Thirty years ago this month, in August of 1985, I started my first business, XONITEK Systems Corporation. It didn’t really
dawn on me until I found myself at the David N. Deutsch Saratoga Weekend (aka “Camp David”), which is like a mini (very mini) World Economic Forum (aka “Davos” after the town in Switzerland where it is held).
The theme of this year’s Camp David was “Grow or Go Redux”; in that if you are not planning to grow your business, you should be developing an exit strategy. Fittingly, it was a revisit to the theme of my first Camp David and one that had a significant impact on me.
In between listening to some great brains speak about strategy, finance, and economics; I had the opportunity to reflect upon my own journey.
How did I get to be the person I am today – from what? How did I get to run and grow a business for 30 years? What about the next – well, not 30, but several years? Then what.
“Yesterday is history and tomorrow is a mystery. But today is a gift – and that is why they call it the present.” – Alice Morse Earle
Personal Journey – Life Lessons that Shaped Me
I was born in Endicott, New York in 1962. Endicott was a small industrial town in Upstate New York just outside of Binghamton. Even though the area has always been rather small, it was the birthplace of some large companies including Endicott Johnson (a long-gone manufacturer of shoes sold as “Father & Son Shoes”) and its biggest claim to fame was being the birthplace of International Business Machines (IBM). Today, the “Greater Binghamton Area” is best known for Binghamton University, one of the largest research universities in the New York State University System.
Being the new kid on the block
It was 1968, and my father had just won a significant “suggestion award” from his employer, IBM Federal Systems Division in Owego. At that time, computer programs were on large spools of tape and the system would have to find the program on the tape, read it in, and execute. If the program was not on the tape that was loaded, a technician would have to find the spool and load it. My father’s suggestion was to ensure that programs that were loaded frequently were on multiple tapes so as to reduce the number of times a spool would have to be offloaded and loaded. Anyway, this award was big enough that we were able to afford a new car and a down-payment on a house. We moved from the “North Side” of Endicott to a hamlet just outside called West Corners.
The new neighborhood was cool. There were enormous woodlands on either side of the housing development – one of which we called “the woods” and the other “the ravine” – and at the bottom of the development was Nanticoke Creek (“the crick”) where I would spend my summers fishing and swimming. There were even wetlands we called “the swamp” which would freeze-over in the winter and make for great ice-skating. Although we were not really creative in naming places, it really was a “Huckleberry Finn” childhood.
Being born at the tail-end of the “baby-boomers”, the new neighborhood had a lot of kids – but I was having a difficult time breaking into the group and making friends. When I lamented this to my father, he said; “There are leaders, and there are followers, which are you going to be? If you want to be a follower, then you are going to have to work hard to fit into the group and you will always be playing by their rules. If you want to be a leader, just do what you want to do and have fun. The others will see you’re having fun and want to join you. Now, you have to decide what it is to be.”
I decided to lead and do my own thing – and sure enough, others started wanting to join me.
“Choices are the hinges of destiny.” – Pythagora
My parents were “thrifty”. I don’t want to say “cheap”, because that would be impolite and somewhat of an overstatement (but not much of one). I was never for want of the important things such as: shelter, food, clothing, and the tools necessary for school. But if it was not very necessary, they would not be inclined to buy it.
My weekly allowance was fifty-cents ($0.50) per week. It does not sound like a lot, and even back in 1970, you would be right. In 2015 dollars, that is approximately $3.00. So for extra money, I would walk a couple of miles to “Reliable Market” (which was the nearest “General Store”) and buy some candies. Then I would set-up a little stand in front of my house and sell them. I would usually make enough to recoup my investment plus a little profit – and also have some candy left over. I would only buy “good candy” (not to say “healthy”, but popular) so that I would be able to enjoy the leftovers.
Back in 1970 and at 12 years old, we didn’t need licenses or permits (or if we did, nobody cared). And we didn’t have to worry about taxes (collecting or paying). Unfortunately, this is not true today – and it’s a crying shame, even a tragedy.
“Unstructured play gives kids the space they need to tinker and take risks – both vital for the budding entrepreneur.” – Darell Hammond
“Dad, I need a raise”
But by 1975, when I was 13 years old, I was still getting fifty-cents per week in allowance (now only worth about $2.15 in 2015 dollars). When I complained to my father that my allowance was not enough – that everything costs so much and that I wanted a raise – he put his “IBM Manager” face on and asked me to “write a paper as to why I deserve a raise.”
So I wrote a couple of pages as to why I needed a raise. I lamented how everything costs so much and how I could not afford to do anything with the fifty-cent allowance. I gave it to my father who read it over, and then we set a time to discuss it on the weekend.
Bottom-line is he denied my raise. He told me how I wrote about needing it, and he understood that completely. But I did not tell him why I deserved it.
The very next day after school, I got off the school bus a few stops early and when to a plant nursery called Nanticoke Gardens, which was owned by a gentleman by the name of Donald Ferguson (who had graduated from Cornell University’s Horticulture School) to look for a job. I did not know Mr. Ferguson before asking him for a job – in fact, we had never met. But I looked him square in the eye, stuck-out my hand to shake, introduced myself, and told him I was looking for work for when I was not in school. He asked what I could do, and I told him I can do whatever needed being done.
He told me he could use help making sure the place was tidy, moving plant-trays around and organizing them, white-washing the tables where they were displayed (hundreds of them), mixing potting soil, replanting, mowing the grass – pretty-much everything you can imagine that might need to be done at a plant nursery. He told me he would pay me the “minimum wage” for farm work – $1.80 an hour – and that I could work after school for three hours per day, plus eight hours on Saturday (they were closed on Sundays, as most places were back in 1975).
I was going to be making $41.40 per week! Even more in the summer!
That night, I told my father “I quit. I got a job.” and proceeded to tell him all about it. He was wondering how I could get a job, being only 13 years old. I told him I had looked into it, and that New York State allowed 13 year olds to work on farms – all I needed was a work permit which was available from the School.
Then my father asked, “Who is going to do the chores around the house?” I told him, “It’s time my younger brother Christopher, started helping out.” I did let my father know I would be available for special projects, but it was going to cost him $1.80 an hour.
