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

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Atari & Chuck E. Cheese's: Nolan Bushnell

GUY RAZ, HOST:

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 everything out, so we kind of didn't. And we let it go a little longer than usual, which I think you will enjoy.

(SOUNDBITE OF ARCHIVED BROADCAST)

NOLAN BUSHNELL: 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 (laughter). And our idea was to take it to the toy show in New York.

RAZ: And you showed this at the toy convention. And were people like, this is amazing - this is going to change the world?

BUSHNELL: We sold zero.

(SOUNDBITE OF MUSIC)

RAZ: From NPR, it's HOW I BUILT THIS, a show about innovators, entrepreneurs, idealists and the stories behind the movements they built. 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.

(SOUNDBITE OF MUSIC)

RAZ: If you grew up in the U.S. in the 1980s, then you were probably playing a little bit of this...

(SOUNDBITE OF VIDEO GAME SOUND EFFECTS)

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

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED CHILDREN: (Singing) At Chuck E. Cheese, you can act like a kid and have more fun than you ever did.

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.

BUSHNELL: 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. And 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. And I looked at that. And I said, 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.

RAZ: Nice, young entrepreneur.

BUSHNELL: Yeah.

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

BUSHNELL: 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.

RAZ: Like shouting at people? Like, come on down. Throw some...

BUSHNELL: Yup. You got it.

RAZ: Yeah.

BUSHNELL: And I found out that I was kind of good at it.

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

BUSHNELL: 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? Then I'll split the income with you. These locations would very often do $100 to $200 a week.

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

BUSHNELL: Pinball machines. There were mechanical games, but yeah.

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

BUSHNELL: Correct.

RAZ: Yeah.

BUSHNELL: 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 "Spacewar!"

RAZ: What's that?

BUSHNELL: A guy named Steve Russell at MIT programmed this game called "Spacewar!" And I was mesmerized by it.

(SOUNDBITE OF MUSIC)

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

(SOUNDBITE OF MUSIC)

BUSHNELL: And so 1 o'clock, show up at the Merrill Engineering Building. And there was "Spacewar!" He handed me a box that had four buttons on the top - rotate left, rotate right, fire and hyperspace. Those were the controls. And we played until literally 5 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-million-dollar computer, and the math didn't work. But I did think to myself, maybe some day the cost will come down, and this would be cool.

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

BUSHNELL: Yeah.

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?

BUSHNELL: My wife's sister lived in Silicon Valley. And I was a little bit of an anarchist at that time. I'd - you'd call me a lapsed Mormon or a 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.

RAZ: And Ampex was a, like, tape - right? - they made, like, electric, like...

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

RAZ: So you're thinking, I'm going to start something?

BUSHNELL: It started out a little bit as a research project. And then I said, yeah, I'm going to 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 going to start my own company. I just knew that that was kind of on my trajectory. I didn't know at that time it was going to 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...

RAZ: Yeah.

BUSHNELL: ...Since 8 (laughter).

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

BUSHNELL: My office mate was a guy named Ted Dabney. This was at Ampex. And I said, I'm going to 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.

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.

BUSHNELL: Exactly.

RAZ: Were you trying to do, like, a knock-off of "Spacewar?"

BUSHNELL: Yeah.

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

BUSHNELL: We put it in a bar called the Dutch Goose. It was in Menlo Park.

RAZ: OK.

BUSHNELL: 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 Nutting 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 percent royalty. And so that was, you know, $100,000, which was a massive amount of money. To put this in context, I came to work at Ampex for $825 a month as an associate engineer.

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?

BUSHNELL: 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.

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?

BUSHNELL: Well, then came Al Alcorn, which was our first technical employ 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. 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 really quick.

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.

BUSHNELL: Correct. And it turned out to be - I thought it was going to be a throwaway...

RAZ: Yeah.

BUSHNELL: ...That it was just a training program. And it just turned out to be fun. We were staying after work to play the damn game.

RAZ: (Laughter).

BUSHNELL: 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, that was sort of written in stone somewhere...

RAZ: Yeah.

BUSHNELL: ...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 is 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, so it couldn't take any more quarters. So I think to myself, maybe I don't want Bally to have this because the math was so outstanding that the machines could literally pay for themselves. I mean, the game was earning almost $300 a week.

