How the Apple of the Midwest fell apart (2023)

In 1995, Ted Waitt, the billionaire founder and CEO of Gateway, Inc., dressed as Doc Brown from “Back to the Future,” leapt from a DeLorean at his company’s Christmas party.

Waitt was famous for his stunts. In one ad campaign, he dressed as a James Bond knockoff called Agent 2000. And during a staff meeting in 1997, he had employees carry him in a coffin while “Amazing Grace” played in the background. When they set the coffin down, Waitt popped out. He was trying to make a point about the computer industry changing and the company’s need to adapt and move forward. But he later admitted, in a 2007 interview with the Sioux City Journal, that he regretted that stunt, noting that it was a little “freaky.”

But in 1995, the 10-year-old Iowa-based tech company wasn’t contemplating its own death. Not yet. Gateway was celebrating a meteoric rise that had somehow turned Sioux City into one of the tech boom’s hot spots. And so Waitt jumped out of a real DeLorean, on stage, to come back from the future to tell everyone how great it was. In the grainy video, you can hear the employees in the audience cheer and applaud.

It’s a story that people in the Midwest tell like a fairy tale: two college dropouts loading cattle during the day and starting a computer company at night. Waitt and co-founder Mike Hammond became fabulously wealthy, running one of the most successful computer companies in the world. In 1995, the year Waitt leapt from the DeLorean, Gateway employed between 20 and 30 thousand people; it had 37 manufacturing sites worldwide and combined sales of $7 billion.

In the early days, Gateway meant wild parties, drinking and table tennis at work. It was money — and a lot of money. New houses, new cars. It was a success. And it was successful in Sioux City — a place locals called “Sewer City” because of the rancid smells of raw animal flesh from the food processing plants. On good days, the wind might blow a cloying sweet smell from the SnackWells factory. Sometimes a stinging ammonia odor came from the fertilizer plant.

In the 1980s, farmers had seen their lives and livelihoods auctioned off during the farm crisis. The suicide rate among farmers had quadrupled. But now here were these guys, not only creating jobs but also making the heartland a place to be proud of. Waitt and Hammond were heroes.

Finally, people were moving to Sioux City, not away from it. And the reason was Gateway. Until the day it was over.

And while the rest of the world has moved on, and people only barely remember the cow-spotted boxes, the Midwest is still trying to reclaim that piece of economic magic.

A Midwestern fairy tale

Sioux City straddles Nebraska, Iowa and South Dakota: three states devastated by the farm crisis, which saw family farms repossessed, homes auctioned off and whole towns gone. In the 1990s, Sioux City lost its stockyard. An economy shaped by land and livestock was struggling.

The future wasn’t farms.

Hammond and Waitt met in 1984 at a University of Iowa football game in Iowa City. Hammond was working at a computer store in Des Moines and had come to Iowa City for the game. Waitt, who grew up in Sioux City, had been a student at the university but had just dropped out after failing some of his classes. He needed a job and he was interested in computers. Not long after they met, Waitt came down to Des Moines and Hammond got him a job at Century Computers. Nine months later, the two decided to start their own company.

Their first venture was selling add-ons to a personal computer sold by Texas Instruments that would let users run IBM software. They called the company TIPC Network. The plan was to cut out the middleman and work directly with the customer over the phone. Waitt’s dad lent them space in an old farmhouse, provided they filled the oil drum and helped unload trucks on the ranch. The only thing they needed was money. But no bank would lend it to them.

Finally, Waitt’s grandmother, Mildred Smith, offered to put up a $15,000 certificate of deposit as collateral. In 2007, Waitt told the Sioux City Journal, “They had so much confidence in us that they lent us $10,000 against a $15,000 CD. We’re still trying to get the other $5,000.”

In the first four months, they made $100,000. The first year, they made $1,000,000.

The business grew and expanded. Hammond was the mechanical guy, and Waitt was the marketer. Hammond’s daughter, Jessica, told me Waitt and Hammond had a good cop/bad cop routine. “Everybody loved Ted, but people would get scared of my dad a little.”

They hired Waitt’s brother, Norm, to help with the finances, and in 1986, the company rented space on the third floor of the Sioux City Livestock Exchange — 5,000 square feet for $350 a month. Waitt’s family had come to South Dakota in 1853, and he was the fourth generation to work out of the Livestock Exchange. But instead of selling cows, he was selling technology.

In 1987, Waitt and Hammond decided to build and sell their own computers. They changed the company’s name to Gateway 2000. Texas Instruments was making a computer with a price point of $3,500, but Waitt and Hammond realized they could do it for less — and in the Midwest. By the next year, Waitt and Hammond had launched a national ad campaign featuring the Waitt family cattle and big, bold letters that read, “Computers from Iowa?”