“The difference between a need and a want is having the desire, ambition, and drive to better one’s circumstances.” – Me
No Job is Beneath Me
Ever since the day I was hired by Mr. Ferguson – and especially because of the satisfaction I felt on my first pay-day – I have never been without a job. And, most important, I never thought any job was beneath my doing – the thought has just never occurred to me.
After the growing season was over at Nanticoke Gardens, I started delivering newspapers for the Evening Press (the local newspaper). I delivered newspapers until IBM transferred my father to Manassas, Virginia in 1979. I was only in Manassas a couple of days when someone I had just met at a skateboard park told me that I should apply for a job where he worked – at Sambo’s Restaurant.
Sambo’s Restaurant was a chain of restaurants similar to a Friendly’s or a Denny’s – but more like Denny’s as it was open 24-hours. I applied and was hired as a dishwasher and busboy. In Virginia, they didn’t care too much about the terms and conditions of school-age laborers like they did in New York – they let you work in almost every occupation and at any time. I did a lot of late-night and weekend shifts – with the late-night shifts on the weekends being the most entertaining because all the drunks would show-up.
Eventually, I got a job at McDonald’s flipping burgers and left Sambo’s. When my father got transferred again and we moved back to Endicott, I got a job at the McDonald’s there – where I also helped to maintain the facility in addition to flipping burgers.
All during High School and during my time at University, I held various jobs in retail including: “Snappers” (an “instant” photo development chain), Key-Bee Toys, Sugerman’s (a department store), Radio Shack, and finally “Computer Dome” – before starting my own business.
“My work ethic came from my parents and my fear of failure.” – Jerry Rice
Photography in Virginia
While in Virginia, I attended High School in the Manassas City School District as a junior. One of the courses I took as an elective was entitled “Communication”, and I took it because it was the only course that offered photography, which was a subject of great interest to me and which I enjoyed a great deal as a hobby (and still do to this day).
In addition to photography, there were other topics which we were to learn such as silk-screening, graphic design, and engineering drawing – with ten weeks devoted to each subject.
Of all the subjects, engineering drawing was my least favorite. In each class, we were shown a “block” and we would have to do an engineer drawing of the block; an “Orthographic Projection” (front-view, side-view, and top-view) and an “Isometric Projection” (a sort-of 3-Dimensional drawing where the object is rotated at a 45-degree angle). After drawing dozens of blocks, it got pretty boring for me.
You might be able to imagine how disappointed I was when I found out that, due to there not being a photography instructor available, that we were not going to have photography this year but instead were going to draw blocks again for the last ten-week period. I was very displeased and voiced my displeasure to my Guidance Counselor and School Principal – to no effect.
So I decided that I was not going to draw blocks for the last ten weeks – and, in fact, I was not going to go to the class at all. Instead, I was going to go to the library and read whatever I felt like reading. This went on for about a week before my brother (probably in retaliation for my having him do the chores instead of me) decided to tell the teacher why I was not in class and where I was. And of course, they found me there in the library.
I was called to the Principal’s Office, along with my Guidance Counselor and my Mother where we proceeded to discuss my behavior and the problem. They told me how I could not just skip class because I didn’t like the material. And I reiterated to them the only reason I took the course in the first place was for the photography piece, that I was not going to be drawing more blocks for ten weeks, and the reason I went to the library was to not be a disruption to the class (plus, I was not going to draw the blasted blocks anymore). I even went so far as to tell them that listing the class as they did was “false advertising” and that they were in “breach of contract” by not providing what was promised.
The end result was that we got our photography – and not just me, but for the entire class. And as my “punishment” for skipping class, they were going to give me “five-zeros” – one for each day that I skipped and with the weight of a test grade.
So, I got a 43 for that semester – big fat hairy deal. It was a meaningless number, from meaningless people, for a meaningless class, at a meaningless school. But the lesson learned? Priceless.
“First they ignore you, then they laugh at you, then they fight you, then you win.”
– Mahatma Gandhi
I took a philosophy course in University. The professor was eccentric, to say the least – and really “out there” to say the most. He spoke about the benefits of contemplating philosophy while in a “mescaline haze”. I remember one of the first lessons he gave was to “Question everything”. Those of you who know me will also realize that sometime the words I say come out “unfiltered”, so when he posed that question to the class, I immediately blurted out “Why?” For some reason, he liked me.
So I should have not been surprised when it came to take the final exam and the only question on it was, “Why?”
I wrote furiously during the allotted time – trying to develop a plausible and thoughtful response to the question posed. Almost an hour into the exam, I became exasperated with the drivel I had written. In a fit of frustration, I crossed it all out and wrote, “Why not.”
Come to find out, responding “Why not” earned an “A”, “Because” earned a “B”, and everything else earned lesser grades. Such was much of my University experience.
“There is more wisdom in your body than in your deepest philosophy.” – Friedrich Nietzsche
My wife’s family does not know what side of the Atlantic Ocean on which to stay. Her Great Grandmother was born in Poland and moved to Upstate New York. Her Grandmother was born in Upstate New York and decided to move back to Poland just before WW-II (bad timing there) where she got married and gave birth to three daughters and a son. Being a citizen of the United States and having survived the War, she wanted to move back – bringing her family with her. The United States government told her that she and her three daughters could move to the United States, but her son would have to stay in Poland. Naturally, she and her family remained in Poland.
My mother-in-law was born and raised in Poland, and lives there still in Warsaw. My wife was born in Poland and lived there the first 25 years of her life. Then she was invited to visit her extended family in Upstate New York – where my brother was dating her cousin and set-us up on a “blind date”.
And from the day we met, to the day we were married, was eight weeks plus one day.
… And that was over 25 years ago.
“Marriage is a Three-Ring Circus. First there is the Engagement Ring, then there is the Wedding Ring, and last comes the Suffering.” – Lou Costello
Moving to Germany
I spent almost all of my life in Endicott, with the exception of the one year my family lived in Manassas, Virginia when I was 17 years old. And I had spent my entire professional career in the Greater Binghamton Area from the time I founded XONITEK in 1985.
