.

• 18:53Speaker 01

  It was a lot. And so we thought, boy, you know, we spent all this money to get this thing developed, but all our neighbors wanted one and they were happy to spend $79.

• 19:06Guy Raz?

  Did you leave that toy show feeling dejected? Like you?

• 19:09Speaker 01

  Failure. It was abject failure.

• 19:11Guy Raz?

  You must have been pretty depressed, I guess, after putting all this money into this thing.

• 19:16Speaker 01

  You don't, I'm not easily depressed, but I'm very easily challenged. And I said, you know, there's something not right here. You know, we just haven't found the right guys yet.

• 19:27Guy Raz?

  What do you mean you hadn't found the right guys?

• 19:29Speaker 01

  The right distribution channel.

• 19:30Guy Raz?

  So basically, you're thinking, these guys are wrong. I know this is gonna work.

• 19:34Speaker 01

  Exactly, exactly. I said, these guys are missing a wonderful opportunity. And so we were thinking Radio Shack, I was thinking TV dealerships. I was thinking all kinds of stuff. And then my head of sales thought about Sears Sporting Goods. And the previous year, Sears Sporting Goods really focuses on the inclement weather family room. And they sell pool tables and ping pong tables and things like that.

• 20:09Guy Raz?

  Ah.

• 20:11Speaker 01

  The year before, they had made a consumer pinball machine for $200. And they sold out. So my sales guy said, maybe these guys. And so he calls up the buyer at Sears Sporting Goods. And he says, oh, that's kind of interesting. The next day, he was on our doorstep.

• 20:31Guy Raz?

  And they were based in Chicago at the time?

• 20:33Speaker 01

  They were based in Chicago.

• 20:34Guy Raz?

  So Sears buyer comes to, flies out, comes and says, I wanted to see what you're talking about.

• 20:40Speaker 01

  Exactly. And we actually had to scramble because we didn't realize he was coming. He didn't say, hey, I'm showing up tomorrow. He just showed up.

• 20:47Guy Raz?

  Wow.

• 20:48Speaker 01

  And so we were in the conference room after that. He says, okay, yeah, I think we're gonna do that. How many can you build? We didn't have a clue.

• 20:55Guy Raz?

  Right.

• 20:56Speaker 01

  Because we were, we were building coin operated games, you know, where a big run was 5,000.

• 21:02Guy Raz?

  Right.

• 21:03Speaker 01

  We kind of do a huddle. And I said, let me check on that. And so we did a huddle outside the conference room. And I had my manufacturing guy there. And I, and he says, we could probably do 25,000.

• 21:16Speaker 01

  And so not wanting to be soul sourced, I said, we can do about 75,000.

• 21:21Guy Raz?

  You go back to the Sears guy and say, we could do 75,000, after your own guy tells you, we could do 25.

• 21:27Speaker 01

  Yeah.

• 21:27Guy Raz?

  OK.

• 21:28Speaker 01

  Yeah, I'm a carny.

• 21:29Guy Raz?

  Right.

• 21:30Speaker 01

  I'm well trained.

• 21:31Guy Raz?

  Exactly. Right. OK.

• 21:33Speaker 01

  He gave us an order for 150,000.

• 21:36Guy Raz?

  Wow.

• 21:37Speaker 01

  And he wants them delivered by Christmas, by, you know, October, November.

• 21:41Guy Raz?

  Well, you've got basically six months to...

• 21:44Speaker 01

  To build a factory, to train the personnel, to sort out the technology, none of which we'd done before.

• 21:52Guy Raz?

  All right. So is anybody at Atari freaking out at this point?

• 21:56Speaker 01

  Everybody is.

• 22:01Guy Raz?

  Nolan Bushnell, founder of Atari. When we come back, after the freak out, the real work begins, plus a side hustle that brought together pizza, games, and a rat. I'm Guy Raz, and you're listening to How I Built This from NPR.

• 22:27Guy Raz?

