The Next Small Thing

What does it take to change the world? Obsession. Tenacity. And lots of mistakes. That's the untold story behind the PalmPilot - a 15-year saga that produced the kind of breakthrough that every startup dreams of.

Sidebars: The Right Way to Make Mistakes,This is Jeff Hawkins on Brains

This is what a noble failure looks like.

Back in 1974, when he was just a teenager, Jeff Hawkins and two of his buddies took a cruise down the Hudson River. They were in command of the world's largest air-cushion vessel - a bizarre contraption invented by Jeff's father, an eccentric scientist. The ship, big enough to hold a 50-piece orchestra, had eight retractable legs and was inflated using vacuum-cleaner motors. To add fanfare to their voyage, Jeff and his friends played kettle drums. Then came a bit of unexpected fanfare. Just off Manhattan, a strong current caught the ship and slammed it into a railroad bridge. Commuter trains to and from Manhattan were shut down for an entire day.

It was a wild ride - and it ended with a loud crash. "My dad was always coming up with spectacular, impractical ideas," says Hawkins. "We were exposed to crazy things. But we learned to look at the world from all kinds of angles: mechanical, electrical, even business."

This is what a breakthrough looks like.

Palm Computing Inc., with Jeff Hawkins at the helm, shipped the Pilot in April 1996. This nifty device (soon to be renamed the PalmPilot) was small enough to fit into a shirt pocket, powerful enough to store thousands of addresses and appointments, and cheap enough to appeal to a mass market. Within 18 months, Palm had shipped more than 1 million Pilots. Which meant that Hawkins, leader of that ill-fated voyage so many years ago, had created one of the fastest-selling consumer-electronics products in history: The Pilot sold faster than cell-phones, pagers, even color TV. It was the fastest-selling computer product ever.

In short, a very small thing had become the Next Big Thing - an innovation that affects how people work and live. And it had come as something of a miracle. Most new-product launches follow the same course as Hawkins's trip down the Hudson: They're a wild ride, and they end with a loud crash.

The handheld-computer market has been no exception. Apple spent $500 million on the Newton - and announced last February that it would stop development. Kleiner Perkins Caufield & Byers, the powerful venture-capital firm, funded a startup, called GO Corporation, to pioneer the handheld market. GO spent $75 million - and went out of business. All told, startups and big companies spent $1 billion trying to crack the handheld market. Hawkins and his 28 colleagues at Palm Computing spent only $3 million to develop a working model of the device that would launch an entire industry.

Why did they succeed where so many others had failed? The story of the PalmPilot (called the Palm III in its latest incarnation) is the story of one man's obsession with an idea that was bigger than a product, of a partnership between two very different people, of dramatic mistakes and brave corrections, and of sheer tenacity. In that sense, it is a story for our times - a story of the kind of breakthrough that every startup dreams of.

"Has it been worth it?" asks Hawkins, now 40, reflecting on a 15-year journey that's still unfolding. "As long as I am progressing toward my goals, doing good work, and having fun, then it's worth it. I have no regrets. I have always told everyone at Palm, 'If you're not enjoying yourself, you shouldn't be here.' That's how I run my life. I have never felt burdened by my work."

One Man's Obsession

How long does it take to create an overnight success? in the case of Palm Computing, about 15 years. That's not how long the company has been around: It was formed in January 1992. Nor is that how long it took to design the Pilot: Serious work on it began in June 1994. But that is how long Jeff Hawkins, the founder of Palm Computing and the father of the Pilot, has been obsessed with the big intellectual challenge at the heart of this tiny device.

"I want to solve the major problems in the study of human intelligence,'' he says. "I want to achieve a theoretical understanding of how the brain works. My research into human cognition is a lifelong pursuit. It began before Palm, and it will last beyond Palm. The research and the company go together. I intend to use the next decade of my life to make my work on cognition much more visible."

Hawkins graduated from Cornell University in 1979 with a degree in electrical engineering. He went to work for Intel, first in Oregon, then in Boston. He lasted just three years at the company: "I wanted more responsibility. Intel said I needed more seniority.''

So Hawkins took a job at GRiD Systems, a small Silicon Valley company that was exploring the frontiers of portable computing. GRiD had a simple, concrete business goal: to design a computer that you could actually carry. Hawkins wanted to go further: to design a computer that would actually respond to human impulses. And that meant figuring out the cognitive roots of those impulses. By day, he wrote code. But at night and on weekends, he immersed himself in trying to "map" the brain, in seeking the headwaters of intelligence and following their course through the learning process.

