In 2007, Adobe Systems marked its 25th anniversary, a relatively long tenure for a company that sells personal computer software, an industry barely more than 30 years old. Surviving so long in this rapidly-changing business has required a certain nimbleness. Adobe’s products — and its business models — have evolved as computing moved from standalone PCs to the global communications network of the Internet and worldwide web. But behind these changing technologies is a consistent set of business principles established by Adobe’s two co-founders and current co-chairmen Charles M. (Chuck) Geschke and John Warnock.

Computer scientists who originally worked together at Xerox’s storied Palo Alto Research Center (PARC), Geschke and Warnock founded Adobe Systems in 1982 to commercialize their ideas for electronic document production. The company’s first product, PostScript, was a computer language for describing printed pages that Adobe sold to printer manufacturers. This largely behind-the-scenes technology built into printers set the stage for the desktop publishing revolution of the late 1980s.

One key to PostScript’s success was its sophisticated technology for rendering digital typefaces. Adobe’s font business moved the company into the retail software market. Its software business expanded when the company developed Adobe Illustrator, a drawing program to allow graphic artists to take advantage of PostScript’s rich imaging features. Photoshop, another imaging program for editing photographs and other “bit-mapped” images, was licensed from brothers Thomas and John Knoll in 1988.

In June 1993, Adobe shipped the first version of its Acrobat software for creating and viewing electronic documents. Acrobat was slow to catch on initially, but once the Reader software required to view Acrobat’s PDF documents — originally priced at $50 per user — was distributed without charge, the technology began to gain traction with users. With the rise of the web, PDF became a de facto standard for distributing richly formatted electronic documents.

The desire to support rich content on the web also motivated Adobe’s acquisition of Macromedia in 2005. When Knowledge at Wharton asked then CEO Bruce Chizen about the primary motivation behind the deal, his one-word response was: “Flash.”

With PostScript, PDF and Flash, Adobe established core standards that laid the foundation for desktop publishing, electronic document interchange and interactive web content. With the company’s AIR (Adobe Integrated Runtime) platform, Adobe hopes to have a similar impact on the development of the next generation of web-connected software.

Knowledge at Wharton recently met with Adobe Systems’ co-founder and co-chairman Charles Geschke near his home in Los Altos, Calif. In this edited version of that interview, the 68-year-old Geschke discusses how Adobe Systems was born and how the company’s business plans and its product portfolio have continued to evolve.

Knowledge at Wharton: Do you recall when you first met John Warnock?

Geschke: Very well. [Working at Xerox’s PARC] I’d just put on a demonstration of what the future office could be like for Xerox senior management in Boca Raton, Florida. It was a big deal. We did a stage production that was scripted and set up in Hollywood.

This was the body language of essentially every Xerox executive looking at all this stuff. [Folds his arms and tenses up.] It was pretty clear to me that we were fighting a tough battle, but I was committed.

When I got back I was given the opportunity to start a new lab focused on graphics, electronic printing and some other stuff. First, I needed to find a chief scientist. I didn’t want to recruit somebody from inside PARC because I wanted some fresh ideas.

I’d known John by reputation but I’d never actually met him. I called him up and said, “I’d like to talk to you about some interesting things I’m doing.” We met for lunch. He had a beard and I had a beard. He had three kids, two boys and one girl. I had two boys and one girl. He refereed soccer and so did I. He was a mathematician. I was originally a mathematician by training.

We hit it off, and I hired him. It was the best hiring decision I ever made.

Knowledge at Wharton: What prompted you and Warnock to leave Xerox?

Xerox loved [what we had done]. They said, “We’ll make it a corporate standard.” I said, “Great!” I went to Connecticut to [Xerox] headquarters and said, “I’m here to talk about the marketing plan for rolling this out.” They said, “Oh, wait a minute. At Xerox it takes seven years to develop a product — and we can’t talk about this because other people will get the idea and beat us to market.”

I said, “Seven years! [In the] industry you’re about to go into, that’s two to three generations. By the time you bring it out it will be worthless.” [They said,] “Sorry, [it takes] seven years at Xerox.”