RAZ: Wow.

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

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

BUSHNELL: Exactly.

RAZ: So is that what you did?

BUSHNELL: 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.

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.

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

RAZ: (Laughter).

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

RAZ: Yeah.

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

RAZ: Who knew "Pong's" role in the history of women's liberation?

BUSHNELL: Exactly.

RAZ: So were - Nolan, were companies just calling you - or establishments just calling you - saying, we want a machine - we want a machine? Is that what was going on?

BUSHNELL: 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.

RAZ: And you guys are all in your, like, mid-to-late 20s?

BUSHNELL: Correct.

RAZ: OK.

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

RAZ: Wow.

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

RAZ: This was in - what town was it?

BUSHNELL: This was in Santa Clara, Calif.

RAZ: OK.

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

RAZ: Like, literally by hand, not in a factory?

BUSHNELL: 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.

RAZ: You're, like, driving down the 101 or something?

BUSHNELL: Yeah. Yeah. But slowly, we were able 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.

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

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

RAZ: Wait. You couldn't prevent these companies from basically stealing your idea and copying you?

BUSHNELL: Yeah. I didn't have patents yet. It was - in those days, patents were just slow boats to China.

RAZ: So there was no - so basically you could do nothing about these copycats?

BUSHNELL: Nothing.

RAZ: Wow.

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

RAZ: Yeah.

BUSHNELL: 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 'cause copying the technology and creating the technology was different.

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

BUSHNELL: Cash was always our limitation.

RAZ: Yeah.

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

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

BUSHNELL: Yeah, exactly.

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?

BUSHNELL: 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.

RAZ: And how did you even begin to think of ways to do this? 'Cause, I mean, 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?

BUSHNELL: 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 (laughter). And our idea was to take it to the toy show in New York.

RAZ: This is a toy convention in, like, '74, '75?

BUSHNELL: Yeah. It's 1975, spring.

RAZ: And you show this at the toy convention. And were people like, this is amazing - this is going to change the world?

BUSHNELL: We sold zero.

RAZ: What?

BUSHNELL: 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.

RAZ: And how much were you selling this Atari console for?

BUSHNELL: Seventy-nine.

RAZ: Which - in 1975, that must have been, like, a fortune.

BUSHNELL: 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. And...

RAZ: Did you leave that toy show feeling dejected? Like, you - this...

BUSHNELL: Failure.

RAZ: Yeah.

BUSHNELL: It was abject failure.

RAZ: You must have been pretty depressed, I guess (laughter), after putting all this money into this thing.

BUSHNELL: I - you know, 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.

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

BUSHNELL: The right distribution channel.

RAZ: So basically, you're thinking, these guys are wrong - I know this is going to work?

BUSHNELL: Exactly. Exactly. I said, these guys are missing a wonderful opportunity. And so we were thinking RadioShack. 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.

RAZ: OK.

BUSHNELL: And they sell pool tables and Ping-Pong tables and things like that. 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.

RAZ: And they were based in Chicago at the time?

BUSHNELL: They were based in Chicago.

RAZ: So Sears' buyer comes to - flies out, comes and says, I want to see what you're talking about.

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

RAZ: Wow.

BUSHNELL: And so we were in the conference room. After that, he says, OK, yeah, I think we're going to do that. How many can you build? We didn't have a clue...

RAZ: Right.

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

RAZ: Right.

BUSHNELL: 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 can probably do 25,000. And so not wanting to be sole sourced, I said, we can do about 75,000.

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

BUSHNELL: Yeah.

RAZ: OK.

BUSHNELL: Yeah. I'm a carny (laughter).

RAZ: Right, you're a carny. OK.

BUSHNELL: I'm well-trained (laughter).

RAZ: Exactly. Right. OK.

BUSHNELL: He gave us an order for 150,000.

RAZ: Wow.

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

RAZ: Wow. You've got basically six months to...

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

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

BUSHNELL: Everybody is.

(SOUNDBITE OF MUSIC)

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.

(SOUNDBITE OF MUSIC)

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.

BUSHNELL: 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 realized 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.

RAZ: What was the price that he wanted to pay?

