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Sunday, December 12, 2004 - Page updated at 12:00 AM

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Part One: Inventor rose high — until world changed

Seattle Times business reporter

First of two parts

PACIFIC — Harry Rasmussen climbs aboard a forklift, fires up the propane engine and spins into position.

For the past hour, this slight, white-haired man has crouched, kneeled and measured to prepare for this moment.

In a sense, he's been preparing his entire 74-year life.

Finally he's ready to heft hundreds of pounds of intricate machinery onto an old flatbed trailer hitched to his pale-blue Econoline van.

The machine is one of several that made Rasmussen a millionaire many times over, allowing him to buy a sleek red Maserati and numerous airplanes.

Built by hand 30 years ago, the machine was a fixture in Rasmussen's factory a few miles away that churned out telephones, phone jacks and other widgets sold around the world.

The factory is gone, its 120 employees scattered to other jobs.

Rasmussen has lost most of his wealth.

And the machine, which still works perfectly, is on its way to the scrap yard.

This is a story about a guy with a genius for inventing useful gadgets and his experience as America deregulated and globalized over the past 30 years.

His story stretches from the "glory days" of Ma Bell's monopoly through the free-wheeling dot-com era, where his latest product was born.

It is emblematic of thousands of entrepreneurs who form a backbone of the U.S. economy. Tinkering in garages, setting up small offices or building modest factories, they employ half of the private U.S. work force and produce nearly half of the nation's output. Yet they are often overlooked in analyses of the economy and outsourcing, with the focus on companies that span the globe.

Over the past few decades, they have shared in the same economic history. But for many, the outcome was different. Instead of profiting, many found the globalized world a difficult place, where their survival, like Rasmussen's, depends on reinventing themselves with technology and adapting to a sea change in business rules.

Tail fins and faith

Corporate America in the 1950s had little place for risk-takers.

To understand one small company's place in the changing global economy, and how it got there, we must set aside modern-day notions about business, and travel back to the 1950s.

It was an age when chrome and tail fins reflected growing middle-class wealth, an age before foreign automakers challenged Detroit, before radios and televisions came mainly from Japan and Korea or clothing from China and Mexico. Latte had not entered our lexicon, and American industry stood widely emulated and largely unrivaled around the world.

The '50s also were an age of bureaucracy, a holdover from World War II, when government planners kept a tight grip on the economy, dictating how much weaponry factories churned out, setting consumer prices and rationing essentials such as gasoline, tires, sugar and meat.

It is hard to recall today, but America's faith in big government and big corporations was once so strong that in 1944, the U.S. joined 43 other countries to set up forerunners of the International Monetary Fund and World Bank to rebuild war-torn Europe, stabilize exchange rates and promote trade.

Despite our historic love for rugged individuals, we spent the 1940s and 1950s shunning maverick entrepreneurs in favor of the comfortable, unquestioning "Organization Man," as William Whyte put it in his 1956 book of that title.

"In those days innovation and creative genius were not what corporations were looking for," Rieva Lesonsky, author and editorial director of Entrepreneur magazine, said in an interview.

Big was beautiful, and companies "were turning out people to work in factories," she said. "If you thought outside the box, you would never get promoted."

By the 1970s economic stagnation would fracture these beliefs, setting off a revolution in economic policy. Under President Reagan, Congress cut taxes, deregulated business and fostered markets for everything from airfares to wages.

The changes tore down old bureaucracy and invigorated the economy, creating a climate in which young risk-takers such as Bill Gates and Steve Jobs would spark the tech boom.

At the same time, the changes set the country, and much of the world, on a path toward greater global competition — and the troubling trend of outsourcing.

An invention spurned

Ma Bell shows little patience for her innovative son.

All of that was years away in 1950, when Rasmussen graduated from Puyallup High School and walked into the biggest corporate bureaucracy of the day: AT&T.

