ONE-ON-ONE
- November 1997
by Ed G. Lane A Lane One-on-One
with Dr. Lee T. Todd
Dr. Lee T. Todd
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Dr. Lee
T. Todd, an Earlington, Kentucky native, earned
his Bachelor of Science degree in electrical
engineering from the University of Kentucky and
later his Masters and Doctorate in electrical
engineering from the Massachusetts Institute of
Technology. He received six U.S. patents while at
M.I.T. Dr. Todd
returned to the University of Kentucky in 1974 to
join the electrical engineering department, where
he taught for nine years. During that time, Dr.
Todd published numerous research articles and won
several teaching awards including the U.K. Alumni
Association Great Teacher Award.
Dr. Todd
is the founder of two Lexington, Kentucky-based
high-technology firms, DataBeam Corporation and
Projectron, Inc. He serves as president and CEO
of DataBeam. In 1990, Dr. Todd sold Projectron to
Hughes Aircraft Company. He worked closely with
city, state and university officials to recruit
Hughes to Kentucky. The $13 million facility,
Hughes Display Products, is located on the
University of Kentucky Coldstream Research Campus
which he was instrumental in establishing. He
continues to consult with Hughes Display
Products.
DataBeam
Corp., founded by Dr. Todd in 1983, is the
leading supplier of standards-based collaborative
software and developers’ tools for the
Internet, corporate intranets, and
telecommunications networks. DataBeam’s
application software allows geographically
dispersed workers to interactively view and
modify still images, text and other documents at
their desktops as they participate in a
conference call. The company’s
standards-based technology, which DataBeam
licenses to third parties in the form of
developers’ toolkits, brings real-time
multi-point capabilities to communications,
networking, telephony and multimedia conferencing
products and services.
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Ed Lane: How long has DataBeam been in business and what
is DataBeam's primary product?
Dr. Lee
T. Todd: DataBeam was incorporated in 1976, but the
company didn't raise significant capital until 1983.
Prior to 1983, DataBeam was more of a research
corporation. DataBeam’s main product is software
for teleconferencing. DataBeam’s technology is
licensed to other companies to enhance their products
in teleconferencing. In addition, DataBeam also sells
products that do teleconferencing.
EL: How would
you describe the general business conditions for your
industry?
LT: Our
industry is very hot right now. The Internet has
given a lot of visibility to teleconferencing by
allowing people to connect and do business
electronically. I am seeing buying signals that are
much different than I have ever seen before. DataBeam
began shipping products in 1987 to the Star Wars
program; but then it was a hard sell. People
didn’t comprehend that you could do data
conferencing while you were talking on the telephone.
Now they are getting the message and the market is
taking off.
EL: Who are
DataBeam’s strategic partners and customers?
LT: Some
of our strategic customers are industry leaders who
are using DataBeam’s technology. One such leader
is MCI, who will announce a new service called Net
Conferencing. This product will use DataBeam’s
technology. DataBeam has licensed 80 companies
worldwide; British Telecom in England is another of
our top customers. Cisco Systems is a partner; they
have invested in DataBeam and they are a leader in
Internet space. Intel Corporation is a JV partner.
DataBeam has taken Intel’s Internet video
technology and is licensing it to other parties.
Other major corporate customers are G.E. Capital,
University of Wisconsin, and Aetna Life Insurance.
Some of the top companies in the world are now using
DataBeam’s products.
EL: What is
your biggest challenge in operating the business?
LT: Right
now it is generating revenues. Getting out the word
that the product exists and what it can do so our
clients will buy in volume. This is our biggest
challenge.
EL: How have
you provided operating capital for your company?
LT: I
have raised money from everybody — from my
Sunday School teacher, my father-in-law, to major
venture capitalists. Our strategic partners have
invested about $13 million dollars to fund
DataBeam’s growth. Some investors are so-called
"angels" — wealthy individuals here in
Kentucky. Other investors are venture capitalists
from New York, Chicago, and California, as well as
investments from Cisco and one other industrial
strategic partner.
EL: What are
the advantages and disadvantages of working with venture
capitalists?
LT:
Venture capitalists understand the risks and they can
relate to what you are going through because they
have invested in other high-risk companies. They can
also bring you relationships and introduce your firm
to other technology companies. The major disadvantage
is that they want to buy your stock at the cheapest
possible price. Their only incentive for investing is
making money and they expect a 40 percent annual
return.
EL: Do you
anticipate DataBeam going public sometime in the near
future?
LT: I
think that the options are for us to go public or to
be acquired. Right now our sales are too lumpy to go
public because we are selling big tool kit products
at a cost of $250,000 to $500,000 a pop. In order to
go public you have to have smooth growing revenue.