BUSHNELL: 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 said, 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 us 80 percent of the contract price with Sears. And all of sudden, it worked.

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

BUSHNELL: Correct.

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

BUSHNELL: We did. And, in fact, I think that year, we sold almost 180,000. They took them all.

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

BUSHNELL: Exactly.

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?

BUSHNELL: 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.

(SOUNDBITE OF MUSIC)

BUSHNELL: 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 bondwomen (ph) architecture, program-based, put cartridges with ROMs in it. And we can have a programmable game.

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

BUSHNELL: 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 have 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.

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

BUSHNELL: I can't think of another one.

RAZ: Wow.

BUSHNELL: We kind of always felt like we were the sleazy company...

RAZ: Yeah.

BUSHNELL: ...Focusing on fun instead of all this, you know, how many more megabytes...

RAZ: Yeah.

BUSHNELL: ...Can we get on a hard drive?

RAZ: I mean, were the - like, the serious companies, were they - did they look down on you?

BUSHNELL: We liked our rebel status. And we were a 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 20s. And, I mean, that was just off the radar. 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 20s, 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. 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.

RAZ: Yeah.

BUSHNELL: It was very, very different. And then we didn't have a dress code. 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, and so we tried to make this meritocracy in which outcome was the only thing we counted.

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

BUSHNELL: 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 OK with me on some level because of my carnival background, you know (laughter). But at the same time, I always felt that I didn't know what the hell I was doing.

RAZ: Yeah.

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

RAZ: Right. Right.

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

RAZ: But you - I mean, you clearly, like, 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.

BUSHNELL: 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.

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

BUSHNELL: 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 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.

RAZ: And you said, of course.

BUSHNELL: Yeah, I did not say that.

RAZ: (Laughter).

BUSHNELL: And I've regretted it. But, you know, anyway, it was fun times.

RAZ: You know what? What's a few billion?

BUSHNELL: Exactly.

RAZ: It doesn't matter. It doesn't matter.

BUSHNELL: It doesn't matter. It would have ruined my life.

RAZ: It would have made you totally insufferable.

BUSHNELL: Yeah. And I was already insufferable.

RAZ: So thank goodness you did not take that deal.

BUSHNELL: (Laughter) Exactly.

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?

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

RAZ: This is the late '70s, right?

BUSHNELL: This was the summer of '76.

RAZ: Right.

BUSHNELL: 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.

RAZ: This is the Atari console with the cartridges, right?

BUSHNELL: 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 partners. 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 will get this big royalty stream. And we understand creatives. And we're going to link arms and march into the sunset.

RAZ: And what was - how much were they offering you?

BUSHNELL: Twenty-eight million bucks.

RAZ: Which is - that must have been a huge amount of money at that time.

BUSHNELL: Yeah. I mean, you know, I was a farm boy from Utah.

RAZ: Yeah.

BUSHNELL: All of a sudden - I mean, you could buy a Lear jet in those days for a million dollars.

RAZ: So you took the money.

BUSHNELL: I took the money. Yeah. Yeah.

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

BUSHNELL: 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.

RAZ: Right.

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

RAZ: Decisions about where to take the company?

BUSHNELL: 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. I thought...

RAZ: Yeah. You're going from keg parties on your loading dock to an executive dining room?

BUSHNELL: 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.

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

BUSHNELL: About 20 months.

RAZ: Wow. That must have been a tough period for you.

BUSHNELL: Actually not.

(LAUGHTER)

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

RAZ: Yeah.

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

RAZ: OK. Let me just stop here for a sec because this episode could end here. And we could say, OK, that's Nolan Bushnell, a visionary who founded Atari. We are now going to talk about the second company you founded (laughter), which is Chuck E. Cheese.

BUSHNELL: Yeah (laughter).

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

BUSHNELL: 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 $1,500. During their lifetime in coin drop, they'd earn $30,000 to $50,000. 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. And that indicated pizza because there was a 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.

RAZ: Oh, yeah.

BUSHNELL: And I said, my guys can do this.

RAZ: You mean, my guys can make these little creatures?

BUSHNELL: Yeah. We can animate things.

RAZ: OK.

BUSHNELL: 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.

RAZ: Right.

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

RAZ: Like a costume that, like, a human would wear, like a full-sized adult?

