User:C. Neary:The Sagian Story
The Sagian Story
Authored by: Chris Neary & Carl Murray
Following is a short history of SAGIAN Inc. in the 1990's, as told by two of the founders. The story is told as an example of entrepreneurship that may help to guide or inspire others who have the same spirit.
Part 1: The leap
In the late 1980s, Chris and Scott were working for Dow Chemical, helping to commercialize the CAMILE, a small data acquisition and process control system. Tim, a process control engineering expert, was one of their best customers in the Eastern Region at Eastman Kodak in Rochester, New York. Over a two-year span, friendships flourished from their passion for new technology. Through customer interactions we sensed a large unmet need to help laboratory and process researchers do automation. The products of the day forced researchers to spend too much time developing and programming, so they felt an organization that offered integration services would be successful. Still, no one was daring enough to give up a steady corporate paycheck and generous fringe benefits. We talked and talked about it, and decided we could at least make a living as a small integration company. We even wrote a business plan in November 1990.
In the meantime Tim had become a willing beneficiary of Kodak downsizing and was working for a small integration company in Rochester, while pursuing a master's degree in education. In January 1991, he called to say he was planning to commit to a six-month teaching assignment the following Monday. He told us "If we're going to form a company, we'd better do it now.” Meanwhile, our wives were tiring of the endless “what if” discussions and simply said “Either do it or shut up”. So we did it, but in a staged manner. Two of us maxed out our Visa cards for $7,000 each. Later, one also convinced his father-in-law to give the company a $20,000 loan (it was eventually repaid). We met and put together a business and organizational plan, and assigned company titles - President, V.P. of R&D and V.P of sales & marketing. Chris, drawing the short stick, was decided to be the most qualified to focus on marketing and sales.
SAGIAN (the name is derived from "sage" or "wise," for intelligent automation) incorporated on January 9, 1991. Tim became the first employee and SAGIAN’s first contract was to provide CAMILE training for Dow’s customers, which was right in-line with his education experience. Scott followed about two months later. Chris stayed on at Dow until mid-1991 to become vested in the pension plan to earn his "start-up" capital.
What factored into taking this “leap of faith”? It really helped to have successful, working wives whose health insurance could cover the family. Chris also met with a “graybeard” business consultant in the Bay Area, who proceeded to tell him all the reasons why this proposed venture was doomed to fail. “Based on my experience, you have less than a 2% chance of success”, said the consultant. “There are really only two points in your life when it makes sense start a company. One is when you’ve gathered a lot of corporate experience and your kids are out of high school. At that point you’re old and wise and you know what you’re getting into. The other point is when you’re young, stupid and naïve, don’t know what you’re getting into and think it should be easy. You three fit into the latter group, and the failure rate for that group is very high.” The challenge of being told “they would fail” was the final motivation we needed to “take the leap”.
In early 1993, Carl, who had worked at Dow Chemical as the project manager for the development of the CAMILE TG software platform, assumed responsibility for all software development efforts.
Part 2: The early company
At inception SAGIAN had three offices where each founder lived, a spare bedroom in Rochester, NY; a spare bedroom in Concord, CA; and a third in Midland, MI. With early Camile integration projects at Kodak, we quickly needed to expand to a real office in Rochester. In Midland we also felt the need to move to a whopping 150-sq. ft. one-room office in the basement of Shultz Heating & Cooling in Midland, MI.
In 1992 the Midland office relocated to 1800 sq. ft. in Park 100 in Indianapolis. This coincided with a spousal relocation to Indianapolis with the merger of Dow and Eli Lilly (Dow Elanco) – a reality of dual career couples. At this point there was significant debate between the three founders as to where to establish the SAGIAN company headquarters - Northern California bay area or Indianapolis Choosing Indianapolis was one of several key decisions that lead to SAGIAN’s ultimate long-term success, although at the time there was concern whether SAGIAN would ever need 1800 sq. feet of space!
The company’s original mission was to provide custom laboratory automation in the four main areas where data can be affected by automation: robotics, data acquisition and control, data management, and instrument interfacing. The early focus was on providing systems integration for customers who purchased the Dow CAMILE system. When we started the company, we took the knowledge that we had as bench chemists and engineers and applied it to the solutions we were creating for our customers. They were mainly chemists, so we talked to them on a peer level, and then we'd go back and build our solutions. Our goal was to make the equipment a slave to the researcher, and not the researcher a slave to the equipment.
