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A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

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 not necessarily state or reflect the views or opinions of T-Net British Columbia.


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