Over time, an interest became a passion. "My wife thought I was nuts," Hawkins says. "She worried that I was following in my father's footsteps. She suggested that I align myself with a university."

In 1986, Hawkins decided to take his wife's advice. He looked to the Bay Area's two flagship universities, Stanford and the University of California, Berkeley. The people at Stanford said he would have a hard time finding an intellectual home there. The people at Berkeley were somewhat more encouraging, so he decided to enroll in its graduate program in biophysics. "In three years," he says, "I became convinced that I had discovered and defined what intelligence is. It sounds wild, but I really believed it.'' (See the sidebar "This Is Jeff Hawkins on Brains," page 104.)

Unfortunately, Hawkins couldn't persuade any of his professors to champion his work. He left Berkeley in 1988 without a PhD - but with a big idea. His research into neural networks focused on how the human brain - and, by extension, the digital computer - could recognize patterns. He even developed an algorithm for handwriting-recognition software. He called it "PalmPrint." It has shaped everything that he's done since.

Hawkins left Berkeley jazzed and confused - jazzed about what he had discovered, confused about how he would earn a living. So he re-upped with GRiD, this time on different terms. He licensed PalmPrint (which he had patented) to GRiD and became its vice president of research, charged with developing pen-based hardware and software. Later that year, GRiD was purchased by Tandy, an electronics manufacturer and the parent company of Radio Shack.

A year and a half later, Hawkins and his team unveiled the GRiDPad, the world's first serious pen-based computer. The machine was big, slow, clunky, ugly - and a revelation. This could be the future of computing. Trade magazines raved about it. Companies descended on GRiD with proposals for smaller and faster versions.

A gold rush ensued. An array of high-tech giants - IBM, NCR, NEC, Samsung - announced plans to launch the next small thing. Kleiner Perkins poured money into GO. Apple, which had been developing a handheld device since 1987, shifted into high gear: In January 1992, then-CEO John Sculley coined the term "personal digital assistant," or PDA. The gold in the gold rush had a name.

For his part, Hawkins was not all that enamored of his invention. GRiD built computers for niche business customers: insurance adjusters, railroad inspectors, oil-rig workers. These were also the customers for GRiDPad. Hawkins wanted to build small, powerful, general-purpose computers. He wanted to change people's lives.

"It was about then that I decided I didn't want to be at Tandy,'' Hawkins says. "I knew what I wanted to do, and I was in a position to do it on my own."

Thus was born Palm Computing. It was January 1992. The good news: Hawkins had an idea and a company. The bad news: He had no plan, no product, no financing, and no partners (except for Tandy, with which he had negotiated a licensing agreement before leaving the company). But he did have a reputation. He met with Bruce Dunlevie, a venture capitalist who sat on the board of Geoworks, a software outfit that writes operating systems for portable computers. "I could tell right away that Jeff was a 'product picker,' '' Dunlevie says. "That's someone who is able to synthesize where technology is today and then advance it - someone who knows intuitively what people care about."

Dunlevie's firm, Merrill, Pickard, Anderson & Eyre, bid to be Palm's lead investor. Hawkins also talked with Sutter Hill Ventures, another prominent VC firm. He accepted $500,000 from each of them, plus $300,000 from Tandy. His dream had funding, along with a few partners. Now he just needed a plan and a product.

It Takes Two

There are lots of technovisionaries with great ideas. Some of them even convince investors to provide capital to turn those ideas into products. But products don't create breakthroughs - companies do. And great companies need more than vision. They need staying power. They need the kind of flexibility and tenacity that will keep them in the game even as the competition and the playing field keep changing.

Few people have more staying power than Donna Dubinsky, the first executive whom Jeff Hawkins hired - and the most important person behind the Pilot other than its inventor. Dubinsky, now 42, is Palm Computing's indispensable executive. She's its chief strategist, its top operator, the ultimate hands-on leader - and the perfect sidekick for Hawkins. It's impossible to understand the success of the Pilot without exploring the partnership between these two very different people.

"We have complementary skills, and that makes for a good relationship," says Hawkins. "We rarely disagree, and we can usually anticipate each other's actions. A year after Donna joined Palm, I wrote a review of her performance and surprised her with it over lunch. She had already done the same thing - she'd written a review of me! That's how in sync we are."

Donna Dubinsky grew up near a rusting industrial port in the southwest corner of Michigan. Her father was a scrap-metal dealer. In school, a division ran through her classes: kids who could read in one room, those who couldn't in another. Armed guards kept order on campus. When she left high school, she had no diploma, and she couldn't write a lick.