John and I were frustrated. It turned out that his thesis adviser at the University of Utah was on the board of the investment bank Hambrecht & Quist. Bill Hambrechtwas one of the first guys pushing venture investing in high-tech companies.

We told him our plan, which was to build a complete turnkey publishing system — the computers, the printers, the typesetting equipment, everything — and sell it to the Fortune 500 so they could bring a lot of their production work in house. He liked the idea because he hated financial printers. Every time he did a prospectus he felt that he was being robbed. He agreed to invest $2.5 million over two years in two equal payments and told us we would have to quit our jobs — which was a little bit of a gut wrench, although we knew with our backgrounds we could get a job in [Silicon] Valley pretty easily.

So we opened our doors and began recruiting people.

Knowledge at Wharton: If your original plan was to sell complete, turnkey publishing systems, why did you switch to just marketing PostScript printer software?

Geschke: One of my professors from Carnegie Mellon, Gordon Bell, had left Carnegie to become the head of R&D for Digital Equipment [Corporation]. After about two months he came by to see what we were doing.

We showed him what we were involved in and described our business plan. He said, “Wow, that looks very cool and it solves a problem I’m having. But, of course, I don’t need any computers — I’m Digital Equipment. And I’ve got a deal with Ricoh for the printer so I don’t need that. But I have two or three development teams that are failing miserably at figuring out how to interface them together. That’s what you guys are doing as part of your solution. Why don’t you just sell me that software?”

We said, “Well, Gordon, we’ve got this business plan that raised $2.5 million dollars. We have to do that.” He said, “Well, if you change your mind, call me.”

In about two more months, a friend of ours who had left Xerox to work for Steve Jobs [on the] Macintosh brought Steve over. We showed Steve what we were doing and he said, “Wow! But I don’t need the computers, I’ve got this Macintosh [in development]” which he showed us. “I have a deal with Canon for the laser printer, so I don’t need that.” He said, “But my development guys are getting nowhere with this software. Sell me your company, come work for me and I’ll put it in my product.”

Knowledge at Wharton: Did you actually consider selling the entire company to Apple?

Geschke: No, not really. We heard him, we were polite. But we said, “You know, Steve, we really want to start our own company.” And he said, “Oh, all right, I can understand that. So, sell me the software.” We said, “We have this business plan that raised $2.5 million.” He said, “I think you guys are nuts. You’ll change your mind. When you do, call me.”

So we talked to the chairman of our board, Q.T. Wiles, whom Bill put in as sort of a fatherly figure to advise us. He said, “Jobs is right — you’re nuts! That business plan was only there to get you the money. Your customers are telling you what your business ought to be. Throw the business plan out and do a deal.”

I called up Steve, hat in hand, and said, “We changed our mind; we would like to arrange a deal to license you the software.” He said, “How much do you want for the company?” We said, “We’re not for sale, Steve.” He said, “Oh, all right.”

So we worked a deal with him. He bought 19.9% [of Adobe Systems] as part of the deal, which was a 5x multiple on the original venture investment and we did a deal with a prepayment of future royalties. Altogether we brought in about $3.5 million. So our second round of venture investment did not come in as a tax preferred investment. They just bought stock with it.

Knowledge at Wharton: This is how Adobe began as a printer software company?

Geschke: Yes. We developed the [PostScript] language after we left PARC. What really caught people’s attention was what we were doing in terms of rendering type on-the-fly from outlines [the curves used to define the characters of a typeface at any size or angle].

Popular mythology at the time said that couldn’t be done; you have to hire a bunch of monks to build bitmaps. We knew that wouldn’t fly because we really wanted [to do] arbitrary expansion and contraction [of the typefaces]. You could never have enough bitmaps or enough typefaces to satisfy the printing world. It was just infeasible. You had to do it from outlines. We eventually developed software that did that and continue to use it today.

We built our own outline type business at the same time. We were the first to be licensed the trademarks “Times” and “Helvetica” by the Linotype corporation.

Knowledge at Wharton: Was that hard to convince a traditional font company like Linotype to go into digital type? This was very different from the business they were in [selling fonts for traditional typesetting equipment].

