The Importance of Feasible Promises
Atari: A Case Study
If you grew up during the 1980s, it is almost guaranteed you know of Atari. Atari popularized home consoles and revolutionized the video game industry, but its first large-scale contract could have ended the company entirely. The founder, Nolan Bushnell, describes his experiences on the podcast How I Built This by Guy Raz of NPR.
After the hit arcade release of Pong, Atari was faced with a revolutionary new technology: new chips that could contain the entire game of Pong at a consumer-friendly price point. Atari wanted to make a Pong arcade cabinet for inside the home and decided to use the new chips to make that happen.
Bushnell and his co-founders went to a toy convention with their prototype for the Pong home console, and sold none of them. It turns out that while their price point was $79, the toy business would not sell anything priced more than $35.
This put Atari into a difficult position and led them to seek outside help. Atari’s head of sales suggested Sears, which was selling home pinball machines for $200 and selling all their stock. Sears’ reputation and high price points would work in Atari’s favor, so there was a lot of internal pressure to entice Sears into a distribution deal.
The Sears representative went to Atari headquarters on incredibly short notice, so Atari had to consult with its manufacturer to determine a theoretical upper limit. The manufacturer quoted them for 25 thousand units, but Bushnell gave Sears an estimate of 75 thousand units, over three times the manufacturer limit.
While this was dishonest, it could have still been feasible if Atari had more manufacturers. However, Sears placed an order for 150 thousand units by Christmas. This left Atari with only six months to build factories, hire and train personnel, develop the technology, and do quality assurance. These issues were only compounded by the order being six times the original manufacturer limit. Atari managed to fulfill the entire Sears order, but it was incredibly stressful and relied on Sears giving Atari an 80% advance.
Atari could have been far more successful with less stress if they had practiced proper project management, especially bringing in more people to advise along with planning out what would be feasible before any sales representatives showed up. Pre-planning would have given Atari a baseline for the sales representative and let them formulate contingencies for the worst-case scenario. Bringing in more people for advice would also give Atari a more robust knowledge base and make their predictions more accurate.
In general, manufacturers relying on retailer generosity is incredibly risky. Planning what your company can do before negotiating contracts is vital to keeping the company afloat. It is much better to find out what is doable and plan what is feasible than to find out mid-production that there is no way to fulfill the contract without bankruptcy.
