I'm a big fan of autobiographies by mega-entrepreneurs such as Microsoft's (NASDAQ:MSFT) Bill Gates, Starbucks' (NASDAQ:SBUX) Howard Schultz, and Dell's (NASDAQ:DELL) Michael Dell. There is a lot to learn about these men with household names.
But let's not forget the mega-entrepreneurs who have remained fairly obscure -- like Dr. J. Robert Beyster, the mastermind of technical services provider SAIC (NYSE:SAI). The good news is that he has recently published his own story, The SAIC Solution: How We Built an $8 Billion Employee-Owned Technology Company.
With his high-caliber mind, Beyster earned bachelor's, master's, and doctoral degrees in engineering and physics from the University of Michigan. In the 1950s, he was a physicist at the Los Alamos National Scientific Laboratory and then moved to General Atomics. He even cowrote a book called Slow Neutron Scattering and Thermalization (I'm not sure what that means either).
But in 1969, he wanted to start his own gig and took on a variety of research projects for the federal government. He invested $50,000 in the venture that became SAIC and was able to reap a profit of $20,000 during the first year of business. The growth continued year after year, and there was never an unprofitable year. In 2006, the company hit nearly $8 billion in revenues and even pulled off a $1 billion IPO.
Beyster believes the key to his success was in hiring the right people. He wanted people who were technical experts, could sell complex solutions, and had strong management skills. Realizing how tough it is to attract and retain such people, he implemented a widespread equity sharing plan. "What I found interesting, however, was that the more I diluted my ownership holdings, the faster the company and its stock price grew," writes Beyster. By the 1990s, his ownership stake was less than 2% of SAIC's outstanding shares.
As a sign of its commitment to employee ownership, SAIC established Bull Inc. in 1973. A registered broker dealer, the platform was an internal market for employees to buy and sell shares of SAIC, a.k.a. Science Applications International Corporation.
With lots of talented employees, Beyster knew he had to use innovative management techniques as well. He allowed a tremendous amount of autonomy on projects. He would permit a piece of business to proceed even if it was small as long as there was some profitability. As the project grew in scope, he often would set up a small office near the customer. The result was more responsiveness and a better understanding of customer needs.
True, Beyster had the advantage of starting SAIC when the Pentagon was on a spending spree because of the Cold War and the Vietnam War. He knew it would not last forever and started to branch out into other categories. A key part of his strategy was pursuing mergers and acquisitions (M&A).
The most stellar deal was the $4.5 million acquisition of Network Solutions in 1994. His goal was to grab a share of telecom business and pick up clients like AT&T (NYSE:T).
Network Solutions also managed the registry for Internet domain names. As the market surged, so did the value of the company. With SAIC as its largest shareholder, Network Solutions went public in 1997, raising $67 million. It raised $779 million in a follow-on offering in 1999 and raised another $2.3 billion in 2000. Then a few months later, Network Solutions sold out to VeriSign (NASDAQ:VRSN) for $19.6 billion (who said M&A is a bad thing?).
In just 209 pages, Beyster provides many useful lessons for entrepreneurs and managers. He writes, "I always felt strongly that it was SAIC's duty to provide its customers with the very best and highest-quality services -- at a fair price and reasonable profit. Providing customers with half-baked solutions was simply not acceptable to me, nor was gouging a customer or taking advantage of them in any way."
If only more companies would follow this approach.
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Microsoft, Dell, and SAIC are Inside Value picks, while Starbucks and Dell are Stock Advisor selections.
Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 2,509 out of more than 60,000 in CAPS. The Fool's disclosure policy is a swell read.