  Hey, welcome back to How I Built This from NPR. I'm Guy Raz. So it's 1975. Nolan and his partners have gotten a huge order from Sears to make a consumer version of Pong. And so they need to figure out how to build a manufacturing chain virtually overnight.

• 22:44Speaker 01

  We sit down and we say, OK, if we were to build 150,000, how would we do it? And then the big question, how much money are we going to make after we spend all this money on the factory and we realize that we didn't earn enough? And so I call the Sears buyer and say, I hate to do this to you, but I'm going to have to up the price.

• 23:08Guy Raz?

  What was the price that he wanted to pay?

• 23:10Speaker 01

  We were quoting a retail price of 59. And we decided that we needed an extra 20 bucks per unit. And he said, that's OK. I can do that. Then I went through the math, and there was no way that I had enough capital to put in the conveyor belts, to rent the extra facility, to buy the parts. And I call him up and I say, you know, I really appreciate the order, but I said, I can't fund this. He says, oh, don't worry. I'll introduce you to Sears Bank. And so Sears Bank set up a bonded warehouse at the end of the conveyor line. And so as soon as a consumer Pong dropped off the assembly line, they would advance

• 23:52Speaker 01

  us 80% of the contract price with Sears.

• 23:57Guy Raz?

  Hmm.

• 23:58Speaker 01

  And all of a sudden, it worked.

• 23:59Guy Raz?

  I mean, the Atari console that you were building only played Pong, right?

• 24:03Speaker 01

  Correct.

• 24:04Guy Raz?

  And did you get it to them in time, 150,000 consoles by Christmas?

• 24:08Speaker 01

  We did. And in fact, I think that year, we sold almost 180,000, and they took them all.

• 24:14Guy Raz?

  Wow. I mean, at this point, you, I guess, you guys invent the home computer game phenomenon.

• 24:22Speaker 01

  Exactly.

• 24:24Guy Raz?

  And then how did you go from making one console that played one game to like a home video game system that played a bunch of games?

• 24:33Speaker 01

  Well, we realized at that time, when we were doing the one game, $70, that this was an unsustainable business. And then a magical thing happened. A semiconductor company in Silicon Valley came up with a microprocessor that they were willing to sell us for $8. And all of a sudden, our eyes were opened, and we said, we can do von Neumann architecture, program-based, put cartridges with ROMs in it, and we can have a program.

• 25:13Guy Raz?

  That microchip allowed you guys to basically create a cartridge system that we, most of us, came to know, right?

• 25:20Speaker 01

  Exactly. You know, it was just a magic time for technology. Silicon Valley at the time, you were as likely to learn about a new technology standing on the sidelines of your kid's Little League team as you were at any other time. And several times, I'd be talking about a technical problem we were having with one of the other parents, and they'd say, oh, yeah, we've got a chip like that in development. Would you like a prototype? It's not going to be really on the market for six months. And I'd say, yeah, we don't need production quantities for six months. You're not going to get that if you're a technology company in Oshkosh.

• 26:05Guy Raz?

  Were, I mean, were there many companies in Silicon Valley at the time that were focusing on entertainment?

• 26:12Speaker 01

  I can't think of another one.

• 26:14Guy Raz?

  Wow.

• 26:15Speaker 01

  We kind of always felt like we were the sleazy company who

• 26:18Guy Raz?

  Yeah.

• 26:19Speaker 01

  focusing on fun instead of all this, you know, how many more megabytes can we get on a hard drive?

• 26:25Guy Raz?

  I mean, were there like the serious companies? Were they, did they look down on you?

• 26:30Speaker 01

  We liked our rebel status.

• 26:35Speaker 01

  And we were rebel in several ways. First of all, we were all young. I was the youngest CEO and people didn't know what to think about a CEO in their twenties. I mean, that was just off the radar. And, and I actually feel like I paved the way for Gates and Jobs and some of the idea that you can be young and still a serious businessman. But more than that, we got known as a real party culture because instead of bonuses, since all our employees were in their early twenties, we'd have a beer bust on the back dock. And you'd get, you know, a hundred dollars worth of pizza and two kegs and you had a party.

