Chapter 5

A Side Bet

During that strange and heady autumn of 1985, just after he had bolted from Apple to go start NeXT, Steve found that there was one other intriguing opportunity he couldn’t get out of his mind. His thoughts kept returning to the Lucasfilm Graphics Group, the team of engineering whizzes that he’d tried to convince Apple to buy back in the spring. The outfit had the kind of cutting-edge technology in search of a broader purpose that Steve loved. It was cool: its software tools had helped Lucas’s Industrial Light & Magic division create special effects for other studios’ movies, including Star Trek II: The Wrath of Khan and Young Sherlock Holmes. It had wide commercial potential, he believed: the outfit’s astounding technology for manipulating three-dimensional images might be perfect for the hospitals, corporations, and universities he was targeting at NeXT. It might even be transformative. Looking way down the road, he could imagine the inexorable force of Moore’s law driving down the cost of processing power to the point where everyday users could easily manipulate 3-D images. And there was one other thing that seemed really “neat,” to use an adjective that Steve quite liked: its people. “He wanted to keep that group together,” says Susan Barnes. “To Steve, it was really hard to see this great integrated team under the threat of getting blown up. It was really hard to think about that natural set of huge intellectual energy going away.” So Steve decided he’d go back to Marin County and visit the place again. It was a decision that changed his life. But not in any way he had anticipated.

George Lucas, who needed to take care of an expensive divorce settlement, had decided the Graphics Group was a luxury he could sell without hurting his movies. But he wanted tens of millions of dollars for the group, and Jobs wasn’t willing to pay more than $5 million. Steve found Lucas to be a tough negotiator. For starters, he didn’t handle the discussions himself; he left it to those under him to talk to Steve and his bankers, adding a layer of delay to the process. And Lucas was courting a range of other potential buyers at the same time, including Siemens, Hallmark, General Motors’ EDS division, and Philips. But as one deal after another fell through, the balance of power tilted toward Steve, who didn’t need the group as much as Lucas needed the money. So he was perfectly willing to play tough himself. “At one point,” says Barnes, who helped with the negotiations, “the delays went on forever and he just went and told one of their executives to ‘fuck off.’ One of the Lucas team said, ‘You can’t say that to one of our EVPs.’ ‘Yes I can,’ he replied. ‘And fuck you, too.’ ”

As he would show again and again through his life, Steve was a ballsy negotiator. His willingness to walk away paid off. Faced with getting nothing, the Lucas team caved. Steve paid $5 million in cash while promising to capitalize the outfit with another $5 million. Steve told BusinessWeek that buying Pixar was an effort to enter an industry (3-D computer graphics) that “has the same flavor as the personal computer industry in 1978.” According to Ed Catmull, the Graphics Group leader who became president of Pixar, “He saw Pixar as the core of NeXT.”

As it turned out, Steve was right about the importance of Pixar’s pioneering technology. Over the next decade the ability to manipulate 3-D images would transform everything from flight planning and oil exploration to medical practice, meteorology, and financial analysis. Unfortunately for Steve, the people doing that work would employ sophisticated workstations manufactured by Sun Microsystems and Silicon Graphics, not by Pixar or NeXT.

And yet Pixar eventually became a revolutionary success. This unlikely side bet turned into the place where Steve would learn more about the consumer technology business than he had at Apple or would at NeXT. At Pixar he would lay the foundation of two of his great strengths: his ability to fight back in times of distress, and his ability to make the most of an innovation that put him ahead of anyone else in that field. In other words, it taught him how to keep his head and fight back when cornered, and how to run like the wind in the open field. And it became the place where he really learned, albeit slowly and reluctantly and against his natural instincts, that sometimes the best management technique is to forgo micromanagement and give good, talented people the room they need to succeed.

What Steve didn’t know in 1986 was that Pixar would give him something much more valuable than a technology to squeeze into NeXT. Although it would take almost a decade, Steve’s Pixar adventure would help him rediscover his self-respect, make him a billionaire, and align him with people who would teach him more about management than anyone he’d ever worked with. Without the lessons he learned at Pixar, there would have been no great second act at Apple.