Geschke: Oh yeah. They had a lock on the customers who bought their type. If you decided to get rid of them and go to Agfa or Compugraphic, it was a big deal because nobody’s equipment was compatible.

We went to Compugraphic first because they were an American company and we thought that would be easier. They were very arrogant. They had the lion’s share of the market at the time. Linotype needed an edge up and so they agreed to do business with us.

Within about two years they had the lion’s share of the business in the United States because they had PostScript compatibility. Compugraphic had to sell itself to Agfa and basically went out of business.

Knowledge at Wharton: By the time you developed your actual business plan, you had Apple as a partner?

Geschke: And Linotype.

IBM came to talk to us, but we deliberately decided to go really slow. We figured that in order to get a decent deal with them we had to have leverage — namely a competitor already doing well. We tried to do a deal with HP [Hewlett-Packard]. They were extremely arrogant because the [Hewlett-Packard] LaserJet was doing very well and they didn’t want to talk to us.

After the [Apple] LaserWriter and desktop publishing became a phenomenon, IBM decided they had to get into the game and we did a deal with them. As soon as we announced the IBM deal, then Hewlett-Packard called and said, “We think we need to do business.”

Knowledge at Wharton: When did you enter the Japanese market?

Geschke: We licensed type technology for the Japanese market in 1986 or 1987. [It was] almost the identical situation as with Compugraphic and Linotype.

Originally the Japanese typesetting industry had only one company before World War II. The two guys who ran it got into a disagreement over the Japanese conduct of going to war. One guy was a supporter [of the war effort] and the other was not. So they split the business. One guy stayed in Tokyo and his business took off, because he was at the seat of power. And the other guy took his part of the business to Osaka. He did okay, but he was struggling.

We first went to the Tokyo branch. At that point it was run by a woman, which was quite unusual in Japanese industry. She was the widow of the fellow who had stayed in Tokyo. I could never get to the second cup of tea with her. She just didn’t want to talk. She had 90% of the business and she didn’t need anything new-fangled.

So we went to Osaka and talked to the other company and, again, because they wanted to get into a stronger position and they intuitively knew the industry was going to change, we did a deal with them. We got the license to their type library and they now have 80% to 90% of the business.

Knowledge at Wharton: As was the case with Linotype, the incumbent wasn’t interested, but the underdog was. And it completely changed the fortunes of both companies.

Geschke: I think if you did a study of business deals, it’s almost always that way.

The companies that think they’re in control of their long-term destiny don’t want to talk to a young start-up company that’s going to change the rules of the business.

Knowledge at Wharton: From the beginning, you documented the specification for the PostScript language.

Geschke: Yes. We published the spec about three or four months before the first LaserWriter shipped.

Knowledge at Wharton: These days this is fairly common practice to help establish a standard platform, but it was much less common back then. Was this merely a practical necessity because people needed to write software to drive PostScript printers or was this a strategic move to establish PostScript as a standard?

Geschke: It wasn’t strategic in the sense that we understood this would become a standard way of doing business. It was the only way we could figure out to get the hardware manufacturers and the software developers and the platform vendors to collaborate. You couldn’t do independent deals with each of them because there would always be somebody left out.

If you really wanted to make it a standard — and our goal from the beginning was to have it be a universal standard — you have to publish. You just have no choice. You’re taking the risk that someone will do a better job of implementing it. We had the self confidence that we would always have the best implementation, and that has turned out to be true.

Knowledge at Wharton: A lot of PostScript clones did come along eventually.

Geschke: At one time there were over 75 of them.

Knowledge at Wharton: Did it ever worry you that they would start to chip away at your market share?

Geschke: No. But it turned out that Microsoft acquired one of them.

Knowledge at Wharton: From Bauer Enterprises.

Geschke: Right. TrueImage, they called it. Microsoft did a deal to license TrueImage [to Apple]and Apple would license TrueType to Microsoft. That was pretty scary for us.

Knowledge at Wharton: When did you first hear about the Microsoft-Apple partnership for TrueImage and TrueType?

Geschke: A few days before it was announced.

