Chapter 10 - Networking: Market Competition 1981-1983
The success of Micom’s IPO in June 1981 gave management the resources they always struggled to have, resources to invest in their new hot product, their Micro 600 Port Selector. It would be renamed a dataPBX within a year and be positioned against LANs, the direct and most-serious competition. Initially Micom would prosper with its dataPBX. There were moments of concern at the beginning however. Norred recalls:
There were discussions on more than one occasion, two that I can recall, where we came very close, and it was almost my recommendation, to get out of the business, to literally kill the product line, because the concentrator product line was doing so well, it had so many things going for it being a product rather than a system oriented product, and I think that every time we got to the point where we were going to kill the product, we got another order for 50 or something. It was that kind of situation. We were getting so many orders for it that it was very tough to cut it off.
Steve Frankel, head of engineering and soon to be of marketing, remembers managing the dataPBX product:
We had enough channel strength and enough resources to find another layer of sales and supporting people to start making some real headway in that market, and then we really started evolving the data PBX into a much more wider capable product, distributing the access to the switch, increasing the capacity of the switch, adding data over voice facilities to the switch, and integrating statistical multiplexers and protocol converters and a whole rash of other things. The end product of all of that integration of technology was that Micom ended up becoming the leading supplier of that product.
Roger Evans, VP of Marketing and to become co-President with Norred, remembers knowing about LANs, but never having the money to do anything about them:
I know exactly why we didn’t develop a LAN. We had a very simple, extremely simple-minded approach to running this business, which is why we were so consistent from a profit standpoint for so many years. We had a purely top down budgeting approach in this company. What I mean by that is that for each year we put the annual operating plan together, we looked at what our sales projections were for the year. We knew that we were going to make 20% pre-tax, so that was a given. What was left was, after we applied out what we knew would be the manufacturing costs for the revenues we were planning, and we were pretty good at being able to project that – we ran a pretty tight ship from that standpoint – what was left was operating expenses, and we divided that up against a formula that I don’t think we changed from one year to the next, in terms of the percent of operating expenses that went to marketing and development and G&A. That’s one of the reasons again, if you look at our financials, that it was totally predictable. It’s one of the things that Wall Street loved. The way we got there, however, had some side effects. One of the side effects was that the development pot was, if you will, fixed. It was fixed in the sense that there was never any attempt to decide that strategically, we had to do certain things and, therefore, we might need more bucks in development to accomplish them, and something else might have to give, maybe even pre-tax profit. We never went through that cycle at all. It was totally pre-ordained what the development dollars were.
Secondly, Bill and I were both extremely conservative. We both felt the same way, that when it came to figuring out priorities from the product development standpoint, the number one priority was protecting our position. We had seen far too many companies lose a market position that they developed by getting so enamored with other areas that they allowed somebody to come up behind and take away what was rightfully theirs. We focused on protecting the high ground that we had already achieved with our number one priority. Our number two priority was adding enhancements to increase our revenue potential on the high ground. Number three was developing new products that were closely allied to the areas that we were already in, and if there were any bucks left, and there never were, going into significantly new product areas. We identified LAN as something we should really be in. Unfortunately, given the way that we ran this business, it never got funded.
The data PBXs success may have brought problems, but it would soon represent over one-third of Micom’s sales. Who could argue with success?