Too Much Money Left the Startup That Pioneered the Smartphone Without a Clear Customer

Years after it all fell apart, a senior executive at the company described to author David Epstein, who studies how limits shape creativity, why the celebrated startup had failed.

"We had too much money," the vice president told him. "We never had to worry about payroll. What startup in the world never has to worry about payroll?"

General Magic was a Silicon Valley startup of the early 1990s trying to build a pocket-sized communicator, a forerunner of the smartphone. It raised tens of millions of dollars from ordinary investors while it had no profits, no revenues, and no product, just an idea. Bankers from firms including Goldman Sachs elbowed each other for a piece of the deal, with founder Marc Porat recalling one banker who offered the shirt off his back, then stripped it off in the conference room to win the business. After the shares launched, the price promptly doubled.

Talent followed money. Porat, a charismatic founder who could persuade people they could fly, recruited Bill Atkinson and Andy Hertzfeld, the programmers behind the Apple Macintosh, along with Mac marketing chief Joanna Hoffman and graphics designer Susan Kare. Ambitious young engineers camped outside the offices and called every day begging for jobs.

Epstein argues that this abundance was a surprising disadvantage. With money from Apple, corporate partners, and retail investors, plus elite engineers and seemingly endless time, the team never had to impose hard choices on what it was building. His point, as Epstein puts it, is that complete freedom can make creative work worse.

With less cash, Epstein argues, General Magic would have had to ask what buyers would pay for that could be built now. Instead, it never even defined a customer. The target was vaguely "Joe Sixpack," meaning everyone, the ordinary person on the street, even though the device required a 200-page manual, was as big as a hardback book, and cost thousands of dollars.

Tim Harford, an economist and writer recounting the story, agrees with Epstein but adds his own refinement: the problem was not that the company faced no limits. It was that it did not think it had any.