Knowledge at Wharton: This was announced at the Seybold [publishing systems] Conference in September 1989. You heard about it a couple days prior to that?

Geschke: The preceding Friday. I had a conversation with Bill Gates.

Knowledge at Wharton: Did Gates call you?

Geschke: No, we were trying to close a deal. We were [hoping to] license him ATM [Adobe Type Manager] which was Adobe’s version of TrueType for [on-screen font] display.

The deal we offered Microsoft was [already] running technology ready to ship in a matter of weeks, all the type libraries already licensed, all of the agreements in place and we were not going to charge them. It was free!

Knowledge at Wharton: How could he say no?

Geschke: That’s what I asked Bill. And I’m not going to tell you the answer.

Knowledge at Wharton: But he told you in that phone call that he was going a different way and was going to do a deal with Apple to license its font technology?

Geschke: Yes. It’s why he was going a different way that I’m not going to tell you.

Knowledge at Wharton: Presumably it was a control issue — he didn’t want the control of that core technology in the hands of an independent company.

Geschke: Let’s leave it at that. Let’s move on.

Knowledge at Wharton: Okay. What was the response to the Apple-Microsoft announcement at that Seybold Conference?

Geschke: I think if you were to talk to Adobe customers in any era, one of the things they’ll tell you is that, while they may have a disagreement about this or that, by and large they were treated fairly. They could depend upon getting great technology licensed to them on a fair and equitable basis. Customers like that. If you treat them the way you like to be treated, they sense that. That was always part of our core philosophy as a company.

At that Seybold Conference, when the announcement was made between Apple and Microsoft, the Seybold people immediately changed the schedule to put a panel on the last day to discuss all of this. Before the panel began, the moderator got up and said, “I want to take a straw vote. I want everyone to raise their hand who thinks they would rather have Apple and Microsoft take over this segment of the business.” There were a few hands raised — I’ve always believed they were Microsoft and Apple people — but, basically, no one voted against us. They all wanted Adobe to continue to be their vendor.

We brought ATM out within about 60 days and sold hundreds of thousands of units in the first quarter, which was a lot in those days. It was three years before Apple and Microsoft shipped TrueType.

Knowledge at Wharton: And TrueImage really never got out of the starting gate.

Geschke: No, it never got anywhere. Apple tried to build one product on it. They eventually gave up, called us and said, “Will you come back?”

Knowledge at Wharton: How was it to go from being a company that sold printer software to OEMs [original equipment manufacturers] to being a shrink-wrapped desktop software company with products like Illustrator and Photoshop?

Geschke: It was a “come to Jesus” moment inside the company, because all the profits were being made by PostScript. As we began to invest in not only development, which was relatively inexpensive — just a few people — but more importantly in building a sales and marketing presence in the retail channel, we were chewing up resources. It was difficult in the early days to demonstrate profitability in that business. Every time we would have a budget debate, you can imagine how that went: “I’m bringing in most of the money. I should be getting these resources.”

Knowledge at Wharton: What motivated you to stick with this second line of business?

Geschke: One of the obvious lessons in business is that you can’t continue to be a one product company and survive. We also felt we couldn’t be a one channel company and survive. We were captive of those OEMs [of PostScript printers]. If they ever decided to drop us, we [would have been] toast. We had no channel.

In fact, one of the things that we did to try to get HP’s attention — The [Hewlett-Packard] LaserJet had cartridges [to add features to the printer]. We built a device to convert a LaserJet into a PostScript printer and sold it at retail [as a LaserJet cartridge]. So we already knew we were going to a retail sales channel.

The other thing that was happening is that the [software] applications in those days on DOS — Windows wasn’t even there yet — and the Macintosh weren’t using more than 20% of the capability inside [a PostScript] printer. In fact, our own graphic designers at Adobe had to learn how to program in PostScript to do graphics. We knew that wasn’t going to fly.

John’s wife was — and is — a graphic designer. John had a second job [when he went] home at night writing PostScript code to do what she wanted to do on the LaserWriter. He got a couple of engineers to come up with Illustrator. We launched Illustrator and it did very well.

