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"Hey, you've heard we’re buying the Padres, haven't you?"
Hmmmm, perhaps the folks at computer mail-order pioneer Gateway Inc. are onto something here, and it’s called levity. In a town whose leaders at the moment seem so pinch-faced obsessed with its sports teams, it’s rather refreshing to be welcoming into San Diego a Fortune 500 company — with a sense of humor.
Quirkiness oozes from every corporate pore at Gateway, which this month begins in earnest to transplant its brain trust from the rural plains of North Sioux City, S.D., to the canyon-edged fringe of the Golden Triangle.
But for Big Moo — an industry send-up of rival IBM's Big Blue nickname and a reflection of Gateway's carefully coifed down-home friendly image and its fondness for cattle — this is not a game for the boys of summer. Wilt under the competitive pressure, and you'll likely wind up a corporate bench-warmer, awaiting your induction into the Hall of Shame.
Yessiree, Gateway has big plans, and San Diego will be Ground Zero for many of them, particularly in developing the corporate architecture for Gateway's future growth, which until now has moved along at an industry-leading 40 percent clip annually. In 13 years, 35-year-old Gateway founder Ted Waitt has seen his grandmother’s $10,000 loan, which he used to start the build-to-order computer firm out of his dad's barn, balloon into a global PC force that last year raked in earnings of $207 million on revenues of $6.3 billion.
Grandma Waitt's investment has exploded, by Forbes magazine's estimate, 300,000 percent, putting young Ted's net worth at nearly $4.5 billion. Last year, Forbes ranked Waitt as the 38th-richest person in the U.S when he was worth only $3 billion. Not bad for the son of a fourth-generation Iowa cattle broker and two-time college dropout who simply acted on a hunch that people would buy PCs over the phone rather than at a showroom.
But in the highly competitive, shrinking universe of computer makers, there are always new fronts to engage. Already the country's top direct-to-the-customer/cut-out-the-middleman seller of PCs for the home, Gateway has its sights set on Corporate America and already has made considerable headway into the small-business market. There's just one problem: To grow requires the very best and brightest executives and engineers, and few, if any, want to call South Dakota home.
"San Diego was an excellent move for us, because . . . it’s ideal for attracting the kind of talent in the numbers that are required now for us at Gateway," explains John Heubusch, Gateway's jovial vice president of public affairs and resident Padres jokester. "We literally looked around about six months ago and figured out we had well over 500 jobs that we were not able to fill. And I’m not talking plant-floor jobs, but rather mid- to very senior-level management.
"It’s just purely a function of the environment being so competitive for the people we were looking for, and unfortunately we just simply weren’t able to attract them to South Dakota, as great a place as it is."
The Search Begins
So, the cross-country search began for Gateway, the company made famous by black-and-white spotted packaging and its rebellious front man. In Gateway ads, Waitt has been known to portray several un-CEO-like characters, from a janitor to Robin Hood. Last year, he brought a live Holstein to the floor of the New York Stock Exchange to celebrate Gateway's move to the Big Board.
Gateway hired Coopers & Lybrand to come up with a list of viable locations, a practice common when site-selection lists are lengthy. What started as a list of some 50 sites in nearly two dozen cities and states rather quickly dwindled to an interested few, most notably San Diego and Chicago, those in on the proceedings say.
"California was put on the list because Coopers felt that California, and specifically San Diego, met their criteria," says Michael Marando, spokesman for the state's Trade and Commerce Agency, which received the initial lead about Gateway's interest in mid-February. Except, as is typical when large companies ponder relocation, the name Gateway was never mentioned.
"At the time, we didn’t know who we were dealing with," Marando confirms. "In these cases, they'll usually tell you what field they're in and how large they are. But they won’t say what they produce initially."
The following week, state commerce officials and city economic folks met with the site consultants in San Diego to be briefed on the proposed mystery relocation. Two weeks later, state officials convened one of their so-called Red Teams — a collaborative gaggle of state and city business leaders, utility negotiators, commercial real-estate agents and Julie Meier Wright's San Diego Regional Economic Development Corp.
