Contents: Click on any item to jump directly to that item Emerson acquires Bristol Babcock Business growth plateaus/barriers National Instruments - culture of growth & success More on Pinto Podcasts V for Vendetta Movie Review eFeedback: The "real" price of the oil crisis Foreign perspective on American attitudes Demise of small, acquired companies

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Emerson acquires Bristol Babcock

Says John Berra, President of Emerson Process Management:

"The multiple of EBITDA is in range with other acquisitions. This is a very profitable company with a great market reputation and satisfied customers.

"The key value of this acquisition is specialization in systems for vertical markets. Bristol's two primary industries are natural gas and water/wastewater, both are very important to Emerson. The market dynamics for natural gas and water/waste look very good and Bristol complements Emerson's other capabilities in those markets. Emerson has many products that they can add to the Bristol offerings, making a nice complementary package.

"Bristol is both a product and systems company. Products include flow computers and RTUs, along with the software. In addition, they offer integrated, engineered solutions with complete project management.

"There are many operational and distribution synergies. Bristol has not reached the global mix of business that Emerson has, and Emerson can help grow the business around the world."

FKI completes sale of Bristol Babcock for $121M

Emerson Acquires Bristol Babcock

Provide your own comments & feedback on the Emerson weblog

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Business growth plateaus/barriers

First there's the $10M/100 people barrier; this could be $20M or $ 40M and 200-400 people, but the concept remains. A company starts with one or two founders, usually an engineer with a good idea and perhaps a marketing or sales person who teams up.

Wander around the next ISA or automation exhibition; 90-95% are small companies with under $10M in annual sales.

There are good reasons for this: founder(s) management capabilities; insufficient capital; limited market-size for the original products; inability to expand products/markets; lack of global resources.

The company stays at $10M +/- until the original founder(s) age, or quarrel among themselves, or lose interest. Then it is sold to a larger company which integrates it with other complementary businesses. The products are "milked" for profit and eventually the company gets merged into oblivion.

There are several examples of this syndrome: my own company, Action Instruments was typical. At $20M, Action was sold to Eurotherm, a $300M UK company - itself a significant exception, with a talented team of 4-5 founders. Eurotherm was sold to Invensys, an example of companies stuck at the next plateau.

Within 5 years after it was acquired, Action revenue has reduced by 50%, manufacturing has been outsourced, and the shrinking product lines are being milked for profits.

There are many, many other examples: Years ago, Doric was sold to Emerson at less than $10M and is now just history. IDT was sold to Eaton/Cutler-Hammer at about $20M; read the latest on the demise of IDT in the feedback section (below). Companies like Moore Industries (founder Len Moore is still there at 72) and Opto-22 (the son of the founder is President) are still trying bravely to get to $100M. Another Moore (Moore Products) continued to run with the founder's sons, and eventually sold at the $170M level for all the same reasons.

The exceptions are companies that have good products, with big enough markets and management teams strong enough to continue growth. But most of these too get acquired before they get to $100M, or 1,000 people - the next plateau. This has been documented extensively in Harvard Business Review and other business journals.

There are numerous examples of the $100M barrier in industrial automation: Rosemount, Modicon, Wonderware, Xycom and other growth companies got acquired before they attained $100M. Again, there are a few exceptions - which I'll deal with in future issues of eNews.

Then there are those companies that get stuck at the next plateau: $100M to $1B. Typically, the founder is still around (getting older), the company goes "public" but is stuck in a niche that defies growth to the next level, stays independent (read cannot be acquired because the major shareholder refuses to allow it).

Analogic ($400M revenue, 1,700 employees) and its founder Bernie Gordon (now 78 and retired) are examples of this perennial mid-size malaise. Eurotherm got acquired by Siebe/Invensys after the founders exited.

Analog Devices (founded by engineer Ray Stata, 72, still Chairman of the Board) is a good example of a startup that broke the $1B barrier - Analog Devices now approaches $2.5B revenue, with 8,800 employees.