• 27:17Speaker 01

  And that was totally unheard of. And of course, we had a game room and we had ping pong tables, stuff that Silicon Valley kind of thinks is de rigueur and necessary now.

• 27:28Guy Raz?

  Yeah.

• 27:28Speaker 01

  It was very, very different. And then we didn't have a dress code and we didn't have time clocks. We had this attitude that everybody knew what they needed to do and they were adults and they could wear what they want and they could come and go when they want and we weren't big brother. You know, so we tried to make this meritocracy in which outcome was the only thing we counted.

• 27:55Guy Raz?

  As a young CEO, do you think you did a good job? Were you, you know, were you, were you a good manager of people at the time?

• 28:04Speaker 01

  So so. I think I was a good manager of people. I think that I always had a little bit of an inferiority complex in that because of my age, I felt a little bit like a poser. Which was okay with me on some level because of my carnival background. But at the same time, I always felt that I didn't know what the hell I was doing.

• 28:29Guy Raz?

  Yeah.

• 28:29Speaker 01

  And what I didn't realize is that most of the big companies don't know what the hell they're doing.

• 28:33Guy Raz?

  Right, right.

• 28:35Speaker 01

  I wasn't mature enough to understand that all companies are somewhat screwed up.

• 28:39Guy Raz?

  But you, I mean, you clearly like had an eye for, you clearly had an eye for hiring interesting people. I mean, I think anyone who knows a little bit about the story knows that Steve Jobs and Steve Wozniak worked for you.

• 28:51Speaker 01

  Steve Jobs worked for me and he was a technician in quality control and he was really good at it. I can remember him coming in and saying, Nolan, if you allow these kinds of solder joints, you're going to have failures in the field that will ruin your reputation.

• 29:07Guy Raz?

  Could you already tell like that, you know, we think of him as this sort of mercurial kind of impetuous leader. Was he like that even as a, you know, 20 something kid?

• 29:18Speaker 01

  He was opinionated, but he was never wrong in his opinions. You didn't have to worry if you empowered Steve to do something. It happened. I mean, Steve had one speed. It was full on. And so he got the, the apple going and he came to me and says, I want to start this company. And I'm going to be leaving. Do you want to be my first investor and I'll give you a third of the company for $50,000?

• 29:45Guy Raz?

  And you said, of course.

• 29:47Speaker 01

  Yeah, I did not say that. And I've regretted it, but you know, anyway, it was fun times.

• 29:54Guy Raz?

  What's a few billion? It doesn't matter. It doesn't matter.

• 29:58Speaker 01

  It would have ruined my life.

• 30:00Guy Raz?

  It would have made you totally insufferable.

• 30:02Speaker 01

  Yeah, and I was already insufferable.

• 30:04Guy Raz?

  So thank goodness you did not take that deal.

• 30:08Speaker 01

  Exactly.

• 30:09Guy Raz?

  So, all right, so you're running Atari. It's doing really well. And then what? You decide to sell it, I guess, right?

• 30:17Speaker 01

  So I felt that we had to take the company public to raise 15 million dollars, which seems paltry now, but that was all the money in the world to us at the time. And the market hiccuped. And they said, there's just no way we're going to do it.

• 30:34Guy Raz?

  This is the late 70s, right?

• 30:35Speaker 01

  This was the summer, summer of 76.

• 30:39Guy Raz?

  Right.

• 30:39Speaker 01

  And all of a sudden, we had Christmas coming, and I knew I didn't have enough money, even with Sears, to be able to get this new, massively wonderful product into the marketplace.

• 30:52Guy Raz?

  This is the Atari console with the cartridges, right?

• 30:55Speaker 01

  Yeah, that's correct. So without an ability to do that, I said, maybe it's time to get a corporate partner. And so I started dialing for dollars from corporate partner. Warner Communications showed up and said, we'll not only put up the money, but we'd like to buy you. And we'll pay you money, and we'll put money into the company, and you'll get this big royalty stream. And we understand creatives, and we're going to link arms and march into the sunset.