PIXAR WAS ONE of the most unusual collections of artistically inclined computer scientists ever assembled. The core of the group had first come together at a Long Island institution called the New York Institute of Technology. NYIT’s founder, Alexander Schure, was a peculiar millionaire and an iconoclastic educator. His institution offered an array of courses to both returning veterans and students looking to get out of service in Vietnam. But Schure’s real dream was to create an animation studio to rival Disney, despite the fact that his qualifications to do anything of the kind were questionable at best. His one effort at moviemaking, a self-financed film called Tubby the Tuba, was a fiasco. Still, in the late 1970s Schure was just about the only person who was putting money into the work of computer graphics specialists, so the pioneers in that field started to descend on NYIT. Schure assembled a remarkable team, including Jim Clark, who would later found Silicon Graphics and Netscape Communications; Lance Williams, who went on to become chief scientist at Walt Disney Animation Studios; and Ed Catmull, Ralph Guggenheim, and Alvy Ray Smith, who would all became key figures at Pixar.

Although Schure assembled the team, he didn’t really manage it, which of course was ideal for a group of self-confident academic researchers who needed time and equipment to develop their revolutionary ideas. Working from a large converted garage on a great estate on Long Island’s North Shore—Great Gatsby territory—the team tackled anything involving computers and 3-D graphics, ranging from virtual reality headsets to texture mapping (a critical foundation for getting sophisticated detail into computer-generated graphics) to exploring the possibility of creating anthropomorphized characters out of mundane objects for television commercials. Ralph Guggenheim, who eventually headed up the film division of Pixar, once called it “a great fraternity of geeks.” From day one, they all shared the dream of creating a full-length computer-animated motion picture. So when a George Lucas rep called Guggenheim to see if he’d be interested in helping to form a division of Lucasfilm to help the Star Wars director introduce computer graphics into his movies, the team jumped—all the way to San Rafael, California, a Marin County city across the bay from San Francisco that is best known as the locale of the San Quentin State Prison. The new unit was called the Graphics Group, and its mandate was to invent software tools that would help Lucas create his bold, visually explosive films.

As he had in Long Island, Ed Catmull headed up the team. Catmull was a Utah-raised computer scientist who had once hoped to be an animator himself. But he had made a calculated decision that he wasn’t sufficiently talented at drawing to succeed. Instead, he had become an expert in the new field of computer graphics at the University of Utah in Salt Lake City before joining NYIT.

More important for Steve Jobs, overseeing this motley crew had turned Catmull into an expert, imaginative manager of creative people. For years Catmull found himself occasionally regretting his decision to abandon his dream of being an animator. But as he steered this odd and talented group past one crisis after another, he started treating management itself as a kind of art, and accepted that this was how he could best contribute. Later in his life, he would come to be recognized as one of the most extraordinary managers in the world; in 2014, he published a brilliant business bestseller, Creativity, Inc., about what it takes to lead a company of creative people. In fact, this quiet, bearded man with a measured, professorial demeanor knows more about managing and motivating creative people than anyone I’ve ever met, including Sony’s Akio Morita, Intel’s Andy Grove, Bill Gates, Jeffrey Katzenberg, and Southwest Airlines’ Herb Kelleher, among others. His success would prove a powerful example for Steve.

Like Schure, Lucas mostly left the group alone. In the early 1980s he was at the peak of his career, building out Skywalker Ranch, the nerve center of his film empire, in the remote wine and dairy country north of San Rafael that is known, coincidentally, as Lucas Valley. He was absorbed with making the second and third Star Wars movies and the first couple of Indiana Jones features. Catmull’s group developed hardware and software tools that sped up and reduced the cost of certain kinds of animated special effects. But they remained committed to the idea of using computers to create an animated feature movie. With an eye to that, Catmull wooed John Lasseter, then a young and frustrated Disney animator, to create a series of animated short films that could show the potential of 3-D computer graphics. Knowing that Lucas wanted the team focused on tools, not on creating movies of its own, Catmull disguised Lasseter’s hire so that he appeared on the budget as an “interface designer.” “He knew none of the financial guys would want to embarrass themselves by asking, ‘What’s that?’ ” says Lasseter.