Hewlett Packard (started in a garage by engineers Bill Hewlett and David Packard) grew to several billion in revenues before the founders exited and the company eventually changed.

An unusual and significant company that broke the $100M barrier, and looks like it will grow well beyond $1B is National Instruments. The culture of this company is my next subject.

Managing Growth - Barriers and Preconditions

Tomorrow's automation leaders

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National Instruments - culture of growth & success

NI was co-founded in 1976 by Dr. James Truchard, while he was still at University of Texas, Austin. In 1986, Jim Truchard and Jeff Kodosky (who is also still at NI) invented LabVIEW graphical development software. The intuitive graphical environment of LabVIEW revolutionized the way engineers and scientists work, much like the spreadsheet provided a new way for financial professionals to do their jobs.

Still headquartered in Austin, National Instruments has grown to become a global company, with stock trading on NASDAQ, with 2005 revenue of nearly $600M, market-cap of $ 2.5B and more than 3,800 employees.

FORTUNE magazine has named the company as one of the "100 Best Companies to Work For in America" for the past seven years. In 2002, Electronic Design inducted Jim Truchard into its Engineering Hall of Fame, and in 2001 Frost & Sullivan, honored him as the CEO of the Year for the test and measurement industry. Worth magazine named him one of best CEOs for 3 consecutive years, emphasizing his focus on long-term growth and innovation.

Jim Truchard has led the company with a conservative and deliberate approach that has yielded consistent success. He has succeeded in generating innovation, growth, and expansion in a highly successful, worldwide enterprise, while still maintaining the entrepreneurial spirit. National Instruments has seen 28 years of growth in its 29-year history.

I met Jim Truchard years ago at an exhibition somewhere in the world, and we discussed his algorithms for success. His original approach was to hire bright people, straight out of school, before they were "spoiled by outside experience". His advice rang bells in my head! There I was, trying to scale up Action Instruments by hiring seasoned heavyweights at high salaries. Every expensive "professional" I hired immediately sought to change the Action culture that had made us successful. For example, one new manager insisted that we must start "wearing ties to be professional". This was before the days when everyone, even GE, started casual dress-down.

Jim Truchard insists that the secret to growth and success is to "scale up" with each step being different. At NI, till they grew to 50 people, there was a monthly meeting and everyone had to talk to get involved. Of course, that cannot scale. As they grew to 2000 people and beyond, Jim Truchard still tries to add a lot of drama, and slip in the comfort message. The company remained strongly people-orientated, with regular meetings and sharing of information and results.

Jim Truchard describes the stages of National Instruments' growth:

• First Decade - self financing with GPIB - 1985 Revenue $7.2M
• Second Decade - Virtual Instrumentation with GPIB, LabVIEW and DAQ. 1995 Revenue $165M
• Third Decade - Measurement and Automation, Modular instruments and systems - PXI, Fieldpoint, cRiO. 2005 Revenue $572M
• Fourth Decade - Test & Measurement and Graphical System Design Target $ 1B and beyond.

How will National Instruments fare as it gets beyond $1B in revenues, and as Jim Truchard approaches 70? Well, judging by comparables - Bernie Gordon at 78, Ray Stata at 72, Bill Hewlett and David Packard who were actively involved well into their 70's - Jim Truchard will continue to generate growth and success for National Instruments as the company launches into its fourth decade.

National Instruments - Company Overview

Experience NI - What makes NI Unique - a culture of fun

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More on Pinto Podcasts

Reacting to the response, I recorded an audio file of eNews #205, 13 March 2006 for "beta" testing. I had several hundred feedbacks, with specific comments and suggestions: This is a new medium and needs a new approach; don't simply read eNews; make your audio shorter, more informal and spontaneous, 12-15 minutes at most.

