Four straight years on the INC. 500 -- and all with one good idea.
In the Twenties, blues performers picked up a phone, and in a popular song of the era pleaded "Hello, Central, give me Dr. Jazz." Invariably, a sympathetic operator performed the connection with dispatch. Today, though, such connections are made with dispassion, since Central is apt to be an air-conditioned maze of circuits and switches known as a private branch exchange (PBX). Although that copper-hearted apparatus couldn't care less how the parties are brought together, the exchange's host business has to care: Even as communications continues to climb through the ranks of P&L expenses, last year's divestiture of American Telephone & Telegraph Co. has complicated matters of cost control beyond the ken of mortals, and left if for machines to try to figure out.
Handily, William G. Carter Jr., founder of 38th-ranked Creative Management Systems Inc. (CMS), has been teaching computers the intricacies of dialing-for-dollars for a decade. Now an imposingly trim 42, Carter emerged in 1976 from a background in military computers and telecommunications to strike out on his own as a sole proprietor. And so evidently effective are the software systems his company created that this year CMS becomes the first corporation in the annuals of the INC. 500 to appear on the list four successively higher times.
Alas, even the ebullient owner isn't betting on a fifth appearance. Last year's spurt, Carter acknowledges, was a "divestiture-related bump" booked via a consulting contract with a large, well-known company that was severely disrupted by the weanings of Ma Bell. But when the distraught customer recently shucked its crutches and ventured back to the electronic arena unaided, CMS had to terminate the two-dozen specialists hired temporarily for the huge project. Now the company has settled into its basic 43-employee calling: proprietary programs that handle call-accounting and traffic engineering for otherwise dumb installations. But don't hang up just yet on CMS's prospects: That product line, appended to a PBX in the aftermarket like a box of soap in a new washing machine, is expected to expand at an enviable 50% per year.
Much of CMS's incremental steadiness flows naturally from the industry's own long-distance leaps beyond the hourly WATS lines of a few years back. Now, largely thanks to CMS, businesses have come to expect a phone system that knows all the toll rules and can delegate call charges through a half-dozen departmental levels. "Once we're in the door," says Carter, "we become part of the general utilities, like lights and plumbing."
With smart PBXs that sound loud budgetary warnings as well as discreet call-waiting beeps, an employer can ride herd on conversation like a dictator. And not a tin-horn one at that: It is said that General Motors Corp.'s internal communications network alone would rank as the world's seventh-largest telephone system. Indeed, the phone bills of some CMS clients range beyond $500,000 a month -- the kind of lump sum controllers don't willingly tuck into overhead. Even smaller businesses with private exchanges that are barely the equivalent of a Caribbean country's are faced with the complex routing and apportioning choices addressed by CMS software.
The economics are irresistible: No longer do employers have to proffer the gift of gab as a tacit fringe benefit. Holding individuals accountable for their calls, CMS's pitch points out, can mean a generous discount over premonitored bills. (And they don't even have to install CMS software to get results: When a department head happened to mention the possibility of putting in call accounting, the engendered guilt effected an immediate 15% savings.)
After the books closed on the 18-hour days of '84, Carter realized that his own products hadn't been upgraded for the consequences of divestiture. They contained no provision for inventory control, for instance, even though customers now had to buy their telephones, keep track of installation sites, and deal with modems and computers. Overnight, record keeping fell to individual businesses, rather than to the phone company. And in the routing of calls, often the tariffs of several connectors were involved, not just AT&T's take-it-or-leave-it schedule of the good old days. Luckily, the handful of similar-size outfits that constitute CMS's competitors hand't seized the moment; unscathed, CMS is now repairing its line by feeding a generous 25% of sales into research and development.
To serve that voracious appetite, CMS decided to establish a series of one-person regional sales offices. No sooner had the fifth opened last year, however, when the entire staffs in Dallas and Los Angeles phoned in and quit, even though all two prople were meeting projections. "In six months," a disappointed Carter concluded as he folded the rest of the tents, "guys get lonely."
He may not have meant to let events dictate the way to market, but the would-be consultant found himself inexorably drawn into "the deep but narrow niche" of the end-user, designing communications systems client by client. A company can't expand by selling a different product every time: There are no residuals. "When you're done with a consulting job," Carter realized, "you may have a little cash in your pocket, but nothing else. You can only bill for as many man-hours as you have in a day, so you're limited by the number of people you have. When you're paying top dollar for a programmer, you can't afford to do things on a custom basis. The customer won't understand why it cost that much. But if you put man-hours into a standardized product," he reasoned, "you could sell it over and over again."
Even with that dawning, CMS's expansion remains funded strictly from income flow. When the stream can't keep up, Carter simply restricts costs, like any 100% owner who wants merely to make a decent living from something he likes doing. At first "we were too busy running the company," Carter rationalizes, "to look for an investor."
What with $11.3 million in sales on debt-free books, investors are now looking for him -- and he's still too busy running the company. "If we went public, my managers and I would have to go out for six months selling ourselves to the market," he complains. Besides, "going public would bring only money. We want to find a partner who has offices in the top 10 markets, and who is already selling in our industry." Just before press time -- well after the INC. 500 list was finalized -- CMS was acquired by Cincinnati Bell Information Systems Inc., a subsidiary of Cincinnati Bell Inc., for "$3 million plus future contingent considerations."
Meanwhile, Carter is sticking to his game plan. "We do two things well, and we wanted to keep it that way." The second "thing" is in-house processing of customers' cost-accounting data, the computer disgorgements of which are toted around the company's McLean, Va., premises like bales of computer-grown cotton. One of the recipients of those monthly billings happens to be CMS itself, as its landlord uses CMS's services to allocate phone charges to the building's tenants. "It had better be accurate," Carter hopes. "We're in no position to complain."