Feb 27, 2017 · 49m · how-i-built-this
Atari & Chuck E. Cheese's: Nolan Bushnell
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of How I Built This, host Guy Raz interviews serial entrepreneur Nolan Bushnell about launching the video game and family entertainment industries through the creation of Atari and Chuck E. Cheese. Bushnell details the engineering breakthroughs, audacious business pivots, countercultural management style, and key failures that shaped his groundbreaking career.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Guy holds 28.7% of the talking time here. How this is scored →
Guy as informed peer 2.5 Guest teaching 3.1 Guest disagreement 0.5 Guy pushing back 0.3
speaking balance: gold is Guy, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 18:52 Rejection of the depressed framing
Nolan immediately rejects Guy's suggestion that he felt depressed after failing to sell units at the toy show, asserting he is energized rather than discouraged by setbacks.
Hardest push from Guy ▶ 20:57 Challenging the exaggerated manufacturing claimGuy directly presses Nolan on his carny salesmanship after Nolan admitted tripling the capacity number given by his lead engineer to secure Sears's business.
Biggest teaching moment ▶ 39:38 Masterclass on entertainment novelty curveNolan gives an insightful breakdown on the fragility of novelty-driven entertainment and how early surge traffic disguises unsustainable long-term repeat visit rates.
Guy holds their own ▶ 4:05 Contextualizing late-1960s arcade landscapeGuy demonstrates domain grasp of early gaming history by noting that amusement locations in the late 1960s were strictly limited to electromechanical pinball before video games existed.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Guy as informed peer | Guest teaching | Guest disagreement | Guy pushing back | Why |
|---|---|---|---|---|---|---|
| Strawberry Arbitrage and Carnival Game Economics | 3 | 3 | 0 | 0 | Guy prompts Nolan on his early childhood hustle and carnival days, clarifying the historical landscape of late-60s pinball machines. Nolan details the surprising profitability of coin-operated games in cafes. | |
| Discovering Spacewar! and the Computer Gaming Vision | 3 | 3 | 0 | 0 | Guy tracks Nolan's timeline graduating college and joining Ampex, while Nolan explains the technical and financial hurdles of adapting Spacewar with early slow computers. | |
| Founding Atari and the Accidental Creation of Pong | 2 | 4 | 1 | 0 | Nolan explains how Pong began merely as an engineering training exercise and shares how coin-op industry conventions initially rejected two-player games until the test unit coin box overflowed. | |
| Scaling Pong Arcade Production and Navigating Clones | 3 | 4 | 1 | 1 | Guy asks about navigating rampant copycats and lack of patent protections. Nolan illuminates the unexpected social role of Pong in 1970s gender dynamics and ladies' choice culture. | |
| Pioneering Home Pong and the Massive Sears Order | 2 | 3 | 2 | 2 | Nolan rejects the idea that he was depressed by the toy convention failure, describing how he leveraged his carnival mindset to triple his engineer's manufacturing estimate when talking to Sears. | |
| Overcoming the Manufacturing Crunch with Sears Bank | 3 | 3 | 0 | 0 | Nolan explains how he resolved Atari's manufacturing cash-flow crisis through price renegotiation and Sears Bank's bonded warehouse inventory financing. | |
| Developing the Cartridge System and Atari's Rebel Culture | 3 | 3 | 0 | 0 | Nolan describes the transition to programmable ROM cartridges and contrasts Atari's casual, young meritocracy and Friday keg parties against traditional corporate Silicon Valley. | |
| Managing Steve Jobs and Passing on Apple's Initial Equity | 2 | 2 | 0 | 0 | Guy and Nolan share a lighthearted exchange regarding Steve Jobs's early work at Atari and Bushnell's infamous decision to pass on a one-third stake in Apple for $50,000. | |
| The Warner Communications Sale and Corporate Culture Clash | 2 | 3 | 1 | 0 | Nolan recounts selling Atari to Warner Communications for $28 million and the resulting culture clash with New York executives that led to his termination, viewing business losses pragmatically like chess. | |
| Conceiving Chuck E. Cheese and the Animatronic Mascot | 2 | 3 | 1 | 1 | Guy playfully challenges the logic of naming a restaurant after a rat, while Nolan explains the arbitrage between arcade game operating profits and manufacturing margins. | |
| Franchising Chuck E. Cheese and Navigating the Novelty Trap | 2 | 4 | 0 | 0 | Nolan breaks down the mechanics of the entertainment industry, explaining how the initial 'novelty bonus' created false positives that led to overbuilding Chuck E. Cheese franchises. | |
| Embracing Failure, Calculated Risk, and Brain Rush | 2 | 3 | 1 | 0 | Nolan articulates his philosophy on how failure prevents toxic entitlement, detailing his practice of rolling dice to force himself into unfamiliar pursuits annually. | |
| How You Built That: Danit Zamir and BloomRent | 3 | 2 | 0 | 0 | In the 'How You Built That' segment, Guy summarizes Danit Zamir's business model for BloomRent while Zamir explains how sharing wedding centerpieces creates value for florists and couples. |
Statements from this episode (22)
Bushnell: 1960s coin-operated games generated $100 to $200 per week
“These locations would very often do a hundred to 200 dollars a week.”
