Johnson: This is not the time to sell this company. Think as if you're going to be independent forever. Do the next steps right and the future will take care of itself. You're not playing on one niche or one product. You're adding such value to the customer organization that this will be a big business for a long time to come. What you're doing is one of the fundamental opportunities of the '90s.
Morgan: I believe this company can and should go public. You have important products and a smart business mix. The good news is that a number of investors will understand your strategy. There was a time when you couldn't give away a consulting business; investors saw it as a time-and-materials, nonleverageable business. They now appreciate that it does leverage the product business. Whether or not it actually happens, think it through all the way to an initial public offering, if only to show an outsider your view of how you'll get there. You might end up selling for some fat number because you're offered so much you couldn't turn it down, but we'll worry about that when it happens; founders have been bought out of an IPO the night before they shipped the documents to the SEC.
Johnson: You'll find it's a great satisfaction to bring a bootstrapped company to the status of being able to go public. But what's interesting about watching entrepreneurs make a lot of money is, they don't change that much. When you wake up after the IPO and find you're worth $40 million on paper, you still have to figure out what you're going to enjoy doing. And usually it's the same thing you've been doing before: building a business.
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A Final Word from Our Founders
The ITI founders team includes Kalyan V. Krishnan, president and CEO, previously vice-president of engineering at systems integrator Teknekron, responsible for launching its health-insurance business; Jeff Stern, vice-president, responsible for marketing, consulting, program management, and quality assurance, previously a development manager at Teknekron; and Michael L. Dierker, vice-president, responsible for platform technology engineering, previously director of systems software at Teknekron.
Do they take issue, feel misunderstood, wish they had never volunteered? To determine the effect of the torrent of advice that Inc.'s experiment poured onto ITI's heretofore untested founders, Krishnan, Stern, and Dierker were asked for their afterthoughts. Here are some collective reflections:
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In General. The prospect of sitting down with the managing director of software of Hambrecht & Quist, a lawyer from Wilson, Sonsini, and a partner from Coopers & Lybrand -- each given Inc.'s explicit directive that there were to be "no holds barred" -- was, to say the least, intimidating. It required not only significant expenditures of management's time and energy, but, knowing the results were to be published, a fair amount of courage as well. It was an intense session, and at times uncomfortable, as we did not always agree with the positions of the experts. But the process was executed professionally, and the free exchange has given us valuable insights. All told, we are greatly encouraged by the team's analyses.
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On Growth. Although justifiably proud of our growth, we are not as top-line focused as the experts portray us. ITI's explosive growth was the result of pent-up demand in the marketplace, not of the founders' preoccupation with the top line. Our bottom line has not enjoyed commensurate growth because, with no venture capital, we have reinvested revenues in the company. As we build up our asset base, we will be in a better position to achieve the bottom-line growth we have been striving for since the beginning.
The points the team made about the pitfalls often associated with the entrepreneurial-mind-set dangers of becoming autocratic and hubristic are well taken. But we don't fit into that mold. From the outset we have consciously shared decision making, and the information critical to that process, with employees. Admittedly, that isn't as unselfish as it sounds; we simply feel it's the best way to tap into the diverse skills and experience of our employees.
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On Critical Strategies. Concerning "get out of retail fast," we disagree. To the extent that some of our customers want a single-source supplier, we must be committed to serving that need. We do not understand the investment community's fascination with percentage profit figures to the extent of turning away real money that could be flowing into the corporation. That is a dangerous attitude that has the potential to make the United States uncompetitive with countries such as Japan, Taiwan, and Singapore, which do not operate under percent-of-after-tax-income constraints.
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On Exiting. Our initial reluctance to obtain venture capital may have been somewhat misinterpreted. We adopted a reinvestment strategy for early-stage growth -- and it was successful for that. We do share the team's opinion that now it's appropriate to seek alternative funding to prepare for an IPO. And we'll seek experienced managers to augment our board, as they recommended.
INDEPENDENCE TECHNOLOGIES INC.
FINANCIALS (in $ millions)
PROFIT AND LOSS
1989 1990 1991 1992*
REVENUES $4.0 $5.8 $11.9 $20.0
Cost of sales 3.8 5.9 10.8 14.0
Marketing 0.0 0.0 0.8 4.0
INCOME AFTER TAXES $0.2 ($0.1) $0.3 $1.3
BALANCE SHEET
ASSETS 9/30/91 12/31/90 12/31/89
Cash $1.0 $1.1 $1.3
Accounts receivable 1.4 0.8 0.1
Inventory/prepaids 0.2 0.0 0.7
Total current assets $2.6 $1.9 $2.13
Net equipment and $2.0 $1.5 $1.7
other assets
Total assets $4.6 $3.4 $3.8
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Trade payables/liabilities $1.4 $0.6 $0.4
Customer prepayment 0.9 1.2 1.5
Total current liabilities 2.3 1.8 1.9
Long-term liabilities 2.1 1.5 1.7
Retained earnings 0.2 0.1 0.2
Total liabilities and $4.6 $3.4 $3.8
stockholders' investment
(* projected)
