Can Big Business Be Built on Breakthrough Product?
BY Jay Finegan
Profile of a start-up based on an invention that will allow common electrical wiring to act as data transmission lines.
COMPANY: Elcom Technologies
TYPE OF BUSINESS: Makes plug-in devices that enable household electricalcircuitry to carry video, audio, voice, and data signals
HEADQUARTERS: Malvern, Pa.
FOUNDERS: Rob Vito, 34, former tax specialist at Price Waterhouse; Myr Jones,62, former marketing executive; Charles Abraham, 33, electrical engineer
CAPITAL: $18 million through private-placement memorandums
KEY COMPETITION: Electricians who will hard-wire a house to achieve the sameresults
COMPETITIVE STRATEGY: Prove consumer acceptance with own products, thenpersuade manufacturers to embed technology in stereos, TVs, and other originalequipment
On a July afternoon in 1993, 31-year-old Rob Vito--at the time just another BigSix tax specialist with an M.B.A. and entrepreneurial ambitions--found himselfin a Philadelphia law office, watching a Hungarian-ÉmigrÉinventor do something nobody else had done. Charles Abraham plugged a computerinto his patented transmitter box, plugged the box into an ordinary wallsocket, and transferred a data file through standard copper electrical wiringto a computer in another room. Feeling fate's touch, Vito went to anengineering professor with two questions: One, is it possible to transmit dataover electrical circuitry? Two, if it were possible, what would it be worth?"He told me it couldn't be done," Vito recalls. But the professor next toldVito, "If it can be done, don't ever sell your stock."
Vito hasn't. Unless, of course, you count the private placements that haveraised $18 million for Vito and his Elcom Technologies partners, or theownership dilution to come from an imminent initial public offering.
In the three years since Vito tripped over Abraham--who, Vito claims, "crackedthe code" for sending digital signals over household electrical wiring--he haswrestled with a classic entrepreneurial challenge: how to turn an apparentlyastonishing breakthrough technology into a viable business. He formed Elcom bypartnering with Abraham and veteran consumer-electronics marketer Myr Jones. Heraised capital (mostly from a network of doctors and dentists). And herecruited high-level engineering talent to convert the basic technology into afamily of consumer products just now hitting stores. For example: "ezAUDIO,"$159, is a transmitter and receiver box that delivers sound through speakersplugged into a wall socket anywhere in a house, no matter where the stereo is.
So far, Elcom has overcome early industrywide skepticism. It took top honorsfor innovation and engineering in audio and video distribution at last year'sConsumer Electronics Show, where suspicious attendees lifted the skirts onElcom's demo tables to look for trick wires. "People would see it and still notbelieve it," says Jones. Consumer acceptance, though, is still far fromensured. And Elcom needs to demonstrate it quickly to capitalize on the successof its pivotal strategy--persuading manufacturers to embed the technology inTVs, speakers, phones, and computers, the way Dolby Sound is embedded instereos. "For us to succeed in a big way," says Jones, "we need to be invisibleto consumers"--and big electronics companies won't bite before being certain ofretail demand.