BUSHNELL: Correct.

RAZ: And you would just - your guys would just turn it into an animated robot?

BUSHNELL: Exactly.

RAZ: And this was the famous Chuck. E. Cheese?

BUSHNELL: That was the famous Chuck E. Cheese.

RAZ: Which was a rat.

BUSHNELL: Right.

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

BUSHNELL: (Laughter) Well, to understand, when I bought the costume, I thought I was buying a coyote.

RAZ: (Laughter) OK.

BUSHNELL: 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, OK, we'll just change the name. It won't be Coyote Pizza anymore. It's going to be Rick Rat's Pizza.

RAZ: Rick Rat's Pizza? That was going to be the name of Chuck E. Cheese?

BUSHNELL: That was going to be the name.

RAZ: Who was going to eat pizza at a place called Rick Rat's Pizza?

BUSHNELL: That's exactly what my marketing department said.

RAZ: (Laughter).

BUSHNELL: And 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.

RAZ: (Laughter).

BUSHNELL: And I said, OK, you name it. I don't care. But it has to be a happy name.

RAZ: Right.

BUSHNELL: And so they came back all smiles 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.

RAZ: So what happened? You opened up your first location in Silicon Valley?

BUSHNELL: Yeah. 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 parlors at the time. We knew the day we opened that we'd made a huge mistake and that it was too small.

RAZ: Wow. You mean it was that popular?

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

RAZ: Were your customers little kids? Who was coming?

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

RAZ: Right. So just to clarify, you sold Atari to Warner. And I guess Chuck E. Cheese's was kind of part of the deal - right? - because you created it while you're there. So for you to keep Chuck E. Cheese's, you had to buy it back from them?

BUSHNELL: Yeah.

RAZ: And what did you have to pay for it?

BUSHNELL: Half a million dollars.

RAZ: Five hundred thousand bucks to buy Chuck E. Cheese?

BUSHNELL: And that was all the technology and the one opened store. The one opened store was cash flowing a half 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. 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.

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

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

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

BUSHNELL: I sold the company when we were at about 280 stores. And half were franchised at the time, so we built about 120. And franchises built about 140, I think.

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

BUSHNELL: 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. Cheese's, when, in fact, what you were seeing is this novelty bonus and that people in normal life didn't really want to come to Chuck E. Cheese three times a month.

RAZ: Yeah.

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

RAZ: What was the false positive?

BUSHNELL: That you could pack the place 365 days a year...

RAZ: Right.

BUSHNELL: ...In a population of a million people, which you couldn't.

RAZ: You know, it's amazing because you built these two iconic companies, I mean, companies that for many, many people in America, like, defined 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, you know?

And I guess I wonder what - I mean, I'm sure the successes were incredibly satisfying for - you know, for obvious reasons. But in some ways, do you think the failures were sort of more interesting or, you know, times where you learned more about life and about you and about business?

BUSHNELL: 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.

RAZ: How long did it take you to become who you are, to realize that that's who you are?

BUSHNELL: Well, I hope that I'm not there yet. I want to stay on the steep part of the learning curve. And, in fact, I've even done a methodology on it. 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.

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, that this process of exploration and of discovery and of winnowing out the game and the metagame is very satisfying.

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 70s. And if you could go back 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?

BUSHNELL: 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.

RAZ: Tell me about what you're working on now.

BUSHNELL: (Laughter) Well, then I'll have to kill you. No.

(LAUGHTER)

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.

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

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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.

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

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

TECKER: 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.

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?

TECKER: 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.

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

TECKER: You know, I think when people think of hops, they think of bitter. But, you know, there are over a hundred 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.

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.

TECKER: 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.

RAZ: Now, think about this for a moment. Sparkling water is super hot right now. Just ask the company that makes Lacroix. 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.

TECKER: 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.

RAZ: When we last spoke to Paul, he'd sold less than $100,000 worth of hop 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.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 hibt@npr.org. Our show was produced this week by Ramtin Arablouei, who also composed the music. Thanks also to Neva Grant, Sanaz Meshkinpour and Jeff Rogers. Our intern is Nour Coudsi. I'm Guy Raz, and you've been listening to HOW I BUILT THIS from NPR.

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