Bundled together from dozens of small phone companies, Ma Bell was the largest corporation in the world and a regulated monopoly. It owned the vaunted Bell Labs, which carried on high-level research; Western Electric, which made phones and equipment; and the entire phone system — down to the wires in your house and the phones it leased to you.

As a line technician at Pacific Northwest Bell, young Rasmussen saw inefficiency everywhere. An eight-man crew typically took days to find a faulty connection between Seattle and San Francisco. Rasmussen built a device that enabled one person to find the same fault in a day. He asked Bell to manufacture the testers so other crews could use them. Bell refused.

So Rasmussen found a Chicago company to make the devices, aiming to sell them to Bell and profit from his invention. Again Bell refused. "If we thought you'd need it, we'd make it," was the response, implying his innovation was an insult to Bell Labs, he says.

Bell offered $500 for the rights to the invention. Rasmussen said "No thanks" — and went 15 years without a promotion.

His union brothers, meanwhile, called him disloyal for trying to make Bell more efficient.

"I could see I was being hammered," he said. "It shows what bureaucracy does to you."

It was his first fight with corporate hierarchy but hardly his first tangle with authority stifling innovation.

His family's raspberry farm near Pacific had given Rasmussen room to explore business and inventions. As a teen during the war, he sold bicycles built from parts he pulled from the dump. He built a street rod before he had a driver's license, and a sports car he exhibited at the 1962 World's Fair. He invented a machine to cut tops off berry bushes, turning an arduous, monthlong job into a matter of a few days. Neighbors lined up to borrow it.

He credits laziness for his ideas: "I just wanted easier ways to do things." Lois, his wife of 34 years, credits his enormous brain: "Harry just knows everything."

At school, though, his maverick ways clashed with the authoritarian dictates of the day — just as they would at Bell. He dropped out of high school after a teacher hazed him mercilessly, calling him "stupid" in class, for having his own ideas. He finally graduated at 20 and says he didn't learn to read properly until 11th grade. But he was a quick study. When he took electronics his senior year, he read the textbook in two days.

Rasmussen never went to college. But a stint in the Army Signal Corps deepened his communications knowledge, exposing him to radar systems that he fixed when his more qualified bosses failed.

Later, at Pacific Northwest Bell, a Seattle switchboard went down. For nearly a week, operators stood idle and calls couldn't get through. Rasmussen had been assigned to clean earwax from headsets, a punishment for the line-tester clash. But after others had failed to fix the switchboard problem, he asked someone to explain the layout of the system, which spanned several floors.

"When they came back from lunch, I had it working," he said.

Flourishing in a monopoly

An end run around bureaucracy ends up in pay dirt.

Amid Bell's bureaucracy, Rasmussen glimpsed a way for his innovation to thrive. In the late 1960s, new houses sprouting around Seattle were being wired for multiple phones.

Trouble was, Bell wouldn't install phone jacks until after houses sold and it could charge for them. That left holes in the walls and dangling wires. Contractors complained it hampered home sales.

At work, Rasmussen sat in front of the person whose job it was to solve the problem. Hearing the details, Rasmussen sketched out a solution: a snap-on faceplate with a punch-out center. Contractors could cover up the holes while homes were on the market. After the new owners decided which rooms needed phones, Bell installers could put jacks into the same faceplates.

This time, Rasmussen didn't present his idea directly to Bell. He asked a plastics-molding company to make a prototype, then sent it to his colleague and signed the cover letter with his wife's maiden name. Lois made the stationery by hand with the rub-off letters that were popular before the arrival of desktop publishing.

Rasmussen was in the office when the package arrived. The others were incredulous: "How does this guy know exactly what we need?" The first order, for 30,000 faceplates, paid for the plastic mold. No one at Bell knew Rasmussen was behind it.

And so, in 1969, while still at Bell, Rasmussen leapt into business for himself. He borrowed $850 through a friend at a credit union, asking him to "lose the paperwork for six months," so he could set up Crest Industries.

