Terry Dorman's parents didn't pay much attention when their 19-year-old son and his friend Peter Bogdonoff set up a silk-screening shop in the Dorman basement in 1975. Nor were they much impressed when the boys discovered that they could apply silk-screening technology to a more commercial product like membrane keyboards.
But they're taking notice now.
By the end of fiscal 1983, Dorman Bogdonoff Corp. in Andover, Mass., #268 on this year's INC. 500, had hauled in more than $7 million from sales of custom keyboards for microcomputers and other electronic devices. Over the past five years, revenues have risen 688.55%, a growth curve likely to continued to rise with the recent introduction of a new, low-cost touch screen.
Dorman Bogdonoff's success, like that of most of the microcomputer-related product makers on the INC. 500, can in large measure be attributed to two key factors: an early start and the ability to shift product lines. As the market for micro-related products continues to mature, both time-tested expertise and flexibility will be even more crucial for companies like Dorman Bogdonoff -- as well as those that manufacture the actual microcomputer hardware.
The reality of an expanding market is a double-edged sword for the three microcomputer manufacturers on INC.'s 1983 list. While sales of personal computers are expected to soar from $8 billion in 1983 to an estimated $30 billion by 1988, the market share available to all but the giants is likely to shrink. Already, according to Future Computing Inc., a personal computer market-research firm, IBM holds 26% of the office PC market, while Apple Computer has 21%; Radio Shack, 13%; and Hewlett-Packard, 6.5%. Digital Equipment Corp.'s and Wang Laboratories's recent entries into the microcomputer arena should bite off another market chunk.
But IBM Corp.'s 1981 introduction of the IBM Personal Computer did more than create a dominant product. By publishing the specifications for its machine, Big Blue brought a focus and a direction to what had seemed a chaotic industry.
"Anybody's crazy who doesn't recognize IBM's presence and decide how he's going to react to it," says Charles Grant, president of North Star Computers Inc. (#392), of San Leandro, Calif. North Star, founded in 1976 as Kentucky Fried Computers, a microcomputer kit supplier, began targeting 5-to-50-employee businesses when, increasingly, their customers began requesting assembled machines.
So far, North Star's reputation for quality, its superior graphics and multiuser capabilities -- along with a loyal dealer network -- have fueled its growth. Many of its distributors and value-added resellers (which sell the product to vertical markets) were once North Star's hobbyist fans. The company hopes to hit sales of $200 million in 1985, but Grant admits success depends on his IBM strategy. All he will say for now is, "We've got that all figured out."
A mix of good distribution, attractive margins, and a solid product earned Columbia Data Products (#119) of Columbia, Md., its initial success. Founded by Bill Diaz in 1975, the company was among INC.'s top 100 private companies for three years running. Then, in 1981, as Columbia was developing a new computer, IBM announced its PC, and Diaz decided his company's new entry should run software written for the IBM micro. Today, all of Columbia's 16-bit microcomputers are PC compatible. The clones include two desktop machines -- a floppy disk and a harddisk model -- and a portable, and Diaz expects to close 1983 with more than $50 million in sales, a 437% increase over 1982's revenues of $9.4 million.
Although some analysts predict a shake-out among the PC-compatible makers, Diaz remains confident. "The market will always be big enough to accommodate half a dozen good-size companies," he says. But to hedge his bets, he has raised $3 million in venture capital; plans a public offering by year's end; and has pursued large retail chains as well as OEMs, a distribution channel that competitors have largely ignored. "We narrowed our vision to a more defined marketplace, which turned out to be the right one," he says. Before, "we were just an also-ran."
Don Lehr, chairman and chief executive officer of IMS International (#487), a Carson City, Nev., manufacturer of multiuser, multiprocessor computer systems, doesn't include a high degree of IBM PC compatibility in his plans for future machines.
Lehr and his partner, Al Fiegehen, founded IMS in 1975 to make electronic controls, and eased into micro manufacturing when a computer store asked the men if they could make memory boards. Now, vertical integration (IMS owns its own metal shop), a two-year warranty (the industry standard is 90 days), and overseas sales (over 40% of its product goes to more than 14 foreign countries) has stoked company sales. Like Diaz, Lehr plans to raise funds with a small public offering. While his micros can run some IBM software, Lehr sees diversification as the key to future growth. IMS recently introduced a new terminal, and Lehr spots fresh opportunities in his original business: the manufacture of controls. "We consider ourselves an electronics manufacturer that happens to make computers," he explains.
The new product lines introduced, or contemplated, by these three manufacturers are certainly one step on the road to survival. "Any reasonably intelligent person with some resources can build a hit personal computer," says Jack Karp, program director of the personal computing service at Gartner Group Inc., a strategic-planning firm in Stamford, Conn. "Adam Osborne proved that. What's much harder is to transcend a single product and product concept, then move on to multiple product concepts. Companies that are unable to do this are going to get killed."
But the future that industry analysts predict for the three companies isn't as rosy as their CEOs might like. Karp, for instance, keeps a "dirty dozen" list of micro manufacturers that he thinks will be key players in 10 years. None of the INC. 500 companies is on it (although Columbia Data, he feels, has the best shot). Clearly, if the three micro manufacturers are to prosper -- or make it at all -- they are going to have to engage in some fancy footwork.
IBM's presence -- and the subsequent coming of age of the micrcomputer as a business machine -- has only served to expand markets for the INC. 500 companies making micro-related devices. These include a magnetic tape-drive manufacturer (Data Electronics Inc.[#156], San Diego, Calif.), a computer board maker (Heurikon Corp.[#266], Madison, Wis.), two companies that make interfaces (Elographics Inc.[#299], Oak Ridge, Tenn. and Dorman Bogdonoff), a disk-controller manufacturer (Interphase Corp. [#201], Dallas) a modem manufacturer (Hayes Microcomputer Products Inc.[#4], Norcross, Ga.), and a printer company (Anadex Inc.[#454], Chatsworth, Calif.).
Unlike micros, which have almost become commodities, many of the products these companies produce demand sophisticated technological know-how. "We're not making something in which there's a backlog of knowledge," says Elographics president William Gibson. But the companies, although technology-driven, have not neglected their marketing strategies.
Anadex, a manufacturer of dot-matrix printers, has at least 20 competitors. And, says chairman and CEO Jack Weaver, "there are more coming all the time." Like other INC. 500 companies, however, Anadex benefited from an early start.
The company was founded in 1957 to make industrial control instruments. In 1977, Weaver saw a chance to grow with micros and "grabbed it." In an industry dominated by electronics whiz-kids, he chose to develop a printer -- a product that required his ingenuity as a mechanical engineer. "Most anyone can put together an electronics edge these days," he says. To keep its position in the marketplace, Anadex doubled its advertising budget from 1981 to 1983.
Interphase faces little competition for its specialized disk-controllers -- devices that link micros with very fast, high-capacity hard disks. The company was first to market with its product and, says president Michael Cope, "only a half-dozen companies are competent technically to do what we do."
Cope founded Interphase in 1974 to advise other Texas businesses on how to apply the new micro technology to their products. (It was responsible for the design and development work for all Radio Shack models, for example.) Then Cope decided to produce his own product -- one that would require little capitalization, demand technological sophistication, and plug a hole in the marketplace. "We're a niche marketer," says Cope. "We find niches that are not well served by [big companies] and exploit them. Then we dominate the niche."
To maintain its growth, Interphase has pumped funds into the development of the Maverick, a new, high-performance disk controller for the IBM PC. "You can't turn off the [research and development] spigot," Cope insists. He has the right idea. Only from R&D will these companies find the flexibility and new products they will need to survive.