We realized then that we spent a lot of money to build a retail channel and a sales force and we had to feed it. There had to be more products.

Knowledge at Wharton: That led to Photoshop?

Geschke: A couple guys from the University of Michigan — the Knoll brothers — came out to California and showed us this thing they were working on for manipulating photographs. John and I couldn’t figure out if there would ever be much of a market, but it looked like a pretty good idea. By that time it was obvious that the printing industry was going to go completely digital with our technology — and that the same would be true in all imaging dimensions. It should be true in photography. It should be true in video. Why wouldn’t all imagery be digital?

So we decided to buy the two-man company and hire the guys. We did a royalty deal with them so we could keep the price reasonable.

When we made that decision there were no digital cameras. A scanner was about the size of a refrigerator and cost $30,000 to $40,000. A power user on a Macintosh had this little black and white display with an extra disk that held maybe 20 megabytes. And we are bringing out a product that was going to push all those dimensions right off the map.

We instinctively knew that was where things were going. The only business book that John and I ever read, and the only chapter that I remember from it was a chapter entitled “Market Gap Analysis.” The one idea I remember was that it is easier to build a business if you find a new solution to an already perceived problem that no one has come out with before — because you instantly are [at] 100% market share.

We did that with PostScript, we did that with Illustrator, and we were going to do it with Photoshop even though we knew we were going in early. And it has worked out very well.

We did the same thing with Acrobat. We brought Acrobat out about three years before the Internet really took off, thinking that local area networking would be enough to support it, but it wasn’t.

And we’re trying to do the same thing with AIR [the Adobe Integrated Runtime development platform for cross-operating system software]: Bring it out before anyone else has the idea of the concept, get the platform established, and then shame on us if we can’t make money off it.

Knowledge at Wharton: While the technology has changed greatly over the past two decades, there appears to be a certain consistency in Adobe’s business strategy.

Geschke: That’s one of the things that contrasts us with Microsoft. They have never invented anything that I am aware of. They clone someone else’s idea and use their market position to try and force their way into the business.

Tell me a new market innovation they opened up. Windows came from PARC. Word came from PARC. Excel came from Lotus. PowerPoint came from Aldus Persuasion. And they can’t take credit for e-mail.

Knowledge at Wharton: You mentioned that Acrobat was a product that was different than anything that had come before. What was the initial insight that led to the development of Acrobat and PDF?

Geschke: We had already, in effect, converted anything that went to physical media into digital form. Paper is a great way to read information, but it’s not a very effective way to store it. It’s a very expensive way to ship it, and it’s very hard to search. But a digital representation of the page doesn’t have any of those problems. It’s very cheap to store — you can store the entire world knowledge in a couple of filing cabinets. You can ship electronic information and let the recipient decide how they want to read it — on a screen, on paper or on film. And searching it is much more efficient.

It came out of that idea. If everything that matters goes through our [PostScript] printer driver, we can just capture it at the printing point and turn it into this electronic form.

Knowledge at Wharton: Initially, Acrobat Reader 1.0 wasn’t free — it had a retail price of $50 per seat. With Acrobat 2.0, the Reader became free. Was that decision difficult internally for you to make?

Geschke: Oh, yeah. The concept of giving away software was anathema, a very foreign concept. But it became obvious that doing that was the only way we could get market penetration. Microsoft could assume that somehow or another everybody had Word. We couldn’t assume that everyone was going to buy the Reader.

Knowledge at Wharton: For a long time it cost Adobe more to develop and market Acrobat than the revenue it returned.

Geschke: Oh yeah, the antibodies inside the company were just all over it.

Knowledge at Wharton: People wanted to kill the product?

Geschke: Of course, because they said, “Look, we’re selling all this Photoshop. We’re selling all these printers. Why the hell are we investing in this thing, and giving it away?”

Knowledge at Wharton: Why did you continue to invest in Acrobat for so long? What gave you the confidence to continue to pour money into it?

Geschke: Your own instincts. You can’t analyze a market that has never existed.