It was the epitome of a blind date. Wright, EDC's president, says it was only after several months of discussions that the city discovered who the suitor was — that quirky "cow company" from South Dakota. The desire for secrecy was understandable, Wright says, "in part not to set up needless alarm within the company — in other words, a sensitivity to its employee base. And secondly, they don’t want to be inundated by people like me who would invite them to 'Look at my region!'"
Coopers & Lybrand (which merged recently with Price Waterhouse) apparently did such a good job at cloaking that, as Wright tells it, Mayor Susan Golding was the first in San Diego to know Gateway's identity when she met with Bill Elliott, Gateway's general counsel, just a short time before Waitt announced in April plans for a summertime move of his top administrative staff here.
A la Padres' bullpen ace Trevor Hoffman, Golding is credited in some circles as "the closer," but the mayor's office — apparently too busy with almost daily press conferences on the ballpark talks — chose not to return a reporter's calls to discuss Gateway's top-brass relocation. But Wright, ever the diplomat, suggests Golding must have made "an incredible impression. She was the one individual in San Diego who was in a position to know who the company was and to convince the company that San Diego was the right place" for its top executives.
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Gateway, however, prefers to spread the high-fives around. "Certainly, a lot of people should take credit," says Heubusch, who participated in the negotiations. "There's no doubt in our mind that Mayor Golding was genuinely helpful and could not have been more receptive to our needs. I would without question categorize her help as very useful, as were members of the economic development staff at both the city and state levels."
Rumors persist that Waitt could not have attracted Gateway's new president, Jeffrey Weitzen, away from AT&T in January had not a commitment been made to relocate top executives out of Siouxland, the Gateway-dependent community of 120,000 that encompasses three towns in three states — Sioux City, Iowa; South Sioux City, Neb.; and North Sioux City, S.D. — at the junction of the Floyd, Big Sioux and Missouri rivers.
Weitzen, viewed by some industry analysts as Gateway's reality check, now works out of temporary quarters with a handful of other Gateway employees in an office building not far from its earth-tone headquarters — no cow spots yet — nearing completion off Towne Centre Drive on a fast-growing cul-de-sac of high-tech cowboys. The new offices are being built by Ninteman at 4545 Towne Centre Court. Milo Architecture Group is handling the exterior design and carrier Johnson the interiors.
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A little landscaping and interior work are all that remains to be done at
this Towne Centre Court building Gateway will occupy.
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Above is a rendering supplied by developer CarrAmerica on what Gateway's
new UTC home will look like when finished. We added the cow.
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Already, the move is paying dividends, Gateway's Heubusch says. Recent top-level hires in marketing and information technology, for example, have pulled executives away from AT&T, Pillsbury and, most recently, Santa Clara-based Bay Networks, which lost Maynard Webb, who will report to Weitzen in San Diego as Gateway's senior vice president and chief information officer. And word is buzzing of another big hire for Gateway's European division, where sales are down.
The heads and staffs of Gateway's legal, human resources, finance, global product development and marketing will call San Diego home, as many as 100 employees by year’s end. That could double by late 1999, and after that, "that’s purely a function of how Gateway does as a company," Heubusch says. "The greater growth we experience, the more people we’ll be needing out there.
"Since we made that decision, some of the really key people we’ve decided to hire who are going to be important to Gateway's growth came in great part because of the San Diego community and environment."
Where Waitt Lives
None the least of which is Waitt himself. Last year, the ponytailed entrepreneur plunked down a county record $14.4 million for a 16,000-square-foot mansion on five acres atop Mount Soledad. The six-bedroom, dozen-bath home was originally built for maverick developer Doug Manchester, who sold it to Circus Circus casino owner William G. Bennett in 1989 for nearly $10 million. Reports reveal the three-story mansion features a four-person elevator, eight-car garage with room for a limousine, tennis court with viewing stand, pool with waterfall, a lushly landscaped one-acre private park — a pasture? — and two separate guest houses.
Even the most jaded real-estate agents go ga-ga over this residence. Prior to the purchase, Waitt had rented a vacation home in La Jolla for about five years.