The genius was the marketing. The computer boxes were spotted like cows; the ads featured cows. It was modern technology marketed with the down-home goodness of an Iowa farm, at a lower price and sold directly to the consumer. There was also the customer service: Gateway had a call center staffed with a bunch of very nice Midwesterners who were more than happy to help you with your computer problems. They’d even make house calls. Later, the company opened Gateway Home Stores, where customers could come in and learn how to use the computers. The marriage of Midwestern values and cutting-edge tech was an immediate success.

Gateway went from making a million dollars annually to a billion dollars annually in six years. In 1993, it went public. It was South Dakota’s only Fortune 500 company.

Just having Gateway in town meant other businesses were quick to arrive. The Sioux City Journal reported in 2007, “The taxable value of property in the city exploded, from $22.5 million in 1990 to $133.5 million in 2003, according to the Department of Revenue and Regulation.”

In the Facebook Group “I Survived Working at Gateway” former employees post pictures of old ads and company swag. One shared a picture of his cubicle sign with his name and the Gateway logo, writing: “Still got this on the wall of my home office / man cave. Round about 17 years since the County Stores shut down, and some days, it feels just like yesterday — the joy and the pain both …”

There are a lot of stories from the call center. (Gateway’s famous customer service was key because computers were so new at the time.)

One former employee wrote: “I had a guy call with a laptop. Said it was so durable he backed over it with his car and it was fine. So impressed he told his wife to come outside so he could show her. He wasn’t so lucky the second time.”

“I remember a lady calling in & thought the mouse was a foot pedal like her sewing machine,” wrote another former employee.

People loved working there. As Hammond’s daughter Jessica told me, “You could get a job there, and it was a good job, and it paid the bills. And you didn’t even need a college degree.”

At its peak, Gateway employed 5,700 people — making it one of the largest employers in the state.

Waitt hired his sister Cindy, who had been running a new-age religious shop in town, to manage the Waitt Family Foundation, which underwrote millions of dollars in local development, including bike paths and charity projects. Gateway itself sponsored a golf tournament and gave $2 million to renovate and restore the local theater.

My own family moved to South Dakota from Texas in December of 1994 so my dad, a lawyer, could work at Gateway. My mom explained the move in terms of Laura Ingalls Wilder: We were going to a new land where homes were cheap and there was a lot of opportunity.

Our first night in Sioux City, we woke to the sound of a loud boom and the hotel shaking. The Port Neal fertilizer plant had exploded, killing four people and injuring 16. It felt like an omen. That next year, my dad saw the writing on the wall. “You’ll get sick of being the coolest guy in Sioux City,” he recalls telling Waitt. “You will move.” (Waitt did not respond to repeated requests for comment.)

A chaotic descent

My dad was right. Being a billionaire in the Midwest can only take you so far, but in California it can take you anywhere. In 1998, Waitt moved the Gateway headquarters to San Diego.

By 2001, the company was struggling. PC sales were down for everyone, so Gateway pivoted to personal electronics, like televisions, before pivoting again. And it was late to the laptop game, where Dell was pushing it out.

The accusations of accounting fraud didn’t help, either. A 2003 news release from the SEC reads: “The Commission’s complaint alleges that in approximately May 2000, when defendants realized that the company would not meet the expectations of the Wall Street analysts who followed Gateway’s stock, they embarked on a fraudulent scheme to ‘close the gap’ between analysts’ expectations and the company’s actual revenue and earnings.”

The defendants were three of Gateway’s top executives, including then-CEO Jeffrey Weitzen, who had succeeded Waitt in 1999. The SEC alleged that Weitzen and others had offered financing to customers who had previously been denied because of bad credit. When that failed to “close the gap,” they used other means, which included “recording revenue from the sale of the company’s fixed assets; and making additional undisclosed accounting adjustments to meet analysts’ earnings estimates.”

Weitzen neither admitted to nor denied the charges; in 2012, he agreed to pay a $110,000 civil penalty.

Waitt returned as CEO to get the company on track. Gateway would do this dance many times before it failed entirely. First it was acquired by eMachines, then Acer. It switched CEOs a few times. Waitt came back again and then left again. Hammond’s role just kind of faded away. His son Mike recalls the family moved to California but then moved back after a year. Jessica Hammond just remembers that her dad worked at Gateway and then didn’t. Many people who worked with him talk about his drinking and his temper. He did come back for a little bit, when Gateway was restructuring in the early 2000s. But he left again and started a company called Dakota Muscle, where he built and repaired cars. He died in 2015 at the age of 53.