• 31:29Guy Raz?

  And what was it? Well, how much were they offering you?

• 31:31Speaker 01

  28 million bucks.

• 31:32Guy Raz?

  Which is, that must have been a huge amount of money at that time.

• 31:36Speaker 01

  Yeah, I mean, you know, I was a farm boy from Utah. All of a sudden. I mean, you could buy a Learjet in those days for a million dollars.

• 31:43Guy Raz?

  So you took the money?

• 31:45Speaker 01

  Took the money. Yeah. Yeah.

• 31:49Guy Raz?

  And so what happened? So you continued to work for Atari at that point?

• 31:53Speaker 01

  Correct. After the sale, I was not as rigorous as I had been. I sort of started taking care of my personal life instead of my business life.

• 32:04Guy Raz?

  Right.

• 32:05Speaker 01

  And I found that there were a lot of decisions that were being made that were really... Really pretty toxic, I thought.

• 32:13Guy Raz?

  Decisions about where to take the company?

• 32:15Speaker 01

  Yeah, and slowly, we brought in a president of consumer who had all the hierarchy, you know, reserved parking places and executive dining rooms and all the things that were anathema to me.

• 32:31Guy Raz?

  Yeah, you're going from keg parties on your loading dock to an executive dining room?

• 32:36Speaker 01

  Yeah, and I just thought that was so wrong on so many levels because I don't think you need to arbitrarily create an us versus them mentality in your company, you know? And one of the things that happens when you're owned by a New York company, they think that your laid back style is that you're not working as hard and they think that people that come in at 10 should be fired. And so all of a sudden, there was this clash of cultures that got to be really ugly. And ultimately, they got tired of me and I got tired of them and I was fired.

• 33:16Guy Raz?

  How long, so between the time that they bought you and the time that you were ousted, how long was that?

• 33:20Speaker 01

  About 20 months.

• 33:23Guy Raz?

  Wow, that must have been a tough period for you.

• 33:25Speaker 01

  Actually not.

• 33:31Speaker 01

  I kind of view business a little bit like a game of chess.

• 33:35Guy Raz?

  Yeah.

• 33:36Speaker 01

  You play the game, you play hard, sometimes you win, sometimes you lose. And then you set up the pieces and you have to do it again. And you don't have angst that the fact, oh, my God, I lost that game of chess. What am I going to do? What was me? And what that allows you to do is to view a little bit as an outsider from yourself, things that happened to you. So when something doesn't work out that well, you can say, gee, that was horrible, but it was an interesting experience.

• 34:06Guy Raz?

  Okay, let me just stop here for a sec because this episode could end here and we could say, okay, that's Nolan Bushnell, visionary who founded Atari. We are now going to talk about the second company you founded, which is Chuck E. Cheese.

• 34:18Speaker 01

  Yeah.

• 34:18Guy Raz?

  How did that happen? How do you even come up with this concept?

• 34:22Speaker 01

  Well, the math is very simple. Before I sold to Warner, we were selling games, these were coin operated games, remember? We were selling them for about fifteen hundred dollars. During their lifetime in CoinDrop, they'd earned thirty to fifty thousand dollars. So it didn't take rocket science to say, I'm on the wrong side of this equation. I need to be operating these things to a bigger extent. But I didn't want to compete with the guys I was selling to. So I decided I had to create my own location. I thought to myself, why are people going to come to this freestanding arcade? And I decided that adding food would be a benefit because then families could come.

• 35:05Speaker 01

  And that indicated pizza because there was wait time. And that would be good game playing time. While I was still mulling this whole concept around, I went to Disneyland and went to the Tiki Room.

• 35:18Guy Raz?

  Oh, yeah.

• 35:18Speaker 01

  And I said, huh, my guys can do this.

• 35:21Guy Raz?

  You mean, my guys can make these little creatures?

• 35:24Speaker 01

  Yeah, we can, we can animate things.

• 35:26Guy Raz?

  Okay.

