Most small business owners don't receive an Academy Award for their efforts. Charlie Vaughn and Gene Nottingham are exceptions. Last spring, the two men walked to the podium in the International Ballroom of Hollywood's Beverly Hilton Hotel to accept an award for technical achievement in film. They had successfully married computer technology to conventional photographic techniques, creating a breakthrough in animation and photographic special effects.
A few weeks after the award, Vaughn was swamped with over 100 unsolicited requests for information on his Cinetron Computer Systems, and he was faced with handling orders on a scale he'd never anticipated. Back in 1968, though, awards -- or even orders -- had seemed unlikely ever to materialize. His colleagues, in fact, were spectacularly unimpressed when Vaughn first thought about hooking up a computer to an animation stand -- a contraption consisting of a movable camera suspended between 12-foot columns over a large, movable platform that holds artwork. "Animation is an artistic endeavor, and in 1968 computers were not accepted as they are now. They were just the things that screwed up your gas bill," says Vaughn.
But Vaughn knew the art of animation could be incredibly tedious. Producing the illusion of motion from pieces of static art involved long hours of precisely calculating distances and camera positions. Then the operator had to move the camera and artwork by hand for each shot. Operators would frequently cut corners, and the resulting motion would look jerky, rather than lifelike. And the whole process was time-consuming. "A real hotshot could do a three-second piece of action in two, maybe three hours," says Vaughn. "The calculations were excruciating to execute, and the potential for error was tremendous."
At the time, Vaughn was an executive vice-president and film director at Storer Studios, an Atlanta-based film production house which, like most operations ot its kind, turned out TV commercials, motivational and training films, and special effects for motion pictures. He frequently found himself working at night "getting up the numbers so the operators could shoot in the morning. I couldn't bear all the hours of manual calculation that were required," he says. "I scarcely knew how a computer worked at that point, but I had a feeling that if I could use one right, it would allow me much more time to go fishing."
With the computer doing the calculations, Vaughn figured, hours could be sliced off production time, and improved accuracy would result in a better final product. "It was fine to chain a guy to an animation stand for weeks at a time when he was making 75? an hour," he says. "But by 1968 even an ordinary animator was worth $15,000 to $30,000. That labor was too expensive to waste. The way I saw it, every production house in the world was going to need a machine just to keep competitive."
Vaughn made a deal with Storer. If the company would buy a minicomputer, he'd develop a system. If it fell flat, he'd buy back the computer. If the system worked, the company could use it, but he'd retain all rights to the machine.
Storer agreed, and Vaughn started tinkering. Though his formal education had ended after high school, he had a natural aptitude for math, and after a two-week cram course, he had enough computer know-how to jury-rig his machine. In a year he had a prototype. "Surprisingly it was usable," he says, "but only by me. For anybody else, it was nothing but a hunk of junk."
The biggest problem with the machine was its makeshift electronics. A friend of Vaughn's put him in touch with Gene Nottingham, an electronic engineer for Lockheed who dabbled in the arts, and by 1970, the two had debugged the machine. That year Vaughn left Storer, applied for a patent, and, with Nottingham, began looking for buyers for the $50,000 system.
Potential customers, however, weren't that easy to convince. "They'd say, 'Hey, what do we need this thing for?" says Vaughn. "Here's an artist, a cameraperson with 25 years' experience in plotting out numbers by hand and feeling in harmony with his equipment. He found it difficult to see how he could retain that feeling of harmony, let alone enhance anything, by turning it over to this monster box."
Vaughn finally persuaded a former New York business associate to order a system. The partners now had a purchase order and no funds. They persuaded a friend at Hewlett-Packard to "lend" them a new computer, even though they had nothing to offer in return but the promise of future payment. Then they begged and borrowed the other parts they needed.
"With money from that sale, we staggered back to Atlanta and lined up another sale, and then sold and built a third system, hand-to-mouth. All along we kept saying 'We need to get something steady going," says Vaughn. "The machines weren't exactly going like hotcakes, and in the meantime we wanted to eat." Bankers they approached for loans "wanted to put us in the shade and give us a cool drink."
Then in 1972 Storer Studios closed its doors, and the partners had an idea. They decided to buy back the prototype and diversify their business by opening their own film-production house.
It was an unusual step for a fledgling concern, but it made sense. Vaughn had produced hundreds of commercials and had a number of useful contacts. He was sure the production business could generate enough income to fill in the valleys between machine sales. Besides, he realized the best way to refine and enhance the system was to continually test its capabilities on the job.
