The Enemy Within

Employees run their own businesses and compete against each other at Spectrum Associates.

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Dissension in the ranks -- or at least unfettered free enterprise at work -- is the key to Spectrum Associates' remarkable growth. Should your company look like this?

It's part of psyching out a competitor that sometimes you talk a little trash. In sports, you train your disdain on anything from your opponent's moves to his mother. In the marketplace, you dis the product. It's where the enemy lives.

So it's predictable that two rivals introducing competitive software products would indulge in reproaches and threats. "They're in deep left field on this product," says one, referring to the other's upcoming release. "It's a $50,000 Cadillac, when what the market wants is a $10,000 bicycle," adds his partner. "It's priced all wrong." Desperate for market share, these challengers are conspiring to field a low-end alternative and wage war over price. "We'll sell it for thousands less. Absolutely. We'll give it away if we have to."

"They're nave. They don't understand what the market wants, and they'll never pull it off," retorts John Nugent, a cofounder of Spectrum Associates. His small Woburn, Mass., software company has spent nearly $5 million and two years developing the disparaged product, the first of a series of manufacturing-software products called Point.Man, in a bet-the-business gambit to be taken seriously as a software company.

Nugent and his partner, Tony Baudanza, are prepared to defend their product, slated for release this spring, against all comers -- the Goliaths who have outspent them as well as the gadflies who would undercut them. "The future of this company is riding on it," says Nugent. As for Jack Saint and Finbar Crean, the pair who have pledged to capture the low end of the market and bedevil Point.Man in the process, they're not causing Nugent and Baudanza any sleepless nights. The Spectrum principals know what those two are up to. They employ them.

Longtime managers at Spectrum Associates, Crean and Saint profess no plans to start their own company. They figure they can launch an assault from their bower on Spectrum's payroll. "We're just going to go ahead and do it right from here," says Crean, a sly smile curling beneath his mustache. "The next thing they know, the product is going to be sold, and there's nothing they can do about it."

"Don't you see," asks the boyish Saint, "why we love it?"

Some people just beg for a pink slip. Crean and Saint, engaged in a willful act of sedition, punishable under ordinary circumstances by termination, appear to be asking for the door. "Nah," says Nugent. "It's just part of the game."

At Spectrum, a scrappy little company that has long fostered a fighting spirit within its ranks, this latest conspiracy is business as usual. "Oh, I'll whisper in their ear and tell them I think they're wrong," says Nugent. "But we're willing to let them go on because one day they may be right. And I'd rather find that out while they're here than have them prove me wrong from the outside."

Hire thine enemies: is it a new commandment? For Baudanza and Nugent, it's the golden rule of growth. And if the insolence of Crean and Saint's scheme should offend some, it heartens the founders of Spectrum. They have sown it. It is the inevitable consequence of a strategy and a culture the founders uphold as an homage to free enterprise and the secret to the company's considerable success.

"We've kept the company growing," says Nugent, a compact man who smokes two packs of Kools a day and appears older than his 35 years, "by making sure nobody gets comfortable." Not even the owners. "The fear of losing has been our greatest inspiration."

In just five years closely held and self-financed Spectrum Associates has grown more than 6,000%, to an estimated $25 million in revenues last year. Operating profit margins in recent years have exceeded 24%, Nugent maintains. And healthy cash flow has rendered debt or even a line of credit unnecessary. All of it, the founders aver, is the harvest of healthy competition within as well as outside the doors of their modest offices.

"Look, it's the reality of capitalism that you have competitors," reasons Nugent. "Our people learn to face that reality inside the company first. The basic principle of a free market means you let the best win. We happen to believe that."

Like a scrimmage before the game, such competition prepares the company for the battles it undertakes outside. "It creates a micromarket right here," Nugent says. The sparring lets "us apply the pricing pressure, the delivery pressure, and the growth pressure that we encounter in the marketplace." The result: a work force in a perpetual state of readiness. "It keeps us healthy," he says. "A little insecurity can be very healthy."

Infighting is a time-honored pastime in American business. In the glory days of mainframe innovation, IBM was renowned for internal jousts among competing groups. Fifteen years ago at Data General a product-development duel wrought a celebrated minicomputer and a Pulitzer Prize-winning book that chronicled that computer's development -- The Soul of a New Machine. Overtly sanctioned at many large companies, such internecine skirmishes remain rare and almost never blessed at small companies, which can scarcely afford the redundancy that in-house horse races entail.

Yet seven-year-old Spectrum is a veritable Colosseum to a host of internal contests. Events have ranged from a Christmastime sprint to steal a broken lawn reindeer to a yearlong match to wrest control of a pivotal project. Not all have been sporting. But the employees as well as the founders have profited by subscribing to the notion that a business should be run like a tournament.

From the beginning the founders have made it clear they're not in business to coddle employees. "Don't look to your company," Nugent informed those who signed on. "The company is not your parent. It's just a facility where you can come and lower your risks significantly because you have benefits, you have a base salary. But you're on your own."

Baudanza told new hires, "The risk is on you." The sober truth, he cautioned, was that "your business here could fail." Nugent and Baudanza attribute failures -- and they claim there are few -- to cultural learning disabilities. Baudanza speculates, "Maybe those guys didn't understand the environment they were in."

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