Many suggested that it would be nice to skip items they didn't want to hear, and jump-ahead to items of interest - like a text-file where you can simply scroll down, or click on a link in the web version. Sadly, that really can't be done in an audio file, except by making separate files (tracks) for a CD - not really practical.

My audio podcasts are primarily speech, not "hi-fi" recordings (large files which take time to download). So I aim for a 500K-1MB file which most people can download fast with a DSL or cable-modem, and still manageable for those who are tied to an old-fashioned telephone-modem.

Many people said they'll listen to audio summaries of eNews as they commute to work, or travel, via CD-recordings or MP3 downloads to iPod or equivalents; they could read the text later.

A good section of those who responded wanted automatic downloads via RSS aggregators. So I did an RSS (XML) file to list eNews (and audio summaries of my books, "Pinto's Points" and "Automation Unplugged") and registered them with several podcast websites - the primary one being Apple iTunes which has already registered my RSS podcasts, weblink below.

And hey, I've got cover-art for my blog, and meta-tags and all the niceties which make the difference. I hope (expect) that this will reach a whole new, different audience, as well as the regular JimPinto.com eNews loyalists. Now, let's see how much additional traffic this generates.....

Let me assure those who don't listen to podcasts that the good, old-fashioned text (or web) versions of JimPinto.com eNews will still be available. In future eNews text, I'll provide a link for the MP3 file audio-summary, for those who also want to listen. This issue has an audio link (below) - I'll appreciate your feedback.

So hey! Read the text or web versions as you used to. And, those who'd like to hear an audio summary, just download the MP3 audio (link below). Or, in your aggregator program insert the URL for the RSS file (below), to have the Pinto podcast automatically show up in your computer.

Happy podcasting!

Audio summary - eNews #206 29 March 2006 (this issue):

XML file link for automatic RSS aggregators

Pinto Podcasts

Pinto Podcasts - Apple iTunes RSS link

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V for Vendetta Movie Review

"Remember, remember the fifth of November
Gunpowder, treason and plot
I see no reason why gunpowder treason
Should ever be forgot."

This is again a Wachowski brothers revolution - wildly theatric heroes and computer graphics stunts. Some 50 years in the future, a Christian-fascist totalitarian dictatorship has taken over Britain in response to a terrorist onslaught, after the world has been messed up by "America's wars". A Guy-Fawkes-masked hero called V vows that on the next anniversary of Guy Fawkes Day he will blow up Parliament as part of a campaign to provoke citizens into action. More than "The Matrix", this movie offers a convincing vision of the future with a tale of love, mystery, and rebellion.

The English celebrate "Guy Fawkes Day" with bonfires and firecrackers (holiday replaced in America by "Halloween"). On the 5th Nov. 1605, Guy Fawkes was caught in the cellars of the Houses of Parliament with several dozen barrels of gunpowder. He was subsequently tried as a traitor and executed for plotting against the government. But how many people, British included, really remember who Guy Fawkes was, and what he stood for?

Terrorism, religious freedom, the right to free speech - several hot-button topics are addressed in this movie. It all works because of the sheer artistry. The hero's face remains hidden behind the Guy Fawkes mask, though the voice and physical presence remain the focal point. It is amazing how much the motionless mask comes alive.

Now here's the twist: a recent CNN "Showbiz Tonight" featured a controversy over the idea that this movie was directed at the Bush administration, the war in Iraq and the "war on terror".

Please bear with me on these seemingly political comments. There are times when I hesitate; but then I'd feel embarrassed if I didn't mention the parallels I see in recent events: the passing of the "Patriot Act", illegal wire-tapping, the denigration of the court system as the balance to executive power. The movie generates powerful resonance with recent Bush administration slogans: "War against terror" and "For your protection". In the movie, these same slogans are used by the totalitarian government as a front, while limiting freedom and perpetrating brutalities.