When I was younger, and IBM was in its heyday, the area was a quite enjoyable place to live. IBM, and Endicott-Johnson shoes before them, were very “paternalistic” companies. They nurtured the citizenry and demonstrated largess in the form of donating hospitals, fire departments and parks. And I don’t mean donating sums of money TO hospitals, fire departments, and parks – but actually donating entire hospitals, outfitting fire departments, and building the parks. Endicott-Johnson even held the mortgage for their employees to buy homes – deducting the mortgage payments from their paychecks. And IBM built a Country Club so that their employees would have a place to recreate. A socialist’s laboratory.
But over the years, as Endicott-Johnson went out of business, and IBM reduced its presence from employing almost 20,000 at its peak (including Endicott, Glendale, and Owego), to approximately 250 today (2015), the area gradually joined the ranks of other post-industrial cities in the “rust-belt” of the Northeastern and Northcentral United States. Worse, since the citizenry of the Greater Binghamton Area had become accustomed to a series of such paternal companies – which stifled innovation by others and whose safety nets were removed rather abruptly and without replacement – there was a sense of abandonment which was followed by cynicism. As time passed and with no benefactor coming to the rescue, this cynicism became deeply rooted until it became a core attribute of the area’s culture.
By 2010, the Greater Binghamton Area had become a good place to grow-up, and a good place to die – but not a good place to grow a business or offer the opportunity for meaningful employment for younger people, including our sons. Since my business from its earliest days was conducted almost entirely outside the Greater Binghamton Area, and my wife and I knew our sons were not going to find careers there, we decided it was time to move – but to where?
We wanted to move to someplace that offered an opportunity to enjoy life; things to do and places to see – but not have to drive hours to get to them. But we are not “city folks”. We enjoy the peacefulness that more rural living has to offer. We needed a place that offered opportunity for our sons without their being pre-destined to having to move. I needed a proper airport which could get me to my engagements with relative efficiency and the minimum of “plane-changes”. And we didn’t want to live where it was too hot or humid. On the “short-list” was; Boston, Chicago, and Delaware.
My wife has relatives that live in Seligenstadt and we had been visiting them for years, so we are familiar with the place and the surroundings. It is located approximately 30 minutes from downtown Frankfurt and the Frankfurt Airport. Even though Seligenstadt is very close to Frankfurt – and with approximately 750,000 inhabitants, I consider Frankfurt a major metropolitan city – there is rural farmland almost the entire distance between the two. There is a lot to do and many opportunities to enjoy life, and also a great many professional opportunities for our sons (even if they move back to the States, the experience is invaluable). From Frankfurt Airport, I can fly non-stop to most cities in Europe and also non-stop to almost anywhere else in the world (certainly, to nearly every major city – except in Australia). In addition, I can easily take the high-speed trains most places in Central Europe.
So in 2010, we moved from Binghamton to Frankfurt – and, after three years of being here, the verdict is largely positive. Interestingly, my professional career has grown faster and further in the short time I have been here than in the decades I was located in Binghamton – even back in Binghamton. I guess the old adage is true – you are never a prophet in your hometown.
And, if it ultimately doesn’t work out? So what – we can move again.
“Success seems to be connected with action. Successful people keep moving. They make mistakes, but they don’t quit.” – Conrad Hilton
Professional Journey – Making Things Work
Learning what to do in business
I had some really excellent early work experiences – many of which helped to shape how I would conduct my business in the future.
My first employer, Donald Ferguson who owned Nanticoke Gardens, was an incredibly humble, honest and fair man who taught me that it is okay to take chances on people without experience so long as they have a willingness to learn and to work hard. Some of the best people I have hired over the years came to me with a lot of knowledge, little experience, and less wisdom – where knowledge plus experience equals wisdom. Conversely, some of the worst people I have hired had a ton of knowledge and experience, but were self-centered egotistical megalomaniacs without an empathetic bone in their body.
Now and with very few exceptions, I look to team with people who love what they do and have a strong work ethic – but also possess wisdom and empathy as the primary characteristics.
Another employer deserving of special mention was Rick Burd, the manager of the Radio Shack store and with whom I worked for a couple years. One thing I really enjoyed about Radio Shack was the ability to “problem solve”. Customers would come into the store trying to figure-out all manner of electrical and electronic challenges. Some of my favorite problems to solve involved multiple Audio/Visual devices and devising switching and cabling systems between the devices.
Rick had an easy way about him, even though he was under a lot of pressure to produce. Being as he was, I was always happy to do whatever needed to be done. There was one habit, in particular, that caught my attention. Whenever he handed-out the paychecks, he would always say, “Thank You.” He did not just do this sometimes, but every time. It was something I tried to remember and do later when I had employees (and before direct deposit) – the only exception being with Rick Hulse to whom I would say (as an inside joke, but only half-joking), “We’re even.”
Interestingly, I never saw either of these early employer-mentors lose their cool. This is a trait and skill that I did not learn.
“Mentors don’t have to be the Daymond Johns or the Mark Cubans. A person running a successful bodega or a tax firm in your community for the last 20 years, that person is working just as much as the individual who’s running General Mills.” – Daymond John
Learning what not to do is also important
After my time at Radio Shack, I worked at a retail store called “Computer Dome” which was located in the Oakdale Mall and in Owego. Computer Dome (or simply “The Dome”) was a small, privately held – and long defunct – company which sold personal computers (along with some other “oddities”) in the early days of personal computing.
And when I say, “oddities”, I am not referring to silly mouse covers and accessories – but some really strange items. One of the strangest items was a “paraffin heater”. It was a big bowl of wax with a hundred wicks which had to be individually lit with a blow-torch (working from the center out). It generated a lot of heat, and a lot of light, but what it had to do with computers I will never know.
The person who owned the “The Dome” was not the sharpest tool in the shed. I am certain he gained the wealth he had by found money – inheritance, winning the lotto, stumbling on some buried treasure, or maybe winning a slip and fall lawsuit (if he also had hit his head, that would explain a lot). There was nothing that he ever did or said that would lead me to believe he was anything other than a befuddled and bumbling baboon. If I had the good fortune of having a great many mentors who guided my way as sages, this one fool was sufficient to guide me in what not to do – he even bought a Yugo and tried to convince everyone it was the vehicle of the future. As you can predict, he went out of business.
