The Man Who Never Wanted To Be President

Charles Muench has a formula for fast growth: Let other people run the company.

By Cathryn Jakobson | 
 

Charles Muench never wanted to be president of his own company. "I do some things very well," he says. "I'm a conceptualizer and a planner -- but I don't like getting involved in day-to-day operations." Muench prefers to hang out in a quiet workshop, fiddling with soldering irons and printed circuits and trying to invent better products that can be sold for less money.

Watching from the sidelines while others manage his enterprise is an approach that has paid off nicely for Muench and for Intelligent Systems Corp., the company he and a partner founded back in 1973 in Norcross, Ga. "My strategy has always been to find the best guy I can -- and then to make him president," says Muench.

Muench's hands-off strategy has taken ISC out of a basement workshop to sales last year of $18.8 million and a compound annual growth rate over the last five years of 73%. ISC has become a hot property in the hot "color graphics" industry. (The company makes computer terminals with CRT screens that display data and charts in a rainbow of colors.) Muench and his presidents have managed to build a company that ranks #14 in INC.'s 1981 roster of the country's fastest-growing smaller companies, and Muench is already thinking about what happens when ISC hits $100 million in sales.

Muench, who is ISC's chairman and owns 30% of the company's stock, says that a major reason for the company's success is his knack for finding the right manager at the right time. Each of ISC's three presidents brought the company the special blend of talents it needed at a particular stage in its growth, while leaving Muench free to design products and think about the future. "I think too many people confuse the time they spend in their offices with the number of hours they work," he says. "There have been weeks when I never stopped working -- and only went to my office three times."

Even before he launched ISC, Muench learned the hard way that innovation and management were not skills he possessed in equal measure. His first company, Integrated Systems Inc., manufactured remote alarm and control equipment for the electric utility industry. It had grown to $1.6 million in sales when Muench sold it to Esterline Corp. in 1972, Esterline asked him to stay on as president of the new division. After a year and a half of watching Muench's rather easy-going style, though, Esterline had second thoughts and fired him.

Recognizing that he wasn't cut out to be a corporate manager, Muench was delighted when Terry Hughey, his former research and development director at Integrated Systems, suggested they team up to start a company that would manufacture low-cost color CRT terminals for the general market. The color graphics industry was in its infancy, and both men saw the opportunity for great growth.

"Those were some days back then," says Hughey. "We spent the first year down in my basement. Then we moved to Charles's cellar, because he had more space. He also had a sewage pipe that broke and a boxer dog that gave birth to a litter of puppies while we were talking to a customer. I just put my head down on my desk, and Charles kept soldering. I don't think he even noticed."

Hughey and Muench made an ideal team for starting a high-technology company. Both put money and technical expertise into the venture, and both were comfortable with a division of responsibilities that left Hughey in charge of most management decisions. "Charles is a brilliant person, with a real knack for putting technology into the market-place," says Hughey, "but he'd rather stay away from the mundane aspects of management."

In the spring of 1976, Muench and Hughey's Intelligent Systems Corp. had sales of $383,000, and for the first time, business was really taking off. However, the two men's interests began to diverge. Says Muench: "When you put two good engineers in one company, you're bound to have some differences of opinion." Muench saw the low-cost low-resolution market as the key to future growth. Hughey was convinced that the more expensive high-resolution units were the answer.

"We saw that there was enough business for two companies," says Hughey, "and we saw no point in trying to pull ISC in two directions."

The men agreed to split both the company and the market. For $1.1 million, Muench bought Hughey's stock in ISC in October of 1976 and gave him a free hand to start a high-end color graphics company.

Before Hughey left, Muench brought in financial consultant Ezra Mintz to develop a costing system for his adolescent company. Although Mintz's background as a manager was limited, Muench quickly saw that he had the potential to run a business, as well as the financial expertise ISC desperately needed. Mintz became ISC's second president.

Money, Mintz realized, was becoming a critical problem for ISC. The company's cash flow was good, because about a quarter of ISC's orders were prepaid. "Sometimes we had $300,000 or $400,000 in customer cash," says Muench. And no matter how big a customer was, ISC insisted that bills be paid within 20 days. Since the company had no competitors, sales didn't depend on easy credit.

Nevertheless, banks were skeptical about the company's fast growth, and Mintz had constant problems getting enough bank financing. That meant that growth would have to be financed internally with extremely tight controls. "I knew it wasn't going to be easy to take this company from $2 million to $14 million and to pay off Hughey," Mintz recalls. "But I was able to do it even though I broke a few eggs in the process. It was a hell of a job."

Thanks to Mintz, ISC was able to further increase its momentum. From fiscal 1978 to fiscal 1980, sales increased 254%. Unfortunately, marketing and general and administrative expenses kept pace, rising 207% in the same period.

In the meantime, Muench was busy in his workshop, designing a new product -- a personal computer called Compucolor II. Both Mintz and Muench admit that Compucolor was a bad idea. "The margins were terrible," says Mintz, "and the units were yo-yos. We shipped them out, and they bounced right back." ISC's marketing expenses got even higher, because they weren't used to selling to consumers. Still, Muench was convinced the Compucolor could succeed. Mintz could do nothing to dissuade him.

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