The short movies, some of which were no longer than thirty seconds, were screened at the annual computer imaging convention, SIGGRAPH, where they served as superb advertisements for the group. Brilliant pieces like The Adventures of Andre and Wally B. and Luxo Jr. made clear that Lucas’s group had startling technology; they also made clear that Lasseter had a rare gift for storytelling, anthropomorphizing everyday objects such as the Luxo Jr., the pint-sized articulating desk lamp that eventually made its way into the company’s onscreen logo.

Amply funded and consistently ignored, the group developed a close bond. Catmull ran the organization in a highly collegial, non-bureaucratic manner. When Lucas decided to sell the division, Catmull made every effort he could to find a buyer who would keep the group together. Lasseter was being heavily recruited by Disney’s Jeffrey Katzenberg, who had seen his short movies and come to regret letting such a talent get away. But the culture Catmull had created was so appealing that Lasseter, like most of the other employees, wanted to stay put.

AFTER STEVE COMPLETED the deal to buy what was now to be known as Pixar, he walked into a situation that was unlike any he would encounter again. At Apple he had been the brash novice, the founder who, for better and worse, established the corporate culture. At NeXT, too, Jobs was the center of attention, the hub and visionary of the company. But at Pixar, Steve couldn’t shape the culture. He wasn’t the founder, and even as owner, he could not change the company to reflect his image and sensibilities. It already had a culture. It already had a leader. Its cohesive and collaborative team knew exactly what it wanted to do. And Catmull was not about to let his young new owner mess things up.

Catmull knew about Jobs’s reputation as a difficult micromanager. In fact, he at first resisted having Lucas sell the group to Steve, despite having enjoyed a very pleasant visit at Steve’s Woodside house in the fall of 1985. After the purchase went through, he started observing Steve calmly, albeit warily. Having dealt with the idiosyncrasies of Schure and Lucas, he knew that managing a third sugar daddy was possible. He also knew it would have its own challenges. Over time, he became perhaps the keenest observer of Steve Jobs, developing an understanding of his boss that allowed him, in turn, to become one of Steve’s most valuable mentors.

He quickly homed in on both Steve’s potential and his immaturity. “He was smart. God, he was smart!” says Catmull. “You couldn’t prep for Steve, because he’s too smart. So I’d just go, ‘Here’s what the problem is,’ and I’d never tell him what to think.” He could see that Jobs had an innate comfort with the public demands of a big business. “When I would watch him in the room with powerful people, it was clear that there was an immediate match between them. They could talk and work things out in a way that was actually very different. Steve knew how to deal with powerful people.”

The flip side was a callowness and open disrespect that ignited suddenly. “Early on, Steve didn’t know how to deal with people who didn’t have power, almost as if he couldn’t ‘get’ them. When people would come into the room,” Catmull remembers, “Steve would quickly make an assessment as to whether or not they were a bozo. And that was not hidden from them. He would say outrageous things, as a way of taking the measure of the room. And the meanness was that if somebody didn’t measure up, then he wouldn’t hide it. He didn’t do it to me, but I witnessed it with other people. Clearly, that wasn’t appropriate behavior.”

Still, Catmull saw potential for change. “There were times where the reaction against Steve baffled him,” he says. “I remember him sometimes saying to me, ‘Why are they upset?’ What that said to me was that he didn’t intend to get that outcome. It was a lack of skill, as opposed to meanness.”

Catmull and Alvy Ray Smith, another cofounder, developed a strategy for keeping their new boss satisfied but mostly out of the picture. Perhaps the most important tactic was to keep Jobs at a physical distance. Pixar retained its small offices in San Rafael, a good hour-and-a-half drive away from NeXT headquarters in Silicon Valley. On most Monday mornings, Catmull, joined sometimes by Smith, would make the trek across the Golden Gate Bridge and down the Peninsula to update Jobs. The arrangement suited Steve fine, since he found the trip north annoyingly full of traffic. Catmull would always come primed with an agenda, but Steve would steer the meetings in whatever direction suited his fancy. He kept pushing Catmull to think of Pixar’s technology as rarefied hardware and software tools that could be commercialized and sold at a high price. One of the first things he convinced the team to do was to create what would be called the Pixar Image Computer, which wasn’t really a computer, but a special graphics processor that plugged into an engineering workstation. He even got involved with its design, insisting that it be a cube. Only this cube would be painted in a faux granite finish.