• 35:26Speaker 01

  And then I realized that I really wanted to have a branded mascot. And that I wanted it to be a longer form entertainment. I figured, kids are going to be wanting to play the games. Parents are going to be bored. The more I can entertain them, the less they're going to be bugging their kids to leave. So I said, let's do some animated skits. The whole idea was to roll this out, make it seamless, not have labor costs, just make it happen.

• 35:56Guy Raz?

  Right.

• 35:57Speaker 01

  So anyway, I went to an amusement trade show, bought a costume.

• 36:02Guy Raz?

  Like a costume that the, that like a human would wear, like a full size adult? And, and you would just, your guys would just turn it into an animated robot?

• 36:10Speaker 01

  Exactly.

• 36:11Guy Raz?

  And this was the famous Chuck E. Cheese?

• 36:13Speaker 01

  That was the famous Chuck E. Cheese.

• 36:15Guy Raz?

  Which was a rat?

• 36:16Speaker 01

  Right.

• 36:16Guy Raz?

  What restaurant is going to pick a rat as their mascot and think that's going to work?

• 36:22Speaker 01

  Well, to understand, when I bought the costume, I thought I was buying a coyote.

• 36:27Guy Raz?

  Okay.

• 36:28Speaker 01

  The code, the code name was Coyote Pizza. And my guys, I said, how's the coyote coming? He said, what coyote? And I said, well, the costume I sent you. He says, oh, you mean the rat? So all of a sudden, we had a problem. So I said, okay, we'll just change the name. It won't be Coyote Pizza anymore. It's gonna be Rick Rat's Pizza.

• 36:47Guy Raz?

  Rick Rat's Pizza? That was gonna be the name of Chuck E. Cheese?

• 36:51Speaker 01

  That was gonna be the name.

• 36:51Guy Raz?

  Who was gonna eat pizza at a place called Rick Rat's Pizza?

• 36:55Speaker 01

  That's exactly what my marketing department said. And they said, they said, there's no way, Bushnell, that's the stupidest idea I've ever heard. They said, we couldn't even, you know, they'd be on the guard and we wouldn't get our health license. And I said, okay, you name it, I don't care, but it has to be a happy name.

• 37:14Guy Raz?

  Right.

• 37:14Speaker 01

  And so they came back all smiles the next, the next week and they said, we've got the name. It's a three smile name. And I said, what is it? And he said, Chuck E. Cheese.

• 37:25Guy Raz?

  So, so what happened? You, you opened up your first location in Silicon Valley?

• 37:30Speaker 01

  Yeah, it was, it was basically in San Jose. We took over a old Dean Witter office and it was like 5,000 square feet and that was huge compared to pizza parks at the time. We knew the day we opened that we'd made a huge mistake and it was too small.

• 37:47Guy Raz?

  Wow, you mean it was that popular?

• 37:49Speaker 01

  Massive. I mean, lines out the door on a Monday.

• 37:53Guy Raz?

  Were your customers little kids? Who, who, who was coming?

• 37:56Speaker 01

  Everybody. But then we sold the company and Warner didn't want to be in the restaurant business.

• 38:03Guy Raz?

  Right, so just to clarify, you, you sold Atari to Warner and I guess Chuck E. Cheese was, was kind of part of that deal, right? Because you created it while you're there, so for you to keep Chuck E. Cheese, you had to buy it back from them?

• 38:14Speaker 01

  Yeah.

• 38:15Guy Raz?

  And, and what did you have to pay for it?

• 38:17Speaker 01

  Half a million dollars.

• 38:18Guy Raz?

  500,000 bucks to buy Chuck E. Cheese.

• 38:20Speaker 01

  And that was all the technology and the one open store. The one open store was cash flowing a half a million dollars a year. And they let me pay it 100,000 a year for five years. And that was maybe the deal of a lifetime. So I had this business that was positive cash flow day one while I was still chairman of Atari. And I had a team of people that had been working on it. I brought them on my payroll. And we immediately expanded to the second store. This one was 25,000 square feet. And I was having more fun at Chuck E. Cheese than I was having at Atari. Atari was getting political.