And she still got into Yale.

After graduation, Dubinsky took an entry-level job in banking and then enrolled in the Harvard Business School. She fell in love with a new product called the Apple II and vowed to work for the company that had created it. Twice she requested an on-campus interview, and twice she got rejected because she had no technical background. She flew out to Cupertino and managed to get an interview there - but never heard back from the company: "I called and said, 'Are you guys going to make me an offer?' ''

She got a job at Apple.

Dubinsky signed on as a lowly customer-support liaison - hardly the normal starting point for a Harvard MBA. But she bet that if Apple's strategic vision was as daring as its computers were, she would have lots of room to rise. She was right. In 1981, when she reported for duty, Apple had just broken the $200 million mark in annual revenues. Within four years, revenues hit $2 billion - and Dubinsky was running a big slice of Apple's distribution network. But in the spring of 1985, the company threatened to dismantle that network in favor of a cost-cutting just-in-time method. She had to spend more and more time defending her turf. "It was," she says, "the most miserable time in my career.''

At one point, she offered to resign. But after talking with Bill Campbell, a football-coach-turned-executive who had become a top Apple official, she decided to stay. Dubinsky went into international sales and worked out of Australia for about six months. In 1987, Campbell recruited her to be vice president for international sales on a team he was forming to lead Claris, a free-standing software company financed by Apple. Campbell was the company's first CEO.

"I loved it," Dubinsky says. "We had a great team. I was traveling 50% of the time. I was responsible for sales, marketing, and distribution outside the U.S. It was exhausting, but it was fun." In less than four years, she boosted her group's sales to 50% of Claris's total revenues. Then Apple bought back Claris's stock and took control of the company. "That was it," Dubinsky says. "I was outta there!'' By coincidence, Campbell left on the same day.

Dubinsky spent a year in Paris, licking her wounds and learning to paint. Then she contacted her mentor. Campbell was running GO, at the time the hottest startup in pen-based computing. "I want to grow a company," she told him. "I want to be a president. Do you think I have what it takes?'' Campbell said yes, and made some calls on her behalf. Among them was a call to venture capitalist Bruce Dunlevie, who was looking for someone to run Jeff Hawkins's startup. Dunlevie and Hawkins had already interviewed a dozen candidates, half of whom seemed more qualified than Dubinsky. But Dunlevie arranged for a meeting at Hawkins's house.

"It felt great from the start,'' Hawkins remembers. "She had no hidden agendas." Dubinsky found Hawkins to be equally straightforward. "He said he needed someone who would respect him as a product guy," she says. "And I had never seen anything like what he was talking about - electronics in the palm of your hand. It was the first time in a long time that I'd been really jazzed.''

She went home, wrote Hawkins a note ("I really want this job"), and gave him a list of 30 references. She also asked him for his references. Each person she talked with gave Hawkins the same reviews: He was brilliant. He had integrity. And he needed help.

Donna Dubinsky signed on with Palm Computing on June 15, 1992. Ever since, she says, "One of my great purposes in life has been to create an environment where Jeff Hawkins can thrive.''

Wrong Strategy, Wrong Product

Hawkins and Dubinsky made the perfect entrepreneurial pair. Together they sat down to create a plan, which they built around a few defining principles: Palm Computing would design software for handheld devices but let other companies build and market them. The software would support general-purpose computers that were small enough to be mobile yet powerful enough to rival desktop machines. Palm's products would target individual consumers rather than business users. And the company would surround itself with blue-chip partners that had muscle in the marketplace.

It was a carefully crafted plan. And every principle in it was wrong. Palm survived because it was lucky enough to be second on the market, smart enough to recognize the gravity of its mistakes, and lean enough to reinvent itself before it ran out of cash. "I was intent on raising plenty of money and spending it as slowly as possible," says Dubinsky. "At Apple, I saw how being 'overcapitalized' gave you the freedom to make mistakes."

There were plenty of those - beginning with Palm's partners. Thanks to the Tandy connection, Casio agreed to manufacture the handheld device that would run Palm's software. Thanks to the Dunlevie connection, Geoworks agreed to provide an operating system. Intuit agreed to provide personal-finance software. America Online came on board as well.

Early on, something felt wrong. "I'd come to a meeting, and there would be people from six different companies sitting around the table,'' Dubinsky recalls. "We negotiated every detail.''

