Chapter Five
Data Communications: Market Order 1973-1979
LSI Modems, Statistical Multiplexers and Networks
5.6 ADS: Rebirth as Micom 1973-1976
In 1973, ADS, once the rising
star of data communications, closed its doors. Neither Norred nor any Rockwell
executive willing to risk his reputation on the now soiled investment could
induce even a hint of interest in it either as a business or as a distressed
sale of assets. In March 1973, Rockwell management, tired of explaining to themselves
why they tolerated a business without any prospects of generating income
sufficient to cover even the interest on Rockwell’s debt, skipped filing the
customary Chapter 11 bankruptcy and discharged ADS into a let’s-get-it-over
Chapter 10 bankruptcy. Rockwell flew an executive to London to inform their UK distributor, Case LTD,
their one important customer, of their decision.
Roger Evans, the Case executive
responsible for data communications, and thus the Rockwell relationship, first
reacted with dismay. For any day, Evans had been expecting to hear Case and ADS
had won a multi-million dollar order for ADS 670 multiplexers from the British
Post Office (BPO, to become British Telecom). Evans quickly reasoned, however, that if Case bought the rights and assets to
the multiplexers from Rockwell, then Case eliminated BPO’s sole objection: the
multiplexers were not sourced or manufactured in the UK. It would also initiate
Case’s metamorphosis from distributor to manufacturer, an evolution always
contemplated yet never thought possible. Evans had to see Norred; for any plan
to be work, he and Case needed Norred.
Norred too considered picking up
the pieces of ADS and plowing ahead. With bankruptcy wiping out the debt, and
thus the ongoing interest expenses, there just might be enough revenue to
generate a small profit. The critical assumption hinged on Case, for without
their business, the numbers simply did not compute. There his thoughts
generally ended. The conservative engineer in him called an end to such
daydreaming and reminded him he needed a job. He figured that he better call
Carr at Codex, who he knew from trying to sell ADS, and who had left him
feeling that he would hire him if given the chance. Then came Evan’s call.
Evans and Norred cut to the chase.
Evans wanted Norred’s help and proposed Norred assist Evans and Case’s lawyers
specify the assets and intellectual property needed to satisfy the on-going
needs of Case and the hoped for contract from BPO. Case would assume all the
costs and legal responsibilities of working with the bankruptcy court and, if
successful, Case would then contract with a company Norred would form. Only as
the weeks passed, it appeared their efforts had been in vain. Norred recalls:
“Almost as
a final ditch effort, we made a proposal to the receiver to buy half of the
inventory and to acquire a non-exclusive manufacturer's license for the product
line, and he accepted it.”
On hearing the good news, Norred
and Evans met in Evans’ hotel in Woodland Hills to celebrate and decide upon
their next actions. Evans wanted to return to England as soon as possible with
a contract executed with Norred’s new company to show BPO and secure the
contract. Evans pressured Norred to name his company so a letterhead could be
created on which to document their relationship. Exasperated, Norred said, “why
don’t I just call it my company?”which he then shorten to Micom. Norred
remembers:
“It was
just a business opportunity, with no real business plan whatsoever. I owned
100% of the company and put a little cash into it, I think $20,000, just so it would have a little
equity on the balance sheet, and the company literally was a company in support
of Case."
For the next two and one-half
years, Norred and his small company of never more than a dozen employees
survived by manufacturing and servicing formerly ADS products for Case while
they
"dabbled
and diddled around with some microcomputer-based products as well as other
communications interface products that we tried to sell, not terribly successfully,
frankly."
Norred knew he needed to create
new products. Depending almost entirely on Case for his marketing and sales, he
naturally tried to incrementally innovate products Case had already sourced
from other manufacturers in hopes of replacing them. Rarely did he meet with
success. Desperate to find products to create and sell, Norred turned his
attention to products interconnecting the multiplexers he already sold. Norred
remembers:
"The
minicomputer manufacturers were all very poor at data communications products.
So I decide there was a market opportunity. We had all these remote
multiplexers and we could do all this very powerful networking with a very
simple interface. The only flaw was -- we tried to sell it to Data General and
to everybody -- was lack of software support; we never really were very strong
in software. We recognized it, but never made any attempt to resolve it, and as
a result, we never went anywhere."