When people were analyzing whether to invest in the Haloid Company, which was the precursor of Xerox, they went out and measured the carbon paper market, and they said, “It’s not very big and it’s not growing very much.” They were measuring the wrong thing.

Knowledge at Wharton: Adobe is a publicly held company. Would the current market let you run that long with a product that was costing you more than the revenue it was generating?

Geschke: As long as we were making a lot of money on everything else, they never knew. The trick is to be very aggressive in other parts of your business.

And if you’re lucky enough to get a “franchise” product like Photoshop, you can’t become complacent. For example, when we brought out PhotoDeluxe we were initially the strongest competitor for Photoshop. Rather than cede the low end of the market to someone else, we took it. And that allowed us to upgrade people. With hindsight it was the exactly the right thing to do — not give someone the ability to undercut you, come in and be “good enough.”

We learned that from the LaserJet. [Although a] PostScript [printer like] the LaserWriter was a much better product, eventually the [Hewlett-Packard] LaserJet was good enough. [Although PostScript is] still a profitable business.

Knowledge at Wharton: Even with all the PostScript clones?

Geschke: And the fact that all the money is in the ink. There is no money in the printers anymore.

[Do you know who today is] our biggest customer for desktop printing? Xerox. I own two Xerox printers now, both of which have PostScript. One’s black and white and one’s color.

So whatever goes around comes around.

Knowledge at Wharton: In the summer of 1998 Adobe Systems went through a difficult period. The stock price was depressed. Quark, one of your leading competitors in the page layout business attempted a hostile takeover. What caused that situation?

Geschke: A year or two earlier, I walked into John [Warnock’s] office and said, “John, I think I don’t want to work at a full-time job in a year that begins with the numeral 2. It just doesn’t seem right.” He said, “What are you telling me?” I said, “I’m telling you we’re both getting pretty close to 60.” I was flying a quarter of a million miles a year. I said, “I just don’t think it’s good for me to keep doing this because if I can’t do it full out like I always have, I won’t feel good about it, and I don’t think I’ll be good for the company. We really need to think about what to do.”

We have always been highly leveraged — our revenue per employee has always been high. As a result, we kept a pretty lean organization with a pretty shallow management structure. We frankly hadn’t done work trying to groom anybody [as a successor], because we weren’t thinking about it.

So — this was not our brightest decision — we decided we could recruit replacement talent, spend a couple of years with them, get them up to speed, and their natural abilities would take over.

We hired three or four very bright people, [people who were] very successful in their previous businesses and had the right pedigree to run a business like Adobe. We figured we would meld them into a team.

Well, each one of them thought that he should be the future CEO of the company. Rather than melding as a team, they fought like cats. It became miserable. It was impossible to have a staff meeting without it breaking out into angry disputes. It was getting ugly. Because of people trying to build turf, spending was getting ahead of revenue. And in the summer of 1998, the Japanese market went off a cliff for six months. It just stopped. I’ve never fully understood why it happened. And we found ourselves having to preannounce a very bad quarter and dealing with these people who weren’t getting along.

John and I decided that we would fire all of them on the same day.

We identified the person — Bruce Chizen — we wanted to groom from the inside. [We decided to] just gut it out — announce the bad quarter and go back to our knitting.

After we announced all that, we got the [hostile takeover] letter and that became public immediately. This was the second time that we had to go to a Seybold Conference and deal with a very awkward moment in our history.

Because our crack marketing people were so divisive internally, we didn’t have a keynote position in that conference. We talked to Steve Jobs, who had come back [to Apple]. We showed him InDesign [Adobe’s page layout software] running on a Mac and said, “We’d like to talk about this. Can you give us some of your time?” He said, “Sure.” We went up on stage, showed [InDesign], and people loved what they saw, because they could see the PostScript imaging model coming right up on the display, which is something Steve always wanted to ship on the Macintosh, but when he left and [Jean-Louis] Gassée came in, Gassée squelched that.

The audience loved it. On the last day, they had another one of those panels [where they polled the audience to see who supported a Quark acquisition of Adobe]. I don’t know how much you know about Quark, but their customers have a lot of difficulty with them. This time, there wasn’t a single hand raised in the room when the question was asked.