• 39:02Speaker 01

  So when we decided to part ways, I decided I could focus all my time on Chuck E. Cheese, and I was kind of happy about it.

• 39:10Guy Raz?

  Yeah, it must have been pretty liberating to work on this thing that, you know, you were like super excited about.

• 39:16Speaker 01

  You know, sometimes I feel that inadvertence shines on me because I hadn't even thought about franchising. And a guy came in and said, I want to franchise this. And I said, OK. And we started franchising. And so the franchise business was hugely profitable.

• 39:36Guy Raz?

  So how many Chuck E. Cheese locations did you eventually franchise?

• 39:40Speaker 01

  I sold the company when we were about 280 stores, and half were franchised at the time. So we built about 120, and franchises built about 140, I think.

• 39:54Guy Raz?

  What sort of mistakes do you think you made that you learned from at Chuck E. Cheese?

• 40:00Speaker 01

  I think that I didn't understand the nature of entertainment. Now, that sounds funny, coming from the amusement park and all that. But entertainment is very fragile. It's driven on novelty. And so when we would first open a unit, people would come from all around because it was novel. So there was sort of a half-life of a shine in which you say, gee, you know, this is St. Louis. Looks to me like I need four more Chuck E. Cheeses. When in fact, what you were seeing is this novelty bonus.

• 40:43Speaker 01

  And that people in normal life didn't really want to come to Chuck E. Cheese three times a month.

• 40:52Guy Raz?

  Yeah.

• 40:52Speaker 01

  They wanted to come to Chuck E. Cheese every other month. We got overbuilt because we got another false positive.

• 41:00Guy Raz?

  What was a false positive?

• 41:02Speaker 01

  That you could pack the place 365 days a year

• 41:07Guy Raz?

  Right.

• 41:08Speaker 01

  in a population of a million people, which you couldn't.

• 41:13Guy Raz?

  You know, it's amazing because you built these two iconic companies. I mean, companies that for many, many people in America define the contours of their childhoods. And you've gone on to start at least a dozen other companies, some of which have been spectacular failures and spectacular successes. You've had this amazing range of experiences on both ends. And I guess, I guess I wonder what, I mean, I'm sure the successes were incredibly satisfying for obvious reasons. But in some ways, do you think the failures were sort of more interesting?

• 41:54Guy Raz?

  Or times where you learned more about life and about you and about business?

• 42:01Speaker 01

  There is no question that a good failure is good for your soul. There is nothing worse than feeling like you are invincible and really cool and entitled. Being entitled is probably the ugliest thing that a person can be. Because all of a sudden, it's not what you do, it's who you are. And people who rely on who they are as opposed to what they do become very banal.

• 42:40Guy Raz?

  How long did it take you to become who you are? To realize that that's who you are?

• 42:47Speaker 01

  Well, I hope that I'm not there yet.

• 42:49Guy Raz?

  Hmm.

• 42:49Speaker 01

  I, I want to stay on this deep part of the learning curve. And in fact, I've even done a methodology on it. I, I force myself to do something totally outside my comfort zone every year. And I write down 11 things that I think I can accomplish in a year that are outside my comfort zone. And then I mix them up, put a number on them, throw a pair of dice, and I have to, in that year, do what the dice tell me to do.

• 43:22Guy Raz?

  Hmm.

• 43:22Speaker 01

  And I've discovered a funny thing. Maybe it's just me, but I think it's a generalized principle that when you do different things, you're happier.

• 43:32Guy Raz?

  Huh.

• 43:33Speaker 01

  That this process of, of exploration and of discovery and of winnowing out the game and the meta-game is very satisfying.

• 43:48Guy Raz?

  If you were able to go back to, like, I mean, now you are a sort of an elder statesman of the tech world, you're in your, your 70s, and if you could go back to, to Nolan Bushnell in the late 70s or early 80s and say, hey, you know, I want to give you some advice, what would you tell yourself?