The Pixarians appreciated his enthusiasm, but Catmull and Smith would often leave the meetings thinking that Steve really didn’t understand their company. “Steve actually didn’t know anything about our business, and he didn’t even know how to run a small business,” Catmull reflects. “He knew something about running a consumer products company, but early on he actually had nothing of value to say [about Pixar], and a lot of his advice to us turns out to have been bad advice. Not that we knew any better.” They couldn’t share his optimism for consumer applications for their remarkable technology. Having worked on 3-D imaging for so long, they understood how hard it was, and accepted the fact that it occupied a highly specialized niche of the market. Furthermore, they didn’t share Steve’s goal. The one and only reason they sold software and hardware imaging tools was to stay in business until they could finally create a computer-animated film. Steve would claim later in his life that he had always believed that Pixar would eventually create great content, but that just wasn’t the case. His goal was to have Pixar become a successful computer company, ideally one that complemented NeXT.

Even the most sophisticated business strategist would have had a tough time turning Pixar into a self-supporting technology business. And in the late 1980s, Steve Jobs was a long way from being a sophisticated businessman. His ideas for Pixar truly were of little or no help at all. One example: Steve decided the company should expand its reach by going after the hospital market, which was awash in high-resolution images like X-rays. The company added a big sales staff to court the medical world, and even entered into a contract with the Dutch manufacturer Philips, which said it would use its own network to place the machines in hospitals. But the Pixar Image Computer cost an exorbitant $135,000—and even at that price required a connection to a high-end Sun workstation, which could cost another $35,000 or so. (NeXT wasn’t yet selling its workstations.) Pixar’s lead customer was Disney, which bought a slew of the machines as well as a Pixar software application called CAPS, which enabled the animation giant to manage the storage of its animators’ hand-drawn cels and track their progress. Disney was happy with the technology, but the high-end Pixar system was too expensive and too difficult to program for more practical, industrial uses.

Alvy Ray Smith, the Pixar cofounder who could be as brash as Steve, did little to hide his disdain for many of Steve’s wild ideas. Alvy Ray, a voluble guy from Mineral Wells, Texas, had forgotten more about computer graphics than Steve would ever know, and listening to Steve opine on this or that grand strategy wore on his patience. Inevitably, their relationship came to a crashing end. Like alpha boys on a playground, the two clashed over who had the right to use a whiteboard during a board meeting, leading to a ridiculous bout of name-calling. Though Steve tried to apologize to Smith, Smith had had enough. He quit shortly thereafter to start his own company and eventually wound up as a research fellow for Microsoft.

The company also sold a professional software application called RenderMan, which allowed computer graphics artists to apply textures and colors to the surfaces of computer-generated 3-D objects onscreen with a level of sharpness and resolution that could be blended into conventional film images. As with everything Pixar did, it was top-of-the-line software. Steven Spielberg’s techies used RenderMan (on Silicon Graphics workstations) to create the scaly skin and ivory teeth of Jurassic Park’s frightening dinosaurs. RenderMan played a key role in the budding field of 3-D computer graphics imaging, helping to enhance movies like The Abyss, Terminator II, and Alien III, along with Disney’s Aladdin, Beauty and the Beast, and The Lion King. Pixar even released a version that would run on Macintosh computers. But as cool as the software was, it never came close to making Pixar self-sustainable.

BY 1990, THERE seemed very little reason for Pixar to continue to exist as a business. Steve Jobs was anything but a tycoon. The stock he sold after leaving Apple had been worth $70 million, and he had made some successful investments. But after several years of funding Pixar and NeXT, only a fraction of that fortune remained. Pixar’s revenues were stagnant, and Steve was writing one check after another to keep the thing afloat. The world’s most famous computer entrepreneur was in danger of drifting into the middling obscurity that has enveloped so many other one-hit wonders of the technology world. Shutting down this expensive side project would have made enormous sense. And yet Steve persisted.