Other than having to endure the mismanagement of the company, I became increasingly restless as I felt that it was not enough to sell computers just do see some psychedelic images or a ball bouncing, or some primitive 2-D games – I actually wanted them to do something more. I wanted computers to help businesses perform some of the simplest duties, and I thought that they could be assembled for far cheaper than what was being offered by the manufacturers at the time.
“Life is tough, but it’s tougher if you’re stupid.” – John Wayne
In 1985 while working at Computer Dome, a couple of friends and I thought it might be a cool idea to start a company that assembled and sold IBM PC “clones” – personal computers that looked like, and were compatible with, IBM PC’s. We knew we could source the parts, assemble the computers, and sell them for far less than IBM and the “name-brand clones” such as ITT and NEC were charging. When the analysis was done, we found we could charge 20% less than the name brands, and still make a 25% gross margin on the sale – far more than reselling the name-brands.
So one weekend we gathered together at the parent’s home of one of the future founding partners of the company and proceeded to drink a lot of Genesee Cream Ale (“Screamers”) and watched the movie “Red Dawn” while we tried to figure the business out. All of the similar businesses were “Computer-Who’s”, named; ComputerLand, Computer Dome, Computer World… you get the idea. So, we didn’t want the word “computer” in our name.
Keeping in mind that this is before the days of “Google” (and even public use of the internet itself), we also knew our name would have to go through a “name search” at New York’s State Department so that we didn’t conflict with the name of another company. So we brainstormed and came-up with the name “XONITEK” because “it sounded cool and didn’t mean anything.”
… Some of the greatest creative minds in history found their inspiration in “Absinthe”; we found ours in “Genny Screamers”.
Of course, my parents were against my starting a business. They wanted me to work for IBM where I “would have a job for life”. By 1993, when IBM was within 90 days of running out of cash and John Akers was sacked for Lou Gerstner – even my father had to take a bridge to retirement (the luckiest man alive) – a “job for life” did not look nearly as stable. Their total support for my “experiment” was $1,500 in the form of $200 in cash, and $1,300 for a used Apple-II. Still, I am thankful for that support.
Our total “start-up capital”, including some funds raised from the three “Fs” (Family, Friends, and Fools – rather interchangeable, actually), was $3,000. But the real sign that we were going to have a rough start was at the “founding dinner” with our attorney where one of the partners asked, “How much is my weekly pay going to be?”
… I looked at him and said, “We had $3,000. We used some for forming the Corporation, some for legal fees, some for a telephone line, and some for stationary – after this dinner, we will have about $750 left – and we don’t even have a computer yet. How much do you want it to be?” I knew we might be in trouble soon, if not from the lack of funds but for the discourse a lack of funds brings.
Fortunately, I learned early-on that “partners” – especially ones who are naïve and lacking the proper personality attributes – add considerable friction when it comes to running a company. And within the year, neither of the original two “partners” had a role at XONITEK.
XONITEK had become a benevolent dictatorship – and has been ever since.
“The difference between a democracy and a dictatorship is that in a democracy you vote first and take orders later; in a dictatorship you don’t have to waste your time voting.” – Charles Bukowski
Initial Incarnation: Computer Systems (we coulda been another “Dell”)
Michael Dell started selling IBM PC “Clones” and founded Dell Computer from his dorm-room at the University of Texas at Austin in May of 1984 – and we founded XONITEK just over a year later in August of 1985. By all rights, we could have been as big as Dell
We had the same business model as Dell Computer (assembling and selling IBM PC “Clones” for less) and we were starting at the same time in the same technology era. There was just one, small problem.
… Our tiny offices on Washington Avenue in Endicott were a 3-wood and a wedge from the original headquarter building of IBM, in a town where nearly 100% of the people who lived there and nearby either directly or indirectly owed their livelihood to IBM. Oops…
As they say in real-estate; “Location, location, location…”
In spite of the circumstances, we sold a pretty good number of our “clones”. We even went on to assemble “clones” based on the Intel 80286, 80386, and even the 80486 processors before we decided to stop – and this was only because purchasing “clones” by “mail-order” had become main-stream and we could no longer make an appreciable margin on our units.
“Good decisions come from experience. Experience comes from making bad decisions.”
– Mark Twain
Transformation #1: Systems Integrator and Network Engineering
But XONITEK had to do a lot more than assemble and sell “clones” if it were going to remain a viable entity, we had to expand our product and service offering. And, given our being a pariah in our hometown for challenging IBM, we had to expand our geographic marketplace footprint to beyond Binghamton for additional opportunity.
As “clones” and peripherals became more ubiquitous, they became commoditized. And the first thing to evaporate when selling commodities is margin. In reaction; by 1990, we had re-invented XONITEK as a “systems integrator” and “network engineering” firm. We would either sell the equipment at little margin or, more likely, work with equipment purchased by the customer from elsewhere and charge for the services related to engineering, integration and maintenance.
One of our biggest network engineering projects was designing the network and installing about 25 miles of fiber-optic cable in a hospital near Liberty, New York as part of a major renovation project. This led to a great many other projects in Upstate New York, as well as in Pennsylvania engineering and installing networks in industrial facilities (though none were ever as large as the hospital).
Lesson Learned: “When you are a small business, it’s critically important to find a niche where your value-add is unique and you can realize a premium for your offering.” – Joseph Paris
“We reinvent ourselves to solve a client’s problem. It’s more than just tweaking. It’s rethinking what your audience wants and needs.” – Merrie Spaeth
My Most Influential Business Mentor
One of my biggest breaks in business, on many levels, was the day that one of our local competitors in Binghamton, – John Dundon of J.P.Dundon Enterprises – called me to offer me a referral in Ithaca, New York (about a one-hour drive from Binghamton) at a company called “Paolangeli Construction”. J.P.Dundon Enterpises started about the same time as XONITEK, in the same place (the Greater Binghamton Area) doing the same thing (assembling and selling IBM PC “Clones). But, for whatever reason, John decided to pass the opportunity to me.