Bushnell: 25-cent plays could not justify a $500,000 arcade computer
“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.”
Bushnell made $100,000 from a 5% royalty on Computer Space
“I licensed the game to a company called Nutty Associates, and realized that it did really well in college campuses, so, I mean, it sold a couple of million dollars in, in units, which was, to me, a big hit, but to the industry was kind of a mediocre flop, but …”
Bushnell: Atari was founded on just $500 of initial capital
“Ted put in 250 dollars, I put in 250 dollars, and that's all the money that went into Atari.”
Bushnell: Pong arcade units earned $300 weekly on a $300 manufacturing cost
“The game was earning almost 300 dollars a week. And the total cost that we had was about 300 dollars.”
Atari financed early production by securing 60-day terms from parts suppliers
“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.”
Bushnell: Clones Accounted for Roughly 115,000 of 150,000 Total Pong Units
“About a 150,000. Only of which, Atari only did about 35,000 of them. We got massively copied.”
Bushnell: Early Investors Passed on Atari Calling Video Games 'Flaky'
“I tried to get, you know, investors, but everybody thought that video games were kind of flaky.”
Bushnell: 1975 toy retailers capped prices at $35
“What we didn't know is that the toy business at that point in time did not sell anything that was more than 35 dollars.”
Bushnell promised Sears 75,000 units despite 25,000 capacity
“And so, not wanting to be soul sourced, I said, we can do about 75,000.”
Sears Bank advanced Atari 80% for every finished Home Pong console
“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% of the contract price with Sears.”
Bushnell: Atari sold nearly 180,000 Home Pong units to Sears in 1975
“We did. And in fact, I think that year we sold almost a 180,000 and they took them all.”
An $8 microprocessor enabled Atari's programmable ROM cartridge console
“A semiconductor company in Silicon Valley came up with a microprocessor. That they were willing to sell us for eight dollars, and all of a sudden, our eyes were opened, and we said, we can do a von Neumann architecture, program-based, put cartridges with ROMs …”
Bushnell claims Atari paved the way for young tech CEOs
“I was the youngest CEO, and people didn't know what to think about a CEO in their twenties. 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 business…”
Bushnell: Steve Jobs was opinionated but never wrong at Atari
“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.”
Steve Jobs offered Bushnell a third of Apple for $50,000
“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 dollars.”
Bushnell: Warner Communications acquired Atari for $28 million in 1976
“Twenty-eight million bucks.”
Warner Communications fired Bushnell after ugly culture clashes at Atari
“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.”
Atari sold $1,500 arcade machines that earned $30,000 to $50,000 lifetime
“Before I sold to Warner, we were selling games. These were coin-operated games, remember? We were selling them for about 1500 dollars. During their lifetime, in CoinDrop, they'd earned 30 to 50,000 dollars.”
Bushnell bought Chuck E. Cheese back for $500,000 paid over five years
“The one open store was cash flowing half a million dollars a year. And they let me pay it a 100,000 a year for five years.”
Entertainment retail businesses risk overbuilding due to early novelty-driven demand spikes
“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 l…”
Bushnell: I Pick an Annual Challenge by Rolling Dice
“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, i…”