It was startup-by-committee - and Palm's debut product reflected how dysfunctional that committee was. The device, called Zoomer PDA, was slated for sale at Radio Shack. But it was priced at $700 - which was steep for a mass-market retailer. Zoomer did lots of things, most of them badly. It had an absurdly small keyboard. Its handwriting-recognition software, based on PalmPrint, was primitive for the task at hand. It included drivers for printers and fax machines (which made it bigger and slower), even though few people expected to print or fax from a PDA.

Ed Colligan, now 37, joined Palm as its marketing manager in June 1993, the same month in which Palm announced Zoomer. (The product shipped in October.) Colligan is quick-witted, wiry, combative. He could sell ice to Eskimos. But he couldn't sell Zoomer. "It was a dog,'' he says. "I was going, gulp, Did I do the right thing in coming here?" Jeff Hawkins was equally disappointed: "It was the slowest computer ever made by man. It was too big and too expensive. We executed badly."

Fortunately, Zoomer wasn't the worst dog in the kennel. Hawkins and Dubinsky were mortified when Apple announced that it would release the Newton in August 1993 - two months before Zoomer shipped. Palm's strategy was to get Zoomer into the market first, to create a buzz, and to follow quickly with upgrades and improvements. But Newton stole Zoomer's thunder - and saved Palm's bacon. Precisely because Zoomer arrived after Newton, it was spared all the ridicule heaped on Apple's PDA. Who wants to kick the second lousy product to appear in a new category? And in Zoomer's wake came a wave of equally uninspired offerings - from Hewlett-Packard, Sharp, GO, and Toshiba. Zoomer got lost in the shuffle.

"The entire market was lousy,'' Dubinsky says. By the end of 1994, she estimates, venture capitalists and consumer-electronics companies had invested $1 billion in the PDA market - and no one had anything to show for it. Most companies now opted for one of two courses of action: Either they went out of business (like GO, which had liquidated by 1994), or they stubbornly persisted (like Apple, which kept introducing new versions of Newton).

Palm Computing took a different route. Sure, the company had misfired badly. But thanks to Dubinsky's frugality, it still had enough cash to reload. So during the spring of 1994, Palm conducted in-depth surveys of the hardy souls who had actually purchased Zoomer. What these people said opened the company's eyes. More than 90% of Zoomer owners also owned a PC. More than half of them bought Zoomer because of software (offered as an add-on) that transferred data to and from a PC. These were business users, not retail consumers. And they didn't want to replace their PCs - they wanted to complement them. People weren't asking for a PDA that was smart enough to compete with a computer. They wanted a PDA that was simple enough to compete with paper.

The findings were too radical for Palm's partners. The alliance split apart. Jeff Hawkins split off - into a whole new product space. "Jeff basically went off on his own," say Colligan. "When he came back, he was like Moses holding the tablets.'' But this time, there weren't Ten Commandments - there were two guiding principles. They lie at the heart of why the Pilot became such a breakthrough.

The first principle involved software. Hawkins, like so many of his rivals, had been trying to write code that was smart enough to enable PDAs to recognize all kinds of different handwriting styles. That meant the software had to be complex - which meant the PDA's performance had to be slow. (Nor, truth be told, could it be very good. Even the smartest handwriting software isn't very smart.) So why not reverse the logic? Why not ask people to learn some techniques to help the software better understand their handwriting?

"People are smarter than appliances," Hawkins told his colleagues. "They can learn.'' He recalled a lesson from his Berkeley days: "People like learning. People can learn to work with tools. Computers are tools. People like to learn how to use things that work."

Hence Graffiti, the handwriting-recognition software that differentiated PalmPilot from every other device on the market. In Graffiti, each letter is made by a single stroke of a pen on a small screen. Letters that normally require someone to lift a pen undergo slight changes: An A is written as an inverted V, an F as an inverted L. Graffiti requires just a small adjustment by the people who use it - but leads to a vast improvement in both accuracy and speed.

At home and in private, with pen and paper, Hawkins polished his letters, inscribing one atop the other to see how fast and how easily he could write them on a small surface area. When he unveiled Graffiti inside Palm, the reaction ranged from polite smiles to open opposition. "People were saying, 'Sure, we're going to ask people to learn a whole new way to write,' '' Colligan recalls. So Hawkins persuaded his colleagues to try learning the strokes. It took less time than they expected it to. "My sister is a technophobe," Colligan remembers. "She played around with it and said, 'Wow! It's cool.' ''

So much for the software. What about the device itself? Here Hawkins posed a simple question: How small is small enough? His answer yielded the second principle: Small enough to fit in a shirt pocket. He paced the hallways at Palm headquarters, ruler in hand, measuring pocket sizes against small blocks of balsa wood. He designed screens and pasted down configurations of various applications. He pushed to simplify: Which features are mandatory? Which can be sacrificed? Which might be optional? With each revision, the product kept getting smaller.

