Private Lives

Microcomputers, welding equipment, wheelcharis, prefabricated churches, and five other businesses earned their companies a spot on this year's INC. 500.
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#1 Altos Computer Systems; manufacturer of multi-user microcomputers; San Jose, Calif. It is clear that there isn't much room in microcomputers for two companies named after fruit. Luckily, although the 200,000-square-foot San Jose, Calif., headquarters of Altos Computer Systems is located in an apricot orchard, founder David Jackson chose to style his company after his hometown of 15 years, Los Altos Hills. Still, it was close: The corporation's slick promotion theme features fruit-packing erates labeled with "Altos Brand" contents.

But there is more to comparing apples and apricots than mere namesakes. Apple Computer and Altos eaeh happens to be INC.'s 1982 fastest-growing small business -- Apple among public companies (see INC., May, page 59), and now Altos among the private. Each company was conceived in a California basement (or reasonable facsimile), and each was born in 1977. In that fecund year, Apple had only 10 employees, Altos but 14. And their initial growth was relatively unspectacular: In the first 12 months, each company posted less thun $1 million in sales.

But here the limbs diverge. Ex-computer salesman Jackson, a round-faced, curly-haired Englishman who was then barely 40, went straight for the high end of the microcomputer market. Staking out a broad but well-defined niche -- business processing and communications systems that didn't demand the full power of minis -- Jackson assumed that the technology of micros would soon usurp territory firmly held by well-established minimakers. Jackson aimed to be there when it did. And he wagered his $100,000 personal nest egg that Altos could do it far more cheaply than prospective competition.

In 1979 Altos expanded from one-user to multi-user systems, and it has gone on to take as prodigious leaps in its sector as Apple has (even more so in the scorching personal computer market that Jackson eschewed) in the other. The Altos figures shout for themselves: from $8 million in sales in fiscal 1980 to $21 million in fiscal '81 and to an announced $51 million for fiscal '82, ended on June 30 (a figure not included in INC.'s listing criteria). That is a gain of 143% in a dismal year that slowed down many another high-tech high-flier.

Jackson grudgingly recognizes that tbe growth slope inevitably must start to flatten -- but not necessarily by much. This September, Altos was shipping at the rate of $80 million a year. In three more years, say some forecasts, it will be a $500 million company.

Altos has just introduced a line of single-card, 16-bit machines that can be networked to as many as 800 individuals. Thus increasingly more powerful microcomputer systems have been placed firmly on the doorsteps of established minicomputer outfits. Indeed, says Jackson, "any OEM that DEC is selling is a target for us." This competitive turn is not going unchallenged. DEC, IBM, Wang, Data General, and even Apple -- to name just a few -- are trying to squeeze into a niche already occupied by Altos and a handful of small companies. So, predictably, will the Japanese.

Most of them won't last, Jackson feels. Many smaller entries "don't seem to be making it." For one thing, no longer does only $200,000 suffice to gear up for the 16-bit market; rather, $20 million is needed. And the bigger companies suffer from self-defeating stubbornness. Some, for example, manufacture their own peripherals, which gluts inventory in slow times; others insist on imposing their own operating systems, a conceit Jackson likens to each phonograph-record company devisiug its own rate of RPM. "I'm watching them make mistakes that it will take them a couple of years to recover from," he gloats.

Meanwhile, Jackson has been breeding Altos like a Doberman -- to be "mean and lean." Its pretax margins are a slim 20%, but in 1981, its net income was a highly profitable 11.2% of sales. It manufactures only its board and acquires the rest from vendors. Its control methods can respond to threatened inventory excesses within two months. It utilizes standard chips like Intel's and standard operating systems like CP/M and UNIX. Thus 300 "happy but serious" employees (largely because of liberal employee stock ownership, Altos enjoys low turnover) were able to produce 1982 revenue at the exceptionally high ratio of $170,000 each. "That's the key to this business. If Japan can do it," challenges Jackson, "good luck to them. No competitor can underprice us and survive."

Another unassailable Altos strength, says Jackson, is marketing and promotion. Altos extends up to $1 million in credit to dealers -- a lure that would-be pursuers will find hard to match. All told, it spends 12% of sales on dealer support and end-user advertising.

So far Altos's growth has been largely self-financed, but additional capital is needed just to expand accounts receivables, Jackson figures. To finance the next phase, the company was expected to go public in November, with about $38 million in new stock. Some of the money probably will be plowed into research and development -- an area in which ratios have fallen behind, mainly because of rapid sales expansion. "If you're going to stay significant, you've got to be spending it," says Jackson, who intends to bring R&D expenditure up to 10% of sales from mid-'82 levels of 6 1/2% to 7%. On the drawing board are some "sexy-looking," low-end products (one is a 16-bit model for about $5,000), and "mind-boggling" developments in networking and communications. "We want the total sale," says the seemingly insatiable Jackson, "from desktop to mainframe."

Despite the apparent ease with which Altos was steered into eight-digit revenues, Jackson figures that one successful launch per lifetime is enough. The last time he started a business, in the late '60s, he had to sell it for lack of capital. "I learned then that if you want to meet the payroll you'd better have some money in the bank."

Now that the money is there (in 1981 Altos had $4 million in cash and a credit line for another $5 million), he intends to keep it there. "I'm really not an entrepreneur," Jackson explains. "It's too stomach-churning to realize that the business stops when you go home at night and doesn't start up again unless you return in the morning. The bigger this one gets, the better."

Last updated: Dec 1, 1982




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