And we now have market leadership in that market. It’s the only time we’ve ever dislodged an entrenched competitor. We were ticked off. And fortunately we built a superior product.

Knowledge at Wharton: As part of this management change, of all the executives in the company why did you look to Bruce Chizen?

Geschke: He had a sales and marketing background. He had worked for a while for Microsoft and at Claris [a software company started by Apple Computer].

He was actually being hired by Aldus the week that we announced the acquisition. [Then Aldus president] Paul Brainerd and I went to the San Francisco airport, Paul introduced me to Bruce, and I convinced him to stay even though his job was going to be different.

We didn’t know how it would be different. Shortly after the merger, we changed what he would do. He’s the guy who brought out PhotoDeluxe.

We watched him bring out a product, launch it and build a new category [for Adobe software]. As a result, we had a lot of respect for his abilities and gave him higher-power jobs. By 1998, he was running all of our application products business. He seemed like the natural candidate to groom. We did that for a couple of years, and when I announced my retirement, we moved him in as the president.

About six months later John decided he didn’t want to work anymore and then [Chizen] became the CEO. Bruce did an incredible job [and stepped down in December 2007].

Fortunately we didn’t repeat the mistake. We had been grooming [current CEO] Shantanu [Narayen] for several years to move in that position. “We’ll find another person to groom so that when Shantanu [steps down], we’ll do it again.”

Knowledge at Wharton: The issue of succession seems to be a challenge for many technology companies. Apple is very centered on Steve Jobs. Oracle is very Larry Ellison centric.

Geschke: It’s hard. If you want to give real value to your shareholders and build a company that has a long life, you realize pretty quickly that that is a major problem and you’ve got to start working on it. We should have been brighter and known that we couldn’t go outside; you have to do it from the inside.

I have always believed that the principles and values of the company you build is an important ingredient in its success. You can’t get someone to come in from the outside and just pick that up in a six-month training period. It doesn’t work that way. Not everybody agrees with some of those principles — they think they have to do it a different way.

Knowledge at Wharton: It seems like you’ve tried to maintain the consistency of Adobe’s corporate culture even as the company’s technology focus has evolved.

Geschke: We really didn’t start emphasizing [corporate culture] until roughly 1989.

When we began, John and I wanted to build a company that we would like to work in. Why would you build a business you didn’t want to work in?

We both had enough experience that we knew there were a lot of things we felt we shouldn’t do and had some ideas about things that we thought were important to do. But we didn’t really start verbalizing it until it became clear that, as we got bigger and we had to confront tough things, we needed to make sure that everybody understood and could help us enunciate what those principles were, what that culture was about, and make this ingrained in how the business ran. So I started at least once a year giving talks on the whole thing.

In 1998, I wrote a [six-page] memo and distributed it to the whole company about not only what the background cultural ideas were, but some of the things that we had started to do that were deviating from good principles of how the business would run. When new employees come in, they’re still getting a session at employee indoctrination to give them that background so that they understand the kind of company they are coming to work for.

Knowledge at Wharton: What were some of the key points in the memo you sent to the employees?

Geschke: I talked about the fact that we were having way too many meetings that were too large. If you have a decision-making meeting, you can only have four or five people in the room. If you have a communication meeting, be careful whether you even need to have it. There are lots of ways to communicate; you don’t need to bring all the people physically into one place. Mundane stuff like that. Treat the company’s assets the way you would treat your own. They don’t belong to you; they belong to the shareholders.

One of the things I talk a lot about is the necessity to juggle all of the constituencies that have an interest in the business: shareholders, customers, employees, vendors, and the communities in which we operate. Those constituencies are all mildly in conflict with one another in terms of what’s best for them. Your job as a leader in a company is to find an appropriate way to juggle those conflicting interests so everybody feels like they’re getting a fair deal, without letting any one dominate the others because they’ll drag your company down.

I talked about the difference between leadership and management. Your job as a leader is to create more leaders — not more followers. That’s what you need to do as a manager. That’s actually a quote from Ralph Nader, de-politicized. If you’d like to see that paper, I’d be happy to ship it to you. There was nothing private about it.