Vaughn and Nottingham brought in a third partner, cinematographer Don Hudgins, incorporated as Cinetron Computer Systems Inc., and opened a studio in Norcross, Ga., a suburb of Atlanta. By the end of fiscal 1973, it became clear the plan was working. Cinetron had sales in both divisions -- a total of about $75,000. The company had even made a $10,000 profit.
Sales of the system, though, were still sporadic. While Vaughn, Nottingham, and Hudgins waited for their colleagues in the animation industry to realize a Cinetron system was indispensable, they turned up the volume on the production end. In 1974 production got a shot in the arm when Hal Pearson joined as a fourth partner. Pearson had the expertise needed to run a complicated piece of equipment called an optical printer and the cash to finance the purchase of a used one. The printer -- roughly, a camera and two projectors -- photographs frames of motion picture film instead of artwork, with it a filmmaker can combine elements of two or more scenes to generate an entirely new scene.
The printer greatly increased the range of special effects Cinetron could create. "I knew the production business was going to take off the minute we got that printer," says Vaughn. "There wasn't another one like it in commercial use within 600 miles of Norcross. Once we figured out how to hook it up to the computer, we had an unbeatable system."
Vaughn was right. Business began to blossom in the production realm. Between fiscal 1974 and 1975, production revenues grew 42%. Systems, sales, on the other hand, dropped 63% in the same period.
"We never tried to build both divisions years," explains Vaughn. "We had to turn off the spigot on the manufacturing side to turn on production. Now we have enough pressure in the line to turn both on at once, but if we'd been impatient then, we could have spoiled the whole brew."
In fiscal 1978, systems, sales finally began to pick up. Cinetron now had six models, ranging in price from $26,000 to $110,000, and production houses were beginning to realize that Vaughn had a product they badly needed. "These machines created their own pressure in the market," he says. "It was a hell of a lot easier to sell a man a machine when he had to compete with one across the street. Immediate and severe competition is the greatest catalyst to sales that I've ever seen." In addition, the quality of the commercials Cinetron was making was an excellent advertisement for its production services. "We were constantly busy," says Vaughn. "We were operating to capacity."
At this juncture the partners recognized they were developing two different businesses with different needs and could no longer afford to bump along as they had for the past six years. They had to contemplate major investments in space, inventory, staff, and advertising.
The four men spent a great deal of time discussing their options. They could kill production and put all their energies into manufacturing and selling systems. But to do so would mean cutting off a fine pipeline of capital. Or they could stop selling systems, keeping the technology for their own uses. Vaughn doubted the latter tactic could work. Cinetron received a patent for the system in 1972, and another, as a result of modification, in 1974, but if they quit manufacturing they'd be waving a red flag for anyone interested in building a similar system.
"We'd created a demand for the system, and if we didn't fill it, someone else would surely produce a similar product. We'd be in patent battles up to our ears, and we'd have all the production competition, with none of the income.
"We decided that both businesses were worth maintaining," says Vaughn. "Both were profitable, both were growing, and both had excellent potential. There was, of course, the possibility that the systems division could pull us under.
"But we also knew that it was ridiculous not to pursue systems. Despite the investment required, we knew we could cut it out abruptly if we had to. The way I look at it, anyone who isn't willing to change his mind is an idiot. It makes a lot more sense to remedy the problem or to stop entirely than to try to force a round peg into a square hole."
Once they'd made the decision to go all the way with both businesses, things started to crystallize. There were a great many benefits and surprising few kinks in running a production business and a manufacturing business under one roof. "From the start, we tried to take advantage of the fact that production and systems could augment each other," says Vaughn. "We needed immediate feedback. We couldn't wait weeks to find out how well a new effect worked.
"It's not at all unusual for Hudgins or Pearson to walk into my office and say, 'Charlie, we've done the "Superman -title" effect 10 times this month, and it's still clumsier than hell. Can't you design some software to make it easier?' And Gene and I get together to work on it. We pass our experience on to the customer."
There's another benefit to the complementary mix of systems and production. There are very few experienced animation operators and computer technicians native to Norcross, Ga. "We import most of our people," says Vaughn. "They come here from New York or Toronto or Los Angeles for a training session on the system, and they like it here so much that when it comes time for a change of pace, they call us. We get topnotch people that way."
It isn't always easy for Cinetron to find the personnel it requires, however. Even though turnover is remarkably low -- only five employees have left since the company began -- Vaughn needs more experienced people as the business grows. "I hired four new people this year," says Vaughn, "bringing the number of employees to 28. I'd hire two more right away if we could find them -- but we're after a special breed of cat. Part of the problem is in the way the system operates. If I'd known what I was doing, I might have made it work differently. The point is that we need people who can accept the way it works -- who don't spend all their time reinventing the wheel."