So in reality, San Diego the tourist magnet can take some credit for Gateway's move here. "Remember, Ted Waitt first came to San Diego as a visitor," says Wright, who like so many in town have yet to meet the privacy-minded billionaire. "Clearly, he personally enjoys San Diego, because he's made a personal commitment to be here, without question. But he also had to make a sound business decision for his company. And I think the great testament to San Diego and its emergence as an important high-tech center is that it made good business sense for him to put some operations here and to be able to recruit people here."
Although it seems sensible that Waitt's purchase of a home here for his family would have played a role in choosing San Diego, Heubusch claims that wasn’t the case. "I even talked to Ted personally about that. We worked with an outside consultant…and Ted kept himself out of that. He basically said, look, let's put it where it’s going to do the company the most good, and he’ll make do with it."
The decision to move the head honchos to sunny San Diego isn’t without its detractors. A Business Week article last month quoted a University of Chicago professor who seemed unimpressed, saying Gateway's decision to move west represented an abandonment of its Midwest roots. Of Waitt the professor said, "I think he's being a traitor." In a marketing move that also clips some of those roots, the spotted cows are being removed from Gateway's advertising, although the marks will stay on computer packaging.
Meanwhile, Back In Siouxland
Some industry analysts also wonder how the move is playing in North Sioux City. "I think if I were lower down on the corporate ladder, clearly it would irk me that the corporate linchpins are essentially basking in the sun while the worker bees are toiling in South Dakota," says Ashok Kumar, senior research analyst for Minneapolis-based Piper Jaffray. "Fortunately for them, there's not much in terms of employment opportunities outside of Gateway (in Siouxland)."
Scott Miller, senior industry analyst with San Jose-based Dataquest, thinks the difficulty will be maintaining its Midwestern appeal — and customer loyalty — from the West Coast. "Gateway's built an image around not just a friendly company, but one in the middle of nowhere building the PC for every man, with the cow and the down-home image," Miller reasons. "And it’s not clear how compatible that is with sunny California beaches. I think that’s something they need to work hard to protect."
By most accounts, Siouxlanders seem to be taking the news in stride. One local observer suggests it’s not surprising, given the Midwestern spirit: "I think by necessity, Midwesterners in general — and especially those bordering on the Great Plains — must put function over form," she says. "It doesn’t matter how good you look when the heat index is 115 or the wind chill is 70 below zero. Life-threatening weather is pretty common. To paraphrase Garrison Keillor's remarks about the weather in neighboring Minnesota, it keeps out the weak, the lazy and the irreligious."
Most positions in San Diego will be filled by new hires, Gateway says. So losing the town's — heck, the state's — billionaire and about a dozen high-ranking sidekicks appears to be lot easier to take than some nasty natural disaster. But with wages in the area among the nation's lowest, any change creates tremors when you’re talking about the largest employer in the tri-state area.
Michele Linck, a reporter for the Sioux City Journal who covers Gateway, says the company "has gone to great lengths to emphasize that only a few jobs are moving, that none will be lost and in fact more will be added here, and that Waitt and Weitzen will continue to maintain offices here, too."
Local coverage has shown Waitt extolling the necessity of the "expansion" to San Diego and stressing that he was "doing what was best for Siouxland," Linck explains. "It seems the business community in general agrees." The reality, she adds: "For all its virtues, South Dakota lacks the magical magnetic quality it takes to attract nonnatives."
And they apparently think quite well of California. "Sunny" is the word of choice to describe the state. Those who have visited San Diego, and apparently there are many, prefer the word "wonderful," Linck discovered when she asked a random sampling of Siouxlanders. They also take pride in Waitt, who she says set up his first official office in the local Livestock Exchange Building, where his cattle-buying forefathers once plied their trade.
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At first, Gateway executives declined to discuss the move with San Diego Metropolitan, claiming they wouldn't be discussing their specific plans here until an informal "coming out" party thrown by the city for Gateway in late September or early October. One employee called it "quiet time." But, in its trademark friendly style, they eventually relented, although, despite nearly two months of FedEx packages and telephone calls, Waitt himself was not made available.
