Tandem Has A Fail-safe Plan For Growth

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From the beginning Tandem's strategy was clear and, Treybig claims, simple. The goal was to produce a price-competitive computer system that didn't fail, that didn't destroy data, that could be expanded from the power of a minicomputer to that of the biggest mainframe, and also networked with as many as 255 systems in other locations, without changing software or hardware. The challenge was to do it technically, and to grow fast enough to be able to fend off competitors and provide opportunities for the talented and aggressive people they expected the venture to attract.

At the end of four months, progress seemed good, and the group was ready to go out after more money.

"Who needs another minicomputer company?" was the reaction of most potential investors Kleiner and Perkins approached. Treybig and the rest of the team had never started a company before, and no one was sure that the technical problems of building a fail-safe, modularly expandable computer could be solved.

But Perkins and Kleiner never doubted the plan or the management, and they decided the odds on the technical risk were good enough to put in an additional million of their own -- a sizable investment for an $8-million fund. And John Loustanou decided to join the Tandem team as chief financial officer.

A year later, with a formal plan, 10 employees, and a much more detailed design of the new system, the venture had built up enough momentum to raise another million from outside investors, though neither the market nor the capital gains tax rates had improved. One of the investors and now a member of the board, Franklin "Pitch" Johnson of Asset Management Co., a Palo Alto, Calif., venture capital firm, points out that the track records of Perkins's and Kleiner's other ventures added to the attraction of the deal. Johnson, whose company's initial $60,000 investment has increased in value more than 5,000%, has yet to sell a share.

Tandem delivered its first system in May 1976, to Citibank, and except for a brief hiccup in the last quarter of 1976, when the company had no orders in October, November, or the first half of December, growth seemed steady and almost uneventful. Though the first year's business was about half of what had been expected, after that revenues and income caught up to the original projections, sales of $7.7 million in '77, $24.3 million in '78, $56 million in '79 and $109 million in 1980. Expenses came in as projected, and partially because of the support of Kleiner & Perkins, cash crises never materialized. Tandem was one of six small companies to have an initial public offering in December 1977, raising almost $9 million for about 21% of the company. A total of 770,000 shares were sold at $11.50 per share. The stock price is now in the 80s, with almost 12 million shares outstanding.

Today Tandem occupies 302,000 square feet in three connected cement-and-glass buildings next to a shopping center in Cupertino. Floor-to-ceiling windows in the cafeteria look out on the company pool and volleyball courts. In Silicon Valley, the company is recognized as a leader not only in growth, but in attracting and keeping talented people. Turnover is low, about 8%, less than a fourth of the American Electronics Association median. And productivity is high, sales of $98,400 per employee in fiscal year 1980, about twice the AEA median.

The door to Treybig's office is usually open, and his calendar for the days he spends at Tandem is mostly blank. He likes to reserve his time for thinking about company strategy, for drop-ins -- managers who would like his help selling the company to a prospective customer or employee, employees who have a problem their manager can't solve -- and for projects like putting "everything you need to know about running a company" and Tandem's five-year plan on one piece of paper.

Treybig is probably the only chief executive who has distilled his wisdom on everything from hiring to asset management on a flow chart. On a three-by-two-foot piece of paper, in type about half the size of the letters on this page, he has codified 100 management concepts into little homilies like, "Fund growth with equity, use debt for insurance," and "Never compromise on quality (in hiring), the major stress of being a manager is people problems." And then he's connected these little sayings with an intricate pattern of lines, so that anyone who looks at the chart (with a magnifying glass) can see how something like asset management affects employee wealth and benefits.

"A company is just a bunch of loops," says Treybig. "You can't have good employee benefits if you don't have money. This chart shows how everything ties together and is important." Every employee at Tandem gets a copy.

"Why do we put it all on one sheet of paper?" he asks. "Because it's interesting. Asset management is damn boring. But it's important. So you want everyone to understand why it's important, what they do that impacts it, how asset management impacts other things. It's kind of like a big M.B.A."

Treybig doesn't show the chart to customers, of course. He wouldn't want them to know Tandem's five-year plan. In fact, any employee who gives that "big M.B.A." to any outsider except his or her "spouse, spouse equivalent, or loved one" gets fired. (No one at Tandem has been fired for this infraction so far.) But even in a sales presentation he makes a point of talking about the importance of every employee understanding the company's direction. "You truly can't manage 100% growth in the classical sense," he says. "There's less emphasis on management and more on information, on systems of providing information so people can work independently. You have to work to delegate as much responsibility as fast as you can. You want everyone to understand the fundamentals. You've got to concentrate on everyone understanding how to make the right decisions overall."

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