By 2004, headlines in the Des Moines Register announced the closure of production plants and layoffs. “Gateway’s tie to Sioux City slowly frays” read a front-page story on May 9, 2004. It was all over. There would be no reviving Gateway. Soon, the company existed only as a website, and the loss was another body blow to the region.

Waitt told the Journal that after the move, the atmosphere at the company “was much more money-oriented. It was much more short-term oriented. And there was different leadership in place at that time that incentivized that — and changed the company, I think, indelibly.” Whatever had made the company good, or made people think the company was good, those cow-spotted Midwestern values were gone. Or maybe those good old-fashioned ideals never existed in the first place. Maybe it was just about packaging an idea and selling it for a lot of money.

But whatever the reality, the consensus among locals and former employees seems to be that the company’s magic was lost the moment it left the fields. It’s an easy answer that chalks up a company’s failure to something intangible — like a Hallmark movie plot where a simple country girl who went to the big city and lost her way has to be reminded of her roots.

The former employees I spoke with don’t see the company’s collapse as Waitt’s fault. No one wants to blame the region’s favorite son. All the local coverage of Gateway was glowing. Few local outlets are interested in taking a hard look at what made Waitt want to leave in the first place. The lack of opportunity, growth, maybe even vision. Or maybe that it’s hard to be the biggest flopping fish in an ever-shrinking pond.

Can it ever happen again?

Seth Harden is a Sioux City native who interned at Gateway in high school. That job, he told me, was a portal to another world. It led him out of the Midwest and into Silicon Valley, where he is the founder and CEO of a tech startup called Statistic Brain.

He left Sioux City because, as he said, the jobs and the opportunities simply didn’t exist.

When I spoke to the mayor of Sioux City, Iowa, Bob Scott, he told me tech companies are reluctant to come to the Midwest because they don’t think the talent pool exists. It’s a self-perpetuating problem. If young people leave, why should companies come here?

And then there is money. Harden said he’d come back, maybe, if the money were here. And there is some. Alifya Valiji, founder of Closed Round, a company that connects entrepreneurs with investors, sent me a list of over 150 investors in the Midwest, the majority of whom focus on tech startups. But that’s not nearly enough. And, of course, there isn’t a community of innovators that can rival Silicon Valley. Though in the Journal’s 2007 retrospective, one article was about the “Gateway Effect” — its term for all the businesses and creative endeavors that had been started by former Gateway employees, from theater companies to small businesses.

John Engel, who works as a business coach for the University of Iowa’s startup accelerator, pointed out that places become tech hubs because of multiple businesses, not just one. “It’s like stone soup,” he told me, referencing the children’s story about hungry villagers who share their vegetables to make a large pot of soup, which none of them could have made on their own. The point is, you need a critical mass of ideas, opportunity and people.

Engel believes those elements are already here. He told me about a startup he’s working on that will be based in Akron, Iowa, a town outside Sioux City with a population of 1,588. He’s renting a barn for his business, which creates tracking devices for fish growing in fish farms, for “ridiculously a little amount of money.”

He said the internet is great there, and that’s all he needs: “My development is in Germany. My designer is in Montreal. I’m getting circuit boards in Minnesota, and I’m going to Akron.”

Right now, in the rural Midwest, good internet is still hard to come by. Amazon is expanding warehouses and data centers into the Midwest, but jobs at such places are notoriously difficult and poorly paid. And the reality is that tech investors are still focused on large metropolitan areas like Chicago and Detroit.

Computer manufacturers and crypto mining companies have at times taken up residence in the long, low, vinyl-sided structures of the old Gateway plants in Sioux City and elsewhere.

In 2019, Gerard Keating, a Florida investor, bought the old Sioux City campus and converted the properties to attract more tenants. And in 2020, a company that builds rodent cages for lab research bought two of those buildings.

In the former North Sioux City plant are a gym and a hip coffee shop where Jessica Hammond once painted a mural. “I had no idea this was the old Gateway building until I was almost done with the mural,” she said. “It feels like coming full circle, making art where my dad used to work.”

The New York Times reported in 2020 that few places in the country have experienced the “sustained pain” of the coronavirus pandemic like Sioux City.

Maybe that kind of success that Gateway had isn’t possible anymore. Politicians like to say it is. Politicians love to come through Iowa in their quadrennial search for presidential power and declare that the Midwest can be a tech sector, talking about bills that will bring jobs, innovation and success back to the place everyone left behind. But then, of course, they always leave.

A version of this article was originally published on the author’s Substack.