By August 1994 - less than three months after Hawkins began rethinking the market - Palm Computing had a mockup of its new device. The product would fit in a shirt pocket. It would run on AAA batteries. It would offer four core functions: a calendar, an address book, a To-Do list generator, and a memo-writing feature. It would sell for less than $300. It was a marvel of elegance and simplicity.

"I remember sitting around the table when it was presented," says Colligan. "We all had goose bumps."

The product got a code name: Touchdown. Palm Computing got a new company mantra: "No Excuses.''

New Product, New Company

It's one thing to learn from mistakes. it's quite another to persuade investors that you can get things right the second time. "We had been working on this product for two years," says Hawkins. "Donna, Ed, and I really believed in what we had come up with. Touchdown was it. But the market kept getting worse and worse."

The time had come for another course correction. It began in a conference room next to Bruce Dunlevie's office at Merrill Pickard. Dubinsky and Hawkins arrived dejected. They told Dunlevie that they finally had the right product, but that their previous partners wouldn't get behind it. Dunlevie - soft-spoken, circumspect, bookish - listened, gauged their despair, and said, "Stop complaining. You know how to do this, right?''

Hawkins said he thought so.

"Then do the whole product,'' Dunlevie told Hawkins. "Just go out and do it.''

It was radical advice. Dunlevie was arguing that the company couldn't redesign its product unless it reinvented its business model. Palm would no longer be just a software company. It would be a self-sufficient company that designed, built, and marketed Touchdown. "I didn't think that doing the whole product - both the hardware and the software - was an option," Hawkins says. "It was expensive. I was a young guy. I had never thought about doing anything that big alone."

Which didn't mean that Palm would build factories and warehouses, or hire hundreds of salespeople to call on retailers. (Indeed, as amazing as it sounds, the company hired just one new employee in 1994.) Instead, Hawkins and Dubinsky assembled a dispersed team of hardware-design and contract-manufacturing companies, each of which brought resources to the table. They paid the companies with modest sums of cash, lots of stock options, and the promise of future glory. "We created a virtual company,'' Hawkins says.

But one challenge couldn't be solved virtually: marketing. How was Palm Computing going to push Touchdown into the retail channel? How was it going to change the minds of consumers? Ed Colligan sums up the dilemma: "We had a killer product. But the market was a dog. And we had no money to fund a launch. What were we going to do?''

Dubinsky figured that Palm needed $5 million to bring Touchdown to market. Her plan was to raise up to $2 million from a new corporate partner, to collect matching amounts from venture capitalists, and to leverage the partner's marketing power to crack the market. But most companies didn't want to talk about investment. They wanted to pick Palm's pockets. Dubinsky listened as suitor after suitor devalued the company's prospects. She broke off negotiations time and again, whenever it became clear that a potential partner really wanted to devour Hawkins's intellectual property.

It was early 1995. Dubinsky was approaching 40. Her life had been devoted almost solely to work. And work was heading off a cliff. "We were in a tough spot," she says. "We were going to have to start spending money.'' Even the always-upbeat Jeff Hawkins understood that the company was in dire straits: "This was the one time when I knew we were at risk.''

Almost randomly, Dubinsky ran through a long-forgotten list of potential partners, looking for even the most remote synergies. One name jumped off the page: U.S. Robotics. In less than five years, the fast-moving modem maker had seen its revenues skyrocket from $50 million to almost $900 million. Dubinsky knew that U.S. Robotics, based in Skokie, Illinois, was looking for a foothold in Silicon Valley. And she had previously identified the company as a potential partner in the development of a modem for Touchdown.

Dubinsky called a friend in investment banking who had worked on USR's initial public offering, and the friend arranged an introduction. Hawkins and Colligan met with Jon Zakin, then the vice president of business development for U.S. Robotics. Colligan watched Zakin's face as Hawkins put Touchdown through its paces. "It was wild,'' Colligan says. "He got it immediately, like a snap of the fingers. He told Jeff, 'You've thought this thing through.' ''

Dubinsky followed up with a phone call. Zakin said he wanted to do business. Dubinsky suggested that U.S. Robotics invest $5 million, and Zakin agreed to consider the offer. Then both sides agreed to meet in Palo Alto, California within two weeks.