He had idiosyncratic reasons for doing so. The easiest to understand is that he desperately did not want to admit to having failed. After his ignominious departure from Apple, and in the absence of a tangible success at NeXT, Steve was basically keeping his reputation alive with announcements of milestones that weren’t really milestones. The first kind were the “just around the corner” proclamations, alerting the world to the imminent arrival of something sure to be insanely great, like NeXT’s first NeXTcube computer. The second were the “seal of approval” kind, announcing the endorsement of a significant backer, the purchase of a computer or some software by a notable company, or, in the case of Pixar, an award for graphics excellence.

But announcements alone couldn’t stave off reality forever, and the Steve Jobs story was starting to shift from his past successes to his present failures. Closing Pixar would have only accelerated that story. At a moment when his business life was in worse shape than ever, Steve simply couldn’t risk making things worse by shuttering Pixar. “Steve once told us he had nothing to prove when he started NeXT,” Catmull recalls. “Now I don’t believe that for a second. We knew he had everything to prove with NeXT. We were the only other gamble he took, and he said we turned out to be such a handful to begin with, that he stopped taking any other gambles beyond those.”

Steve’s main reason for keeping Pixar alive was that he still believed in this little band of geniuses and their leaders. The business seemed to be going nowhere, but Steve still deeply respected Catmull and Lasseter. He had great admiration for Catmull’s business and management expertise. And Lasseter? Well, Lasseter was one of those rare geniuses who can always make life seem grander and full of possibilities.

“Steve dealt mostly with Ed,” Lasseter remembers, “because they did the business stuff, and I was just the animator in another building. My first real interaction with Steve was SIGGRAPH in 1986. It was in Dallas, at the beginning of August, and hotter than can be. The film show at SIGGRAPH was like a rock concert. People started lining up six hours in advance. And you do not cut those lines because people get really mad. But Steve and his girlfriend come up, and he says, ‘Hey, John, do we really have to stand in line?’ So I talk my way through to the guard, and basically made up something about why I had to get Steve Jobs and his girlfriend in before anyone else. The guard let us through, just before the flood of people.

“Before this moment, Steve’s tangible moments of success were things like showing up at a school and seeing a whole lab filled with his computers. This was different. It had the feel of a big rock concert, an arena rock concert.

“The show goes on, and people are going nuts over, like, crystal balls bouncing on the screen. It was all tech stuff. Nothing with a story. And then all of a sudden, our little Luxo Jr. comes up. You know, the little hopping lamp. It’s only a minute and a half long, but even before the thing is over, people are cheering. That moment is remembered as significant in computer graphics history because it was the first time a 3-D computer-animated film entertained audiences with its story and characters, not the mere fact of being made with a computer. It got a standing ovation before it was done. The crowd knew they had seen something brand new.

“And Steve turned to me with these big eyes,” Lasseter continues, his own eyes bulging, “like, ‘This is great! Wow! I like this!’ Getting that immediate response from an audience was something he had never experienced. The bug had bitten him, and he was like, ‘I love this.’ It bonded us. And then, that I had the balls to cut in front of this line of six thousand people who would skin you alive! It changed our relationship from that moment on.”

“Luxo Jr. was the breakthrough,” Steve told me many years later. If Steve ever was starstruck, it was by Lasseter, whose artistry seemed to be irrefutable evidence of what Steve believed to be the most important attribute of computers: that they were tools that could unleash and enhance human creativity. Despite his boyish ways (his office is stuffed with so many toys it could double as a Pixar museum, and his wardrobe consists exclusively of blue jeans and hundreds of loud, Hawaiian-style print shirts), Lasseter was a confident grown-up, and not persnickety in any way. While he never looked to Steve for creative advice on his short features, he calmly listened to his boss’s opinions, before going ahead with his own plans anyway. But he made compromises when needed, too, rather than insisting on perfection: when he couldn’t prepare a polished version of a short called Tin Toy in time for SIGGRAPH, he simply showed what he could and filled in the rest with line drawings.