In the beginning, our integration applications were all over the board. We did a project for injection molding research for Raychem that involved about 100 to 150 different inputs and users’ screens. Then there was a Scrubbing Bubbles research application for Clorox, where we constructed a stage system that scrubbed a tile which was sprayed with different test cleaning solutions and a laser was used to measure how effective the cleaning process was. We also helped LifeScan develop a QC system to calibrate their blood glucose measurement products. Eventually, we were integrating many different devices and instruments used in research laboratories and that got us into automated motion control and robotics”.
Because of SAGIAN's system integration roots, we never envisioned becoming the developer and manufacturer of products. However, as early as 1992 we implemented a movement to “reuse” items previously built or developed, resulting in the company’s first product: the Intelligent Interface Device (iid). Although the iid may have been a “flop” given the markets acceptance of the product, it proved to be an integral component to the success of nearly all of SAGIAN’s future integrated solutions. The iid addressed a critical technological need that Windows 3.1 could not address: a reliable, configurable, real-time control system for multiple serial devices.
|iid press release, ORCA and SAMI|
In 1993, we heard that Hewlett-Packard was looking for companies to serve as system integrators for their new ORCA (Optimized Robot for Chemical Analysis) product. After a visit to the SAGIAN facility in Midland, MI (during an insect infestation), HP decided to enlist SAGIAN to focus on environmental applications for the ORCA and that got us “into robotics". We had probably about 25 or 30 sales calls together with the HP sales staff that netted us zero orders. However, the CAMILE integration business was going well and was getting the company involved with very early stage combinatorial chemistry efforts. During one of those sales calls at Hoffman LaRoche, the discussion wandered from chemistry automation to assays and robotics. We made a follow-up visit to talk about the company’s capabilities and plans and soon that turned into the largest order the SAGIAN had had – around $250,000. That was really big deal for us, but the problem was that none of what we promised existed, so we had a lot of work to do. We made the decision to develop a number of reusable hardware and software products, eventually resulting in SAMI (SAGIAN Automated Method Interface), a plate sealer, a plate carousel and a CO2 incubator. This order launched our entry into the high-throughput screening market.
Acquisitions and growth pains
Although our core CAMILE integration services business was going well, CAMILE was actually becoming a hindrance to Dow's bottom line, so we persuaded Dow to sell the system to SAGIAN in 1994 - with the requirement that we could service Dow's customers. The purchase included an entire development and manufacturing facility fully equipped and staffed. All operating infrastructure including shipping, receiving, assembly, documentation, testing, procurement and order entry existed. Although the facility was located some 300 miles away in Midland, Michigan, no significant changes were needed to manufacture and ship product
A similar opportunity appeared the next year when HP indicated they wanted to get out of producing the ORCA. We positioned ourselves with HP the way we did with Dow. We recognized that the ORCA was not their mainstream product, but it was sold to some key customers so they couldn't just pull the plug on it. So, we made a proposal in 1995 to continue selling and servicing it on a global basis. Unlike the CAMILE acquisition absolutely no manufacturing infrastructure was received in the ORCA technology purchase. Coupled with the lack of infrastructure was a pressing need to immediately fill orders. An all-out effort successfully implemented a plan that set up facilities, acquired inventory, hired manufacturing associates, transferred technology/know-how and hired support staff. A process that HP estimated would take three months was completed in 45 days and culminated in producing the first robot. With the shipment of this first robot the SAGIAN Manufacturing Operations Group was born. At that point, we had two products, which really set us apart from the other integrator competition, and we really felt good about the future of the company.
We had done quite a number of custom ORCA applications which were very good but not as profitable as we would have liked. Many involved integrating Beckman hardware, such as the Biomek. After the ORCA purchase, we entered into a distribution agreement with Beckman to provide standard “core” systems based on the ORCA and the Biomek 2000. Beckman would actually sell and deliver these Core Systems, and SAGIAN would continue to offer “custom” systems, including any custom variations of the Core Systems. The Beckman alliance took nearly two years to evolve, from initial contact at the High-Throughput Screening Conference in 1994, where the BiomekTM 2000 had debuted.
|Beckman Core Systems examples|
In essence, the Beckman transaction signed in March of 1996 guaranteed a sales volume for not only ORCA but also almost every peripheral device previously sold/developed. The demand for the official Core Systems was modest, but the demand for customized Core Systems grew rapidly. As you can imagine, an already insufficient infrastructure was pushed past its maximum limit. Inventory which was virtually non-existent in 1995 ballooned to over $4,000,000. Existing Excel based spreadsheets became extremely difficult to manage for groups such as procurement, shipping /receiving, inventory, and manufacturing engineering. Ramping up assembly and standardizing core systems only added to the onslaught as the entire company scrambled to create obscure kits, training aids, installation guides, marketing literature and a bevy of other items needed to feed the Beckman distribution machine.