Don’t tell my friends at the Wharton School, but I never took a business class in my life. John didn’t either.

Knowledge at Wharton: The two of you co-managed the company for much of its history. How did you split the tasks and balance what each of you did?

Geschke: It’s a very unique business relationship. I know a little bit about the internals of the interactions between Packard and Hewlett — which were very similar in most respects. John and I have worked together ever since I hired him in 1978. That’s 30 years and we’ve never had a serious argument. We haven’t always agreed about everything, but we never left work angry at one another. We had a shared perception of our principles and values.

We paid ourselves the same, we get the same stock options — everything was identical. We can’t both have the same title but, I don’t care much about titles, because it didn’t matter — we were both running the company independent of our title. It’s a wonderful way to run a business, because it gives you so much more freedom. You have a real soul mate.

Although [former CEO] Bruce [Chizen] developed a lot of that relationship with [current CEO] Shantanu [Narayen], [running a company] can feel pretty lonely. Who do you talk to? That’s one thing John and I have always tried to do for Bruce and Shantanu. We don’t keep an office at Adobe. I don’t want to be perceived as looking over their shoulders. [But] we make ourselves available anytime that they want to sit down. We usually have breakfast once a month with Shantanu to chat and see how things are going. If he wants to call, we’ll be there immediately.

Knowledge at Wharton: Are you and John still close, now?

Geschke: Yes. I talked to him on the phone yesterday. We have common friends in Los Altos where we live. [Our wives] Nan and Marva have always had a good friendship. And our kids get along great.

It’s been a very unusual, very wonderful relationship. I feel extremely fortunate. I can’t imagine doing it alone.

Knowledge at Wharton: What do you think is the biggest mistake Adobe made in its 25-year history?

Geschke: That’s always hard to answer. I’d say [it was] trying to prepare for handing over the company to the next generation. That was a huge mistake.

We are so lucky that we were able to recover from that. It could have been disastrous. It was a combination of a pretty strong economy overall and the fact that once we got the cost controls in place the top line of the business was very healthy, so we were able to get back in economic control of the business. But that was a scary, scary time when you fire your four most senior executives in the same day.

Knowledge at Wharton: Looking back on the history of the company, what are you most proud of?

Geschke: My grandfather and father were letterpress photo engravers. I grew up around ink and printing all my life. I remember the first color work that we did at Adobe. I brought home samples of some halftones [for printing photographs] and I showed them to my Dad. He took out his engraver’s loupe and looked at it. He looked at it again. He said, “Charles…” — when he called me “Charles” I knew it was bad news — “Charles,” he said, “This doesn’t look very good.”

I said, “I know, Dad, but I just wanted to show you this because we are going to get it right. We’re just not there yet.”

My father was a very kind and gentle guy — tough, but still gentle in the way he was tough. About two years later we made dramatic breakthroughs and had gotten to the point where our halftones formed the right kind of rosettes. They looked as good, if not better, than conventional technology for printing.

I brought a sample home and said, “Dad, we did some new work here. I want you to take a look at.” He took out his loupe and he looked. And he looked about four or five times at it. With a big grin on his face, he said, “Charlie…” — he’s one of the few people who could call me Charlie — “Charlie, you’ve done it.” And to me that’s the thing I’m proudest of. During my dad’s lifetime — fortunately he lived to be almost 99 — I could show him that I had done something, from a completely different direction, that he could see the value in. You don’t often get a chance to do that with a parent. That was really cool.

Knowledge at Wharton: What do you think is the biggest challenge Adobe is facing going forward?

Geschke: Inventing the future. We’ll never succeed unless we continue to open up new vistas.

I honestly believe that our technology and what’s happening in the market — where essentially all visual communication is going to the web — is the sweetheart point in our whole envelope of products and technologies. Shame on us if we can’t figure out a way to take advantage of that shift in the way the world is moving with the distribution of information.

A lot of what are there today — the limitations of browsers and of the web imaging standards — are things that we think we have a solution for. As they become the primary delivery mechanism, that value is going to differentiate.