Running two divisions simultaneously straightens out one other potential problem: the company's cash flow. "Without the two divisions," says Vaughn, "we'd be slaves to the economy. Fortunately, production and systems tend to experience peaks and valleys at different times during the year. Most of our production work comes during television season peaks -- August, November, January, and March. Our customers for machines -- the production houses -- are also busiest during those months. During the peaks, they feel pressure to do their work faster, but they're in no mood to put a new piece of equipment on line. Usually, the buy occurs during the production valleys. That's good for us, because when we take an order, we take a large deposit. The rest of the cash is due upon delivery. That's income up front and it tends to smooth out the rough spots."
By the end of fiscal 1980, it looked like Cinetron had both divisions under control. Production sales had increased slightly from the year before -- from $501,169 to $508,003.But systems revenues had jumped from $286,414 to $745,694.
That's when the problems started. In the spring of 1981, Vaughn had to call a halt to systems orders. Cinetron had an unmanageable backlog of nine machines. It also anticipated a flood of orders as a result of the Academy Award.
"The award gave us credibility," says Vaughn. "It made people feel like we're a company worth handing $100,000 to." In the months just after the company received its award, Vaughn and his partners were making lavish predictions. But then the strain began to show.
Lack of space was the first problem. The company had 7,000 square feet and it wasn't nearly enough. "We could get only two animation stands stuffed into the work area," says Vaughn, "and it slowed us down. Sometimes all work would stop on the machines we had, because we were waiting on something. Then we'd have 10 people standing around staring at each other. With all that work piled up, it was a miserable feeling."
The only solution was to stop taking orders. "I just couldn't see the point of stirring up a lot of sales we couldn't deliver. It's one thing to ask people to hand over a hefty deposit on a system and to promise delivery in 90 days -- our average period. It's another thing entirely to tell them that they are going to have to wait an entire year."
For six months, Cinetron accepted no orders and struggled to get rid of the backlog. It rented 4,000 square feet of additional space in a connecting office bay and, one by one, assembled and shipped the systems. Now the backlog is down to three units, and Cinetron is again accepting orders.
Those six months cost Cinetron plenty; revenues leveled off at $1.7 million. But although the figures were off, Vaughn thinks Cinetron achieved some important goals in fiscal 1982. He and Nottingham standardized the components for the different models. Now all systems use essentially the same parts. "We've cut our inventory costs substantially," says Vaughn," and I expect we'll cut our overhead by about 10% to 15%." The company is also testing out a new system called the Cinetron 3000, which uses images generated by the computer in addition to traditional animation.
Over the next few years, Cinetron expects to increase its market penetration. "There are about 600 major production houses in the United States," Vaughn says, "and the foreign market is two to three times as large. We've sold a total of about 120 systems to about 100 houses since we began, so I guess there's plenty of potential."
So far Cinetron systems have been used to create effects for movies like Superman, Xanadu, Altered States, Kramer vs. Kramer, and Flash Gordon, as well as countless commercials. And Disney has been using the system on its new film Tron, which it will release this summer.
All four partners recognize that things at Cinetron aren't going to remain as cozy and relaxed as they were before its growth spurt. Within a year or two, someone is going to have to mastermind the administrative duties they have thus far shared equally. In all probability, it won't be one of them.
"We're all income-producing people," explains Vaughn. "and I don't think that any one of us is a good enough administrator to offset our value to another part of the company. There's no way we could find an engineer of Gene Nottingham's caliber -- not at a price we'd be willing to pay. If we hired another engineer and made Gene chief administrator, we'd wind up with second-rate skills in both slots. Out of the four of us, there isn't one who really wants to be a manager. I think the sensible thing is to let someone else take over."
The partners also realize that by both building computer systems and running a production house, they are continually increasing their own competition. Eventually they'll have sold systems to most of the important production houses in the United States, South America, and Europe, thus decreasing their own production edge.
Currently Cinetron receives 85% of the jobs on which it bids. "We've swung the spotlight back toward production again," says Vaughn. "We're going to try to keep things rolling in that department, and we may even be able to be more selective about our jobs in the future." But what happens if other customers make better use of the machine? "The could happen," says Vaughn. "Lots of our customers can shoot the pants off us in animation. I don't guess it's going to cause much hardship, though. We can always direct even more of our energy toward developing the system."