Kingston Technology Co.: Class of 1992

Even as Kingston Technology topped the Inc. 500 in 1992, its founders were warned that they'd soon be out of business. But they knew better

"We always say this: 'Things always change. Do we have the mind to change accordingly?" says David Sun, cofounder of Kingston Technology Co., in Fountain Valley, Calif. "If we can all relax, then the whole company can change fast." If that is indeed the criterion for success, then Kingston is one laid-back company, almost dismissive of the long odds against it.

Entering the brutally competitive commodity market for memory upgrades in 1987 with his partner, John Tu, Sun figured they'd be lucky to last a year. He even bet on it, wagering Tu a car that Kingston would soon be out of business. Sun lost the bet, and Tu ended up with a new Jaguar. By the time it topped Inc.'s list Kingston was designing and manufacturing memory, processor, and storage upgrades for personal computers, laptops, laser printers, and workstations. Sales had rocketed to more than $140 million.

Then things got really sweet.

In 1996, Sun and Tu sold 80% of Kingston for $1.5 billion to Softbank Corp., a Japanese high-tech conglomerate. After the sale, the founders divided a $100-million bonus among their 450 employees. Then three years later Softbank decided that hardware was history and the future was the Internet. It sold Kingston back to Sun and Tu -- for $450 million, or just 30% of what they had paid for the stake three years earlier. Sun and Tu happily took their baby back -- and dumped another $20-million bonus on their employees.

Sun will admit that Kingston -- now with 2,000 employees, operations on three continents, and annual sales of $1.5 billion -- has succeeded "beyond my wildest dreams." He adds, "Everyone was always telling us, 'The memory business is going down. You guys are going to be out of business." And everyone has been dead wrong. So how exactly has Kingston not just avoided the abyss but soared high above it?

"We have always been very focused" is Sun's rather stock reply. True. Kingston has always done one thing: design and assemble memory upgrades for the PC aftermarket. "We have always had the philosophy that if we focus our power, it will be that much more sustained than everyone else's."

Beneath that pat Business 101 explanation, though, lies philosophical nuance. It begins with the founders' belief that Kingston is really more family than business (ergo the gargantuan bonuses). Secure in that knowledge, Sun and Tu have always been able to put the prospect of failure into perspective. If the company goes out of business tomorrow, so be it. They have established a number of programs designed to care for their employees should that happen. "Even if nobody ever buys a PC again and the whole industry is out of business, if I can take care of my employees, then I have no shame on myself," says Sun.

It also helps that Sun "has an amazing intuitive grasp of the memory market. He sees things before they happen," says Lisa Dreher, manager of product marketing and a 10-year Kingston veteran. During that time, she, like most of the company's employees, has had the opportunity to take on initiatives of her own choosing with the founders' blessing. When Kingston suddenly expanded its operations into chip packaging and testing, and supply-chain management, for example, it expected its employees to lead the charge, says Dreher. "We are able to react very quickly to the market," she says. "John and David are completely accessible. They are more than willing to talk to anyone on any issue and concern, even about ideas of where the company should go next."

Angela Bedell, the company's director of operations, says that in the past two years the business has reorganized its sales force three times to take advantage of quick openings in the market. She says that at many companies such frequent change would be a "morale crusher," but at Kingston it just makes sense because of the clear channel of communication between management and the rank and file. "David makes decisions very quickly," says Bedell. "If you make a mistake, you can change it. David always says, 'There's nothing you can't change.' So I can work without fear."

Sun and Tu take what they call a "whole-life approach" to doing business. They make deals on handshakes; they never renege on deals, even if a sudden violent swing in chip pricing would diminish their margin. And if a customer needs a critical piece of technology, they will fly it coach and hand deliver it the same day. That consistency makes for happy vendors and happy suppliers -- and puts everybody at ease. Or, as Sun says: "You've got to take the approach that every day is a rose garden. It's an easygoing philosophy. Other companies are so intense. We are not."

That flexible mentality, meanwhile, has attracted the attention of other strong companies -- potential strategic partners that appreciate the company's clarity of vision and speed to market. Kingston is currently working with Intel, for example, to develop new products. It is also working with Toshiba, which is interested in leveraging Kingston's highly efficient global supply-chain infrastructure.

The company's ease and agility are made flesh daily by the figures of Sun and Tu at their desks in a bull pen at the epicenter of operations. Tu, reserved and Confucian, is more the long-term strategist, the global thinker. Sun, more boisterous, is the reactive, hands-on operator with a deft feel for what is happening now. There they sit -- at the center of Kingston's growth -- exuding both calm and confidence. "We've had this mentality since day one," notes Sun. "And as we get bigger, we just see more opportunities."

Edward O. Welles is a senior feature writer at Inc.

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