The owner of Paolangeli Construction was a rough businessman, very proud of his Italian heritage, and who went by the nickname “Pogo”. At the initial meeting, he sat behind a huge desk with a high-back chair whilst I sat in a chair whose legs must have been shortened – it was quite intimidating. We reviewed his needs, and I told him what my approach would be and offered an estimate of what it would cost. Then he quizzed me at great length regarding what a competitor in Ithaca had proposed – the specifications were very different. The local competitor was obviously over-selling versus the requirements, with my estimate being less than half of what the competition proposed.
Afterwards, Pogo took me to a job-site. He was “planting” the new Law School building at Cornell University. He showed me the “shovel” he was using to excavate the foundation. He looked at the shovel and said, “See that? That’s the biggest shovel within 200 miles of Ithaca. It can dig a hole straight down 30-feet. And whatever I put at the bottom of the hole, only I can get out.” Then he looked at me again and asked, “Are you sure what you are proposing is going to work?”
“<gulp>, Yes sir”, was my response.
Pogo awarded me the project on the spot. But when I asked for the deposit, he told me he would pay me when the job was complete. This unnerved me a great deal – if he “stiffed me”, I would be out of business. I thought about it for the entire drive back to Binghamton and through the night. Finally, I decided to accept the terms of the project and began work. True to his word, Pogo paid me when the job was complete – there was a heavy sigh of relief.
From that moment on, he took me under his wing and became my most influential mentor. I had dinner at his home countless times and he would give me guidance and advice on a host of both professional and personal matters. He awarded me a lot of work (all of the work) for the information systems used at his business and gave me a lot of referrals. He never gave me anything I didn’t earn and he was never easy on me – and I made sure there was never a situation where I would embarrass him.
“A mentor will never take money for their reward is seeing you grow. If your mentor wants to be paid, they are not a mentor, but a consultant.” – Joseph Paris
Transformation #2: Enterprise Resource Planning (ERP)
As the technology involving desktop computing and networking became ubiquitous and commoditized, and along with the services necessary to integrate and maintain, it became strategically important once again to transform the company. But to what?
Networks based on Personal Computers continued to mature, and along with this maturity came more powerful business applications designed to run on them. Some of the first such applications were naturally accounting solutions, with the very first being accounting solutions ported from the solutions that ran on mini-computers such as the VAX (from Digital Equipment Corporation – DEC) and the IBM System 3x). Seeing this emerging market, I navigated a second transformation for XONITEK to being a Value-Added Reseller (VAR) for Realworld (first, in 1987) then Macola (second, in 1988).
Both systems were based on an application from Micro Computer Business Applications (MCBA) that ran on mini-computers. MCBA had a suite of mini-based “modules” that fully supported a full Enterprise Resource Planning (ERP) solution for manufacturing, and not just core accounting and distribution. And Macola licensed the entire suite of modules to be used in their PC Network Based solution. By the early 1990’s, XONITEK had settled on the solutions of Macola as its ERP offering.
But Macola was very late bringing a solution to market that was Year-200 (Y2K) compliant. So I also brought on-board some other ERP solutions – such as Baan, MK from Computer Associates (a “clone” of Baan), Navision (which was purchased by Microsoft) – in the run-up to the year 2000 and the mad-rush for companies to be Y2K compliant. We were successful with these solutions, but our success with these solutions was severely hampered by the abject incompetence and selfishness of their respective owners to run their businesses.
“Since when has the world of computer software design been about what people want? This is a simple question of evolution. The day is quickly coming when every knee will bow down to a silicon fist, and you will all beg your binary gods for mercy.” – Bill Gates
“Grow or Go”
By 2001, XONITEK had dropped all other ERP “partnerships” (and I use the term loosely) and settled on the selling, supporting, and consulting of the ERP systems and related technology from Macola (which was acquired by Exact Software). And it was this offering that was the primary revenue source for XONITEK through the early 2000’s.
Then on June 7, 2003, I woke-up despising everything that I had built. And when I say “despise”, I really mean, a real deep fiery hatred – a loathing of everything about my business.
I hated my technology vendors (who didn’t care about the customer anymore, only the preservation of their precious “annuity”), I hated my clients (who looked at technology and their technology partners as proctologists (necessary for maintaining their health but thoroughly unenjoyable), and I hated my employees (who were interested in only doing enough to collect their paychecks). I was being beat-up on all sides and appreciated by few.
There was a lot of hate – it was a bad day.
Ironically, it all started from our winning a pretty significant ERP project the day before – what would normally be considered a joyous occasion. But it was what the Chief Financial Officer said when he was signing the contract that didn’t sit well with me and it turned into burning hatred of my business overnight.
As he was signing the Contract, he said to me, “You know why we are going with you? I will tell you. We know we are going to get fucked in this project. But we are going with you because we think you are going to fuck us the least.”
… And all I could manage to say in response was, “Thank you.” I hated that most of all.
I knew I had to change the company again and that I had to work on it with earnest – but to what? I was in a funk – treading water – trying to figure out what to do and where to go. But I knew I had to de-emphasize the role of technology.
2005 It was during this time that I received an invitation from David Deutsch, a boutique investment banker in New York City, but originally from Saratoga, New York, for his “Saratoga Weekend Summit” (a few years later it would be renamed to “Camp David”). The same conference to which I referred at the beginning of this article.
The Summit changed my life.
The theme of the Summit was “Grow or Go” with the premise being, “If you are not acting to grow your business, you better be acting to get out (i.e. sell).” It was the first conference I ever attended that was “outside” of my industry – and how refreshing it was. I was surrounded by really bright executives from all manner of businesses. There were investment bankers, hedge-fund managers, private equity firms, accountants, lawyers and business owners. The entire summit was dedicated to “strategic thinking” and not the tactical or logistical thinkers with whom I had traditionally met.
I left the summit inspired – vowing never to attend a “trade show” ever again, but only ones where “thought leaders” would congregate (a vow I have kept to this day). And I left the summit motivated to devising and executing a plan for either growing my business, or getting out of the business by selling. But which would it be?