"The company’s greatest concern is that this not get blown out of proportion," says Heubusch when asked about the reaction in South Dakota. "We’re not shutting anything down. In fact, at the same time we announced the San Diego move, we also announced an intent to hire an additional 500 people in the Sioux City area (the Sioux City Journal reports that new hires would total 250). That plant continues to grow."
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The Encinitas store was San Diego’s first Gateway Country.
The second will open this fall in Mission Valley.
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Perhaps to soothe tensions, the North Sioux City facility — where Gateway's computers are assembled after orders are placed either by phone or over the Internet — was named "operations headquarters." The work force there, Heubusch says, numbers about 7,000. Gateway employs about 13,000 people worldwide, including other manufacturing plants in Ireland, Malaysia, and — beginning in early September — Salt Lake City, which is expected to employ 1,000 workers by the end of next year in a new 260,000-square-foot plant.
Rebecca Easton is manager of the
Gateway Country store in Encinitas.
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Adds Heubusch with his own brand of diplomacy: "I think Gateway's been very, very pleased with the appreciation and the understanding of everyone locally in South Dakota on how we have to grow globally to continue to grow locally. …The far, far worst case for the local area would be if we attempted to grow at this pace without moving anywhere. It could be disastrous for our business. We just simply couldn’t be competitive. …And then you do lose jobs."
Hence, the aggressive push to expand. Last year, Gateway acquired top network-server manufacturer Advanced Logic Research in Irvine for $200 million. It now serves as headquarters for the Gateway Business division, and is where Gateway will develop strategies for trying to grab its share of the tough-to-crack corporate market, the bread and butter of direct-marketing king Dell Computer. Meanwhile, Compaq Computers, which last year thought it had a $7-billion deal to take over Gateway only to be rebuffed by Waitt at the last minute, has joined the growing club of build-to-order computer makers — a move Compaq once vowed never to do.
Gateway also has moved into a more traditional sales mode by opening a bevy of prairie-decorated Gateway Country stores nationally, where potential customers can "test drive" Gateway computers with the latest technology. Last month, the first Gateway Country in the county opened in Encinitas, demographically speaking an apparent hotbed for PC buyers. Another store will open in Mission Valley next month.
Kumar, the Piper Jaffray analyst, thinks Gateway has a tough road ahead — particularly in light of
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second-quarter earnings that were below expectations. Analysts blamed the less-than-stellar performance on poor PC demand worldwide in April, Gateway's 22 percent drop in European sales from a year ago and a 38 percent bump-up in expenses due to new marketing campaigns, most notably its Your:)Ware program that allows customers to make monthly payments on PCs and trade them in later to upgrade.
"The question is," Kumar says, "can Gateway move from success in the consumer market to the same in the corporate world. Given that they'll have to go up against the likes of Dell, Compaq, IBM and Hewlett-Packard, it’s going to be an uphill battle."
Says Gateway's Heubusch, with a small laugh: "Well, we’ve done tough things before."
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Customers can check out the merchandise before
ordering at Gateway Country.
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This wait-and-see mode extends to local business boosters as well. The EDC's Wright wanted to, but didn’t, bust out the champagne as soon as word of Gateway's planned migration was announced. A celebration seemed appropriate: In the following two months, more than 40 inquiries were made by companies looking to expand or relocate into San Diego — double the usual number of calls. Of those, 30 came from high-tech firms, the state's Marando says.
If Gateway succeeds, San Diegans may get to see what it means to hit one outta the PC ballpark.
Just the Gateway/San Diego Facts 
 WHO IS GATEWAY? — Behind Dell Computer, the world's No. 2 direct-marketer of personal computers. Started in 1985 with a $10,000 loan, Gateway saw sales top $6 billion in 1997. It offers a full array of computer products, including desktops, portables, and convergence systems for PC-driven television.
WHY COMING TO SAN DIEGO? — More attractive to potential top-level executive hires. Proximity to growing Pacific Rim and Latin America markets. Part of a global-expansion strategy.
HOW DID IT COME ABOUT? — Coopers & Lybrand conducted survey of more than 50 sites in nearly two dozen cities and states. San Diego came out on top.
WHAT DOES IT MEAN TO THE REGION? — Greater visibility and credibility as a growing high-tech hub. A major player in personal computing.
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