Sometimes The Bull Wins

“Business is conceptually easy: Buy low, sell high, collect early, pay late.”
Craig Floerchinger’s opening line at an AIS training course

In south-central Alaska, the Gulkana River flows into the Copper, and eventually drains into the Gulf of Alaska south of Cordova. There is a 47-mile stretch of the Gulkana that is reserved for rafters and canoeists. In June and July, the Gulkana River is teeming with a combination of rainbow trout, Arctic grayling, Copper River king salmon, and red salmon. Not far from the river banks, massive bald eagle nests are easily spotted in the trees. The nesting partners take turns perching on the spruce branches that line the riverbank, searching for the salmon that swim upstream to spawn. This run of class I to III rapids starts with a hard row across Paxson Lake, and finishes with a slow float to the Sourdough campground. The upper reaches of the river traverse rolling valleys and vertical ridges of arctic boreal forest. At mile 23, the roar of the water builds anticipation of the falls to come as the river drops into a narrow canyon of class III and at times class IV rapids. Eight miles below the falls, the class II rapids dissipate, and the river begins to meander again. Here, as the river leads to the confluence with the West Fork and beyond, the shores of the lower reaches of the Gulkana frame the 14,000 foot glacier-covered summits of the Wrangell range.

In July 1988, Professor Marv Andresen and his wife Pat, my newly-expectant wife Cindy, and our two young sons and I spent five days rafting down the Gulkana River. Marv and I worked together on UAF’s successful $400,000 computer laboratory grant. In addition to being a UAF School of Management professor, Marv was an oil well investor, an athletic club principal, and Alaska’s top racketball player in his age bracket. On numerous runs down the Gulkana together, Marv also worked on my whitewater rafting skills.

A few days into the adventure, after a long day on the river, Marv and I were “anchoring” the rafts by pulling the bows higher up on the gravel bar, checking the tautness of the rowing frame straps, and topping off the inflation levels. While we worked, Marv asked how I thought things were going in the IT industry and at Unisys. I indicated my team was having a spectacular year in Alaska, and then I delivered a rote opinion of my company’s position — straight from my latest briefing. When I finished, Marv looked puzzled and said, he “wasn’t so sure.”

He then explained he was sensing a fundamental shift in the IT industry. The PE ratios for IBM, Burroughs/Unisys, NCR, CDC, Honeywell, Data General, and DEC all indicated performance challenges. Mergers of underperforming firms were occurring; cost reductions and layoffs were continuing to be announced across the IT industry. Even IBM’s vaunted “no layoffs” rule was rumored to be under pressure. Marv described that he could go into a computer store in Fairbanks most evenings, and their staff was over-run with professional clientele. He described a seemingly endless tech book section at a Seattle bookstore with almost no coverage of the old industry players beyond HP and IBM. Information technology control was changing over from the few to the many. “Proprietary” closed systems seemed to be rapidly giving way to open standards. Networking products were allowing printer and file sharing, communication, and collaboration. Enabling technologies like spreadsheets and data file applications were eliminating some tasks that not long ago required a programmer. The industries’ legacy firms were not leading the change. The cultures of the these IT firms were slow to embrace the new order of “open”, “easily accessible”, and fast to market. Even IBM’s good start in the PC industry was in a state of challenge: OS/2 was late and struggling to gain acceptance, and IBM was again late with their 386 announcement and losing share to Compaq. For these reasons and others, Marv felt strongly the IT industry was at a classic inflection point.

As we sat on the edge of the raft, I begin to get a sinking feeling about my company’s positioning in the market. Then Marv asked a more difficult question. “What do you see happening with your career over the next few years?” I responded, “My guess is at some point in 1989, Unisys will move me to the Bay Area.” Marv immediately changed direction with, “Do you know Jon Peacock? Jon is basically running TransAlaska Data System’s MicroAge division.” I replied, “Is he the executive that has a Ph.D. in computational chemistry?” Marv nodded and added, “I wish I could find a way to get you and Jon together. You two complement each other’s natures and skills, and would make a powerful team. Additionally, you are in the markets he must pursue, and you understand the service delivery processes he needs to develop. Jon has the technologies you need to embrace, and expense structures that make more sense.” I expressed that I wasn’t so sure that an entrepreneurial adventure in Alaska’s protracted economic decline was a good idea. Marv explained, “Economies always recover. Weak players will present opportunities for acquisition. The first half of a good transaction is buying low. Coming out of this recession, a team with an ability to solve business problems could build market share, and real value.”

I wasn’t convinced, so Marv decided to tell a story. “Tim, on our last journey down the Gulkana we talked through the fundamentals of whitewater rafting. Whitewater rafting at first is a bit counter-intuitive. It certainly isn’t about pointing the bow where you want to go, downstream, and using your oars to get you there. In fact, that would be a disaster. Instead you point the bow toward the shore, the most obvious obstacle you are trying to avoid. A raft is to the river’s current as a sail is to the wind — so instead you use your oars to position your raft to the river’s current. Finally, in whitewater rafting you try to anticipate three or more obstacles ahead. This means you position your raft to solve the second and third problem, not just the first. This is done by maneuvering forward and back, executing a pirouette, and scissoring the oars to point the bow briefly downstream to thread a needle or ride a rooster-tail. Executed effectively, one S-curve can effortlessly position your raft for the next; and you and your crew will successfully avoid the rocks, the holes, and sweepers.”

Then he brought the lesson home. “Most successful service businesses are about positioning effectively to the market and addressing obstacles to growth and profitability. The largest and most obvious risk, business failure, is actually no risk at all if your timing is right, you have a plan and good team that can execute, and adequate capital. There is a significant opportunity now. Information technology is going to touch every process of every business and institution. IT will be more open, more connected, and more accessible. The new industry leaders driving this agenda are already emerging. The successful service entrepreneurs will discern what the marketplace has voted for quality, excellence, performance or value. The shape of the price curves as the industry moves from proprietary to industry standard are known: Product prices will decline, and services rates will go up. Firms with project management and technology skills that can catalyze change for their clients will be in high demand.”

Marv wrapped up his case. “You are 31 years old, have what seems an unlimited font of energy, and an overabundance of confidence. You have apprenticed for nearly a decade working for a Fortune 50 firm. You are a risk taker — an intrapreneur. While doing so you have learned from failures and successes, and developed the necessary level of business maturity. Don’t underestimate the opportunity found at the end of a deep recession and the beginning of an industry shift.”

We went back to tightening the belts on the rowing frame. Professor Andresen’s message to me was clear: the time was now. All I needed was a business plan, access to capital, and the right partner.

©2009 Ancala Equity Partners / Timothy P. Fargo all rights reserved
Next: Designing the company for the long term.

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