On David’s recommendation, I also joined the Association for Corporate Growth (ACG), which was a professional organization dedicated to the Mergers and Acquisitions “ecosystem”. I found their frequent events very provocative and inspiring – I learned a great deal about business and finance from all angles. And I eventually became a member of the Advisory Board with a focus on Manufacturing and Logistics.
In September of 2006, I went to a “World Leadership Forum” at Radio City Music Hall in New York City. It was an “All-Star” cast of speakers including Jack Welch, Rudy Giuliani, Colin Powell, Bill Clinton, and several others. I needed to get outside my element and listen to other people’s ideas. The dialog was fascinating.
One of the speakers was Renee Mauborgne, author of “Blue Ocean Strategy”. I sat forward in my chair, riveted to what she was saying, hanging on every word. She snapped into focus the framework which I was using in parts through each of my previous transformations (and even the adjustments that were made in the interim).
My experience had been that the pattern always repeated itself. First there was a new and transformational technology and early adopters could command a premium on the selling, services and support of the new technology. But then the technology would become commoditized as an ever-increasing number of competing solutions entered the marketplace.
This commoditization would put pressure on price and margins. After the technology became commoditized, it was only a matter of time before the services and support also became commoditized. And once commoditized, only the strongest and the largest (volume) would be able to thrive, if not survive.
I saw this pattern in the past; first with IBM PC “Clones”, then with systems integration and network engineering (along with the related services), then with ERP solutions.
An analysis of my “present state”, my “Red Ocean”, was illuminating. By my own decisions and actions, I had eliminated almost 100% of my potential clients. And the ones I did manage to win would be increasingly less profitable.
- First, there was the competition: The trade periodical, “Manufacturing Systems Integrator” (MSI) produced an annual review entitled “The Top 100 ERP Solutions”. This meant that there were at least 99 competitors to the ERP solution I was offering. And since all viable ERP solutions were based on GAAP and APICS standards, they all did the same thing in practically the same way – the only differentiator being price.
- Next there was geography: Given the proliferation of ERP solutions, the probability of my being able to win a project that was more than a two-hour driving radius from Binghamton was near nil – it is unreasonable to expect otherwise.
- Then, there was fratricide: Given the thirst for ERP creators for revenue, they would assign more than one VAR of their solution in any given geography (sometimes several). The result would be that, even if the solution we offered were the preferred solution, the customer would “shop it around” looking for the best price.
- And last, the reputation of technology was tarnished: Given price pressures, the software companies would increasingly prioritize revenue-enhancement and cost-cutting over quality to the point where I would never hear of a project being delivered on-time, on-budget, with everything that was promised. The entire ecosystem became cynical.
I was in a death spiral. I had to “grow or go”. And I had to be darn quick about it.
In speaking with my peers and potential suitors, and without too much effort, I discovered that “go” was not an option. There simply were no buyers who would offer a reasonable price – not even 1x Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA). Given the circumstances, though, I was not surprised. Most (if not all) suitable candidates were struggling with the same business issues as I had – but they had not made a decision to “go or grow”, but rather they were going to plod-on, uninspired or paralyzed to face their challenge and change their circumstances.
So that left “grow”. But how? And to what? My challenge was to discover a “Blue Ocean” for XONITEK, chart a course, and get under way.
“Dans la légion, vous marche ou crève. – In the Legion, you march or you die.” – Unknown
Transformation #3: Continuous Improvement and Lean Six-Sigma
It was obvious that I was not going to “grow” in the ERP marketplace. Besides the Herculean efforts it might have taken for me to build a successful organization, my heart just was not into it. There is a saying which I often use, “If you enjoy what you do, you will never work a day in your life”. Continuing to make a go in the ERP market was just too much like work.
But at about the same time that I was becoming disillusioned with ERP, Exact Software introduced a web-based workflow solution called eSynergy – a solution for integrating and facilitating the human endeavor within a company where the “transactions” were in knowledge, not just currencies and quantities. It was a fascinating technology and, when fully implemented at XONITEK, saved an enormous amount of man-hours. We wholeheartedly embraced it and began offering it to our clients with enthusiasm.
It was unfortunate that Exact Software never “got it”; they never understood the real potential of what it had created. I believe it is because the original founders of the company – the ones who created this new offering – decided it was time to transition out and the new leadership was focused on the traditional ERP offerings. This transition was the beginning of the end for Exact Software – at least as far as XONITEK was concerned. What followed was a series of company leaders who were increasingly uninspiring until my level of disrespect and disdain for the company – and all it offered and stood for – was complete, and still is.
However, it did get me thinking about business processes. How business functions and how the knowledge transactions and efforts throughout an organization are constructed. And this was the planted seed that was to grow into the next transformation.
It was 2006 – three years of hating my business – and I was still faced with the challenge; How can I re-invent my business so that I can continue doing what I enjoy doing (increasing the performance of companies), but eliminating the requirement of technology to achieve the desired results? And how can I design my offering so that it conveys a unique and compelling argument – it must not be a commoditized offering in the “Red Ocean”, but a “Blue Ocean” offering. Embarking on my own “Blue Ocean” exercise, I developed the following (summarized).
Red Ocean Strategy
Blue Ocean Strategy
|Compete in Existing Marketplace||Create Uncontested Marketplace||· Break from self-imposed limitations associated with|
geography and dependence on technology
partners.· Seek to deliver management consultancy services
where the “big-guys” won’t and the “small-
|Beat the Competition||Make the Competition Irrelevant||By flying between the competitive threats, pursue opportunity without competition.|
|Exploit Existing Demand||Create & Capture New Demand||· Instead of acting as a “staff augmentation firm” with|
“newly-minted MBA’s” – delivering expert
services by highly specialized, competent and
experienced industry expert consultants.· Creating a “deep bench” of expert consultants who
can act as “Seal Teams” ready to deploy.
|Make Value/Cost Trade-Off||Break Value/Cost Trade-Off||Turning the focus of the customer from the investment (cost) required to engage to the value received as a result.|
|Align the entire system of firm’s activities with its strategic choice of differentiation at low cost||Align the entire system of a firm’s activities in pursuit of differentiation AND low cost.||· Eliminate everything that does not add value (only|
friction) in pursuit of our own strategies.· Make it so our reaction to customer requirements is
at light-speed.· Build a message, develop the means, organize the
logistics, and deliver the value.