Before you think that what I'm saying is too far-fetched, listen to what US Supreme Court Justice Sandra Day O'Connor said just weeks after she stepped down:

"We must be ever vigilant against those who would strong-arm the judiciary. It takes a lot of degeneration before a country falls into dictatorship, but we should avoid these ends by avoiding these beginnings."

V for Vendetta Movie Review

CNN News Ties "V for Vendetta" Dictator to President Bush

Supreme Wisdom - Sandra Day O'Connor speaks out

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eFeedback

"I read your last news and the discussion about the oil crisis. Indeed, it is interesting to see the huge approach differences all around the world, regarding energy.

"In Europe we have large taxes on oil, but even with these taxes, today's European price for gasoline is far under the real value - the depletion of fossil-fuel resources, as well as the side effects such as climate changes due to it's use.

"In France 85% of the people don't want tax increases on energy. But this is due to a huge lack of information. Who is really telling what is going on? Who wants to let them know that anyway, within a few year, the game is over? Who is telling people that guys like Michael Crichton are in fact dangerous liars?

"I would vote for candidates who would dare to propose progressive increases of oil-price (using taxes) of 5% above the consumption index for the coming 20 years. This would lead to a serious decrease of oil use which can only be beneficial. And it will also lead to the adaptation of our economy to this new fact: the REAL high price of this type of energy.

"We are driving faster and faster right to the wall! Within a few years, oil resources will become more and more difficult to extract, and the last countries able to deliver will be not stable or US-friendly countries. So we can await more oil-wars after the first 2 or 3. Aren't Afghanistan and Iraq oil-wars after all?"

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My niece Jenny Pinto [jenny@jennypinto.com] from Bangalore, India provided this response to our discussion of the "ongoing oil crisis":

"I think that where the US is concerned it is very difficult to take politics out of any discussion on oil and the Middle East crisis. It is very narrow to only ask how much oil money is going to the support of terrorism?

"In the US it is also very pertinent to ask how much of tax payers money went (and still goes) to support dictators and terrorists (remember that Saddam, the Taliban, to name just a few, were all supported by the US at some point) and how much tax $ still goes to support other rogue states.

"Only questions pop up in my head. Most terrorism, at the global level, is aimed at the US. Why? When the US justifies so much of its foreign policy as "spreading democracy" why are they not supporting the new democratically-elected government in Palestine?

"What is the US doing to conserve energy and join world efforts to contain green house gases etc? Why does America not support the Kyoto protocol?

"To understand the oil crisis, Americans need to look closely at their own American way of life."

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Bob James [bobjames@columbus.rr.com] told us about the decline and fall of a once significant company after it was acquired. I'll be covering this predictable outcome in a future edition of eNews:

"I thought you might find it interesting, or tragic, or predictable, or all three, that another small, technology leader in the automation business (circa 1980s and 90s) has ceased even semi-autonomous existence.

"Industrial Data Technologies, aka IDT, aka Eaton IDT, aka Cutler Hammer IDT, aka Cutler Hammer Automation, aka Eaton Electrical was, as you recall, the manufacturer of the PanelMate line of video display terminals and operator interface panels. This small Westerville, Ohio company, founded by Walter Doyle in the mid 1970s, was sold to Eaton in 1989 and grew from about $12 million in sales to almost $50 million in sales by 1997.

"In 1997 the "hands-off" policy negotiated in the original acquisition was lifted and the company began to be "managed" within the Cutler-Hammer organization. The predictable result is that current product line sales are about $20 million, there is no longer a dedicated sales force, and the remaining 30 (over 150 in mid 90s) employees in Westerville have been notified that the facility is being closed and the business (or what remains of it) will work out of the C-H facility in Milwaukee.

"How many other exciting small companies from the golden era of automation have been killed by the big boys?

"Having been a regional sales manager with this company from 1990 to the pinnacle and trough the beginning of the end (I left in 2001), I have to say it was a great run - until we got more management than we ever paid for or deserved. It was a great time to be in the automation business!"

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