All those measures keep a tourniquet on spending, and Smith doubts he'll have to go back for additional financing. In an industry where 30% margins are not unheard of, Clarity's are a respectable 12% to 13%, and the company is able to plow a third of sales into research and development.
Smith had better not scrimp there. He must address complaints leveled against the early version of Rapport. To buyers used to PC software, Rapport's spreadsheet and word processor seem inadequate. For example, writers miss the ability to footnote, and there's no thesaurus. For engineers and researchers using Unix, the communications features are nice, but not nice enough to make Rapport an easy sale. "What we need is a little more maturity in the product," admits Clarity's Washington, D.C., sales rep, Blix Jones. "Customers are saying, 'I like what you have, but I'd like to see this or that,' and they hold off." As a result, several features will be added this year.
Smith describes the present version of Rapport as a backbone for a number of different tools. The latest is a program that lets the user both send and receive faxes. Next he hints at adding video and other features to meet the burgeoning demand for multimedia communication. The icing on the software would be a communications program that lets users call up an electronic profile of the intended recipient. It would list that recipient's electronic-mail address, fax number, and even the type of word-processing program he or she uses, so the final document could be sent in an easily read format.
But no amount of R&D will address Smith's biggest concern. Computer analysts point out that it's only a matter of time before a large, well-established software company, like Lotus or Microsoft, comes into Rapport's market. Though both sell almost exclusively in the IBM and Apple arena, the leaps in workstation sales may be enough to lure them onto a collision course with Clarity. What Smith is banking on is a two- to three-year head start against those deep-pocketed rivals. The aim, he argues, is to establish Rapport as a well-entrenched standard. By 1994 he hopes sales will hit $20 million, providing for a robust R&D program. At that point, he should be able to take Clarity public and boost his presence even further with the proceeds. "Even solid entrepreneurial companies run scared," says Smith with a smile. "You always have to be looking over your shoulder."
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Matt Rothman is a free-lance writer based in Los Angeles.
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EXECUTIVE SUMMARY
THE COMPANY
Clarity Software Inc., Mountain View, Calif.
THE CONCEPT: Develop easy-to-use Unix-based software programs such as a word processor and a spreadsheet, and combine them with a communications package that links workstations to IBM and Apple personal computers; price the product well below typical Unix programs in order to establish it as a standard
PROJECTIONS: A loss in 1992 of $2.2 million on sales of $3 million; 1994 earnings of $2.4 million on sales of $20 million
HURDLES: Building a large enough customer base to become the first choice in communications and productivity tools for Unix workstations, before bigger software companies spot the opportunity; continuing to introduce new features and enhance existing ones
THE FOUNDER
Howard Smith
Age: 51
Family: Married, five children
Source of idea: At Silicon Graphics Inc., he saw a growing presence for workstations in the workplace and a growing need for them to be more versatile and better integrated in that environment
Personal funds invested: $100,000
Equity held: A "substantial" piece of the 50% equity that is owned by Clarity's employees
Education: Attended Los Angeles's City College; B.S. and M.S. in math from California State University in Los Angeles and San Jose
Other companies started: None
Last job held: Vice-president and general manager of Silicon Graphics' work-group-products division
FINANCIALS
Clarity Software Inc.'s Projected Operating Statement ($ in thousands)
| Fiscal year (ends June 30) |
|
1992 |
1993 |
1994 |
| Sales |
|
$3,000 |
$15,000 |
$20,000 |
|
Units |
4,000 |
22,000 |
36,000 |
|
Average price per unit |
$.750 |
$.682 |
$.555 |
| Expenses |
|
Cost of sales |
$300 |
$1,500 |
$3,000 |
|
Research and development |
$2,800 |
$6,100 |
$7,200 |
|
Sales and marketing |
$1,100 |
$4,100 |
$5,100 |
|
General and administrative |
$1,000 |
$1,800 |
$2,300 |
| Pretax Profit (Loss) |
|
($2,200) |
$1,500 |
$2,400 |
WHAT THE EXPERTS SAY
OBSERVER
STEWART ALSOP
Editor of P.C. Letter and editor-in-chief of InfoWorld , a weekly news-magazine for PC-systems managers