I decided that reinventing my company to deliver expert services related to Industrial and Systems Engineering (not “information systems”, but “systems” in the most general sense), would be the single best choice; being able to leverage existing assets which have been retrained into existing clients with new offerings – and at the same time, being able to broaden our marketplace – was a compelling story.
Obviously, I had to do a deep-dive in the subject to learn everything there is to learn about the disciplines related to Industrial and Systems Engineering. But fortunately, I had spent the previous 15 years implementing ERP in manufacturing environments, including cost accounting, production scheduling and execution, logistics, supply chain, and finance – so making the transition to pure Industrial and Systems Engineering was not very difficult as I had already been working in the field.
The branding we were going to leverage as a wrapper for these new offerings and services were the tools, methodologies, and value-propositions associated with “Lean” (also known as the “Toyota Production System” or “TPS”) and “Six-Sigma”, which is commonly referred to as Lean Six-Sigma (or even just LSS), and which were to be presented to our clients under the over-arching deliverable of “Continuous Improvement”.
With an emphasis on strategy execution, our value-proposition was to be in the form of delivering consulting engagements that improved the operations within a business and across its value-chain.
There were a lot of challenges in this transformation, not the least of which were the existing employees I had as consultants. Although they were all inherently capable, and I was offering a path and support for them to re-orient their capabilities, none of them made it to the new “XONITEK”. Those that did not quit, I had to fire – and the ones I had to fire I should have fired sooner than I did.
Later, when asked about the difference between the “old team” and the “new team”, I would simply state; “The new team sees a wall and tries to find a way over it, around it, through it. If there is a problem on a project, I almost always hear about it past-tense – it’s been resolved. My old team would hit the same wall, sit down, have a smoke, and wait for further instructions.” What a pleasure it is working with my new team.
The other challenge, which was quite the surprise and very disappointing, was that our offering was not embraced by our existing ERP clients. Although we had about 100 or so of these clients, and they were all happy with our ERP services, none of them were interested in improving their operations – at least, not with us.
It took a while to discover why, but I eventually did. The challenges were;
- The existing clients (mostly small, family-owned, enterprises) were fixated on cost over value. It didn’t matter that an engagement might free-up a ton of money and increase free cash-flows from operations, they were more fixated on the pound of money it was going to take to realize that benefit.
- Most of these clients were not interested in growing their business; they were more “lifestyle” businesses. So long as the owners were making enough cash to maintain their lifestyle, they were happy. The last thing they wanted to do was to sit in a bunch of meetings and listen to the pain that is inevitably involved in change.
- The small manufacturers (which constituted our existing client base), did not want to engage unless they received grant money. And the quasi-state agencies in charge of awarding the grants also had their own consultants (almost all of which I would not hire if given the opportunity) to deliver the services – creating a barrier to entry. The entire ecosystem smelled of “la cosa nostra”, and exists to this day.
But lastly (and most significantly) we had a “branding issue”. Most existing clients could not understand the transition of the “old XONITEK” and its technology offerings to the “new XONITEK” and its Industrial and Systems Engineering offerings. And an even greater challenge than this was that new prospects thought XONITEK was trying to sell them an ERP system.
The only solution to this was to create another company, one for the new Industrial and Systems Engineering offerings (XONITEK Consulting Group International) and one for the old ERP and Technology offerings (XONITEK Technology Group). Each was a separate entity (both owned by me) and each had its own branding and website.
The other dramatic shift in our own strategy execution for the Industrial and Systems Engineering offerings was to pursue larger engagements with publicly-traded companies, of which almost all had an international footprint. This was actually a lot easier than it might first seem.
“In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.” – Teddy Roosevelt
Transformation #4: Operational Excellence
From 2006 to 2008, we built our Industrial and Systems Engineering practice with the emphasis being on Continuous Improvement and Lean Six-Sigma. We had developed a very solid team of experts in their respective fields and industries and successfully completed many engagements with the Fortune 500 – with some of these engagements taking us outside of the United States and Canada (our traditional marketplace).
But even though our clients were very pleased with the results, I was not quite satisfied with the overall general impact of Continuous Improvement projects and initiatives within companies. I saw these efforts as mostly “spot” firefights and not organized as a program – and whose benefits were cellularized and usually atrophied once complete as the improvements slowly eroded back to the “old way”. We were adding considerable value, but I knew we could do so much more – I just was not sure how.
Then, in late 2007 and into 2008, the financial crisis hit – sending the world economy into recession. And along with this recession, came the layoffs. These layoffs resulted in a flood of newly-minted consultants (with often dubious capabilities) entering the market and causing price-pressures on our offerings. And then there was the reductions in opportunities themselves as companies trimmed-back all manner of non-essential spending.
This, combined with my overall dissatisfaction with “what could be versus what was” motivated me to seek the “next generation” of what “continuous improvement”. In particular, I saw an enormous disconnect between what the strategists in a company aspired to be and what activities in operations was delivering. Companies needed to become High-Performance Organizations, and they were not realizing this aspiration (if, indeed, they had such an aspiration in the first place. I formulated a hypothesis and presented my findings in an article entitled, “The Toyota Production System is Not Nearly Enough”
In May of 2008, at an Annual Conference of the Institute of Industrial Engineers (IIE), I had discussions with several of my peers about my feelings and ideas – and I discussed the need for companies to achieve “Operational Excellence” (until then, not a very wide-spread concept – certainly one that was not anything other than a “rebranding” of Lean Six-Sigma).
Immediately after the Conference, I created a Group on LinkedIn (then a relatively new social media website for professionals) called “Operational Excellence”, which was to be a place to organize my thoughts on the subject and to gain input from practitioners and other thought-leaders on the subject.