• 44:07Speaker 01

  Boy, that's a real hard one because, you know, I, some of the bad decisions I've made, I'm not sure that I would like my life to not have had them. And I'm not sure that if I were to give myself advice and change that trajectory, I would end up where I am right now. And I like where I am.

• 44:32Guy Raz?

  Tell me about what you're working on now.

• 44:36Speaker 01

  Well, then I'll have to kill you. No.

• 44:44Guy Raz?

  Nolan Bushnell is the founder of Atari and Chuck E. Cheese, and he's actually working on some pretty cool stuff right now, including a company called BrainRush, which makes software designed to help students learn school subjects eight to 10 times faster.

• 45:06Guy Raz?

  And please do stick around because in just a moment, we're going to hear from you about the things you're building.

• 45:16Guy Raz?

  Hey, thanks so much for sticking around because it's time now for how you built that. And today, we're going to update a story that we ran about a year ago. This one is from Paul Tecker, who's worked in the beverage business in Southern California for over 20 years. And that entire time, he's been making craft beer in his kitchen.

• 45:36Speaker 02

  Well, I've been a home brewer for 20 years and pretty quickly realized that the magic ingredient in craft beer is the hops. I started brewing with hops and one day I had some leftover and it just hit me that hops should be enjoyed on more occasions. And how come it's only in craft beer?

• 45:54Guy Raz?

  Now, that's not necessarily a question everyone would ask. Bacon, maybe, but hops, who knew?

• 46:01Speaker 02

  It's a very subtle flavor, pleasing and really pairs well with food. And, you know, the more I looked at it, the more I said, wow, this could be a whole new category.

• 46:11Guy Raz?

  But instead of coming up with another artisanal chocolate bar or a hops infused cheese, Paul thought, what about a new drink? Maybe even a drink with no alcohol.

• 46:24Speaker 02

  As much as I love craft beer, you can't drink it on all occasions. So I started experimenting and probably about a year of research and many failures and trying different varieties, came up with something that I thought was just phenomenal.

• 46:38Guy Raz?

  What Paul came up with has no barley, no yeast, no fermentation, no alcohol, and best of all, no calories. Paul basically made up hops flavored sparkling water.

• 46:51Speaker 02

  You know, I think when people think of hops, they think of bitter. But, you know, there are over 100 varieties of hops. And the hops that we use, these Aroma hops, add citrus and pine flavors, grapefruit. It's really complex and what I consider the spice or the magic ingredient.

• 47:10Guy Raz?

  So Paul took his creation to a beer festival in San Francisco. And at first, he was a little nervous about what beer drinkers would think.

• 47:19Speaker 02

  But when people came up and tasted it, people were like, wow, you know, this is legit. The flavor is really interesting and refreshing. And that's when I knew that it's not just me.

• 47:31Guy Raz?

  Now, think about this for a moment. Sparkling water is super hot right now. Just ask the company that makes La Croix. And it's no secret that craft beer is huge. Paul just figured, put them together. And he's managed to get his drink into a few small retailers and restaurants. Now, he's not making a profit yet, but this year, he's expecting sales to double.

• 47:54Speaker 02

  And if I can get it to the point where a big company would like to pick this up and distribute it worldwide, then, you know, I would feel fantastic about that.

• 48:03Guy Raz?

  When we last spoke to Paul, he'd sold less than $100,000 worth of hot water. But he says, within the past year, his sales went up six times. And although the company is still not profitable, Paul is hiring his first employee this year. If you want to know more about Paul's company, H2OPS, visit our Facebook page. And if you want to tell us your story about the things you're building, go to build.npr.org. That's build with a D, dot NPR, dot org. And thanks so much for listening to the show this week. If you want to find out more, you can go to howibuiltthis.npr.org. You can also write to us at [email protected].

• 48:47Guy Raz?

  Our show was produced this week by Rameen Arablouei, who also composed the music. Thanks also to Neva Grant, Sanaz Meshkhanpour, and Jeff Rogers. Our intern is Noor Kudsi. I'm Guy Raz, and you've been listening to How I Built This from NPR.