Since our server products sell for a few thousand
dollars, we feel that our revenues should
“smooth out” in the next year.
EL: How many
employees are on the DataBeam team and what do you you
expect employment levels to be in the future?
LT:
DataBeam has grown significantly since 1994. Over the
past three years, our team has increased annually
from 38 to 68 to 108; and we are at 120 right now.
Most of those jobs (65 of 120), are computer
scientists and engineers. DataBeam has eight
locations. We are kind of a virtual company
ourselves, but probably 80 of those people are here
in Lexington, 20 are in Madison, Wisconsin. We have
sales offices in Tokyo, London, and several in the
U.S.
EL: As a
founder of Kentucky Science & Technology Council, you
have encouraged the development of hi-tech businesses in
Kentucky. How is Kentucky faring in this business segment
and what needs to be done to boost new business
development in the technology and scientific areas?
LT: Two
things can be done. 1) Kentucky must create an
environment where people can be entrepreneurial
— hi-tech, low-tech, or no-tech. People need to
be able to start their own business. There needs to
be capital around that can invest in them, there
needs to be ideas generated out of the universities,
and the universities need intellectual property
regulations that permit ideas to enter the market
place. 2) Kentucky must recruit companies that are in
today’s economy. Companies who are out there
doing new software products, new information
products, new drugs. Lexington and Kentucky should be
able to attract companies that are in the new
information age.
EL: What can
our local government and business community do to attract
more technology-based businesses to Central Kentucky?
LT: The
critical first step is for our local universities,
the Urban County Government, and state government to
create a business plan to attract the technology
business.
EL: Do you
have a specific idea on how to get venture capitalists to
invest in start-up companies?
LT: You
need the angels before you need the venture
capitalists. Angels are those people who are willing
to provide the early seed capital. And we have the
people in this area who are able to make these types
of investments. There is quite a bit of discussion
going on in Lexington about setting up a venture
money fund. But you need both the seed money and the
venture money. If there is a good idea, outside
venture capitalists will invest in it. They are no
longer locked to the East and West coasts. And they
are willing to share deals with local investors.
EL: Are you
concerned about the lack of availability and high cost of
land for development in Fayette County?
LT: The
cost of land in my business is not critical. If
Lexington wants to recruit divisions of major
technology companies, it must provide high quality
offices where employees can work in the daytime and
enjoy outside activities. And the cost must be
affordable.. The cost of land and facilities needs to
be a no-decision; something a company manager
doesn’t even have to think about. The main
challenge is labor. Low-tech, as well as hi-tech
companies, will be concerned about the labor pool.
EL: Is having
good commercial air service important to companies
looking to locate their business operations in Central
Kentucky?
LT: In
order to attract major companies to locate here, it
is absolutely critical that Central Kentucky has good
air service. In a two-week period DataBeam has had
visitors from Japan, Korea, Scandinavia and Europe.
People come here from all over the world to look at
this technology before they buy it. And DataBeam
flies a lot for a company that sells
teleconferencing. Delta Air Lines has several
platinum members at DataBeam. Good air transportation
makes it possible for our employees to schedule their
travel time wisely, and to get out and get business
done.
EL: Now that
technology is making it possible to teleconference and to
transmit data and information digitally at high Kbs
rates, do you anticipate a time when air transportation
will not be important?
LT: No.
DataBeam uses teleconferencing to create meetings
that wouldn’t take place otherwise. For
instance, if people are going to fly to a major
corporate meeting they can be a lot better prepared
now because they can have two or three electronic
meetings beforehand to plan for that meeting. We
still fly out and do business deals. But in
intermediate cases we will do audio and data
conferencing with our customers so that when we do
get to their offices we are really there for the
purpose of meeting eyeball to eyeball and closing a
deal. If you analyzed air travel usage over the last
few years, video conferencing has had a minimal
impact on it.
EL: What is
your top concern about how Central Kentucky and Fayette
County in general are being positioned for future growth?
LT: My
central concern is that there is not a focus on
exactly what growth means. I get disturbed watching
the pro-growth/no-growth fight which seems to me to
serve little purpose. To me, growth inside a
university-related community is a lot more than a
land use issue.
The
question should be what kind of jobs are we going to
create, and how are we going to create them. I wish
we could get this type of conversation going in
Central Kentucky. College graduates are leaving this
area. We need to develop a plan to create jobs to
keep our sons and daughters here.
EL: In the
17-county area, there are 14 colleges and universities.
Does DataBeam recruit from the Central Kentucky area?