Lasseter lived in constant fear that Steve would shutter his little animation group. Even as he kept writing checks to fund Pixar, Steve regularly slashed budgets and froze salaries: “I think I made the same salary from ’84 to ’89,” Lasseter remembers. “And I thought for sure that they’d get rid of Animation. At one point they were contemplating a layoff in Hardware, I think, and there were lots of complaints like, ‘What about Animation? They don’t do anything to bring in the money.’ So I asked the head of Software, a guy named Mickey Mantle, like the baseball player, ‘When’s the shoe gonna drop, really? When will they just close Animation?’ And he said, ‘John, they never will.’

“ ‘What do you mean?’ I asked him,” continues Lasseter. “And Mickey said, ‘Computer hardware and software companies, they go through layoffs and it’s business. It’s the ups and downs of the business. But when people think of Pixar, it’s not our computers or our software. They think of those little short films you’ve made. That’s the identity of Pixar to the rest of the world. So if Pixar were to stop making those films and lay everybody off in Animation, that would signal to the entire world that Pixar is done. That,’ he said, ‘is why they’re not gonna close Animation.’ ”

It didn’t hurt, of course, that Lasseter’s team was earning greater and greater awards. When Lasseter had gone to Steve to get approval for the budget on the short called Tin Toy, Steve’s response had been “Just make it great.” The one-and-a-half-minute-long piece, featuring a wind-up mechanical tin drummer who lives in fear of a slobbering infant who likes to throw toys around, turned out to be great indeed: at the Academy Awards ceremony in Los Angeles on March 29, 1989, Tin Toy won the Oscar for Best Short Animated Film. Shortly afterward, Steve took everyone who had worked on Tin Toy to dinner at Greens, a famous vegetarian restaurant in San Francisco.

“He was so proud,” Lasseter said. “I remember grabbing the Oscar and putting it right in front of him. ‘You asked me to make it great,’ I told him. ‘There you go.’ That was the dinner where Nancy and I met Laurene—she and Steve had started dating a few months earlier. We just loved being with the two of them that night, because Steve was so clearly in love. He had his arm around Laurene all night and … he was so happy, so giddily happy, so full of that feeling like everything is champagne bubbles in your life, just effervescent. He was so excited. He had won an Oscar, and here was this marvelous woman.”

LOOKING BACK, 1989 stands out as the year when the confusion of Steve’s mad, youthful rush started to clear, even though his business problems wouldn’t evaporate anytime soon. Having Pixar win that Oscar was something legitimate he could brag about in his work life. But the main bounce came from meeting his wife-to-be. Steve first saw Laurene during a lecture he gave at the Stanford Business School, where she was getting her MBA. “She was right there in the front row in the lecture hall, and I couldn’t take my eyes off of her,” he told me not long afterward. “I kept losing my train of thought, and started feeling a little giddy.” He tracked her down in the parking lot, and asked her to dinner. They went out that very night. And with the exception of Steve’s rare business trips, they were together pretty much every day of the rest of his life.

They were a good match from the start. Laurene’s father had died when she was quite young. Like Steve, she was raised in the middle class, in her case in the town of West Milford, New Jersey, where, like Steve, she learned to fend for herself. Laurene got herself into first-rate schools: the University of Pennsylvania, and later, Stanford’s b-school. She was intelligent and well-spoken and very athletic; an avid reader with eclectic interests in literature and the arts, nutrition, politics, and philosophy; and unlike Steve, she followed professional sports. After college she had tried the world of high finance in Manhattan, but it didn’t interest her enough; she left Goldman Sachs after a couple of years and entered business school as a way of figuring out what she would do next.