By late 1974, Norred even thought
hard about leaving data communications and doing something he would enjoy more: “I never did like the data communications
business." But as he tried other ideas on, he kept returning to
what he had been doing for the last six years and decided that the
opportunities in data communications simply too “interesting.” Resolved to grow Micom, he again tried to raise venture capital. He remembers:
"1974, '75
was, I believe, the all time low ebb for venture capital. Frankly, I don't
recall having maybe more than one meeting with anybody that had any interest in
investing in Micom. I couldn't get any attention from anybody. We didn't
represent in our business plan anything particularly unique or new, we looked
like a 'me too.’ By my nature, I suspect, the numbers that we presented were
conservative -- we tended to meet our numbers -- and most venture capitalists,
in my mind, always take them, divide by three or something, and so we were
unsuccessful.
The
decision I took was to go after what I call the custom phase of our business.
The strategy was to find people who would be willing to pay us for the
development of a data communications product that they couldn't buy on the open
market, but needed badly enough that they were willing to pay somebody else to
design it and manufacture it for them. The first one of those was a company
called Datran."
Norred knew marketing and selling were not his strengths.
Yet neither could he find someone to hire; everyone he talked to sounded all too willing to spend money he did not have. So while he sought new customers to
fund new products, his most reliable source of revenue and new product ideas
remained Case. Evans remembers:
“I was
concerned that we were becoming unacceptably dependent on the R&D coming
from Micom, and Bill was having a hard time putting a real company together. He
never really found a marketing guy before that he felt he could work with the
way he felt he could work with me. So we put together a deal whereby Case was
going to invest in Micom -- a minority position. It was a complex deal where other
European investors were going to get involved too. I was going to come over
here as the guardian of that investment, but also to add the marketing
ingredient to Micom and, perhaps, sell some of the Case products we developed
in the UK over here.”
Evans joined Micom in May 1976,
shortly before the scheduled closing of the Case-led investment. Norred tells
what happened next:
“I can
recall very clearly looking out the window one day and seeing Derek Levell, who
was the joint managing director of Case, coming up the parking lot to Micom,
and I wasn't expecting Derek. He was there to give me the good news that they
had run into some financial difficulties that they hadn't anticipated. And they
would not be making the investment in Micom, and that, because of their
financial difficulties, they were going to be curtailing or eliminating a
substantial number of the development contracts that we had with them.”
As a founder of Case, Evans could
have returned to England, but “decided to cut the cord and stay here anyway.” He focused on Datran, which quickly became Micom’s leading customer, while
trying to find other customers. Then came another blast of unwelcomed news: On
August 26, Datran, owing Micom $110,000, 80% of their accounts receivable,
filed for bankruptcy. Evans recalls the shock:
“The day
they filed, we decided we had two weeks in order to raise some money or we were
out of business.”
Norred and Evans scrambled to
find capital investors to save their company. They contacted a number of
venture capitalists before abandoning the idea. Then they focused on finding a
corporate investor, hopefully to make a minority investment but, failing that,
to acquire their small ten-person firm. They contacted Vadic, a supplier of
modems to many of the same manufacturing representative firms they used. Vadic
would hire them but had no interest in buying their company. They contacted
Case, but generated no interest. They thought of calling Carr at Codex. Then a business broker introduced them to John M. Thornton, the chairman of the
board of Wavetek, a company on a recent spree of acquisitions. Thornton
proposed the investment to his board, which turned him down. Unwilling to let
what he regarded as a potentially good investment get away, he asked for, and
received, permission to make a personal investment in Micom. In September 1976,
acting as agent for a group of investors including David M. Goodman and Martin
B. Ortlieb, Thornton advanced a loan of $35,000, invested $2,160, and made a
line of credit of up to $200,000 available in return for 51% of Micom. Norred and Evans had once again eluded disaster.
Knowing that if they did not settle on a successful
strategy soon they would be living a repeat of the past month, they strained to
craft a scenario both realistic and likely to succeed. The recent flurry of
statistical multiplexer announcements by Codex, Infotron, DCA International,
and Timeplex dated their TDMs. To innovate a statistical multiplexer, however,
meant becoming a systems supplier with large sales and service organizations, a
strategy they thought beyond their means and interest. But to bank their future
on continuing to do more of the same seemed sure to invite failure. They
considered selling inexpensive data communication products by catalog, but decided
to stay the course for a few months longer while Norred continued working on
other potential products. If nothing came of their efforts, they would get into
the catalog business.