LT:
DataBeam has hired phenomenal graduates in
engineering, computer science, business, and
marketing out of our local universities. We sent Pat
Galvin, our top computer architect, to Microsoft a
few years ago and we got a call back from Microsoft
that said, “You had better not send that fellow
again because we are going to chain him to a desk out
here.” Pat is one of the brightest people we
have ever met. DataBeam gets rave reviews on its
employees. We not only have recruited straight out of
Kentucky universities but we have also been able to
hire several people who upon graduation couldn't find
jobs here. They had gained 10 years experience in
another state and now we have been able to return
them to Kentucky. Losing talented individuals to
other states is a loss to Kentucky. I am glad many
are able to move back.
EL: By
recruiting businesses and also stimulating local
entrepreneurial business development, can Central
Kentucky retain more of the graduates who are leaving?
LT: A
community’s greatest resource is its
intellectual capital. In the old days you had to have
natural resources and materials to build and ship
products. Today this economy is running based on
knowledge. Microsoft just ships software, and it is
bigger than General Motors. Our kids, given the
opportunity, can compete with the best around the
world. The local work ethic is great. The last year I
taught at the university was 1983 and at the time 80
percent of the graduating electrical engineers left
the state. It is not a supply problem. We are
generating the graduates. It is a consumption
problem. Kentucky has to create jobs to keep these
people here!
EL: Should
the Fayette County Urban County Council roll back the
payroll tax increase passed several years ago?
LT: The
taxes in Kentucky are a shock to the people that move
here. And the payroll tax is an expensive tax;
however, I would never want to roll a tax back if we
had to cut funding for education.
EL: Would
there be any benefits to paying higher salaries to
Lexington’s mayor and council members?
LT: I
think that they clearly deserve to be paid adequately
for the time that they work for our community. They
should be paid better than what they are now. If they
are paid well and don’t do their jobs, then the
electorate has the opportunity to turn them out.
EL: Should
the number of council members be reduced and all members
be required to run at-large instead of for local
districts?
LT: I
don’t think the number should be reduced. I have
appeared before some council meetings and I
don’t find it to be an overwhelming number with
which to have to deal. Having all council members run
at-large might increase the risk of having
under-representation of certain areas. Having more,
but not all, council members run at-large could help
the Council focus more on long-term community goals.
EL: How long
will the current strong economic conditions continue
locally and in the U.S. economy?
LT: I
don’t see much disruption in the short term. Low
inflation is a very positive factor. I am still
concerned that the stock market is higher than it can
sometimes explain. The U.S. has done a great job of
marketing to the world and Lexington has a lot of
positive things going on. The problem I perceive is
Lexington’s missed opportunity. Lexington should
have 30 companies around here doing new ideas, not
all hi-tech, just new ideas. We can look at ourselves
and say that Lexington is fine; but we need to be
keeping our college graduates, and building new kinds
of companies to guarantee that Lexington will be
doing fine in the future.
EL: The tax
reform act of 1986, although it did cause a major U.S.
economic depression, did redirect the investment of
capital because it eliminated tax loopholes and passive
losses. Do you feel that capital investment is now better
directed towards return on investment and higher
productivity?
LT: Tax
reforms in 1986 did direct money towards a broad
range of projects. That was a good effect. I am also
very positive about the 1997 capital gains tax
reduction because those people who have capital gains
are the ones who are more likely to be your angels.
They will invest that money in new projects and it
doesn’t penalize people like my employees. They
all have stock options and when they get a chance to
cash out those stock options they are the kinds of
people that will invest in new ideas.
Kentucky
also needs to eliminate its inheritance and
intangibles tax. We can’t continue to drive
people out of this state because they are wealthy. I
know a lot of successful people who are now residents
of Florida or other states. Those are the people
Kentucky needs to keep because they will invest in
Kentucky businesses. Taxing them out of the state is
a long-term loss for Kentucky.
EL: How would
you rate Governor Patton’s performance in the areas
of education, workman’s compensation, and health
care reform, etc.?
LT:
Governor Patton has shown real leadership and has
been willing to take on some sacred cow issues that
have not been dealt with before. One of his primary
goals is to increase the per capita income for
Kentuckians. I think that changing workman’s
compensation and improving higher education are two
clear ways to do that. The higher education reform
act is something that can really change our economy.
He has done an excellent job.
EL: What are
your major goals for the next five years?
LT: To
continue to grow DataBeam and its products; and to
continue to expand the engineering talent that will
build our new and very innovative products.
DataBeam's notoriety comes from winning several top
product of the year awards in our category and our
strategic thinking, as well as excellent customer
support. We will continue to grow the company,
recruit more talent, and have more fun.
Ed G. Lane is
chief executive of Lane Consultants Inc. and publisher of
The Lane Report.
edlane@lanereport.com
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