Something
Ventured:
February 4, 2005
By Brent
Holliday
Greenstone
Venture Partners
Learning Latin With Creo
“Whenever, wherever,
We’re meant to be
together,
I’ll be there and you’ll be near,
And that’s the deal my dear.” – Shakira,
Whenever, Wherever
Creo
– Latin word meaning “to create, make”:
One of BC’s biggest success story and the first local
technology company to reach CDN$1B in annual sales (in
2001) has been sold to Kodak after 22 years in
business. Almost US$1B in cash for Creo shareholders is
a nice price given recent tribulations at the Burnaby
and Annacis Island company. In announcing its US$174M
quarter today, Creo showed good revenue growth from last
year to support the price paid. But profit is still
pretty small, hence the < 2x revenue sale price. For
comparison, Crystal Decisions was bought for nearly 10x
revenue by Business Objects 20 months ago. Creo did
create something big for our local industry. Now what
will happen to it and how will it affect the rest of us?
Lacero
– Latin word meaning “mangle, squander money”: Kodak,
itself in business for 117 years, has recently begun a
turnaround from near disaster in the early part of this
decade when they watched the digital camera craze sweep
away their film business. From 1930 to 2004, the
Eastman Kodak company was a Dow Jones Industrial Average
component and an icon of corporate America. Then they
were punted from the DJIA and had their debt grade
slashed to junk status. The company just eeked out a 5%
gain in revenue year over year, an increase for the
first time since 1996 (when revenues were US$16.2B). It
already has US$2.3B in debt and is using MORE debt to
finance this acquisition. Many critics are questioning
their strategy of buying their way into the digital age
and whether coalescing all of these companies into one
vibrant, profitable whole can happen…
Perscitus
– Latin word meaning “very clever, exceedingly sharp”:
Dan Gelbart and Ken Spencer founded Creo based on
superior brain power. The engineering talent in the
late 80s right through today was world class. Simply
brilliant could also describe their company culture
which clashed with traditional companies. The company
has always had an egalitarian streak. Even at nearly
1,500 people the company felt like a family. When I
first walked in their doors in 1993, I saw the board
with everyone’s picture and when they started at the
company. Soon after that I heard about how the “family”
had created their own artificial market in software for
their employee options within the company. Smart people
trading on their own futures. The revolution that they
created in the printing industry was very clever and it
led to an amazing run from 1994 to 2001.
Cresco
– Latin word meaning “to grow, expand, arise”: In 1993,
Ken Spencer came into Haig Farris’ MBA/Engineering class
at UBC and told us all the story of the first decade of
Creo. He told us to shine up our resumes because the
company was about to take off. In early 1994, I ended
up in Amos Michaelson’s living room on a Sunday night
playing mind puzzles while he watched how I thought. He
was assessing whether a non-engineer could fit into a
marketing role at the company. After fighting with him
about how to price new products, I left the “interview”
figuring that I had blown any chance to work there.
Well, I didn’t get the full time job but consulted with
them on sales force automation software over the next
two years. After the company’s big splash at a German
trade show in early 1995, the company grew like crazy as
orders poured in for their Computer to Plate machines.
The “Creo effect” in the mid-90’s in Vancouver was the
sucking sound of all those software and hardware
engineers heading to Burnaby to work. It was an amazing
time.
Lucror
– Latin word meaning “to gain, profit, win”: The lucre
for the company and its employees was a public listing
in 1999 as the profitability of the company’s operations
was attained. Years of hard work, innovation and smart
management got them across the line that so few Canadian
technology companies cross: going public on the TSX and
NASDAQ. Quickly the company rose past $1B in market
capitalization as its product line matured and
competition came gunning for their market and their fat
margins.
Vapulus
– Latin word meaning “flogged, beaten, knocked about”:
2001 hurt lots of companies and the stock market’s
precipitous drop affected Creo as it did everyone else.
But Creo had trouble brewing that compounded its woes
and kept it’s stock price from springing back like other
did in 2003 and 2004. The competition grew fierce for
the CTP market as very large companies, like Fuji in
Japan, started to innovate around Creo’s core value
proposition. With massive resources and, most
importantly, a razor/razor blades strategy, Fuji started
to win and to undercut Creo in price on the hardware.
Fuji, like it’s film cousin Kodak, made the plates that
the printing presses used. They could make fat margins
on the plates while taking losses on the hardware.
Think Nintendo or Sony in the game console business…
they make most of their money on the royalties in the
games, not on the devices. Creo’s hand was forced and
they had to spend money to enter the “consumables”
market. This helped keep profit margins low and led to
the company’s vulnerability for a takeover.
Adjungo
– Latin word meaning “to join, connect”: So here we
are. The joining of two companies that looks good
strategically for Creo. The resources of Kodak are
still immense and the expertise in printing consumables
rivals that of Creo’s nemesis. The biggest concern
amongst employees of Creo is that they will be subject
to Amitto (Latin word meaning “dismiss, send
away, lose”). Will Kodak shed jobs here that the
company had furiously protected in the past months in a
shareholder dispute? The answer, sadly, is that they
likely will. And a reverse “Creo effect” is likely in
our market in the middle of this decade. There may be
hundreds of extremely well trained, experienced
engineers and support staff coming into the job market
here in the next year or so.
Conduco
– Latin word meaning “hire, employ for wages”: Who will
pick up the slack and hire these talented people? Are
their enough embedded software jobs around Vancouver,
for instance? Probably not. Will we lose some to Ottawa
or the Silicon Valley? Probably yes. The glass half full
view is that we have a rare opportunity to gather very
good people into new companies in the near future.
Perhaps a few start-ups will be spawned. This is the
“creative destruction” that forces new companies into
existence. My hope is that some of the employees
fortunate enough to have made some serious cash on this
deal look to help fund some of the new ideas. To be
sure, some of the layoffs will have a tough time finding
work that maps to their experience. I worry, like they
do, that too much slack will be painful for a while.
Puteo
– Latin word meaning “to smell bad” – The odor of “sell
out” lingers when we lose a headquarters to an American
company. How do we grow as an industry when our anchor
companies become satellite offices, one wonders? A 22
year company history leading to hundreds of millions of
dollars in revenue and thousands of employees is worth
noting to those most concerned with the appearance of a
sell-out. There is no reason that Creo should have been
here in the first place as legend has it that Dan
Gelbart basically threw a dart at a map when emigrating
from Israel. We should continue to celebrate this
company and its achievements and realize that our
industry is one of growing “annuals” not “perennials” in
the global technology garden. For a variety of reasons,
it’s just what we do in Vancouver and Creo was one of
the better ones.
Laureola
– Latin word meaning “victory, triumph, success”: So
despite the uncertainty and the feeling of angst among
employees, we should feel Felicis (“lucky,
fortunate”) that we had this company build and succeed
here and not be Iratus (“to be angry, wrathful”)
that another US company makes decisions for our local
employees. In the end Creo has made our industry more
Fortis (“strong, robust”).
What Do You Think? Talk
Back To Brent Holliday
Something Ventured is a bi-weekly column designed
to supplement the T-Net British Columbia web site with
some timely, relevant and possibly irreverent insight
into the industry. I hope to share some of the
perspective and trends that I see in my role as a VC.
The column is always followed by feedback (if its
positive or constructive. I'll keep the flames to
myself, thanks).Disclaimer: The views and
opinions of columnists expressed on the T-Net website do
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