From faceplates and jacks, other ideas flowed quickly. He designed a small switch-box attachment to turn ringers off at extension phones, which were starting to crop up in middle-class homes. His design replaced Bell's brick-sized switch and would eventually sell more than 10 million. Rasmussen says he netted $3 for every one.

Being inside the monopoly helped. He could thumb through staff directories of local Bell companies and send sales letters for his products to just the right people. Once, when Bell demanded a face-to-face meeting, he sent Lois' brother in his place.

Western Electric copied the switches and competed heavily for a long time. But Rasmussen's switches were more durable and kept selling.

In 1973, he quit Bell. Now a small-business man, he moved his factory from his garage to a larger space, where he built machines that could churn out thousands of jacks, faceplates and switches a day.

Life was good. In 1975, he bought a brand-new, $225,000 Cessna 340 twin-engine plane — even before he had a pilot's license. On a trip to California, he spotted a red Maserati Bora at a dealership. The sleek car, a masterpiece of engineering, could top 164 miles per hour.

Rasmussen couldn't resist. After a test drive, he wrote a $25,500 check, the equivalent of about $90,000 today. When the dealer called his bank to see if the check was good, the banker didn't hesitate.

"Harry can buy the car or the dealership, whichever he prefers," the banker said.

A big gamble in a shifting game

A thriving business runs smack into a new economy.

While the Maserati and the airplane signaled Rasmussen's success, a bigger symbol stood atop a hill in Edgewood: a custom-built factory the size of a football field for his 120 employees.

Rasmussen was a generous boss. He doesn't mention it, but former employees recall the factory's professional kitchen, where Henry the Cook served up catfish, roast beef, chili and other specialties five days a week. A buck for tax paid for all you could eat.

There was a pool table and pingpong. And in contrast with today's rising health-care co-payments, Crest paid employee health premiums and more. "If insurance only paid 80 percent, the company would pay the difference or deductibles up to $3,000 a year per employee," recalls John Hoskinson, who worked there in the 1980s.

Crest also gave employees 25 gallons of gas a week. "Just pull up your car and leave the keys at reception and it would be filled," said Hoskinson, who helped Rasmussen design circuits.

Largesse kept employees loyal. But it also cut Crest's profit, and hence its tax bill, at a time when corporate taxes were 50 percent, a holdover from the war.

While high tax rates were considered a drag on business, they had the side effect of prompting Rasmussen and others to invest in research and new products. Rather than taking money out of the company as profit and paying luxury taxes or high income taxes, he and others preferred to spend it on employees or plow it back into researching and developing new inventions.

And new inventions there were. As his factory was set up in 1972, Rasmussen watched Bell's crew use hundreds of wires and $11,000 in equipment to install two lines and six phones.

"Those guys were there for 10 days eating my doughnuts," he recalls.

Inspired, he found a way to replace Bell's mess with a circuit so simple "you could hold it in the palm of your hand," he said. It sold for $70 as a retrofit kit for Bell phones and became another instant hit.

Still, Rasmussen wasn't satisfied. He spent the next few years developing his grandest gamble yet: his own two-line telephone. He gave it a distinctive new shape, placing the cradle on the left side of a rectangular base, with buttons on the right. It was a product that would change the phone industry. He patented the idea, one of 18 patents he holds.

But Rasmussen's small company was about to collide with two of the biggest shifts in U.S. economic history: Reagan's economic revolution and the breakup of regulated monopolies symbolized by AT&T.

A new economy was taking shape. It would trigger a boom in startups and innovation, and also unprecedented foreign competition and outsourcing.

Thirty-five years later, his business destroyed by foreign competition, Rasmussen would forklift the old economy — his beloved machines — to the dump.

And he would gamble one last time on innovations still in their infancy in the 1970s: software and the Internet.

Alwyn Scott 206-464-3329 or ascott@seattletimes.com

Copyright © 2004 The Seattle Times Company

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