I read intently the posts and interactions between the participants, trying to understand the challenges and the opportunities. What I discovered from my observations and participation was that the challenges faced by people and companies around the world were nearly universal in nature, but that the approach to realizing outcomes varied dramatically from geography to geography, from industry to industry, and even within the scope of responsibilities of the individuals. What would work in one place, and in one company, could not be “cut and paste” into another set of circumstances – but, rather, had to be replicated to embrace the different conditions that existed from one to another.
What I felt was needed was a base-line definition of Operational Excellence. Up to that point, there was no real definition of Operational Excellence, but merely descriptions of what it looked like. My research and contemplation eventually led me to write an article that established the base-line called the “Operational Excellence Manifesto” and to define Operational Excellence as;
“Operational Excellence is a state of readiness that is attained as the efforts throughout the organization reach a state of alignment for achieving its strategies; and where the corporate culture is committed to the continuous and deliberate improvement of company performance AND the circumstances of those who work there – to pursue ‘Operational Excellence by Design‘, and not by coincidence.”
I decided to create the “Operational Excellence Society”, which was intended to bring the conversations related to Operational Excellence from Cyberspace and make them Face-to-Face by creating a loose network of like-minded individuals who shared similar passions and were located near one another to exchange ideas and experiences – and to also be a place where professionals might network.
The demand was such that, in 2012, I eventually decided to create the Operational Excellence Society as an official entity as a think-tank dedicated to the creation and aggregation of content and knowledge – and to create a curriculum and environment where companies who wanted to become High-Performance Organizations can rely upon as their model and framework – called the Operational Excellence Enterprise Readiness® Model and the accompanying Operational Excellence Enterprise Readiness® System (OpExERM/S).
As a think-tank, the Operational Excellence Society does not offer consulting services, but serves as place where people can go to learn about the discipline, license curriculum to companies who wish to embrace Operational Excellence as the key facilitator in the successful execution of their strategies, and as a certifying body.
Today, the Operational Excellence Group on LinkedIn has almost 50,000 members located around the globe and across all industries. The website (www.opexsociety.org) enjoys more than 500,000 visitors a month who consume more than 2,000,000 pages of content. And the eNewsletter (“Operational Excellence by Design”) has over 20,000 subscribers. It has become the undisputed “center of gravity” for the discipline of Operational Excellence.
And as for XONITEK: Today it is still a consultancy that engages clients (mostly publicly-traded multi-nationals, state-owned enterprises, or “oligarchs”) all over the world for projects that improve operations and facilitate strategy execution – but it is also helps companies build their own internal Operational Excellence Programs, licensing and leveraging the OpExERM/S as the basis. We are known for getting things done and, with our experience in transformational change in multi-cultural environments – making them stick.
What’s in store for tomorrow? I can’t say for certain (partly because it’s still in development, and partly because I just don’t know yet), but stay tuned – I am sure it will be interesting.
“The great questions of the day will not be settled by means of speeches and majority decisions but by iron and blood.” – Otto von Bismarck
In other words; once you have thought all the thoughts you can possibly think, once you have written all that can be written or said all that can be said, it’s time to do. Nothing ever got accomplished by thinking, writing, speaking, but not doing.
As you can probably deduce by all I have written, I am not a person that needs to accumulate and analyze a lot of data before I make a decision. I make all of my decisions based on the reasonableness that the outcome that will be achieved is what I desire, and on the level of my confidence that the selected course of action for its pursuit has a realistic chance for success.
“Plans are nothing, planning is everything.” – Dwight D. Eisenhower
In the Marine Corps, they refer to “the 70% solution”; where, if you have a plan that has a 70% chance of success, it’s time to execute. Everyone with any experience knows that any plan will turn fluid the moment it is initiated. Therefore, people have to rely on their training, their experience, and their support for achieving success.
“Stay committed to your decisions, but stay flexible in your approach.” – Tony Robbins
After all, how much data needs to be collected and analysis performed before you are absolutely certain that the decision is the right decision? What making a decision really comes down to is trust; trust in yourself, trust in the clarity of purpose, trust in those who will help you achieve a successful conclusion.
“Whenever you see a successful business, someone once made a courageous decision.”
– Peter F. Drucker
But, most important, trust that your ego is strong enough to redirect, or even stop, if it becomes obvious that the outcome becomes unreasonable to achieve – that “the juice is not worth the squeeze”. Sometimes, even if you win, you lose. Know when to determine this.
“Sometimes you make the right decision, sometimes you make the decision right.”
– Phillip C. McGraw
I have made many mistakes over my 30 years in business, many more than I can count. Some mistakes cost me mightily. Most of my mistakes came from waiting, deferring, hoping. I knew in my gut what had to be done, but I didn’t do it. Sometimes, it might have been fear that held me back – fear of the unknown. Sometimes it was misplaced loyalty – where the loyalty was not reciprocated. Sometimes it was not following my own advice – like every time I do something on a handshake instead of a formal, written agreement. Sometimes (not too often) it was ego that got in the way – where I let my image of myself overwhelm what I knew in my heart, in my gut, or in my head what needed to be done.
“Making good decisions is a crucial skill at every level.” – Peter Drucker
Fortunately, life is full of “do-overs”. You will hardly ever be faced with a decision, certainly a career decision but also most life decisions, where there is not an opportunity for a “do-over”.
But in every case and throughout my entire life, one quote has served as my mantra…
“Do what you can, with what you got, from where you are.” – Teddy Roosevelt
And certainly, if I am to ever make a colossal mistake, there will be no skid marks…
By Joseph F Paris Jr
Joseph Paris is an entrepreneur with extensive international experience. He is the Chairman of the XONITEK Group of Companies, an international management consultancy firm he founded in 1985; and the Founder of the Operational Excellence Society, a “Think Tank” dedicated to serving those interested in the disciplines of Operational Excellence. In addition, Paris serves on the Advisory Board of the System Science and Industrial Engineering Department at Binghamton University and on the Process Industries Division at the IIE. He is also on the Editorial Board of the Lean Management Journal and a sought-after speaker, guest lecturer and writer.
Connect with Paris on LinkedIn