Zakin still seemed enthusiastic when the Palm team sat down with him in late September. In a second meeting, he was even more upbeat. But he never mentioned the $5 million offer. Dubinsky felt flummoxed - though not for long. That night, Zakin called with a different offer: What if U.S. Robotics bought Palm Computing?

"It was almost terrifying how decisive they were,'' she says. "After all the frustrating negotiations we'd been through, these guys turned on a dime. They were ready to buck conventional wisdom.''

She called Hawkins to discuss the pros and cons. "I was worried about another company imposing its will on us,'' Dubinsky says. "But U.S. Robotics had cash, a great reputation with the retail channel, manufacturing strength, and global presence. And Touchdown was at a turning point. Was it going to be another nice gadget that failed? Or would it be the start of the next generation of computing?''

For $44 million in stock, Palm Computing became a division of U.S. Robotics. Within six months, after fighting to ensure that Palm's 28 employees were suitably compensated and after ironing out hellish details about who would control manufacturing, Touchdown crossed the goal line - under its new name: the Pilot.

Zoomer was a distant memory. The Pilot was a smash. The first units shipped in April 1996. "By midsummer, we couldn't build enough of them,'' Colligan remembers. "Customers were stamping their feet. And we weren't just selling to geeks in Silicon Valley. We were selling all over the place.''

And big companies were buying - each other. One morning about a year ago, the people of Palm Computing woke up to learn that 3Com would acquire U.S. Robotics in a deal valued at $7.8 billion. Says Colligan: "I told everyone, 'Sure, we're part of a big company. But if we keep executing the way we have been, I can't imagine anyone wanting to screw around with us.' " 3Com apparently agreed.

Today the PalmPilot is more than a hot product. It's the center of an industry. More than 5,000 programmers are working on new software applications. Some 200 developers are designing hardware add-ons. And the Palm PDA is more than a business phenomenon. It's a cultural phenomenon, a hip techno-artifact featured in TV shows ("Murphy Brown") and Hollywood movies (Wag the Dog).

"This has been one of the great experiences of my life," says Ed Colligan. "You can't imagine how much fun it is to create a product that actually touches regular folks in their daily lives."

The Perils of Success

If the PalmPilot's future is so sunny, why is Ed Colligan's mood so stormy? Colligan predicts that cumulative sales of the Palm PDA will exceed 2 million units by the end of 1998 - a stunning performance by any measure. The company's third-generation device, the Palm III, has earned rave reviews and won new converts.

But Colligan isn't celebrating. He's preparing for war: "We're lucky to be a subsidiary of a really big company, with the resources to run and grow a business," he says. "We've had a lot of history here. We just have to keep acting smart and staying focused."

One word explains Colligan's mood: Microsoft. What's the reward for winning the battle in a market littered with failures? You get the privilege of squaring off against one of the most powerful companies in the world.

In January, Microsoft announced plans to enter the PDA market with software based on its Windows CE operating system. It teamed up with a collection of manufacturing companies to design a "PalmPC" product line. Colligan found the name irritating: "They are moving to create customer confusion and to distract us from making great products." Palm Computing's lawyers found it illegal - and recently persuaded Microsoft to give the products a new name: "Palm-size PCs."

That's just one skirmish in a long-term battle for leadership in a market that lots of companies dreamed about, that Palm Computing created, and that Microsoft now wants to dominate. The battle is as much a test of corporate character as it is of business skills. And each of Palm Computing's main characters is playing to type.

Jeff Hawkins has a vision. "The threat from Microsoft is a great intellectual challenge," he says. "I worry about it every day. But I'm confident that we will compete successfully. I enjoy facing a bigger competitor and outsmarting it. That's scary as hell. But it feels great when you win."

Donna Dubinsky has a plan. "We have purposefully tried to leverage the Microsoft infrastructure," she says. "We connect great to Windows 95. But it's hard to build any product with a PC link that doesn't touch Microsoft's turf - since it sees everything as its turf. I guess we're just cheeky enough to believe that customers will select great products. Our job is to deliver them."

And Ed Colligan has a mission. "My job," he says, "is to kick Microsoft's butt." He sounds grateful for the challenge.

Pat Dillon has written two Fast Company cover stories: "Money Changes Everything" (June:July 1997), and "Is Selling Out 'Selling Out'?" (February:March 1998). His new book, Lost at Sea: An American Tragedy, is a nonfiction account of the nation's worst modern fishing disaster. It will be published in September by the Dial Press.

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