SAGIAN needed to grow to keep up, and fast. But as is typically the case with young companies, money and cash-flow limited the growth potential. The venture capital explosion had not yet happened and for the most part venture capital funding was not available because we were so small, the business was predominately based on services and one customer controlled a large part of our distribution. Moreover, we were heavily in debt and did not have the capacity to borrow additional funds. The other option was to sell the company. In fact, inquires about a buyout had already been filtering in from several parties.
Part 3: Acquired
We decided to seriously explore the buyout option and entertained many inquiries. The vast majority of such potential mergers and acquisitions never actually happen, however they burn a lot of time and energy in small companies, where time and energy are precious commodities. Unknown to us, Beckman had begun to consider an acquisition offer only a few months after entering the co-marketing agreement, and this offer was placed on the table in August 1996. Negotiations ensued and culminated in December 1996 with Beckman acquiring SAGIAN. The deal gave us an exit strategy that ensured our employee base would be well treated. We were all well treated, and proof of that is that four of the five SAGIAN founders are still with (now) Beckman Coulter”.
Quarterly earnings expectations, a phrase seldom used in a private company, suddenly seemed to become the reason for our existence. Eight important months, four each for International quarter end (February, May, August and November) and another four for U.S. quarter end (March, June, September and December) presented additional variables to manage along with the challenges of significant increases in production. Systems that were originally to be supplied to customers within forty-five days of receipt of order were expected to be shipped within one or two days or one or two weeks. In November we shipped eight systems, four of which would occur within the last few days. The SAGIAN staff did a tremendous job taking orders from Beckman, some of which literally came on the back of napkins, and translating them into something the operations group could build and process. Shipping personnel organized and prepared these large shipments, the majority of which were going overseas. Inventory staff ensured that purchased parts and components were always available which in some instances resulted in unorthodox tactics such as having parts delivered via metro cab to an awaiting plane.
In June of 1998, the company moved into a 60,000 sq. foot facility. This was the first time in the history of the organization that everyone (other than field personnel) has been located in one city, under one roof.
At that time, with most workers younger than 35, many of our energetic and talented engineers and developers routinely put in 60 to 70-hour work-weeks. We hired young college graduates who didn't mind working 12 hours a day. Many of the engineering hires have been recruited from Rose-Hulman Institute of Technology in Terre Haute, Indiana, a small technical school that shares the SAGIAN culture. All our key technical managers then had degrees from other strong Midwestern engineering schools such as Purdue University and Michigan Technological University. At these schools, you basically sink or swim on your own. You have to be motivated, goal oriented, and manage your time well, or you won't succeed. A common trait shared by all our employees is a strong personal commitment to quality and a genuine concern for customer satisfaction. In the early stages of our company, I can't say we offered attractive salaries, work hours or entry level positions with clearly structured career paths. We're not quite sure why these enormously talented people decided to join us, but we're sure glad they did. A lot of the really great things that have been done by young people who jumped right in and took ownership of the problems.
Many acquisitions of small companies by very large companies don’t go well. Much of the value of the small company can be lost and people can become disillusioned and leave. This hasn't been the case in the Beckman acquisition of SAGIAN. In fact, the opposite is true. The Indianapolis operation has continued to grow, the staff there continues to play a key role in multiple Beckman product lines, and the former SAGIAN owners occupy very senior positions in the Beckman Coulter organization. What was done right? What it really comes down to is having a good understanding of what you’re getting into when you’re being acquired. We (the founders) had worked for very large companies (Dow and Kodak), and we knew the big company would be coming out to instill us with the wisdom of their size and girth. Although the SAGIAN employees originally had no options or shares in the company, incentives were created for employee base if we reached certain post acquisition milestones. So, yes we had a new employer that we had to work hard for, but we also had to work hard to insure that the new employer didn’t hinder our ability to reach these milestones for the benefit of ourselves and our 90 employees. Once you have been acquired, you should fully expect that you will be assimilated, if you will, into the Borg. But also realize that there are things you should stand strong and hang on to as long as you can. These are the unique qualities that made your company successful. That would be the take-away”.