Steve had had serious relationships with several girlfriends by then, including the singer Joan Baez and Chrisann Brennan. But Laurene, who was willowy with a California girl’s blond hair and piercing eyes, had a depth of character that touched him in a whole new way. Some of the women he had dated came to seem needy over time; Laurene wasn’t that way. She brought as much self-sufficiency to the relationship as he did. And she wasn’t interested in his wealth, or in the kind of dazzling social life that was available to him if he wanted it. They both accepted the value of hard work, which made it easier for Laurene to handle Steve’s long hours. And their middle-class connection would become increasingly important: when they eventually had a family, Steve and Laurene would do everything in their power to raise their kids with as normal values as they could, despite their growing wealth.

Their relationship burned intensely from the beginning, as you might expect from the pairing of two such strong-willed individuals. But eventually Steve got over his bachelor’s anxiety and proposed to Laurene on New Year’s Day of 1990, clutching “a fistful of freshly picked wildflowers,” as she would say at his memorial service, just twenty-one years later. She took Steve seriously, that morning and in the years to come, when she learned about Buddhism, reading the books that influenced Steve as a young spiritual seeker. Indeed, Kobun Chino Otogawa, the Zen Buddhist monk who served as Steve’s guru for many years, would preside at their wedding. They got married at the Ahwahnee lodge, in Yosemite National Park, on March 18, 1991. She was pregnant with their first child, Reed, who was born that September.

IT TURNED OUT that Mickey Mantle was right: Lasseter didn’t have to worry about his own division. Steve was indeed, to use Lasseter’s word, “bit.” So when Steve decided to cut his losses at Pixar, he didn’t abandon the company completely. Instead, he unloaded the company’s hardware division for $2 million, and decided to focus on software and animation instead. By early 1991, Steve had cut the staff from 120 people down to 42—laying off all those sales folks he had insisted on hiring, and retrenching back to almost exactly the number of people who were working there when he first acquired the outfit in 1986.

It was a wrenching, difficult period. Steve’s continued funding came at a price, as he bought back employees’ restricted stock grants for very little money, robbing the employees who were left of their primary long-term financial incentive. Steve later tried to paint this period as a glorious turning point, a moment where passion won out over the dreary reality of Pixar’s dismal computer sales. “I got everybody together,” he told me, “and I said, ‘At our heart, we really are a content company. Let’s transition out of everything else. Let’s go for it. This is why I bought into Pixar. This is why most of you are here. Let’s go for it. It’s a higher-risk strategy, but the rewards are gonna be much higher, and it’s where our hearts are.’ ” The pep talk did occur, but while some employees felt inspired, most saw that his words glossed over the reality of what had happened, and what was required to turn the company around. Catmull, who like Lasseter was stripped of most of his equity stake in the company, told me that this period was anything but exhilarating: “It was one of the hardest things in my life.” By this time, Steve had invested close to $50 million in Pixar.

Slashed by two-thirds, the company was now dependent on three sources of revenue: the CAPS image management system it licensed to Disney; RenderMan, which was now offered in a new version that would allow Macs to create 3-D images; and advertising, a new revenue stream that the animation team had introduced. Pixar was able to sign up a few clients on Madison Avenue, like Listerine, Trident, Tropicana, and Volkswagen. As dreamed up by Lasseter and other animators like Andrew Stanton (who would eventually direct A Bug’s Life), Pixar’s ads for these clients were kooky and lively. They showed off the company’s unique ability to anthropomorphize objects like a dancing stick of gum or a bouncing orange, and they forced the animators to adhere to budgets and deadlines, “a discipline that we needed to develop,” says Catmull. Combined with Lasseter’s increasingly sophisticated short films, they showed that the company was getting closer to having the technical and storytelling chops to realize its dream of producing a full-length film. But Pixar still had nowhere near the revenue it needed to sustain itself.

And then, just around this time, Peter Schneider, the president of Walt Disney Features Animation, came calling on John Lasseter. For the third time in three years, he tried to hire Lasseter away from Pixar. Lasseter wouldn’t go. “I was living in the San Francisco Bay Area,” he remembers. “I was inventing new stuff. I figured I’d just stay on here. I’d had a pretty miserable experience at Disney.” He told Schneider that there was only one way that he’d consider working with Disney—the studio would have to make a movie with Pixar.