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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It can tell you a lot about me, and I'm not changing it for anyone.

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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 2 stories, 2 amazing stories.

So we kind of didn't and we let it go a little longer than usual, which I think you will enjoy.

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.

Our idea was to take it to the toy show in New York.

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

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, 2 industries in fact, that shaped the childhoods of millions of Americans.

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

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

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.

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.

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.

At dinner 1 night, mom said, boy we've got so many strawberries we're not going to be able to eat them all.

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.

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.

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.

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

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

Like shouting at people, like, come on down, throws them.

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

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.

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.

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

Pinball machines, there were mechanical games, but yeah.

Then I was working summers at the amusement park, winters pursuing an engineering degree at the University of Utah.

And wow, 1 day I saw Steve Russell's Space War.

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

My fraternity brother says, I got to show you something that will knock your socks off.

He says, meet me at 01:00 at the Merrill Engineering Building.

And so 01:00, show up at the Merrill Engineering Building, and there was Space War.

He handed me a box that had 4 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 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.

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

My wife's sister lived in Silicon Valley.

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.

They invented the videotape machine and the instant replay.

I worked there for 2 years, but about 18 months in, I discovered a computer that looked like it was fast enough to do a video game.

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

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 2 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.

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

My office mate was a guy named Ted Dabney.

This was at Ampex, and I said, I'm going to start a company that's a form of partnership.

We had this computer, and the computer was mind-numbingly slow.

And in order to make the economics work, the computer cost like

Coin-operated games at the time needed to be less than

So the way I was going to do it is I was going to timeshare that 1 computer across 3 screens with 3 coin slots and I felt that I could get to the $1, 500 that way.

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.

Were you trying to do like a knockoff of Spacewar?

And where did you install this arcade game?

We put it in a bar called the Dutch Goose.

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 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.

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

So how did you fund the company from the beginning?

Did you have to go to outside investors and ask them for money?

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.

And your first game was a flop, so how did you guys go on to do the next thing?

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.

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 1 of them.

And he went off and he basically had the thing working in 1 or 2 weeks.

And we are talking about what, of course, became Pong, which was just like 2 lines with a ball bouncing around a screen between those lines.

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

We were staying after work to play the damn game.

And then I get the idea, Ah, maybe Bally wants this game.

Bally, who's 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 in the annals of coin-op worlds.

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 pawn game in a cabinet and put it in a bar.

And the game became so popular that it filled up the coin box so that it couldn't take any more quarters.

So I think to myself, maybe I don't want Valley 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.

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

I looked at all the cash we had and we had enough cash to build like 12 units.

The minute I got off the airplane, I submitted the order for the parts And we were off to the races.

I have literally orders coming in from all over the nation.

And of course, I mean, we think about Pong today, and it's such a basic, rudimentary game.

But in the context of the early 70s, this must have been revolutionary.

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

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

And so that was kind of the construct that we were dealing with.

But There's actually some very interesting psychology looking back on it.

And 1 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.

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

who knew pongs role in the history of women's liberation exactly so so we're we're Nolan we're companies just calling you, or establishments just calling you saying, we want a machine, we want a machine.

And so our big problem then is we had no factory, we had no systems, we had no procedures, we had no employees.

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

And we had a thousand square foot roll up, which we thought was huge for the 6 of us.

Then we found out that we had a real problem.

We could build these games literally in 2 days.

Like literally by hand, not in a factory?

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.

You tried like driving down the 101 or something?

But slowly we were able to get procedures in place.

And how we financed the company was we would sell for cash the machines.

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.

At its height, how many of these arcade Pong machines were out there in the country?

About 150, 000, only of which Atari only did about 35, 000 of them.

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

In those days, patents were just slow boat for China.

So basically, you could do nothing about these copycats.

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

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.

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

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

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?

1 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 5 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.

And how did you even begin to think of ways to do this?

Because you're talking about building a cabinet for a giant arcade system.

How do you then shrink that down into something that would fit in someone's house?

Well, once you had it on a single chip, then it was just a matter of putting 2 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.

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

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