n Latest Bonus, Firm Helps Workers
Become Own Bosses
By P.J. HUFFSTUTTER, Times Staff Writer
At a time when many companies moan that top employees are
leaving to start new ventures, one Southland company is actually
encouraging it.
Not only that, the founders of Kingston Technology Corp. in
Fountain Valley will even provide a financial boost to employees
who want to strike out on their own.
John Tu and David Sun became multimillionaires when they sold
a large chunk of the memory chip making company in 1996 and
made headlines worldwide when they decided to share $100
million of the windfall with workers. Now they are using their
personal and corporate fortunes as sort of business investors to
give Kingston employees whatever they need to start their own
ventures.
Legal help. Business advice. Money--either a little seed money
or a majority investment. Even office space. Kingston has cleared
out portions of its buildings to give the fledgling companies a place
to operate.
It doesn't matter how long a worker has been at Kingston. It
doesn't matter how much the start-ups have to do with technology,
if anything at all. Each dream is considered viable, said Tu, as long
as the proposal has some kind of merit and the employee is
passionate about it.
"I don't know of any other business that's doing anything close
to this," said Brad Jones, a managing director for Menlo
Park-based venture capital firm Redpoint Ventures. "To say it's
unusual is an understatement."
So far, at least five diverse efforts have sprung up over the last
year or so:
* A venture capital firm, Synapse Capital, formed by two
former Kingston finance officials, which manages a wide portfolio
of companies and also handles Tu's and Sun's personal investments.
* An online firm, Personable.com, which lets people rent
Microsoft Corp. software and other applications for a small fee.
* An Internet e-commerce company, Pingpong.com Inc., which
remains shrouded in "start-up secrecy."
* A one-man film production house, 1-Tu-3, which recently
screened its first movie.
* A book in progress about the African American community
around the world, by a young photographer who is a former
Kingston employee.
"It's the natural evolution of business," said Tu, 58, an engineer
by training who immigrated to the U.S. from Taiwan. "People come
here young and energetic. As they mature, they change jobs and
learn new things. After a time, you do reach a point where you can't
keep people interested.
"David and I would rather help people find their own path--even
if it's not at Kingston--than leave the Kingston family altogether."
Among other things, Kingston supplies memory products to
major personal-computer manufacturers, and memory boards that
boost the performance of older machines.
Sun and Tu attracted attention worldwide four years ago, when
their unorthodox and benevolent way of doing business made their
employees the envy of workers everywhere. After selling 80% of
their company to Japanese conglomerate Softbank Corp. for $1.5
billion in cash and stock, the pair set aside $100 million to share
with Kingston's then-employees, numbering roughly 450 at the
time.
A year later, in a remarkable move, the two men agreed to
forgo the final $333 million that Softbank owed them on the
purchase of Kingston. Instead, Tu and Sun initiated a reworking of
the Softbank deal, although the men had no contractual obligation
to do so.
Then, last summer, the two used the cash proceeds from the
1996 sale to buy back their company for $450 million--a third of
the original price.
Tu said the buyback, which had been in the works for more
than a year, reflected both an industrywide slump in the demand
and price of the memory products that Kingston makes, and
Softbank's interest in focusing on Internet companies.
The underlying reason for the buyback, Tu said, was to protect
the interests of Kingston's nearly 1,400 employees. And industry
analysts say that the pair worried that another employer might not
treat the workers as well.
Of the $100 million they set aside in 1996, $78 million has been
given to workers in the form of bonuses, which for some amounted
to three times their annual salaries.
Other U.S. companies--from Microsoft to the scores of Internet
firms that have launched hot initial public offerings in the last couple
of years--have helped their employees become wealthy by offering
them options on the company's stock instead of cash bonuses.
These stock-option programs allow employees to buy their
company's highly valued stock at a discounted price and sell it later
for a profit.
Many of these stock-market millionaires eventually cash out and
launch their own companies. Stock options, however, stay meaty
only as long as the company's stock price maintains its heft.
With Kingston, the bonuses may have been smaller than those
provided by some rivals, but they were in cash. With each round of
bonuses, Tu and Sun advised their growing staff to spend the
money wisely.
Most did. Some bought houses or paid off college debt. Others
helped parents or loved ones who were in financial need.
Many saved it, dreaming of starting their own companies. But
the bonus money, while substantial, by itself was often not enough
to bootstrap a new business.
About a year ago, employees began approaching Tu and Sun
with ideas. Internet players. Artists. Photographers. Everyone with
a dream of being the boss, of becoming the next John Tu or David
Sun. At first, the conversations were casual ones--just employees
tossing around ideas with their bosses.
Over time, the conversations became more serious. The
workers, encouraged by the self-starter culture that had long
thrived at Kingston, began researching their ideas and hashing out
business plans. For help--whether legal, financial or
otherwise--they kept returning to Sun and Tu.
The executives listened to the plans, offered advice and started
sinking money--estimated to be in the tens of millions of
dollars--from their personal fortunes into the projects.
The two figure to benefit financially if some of these ventures
strike it rich, yet they insist that isn't their prime motivation. They
say they aren't worried about recouping their investment.
"We're doing this because we can be part of their excitement,
part of something new," Tu said. "It's not the power. It's not about
the money. I have more money than I need. If the companies
succeed, great. If they don't, at least I know I helped as much as I
could."
Although the Kingston model is unusual, its development is tied
to a local trend of building new mechanisms for supporting
entrepreneurial activity through what are known as business
incubators. Hoping to cash in on the tech boom, there are already
about half a dozen incubators in this region. Idealab in Pasadena,
the best-known of the bunch, has launched such companies as
Internet toy seller EToys Inc. and GoTo.com, the Web search
engine.
Among other things, the incubator helps young companies
recruit executives, raise capital and handle administrative functions.
As with the Kingston efforts, some of Idealab's companies are
pitched by entrepreneurs themselves, but the bulk of the Idealab
start-ups were conceived up by founder Bill Gross.
"An incubator can make all the difference between success and
failure," said Bill Elkus, managing director of Idealab Capital
Partners, the company's venture capital arm. "But I've never heard
of a business model for an incubator like Kingston's."
In the building next to Kingston's headquarters, the young staff
of Pingpong.com sits in cubicles once occupied by Kingston
researchers. The toys and treats typical of any Internet start-up
crowd are the center of the room: cartons of licorice and
chocolates, a giant pingpong table and a video game machine.
Business plans and strategy charts are splayed across the walls, and
employees pound out reams of code and try to hide what's on their
PC monitors from visitors.
"We're in ramp-up mode," said Gary MacDonald, chief
executive of Pingpong.com and former vice president of sales and
marketing for Kingston. "Right now, it pays to be paranoid," he said
by way of explaining why he won't divulge any more details about
the company.
A block away, in a cordoned-off section of a Kingston
assembly plant, is Personable.com, founded earlier this year by
Benjamin Chou, an engineer who ran Kingston's Internet group.
Personable.com is an online software rental company and the first
Kingston technology spinoff funded by Tu and Sun to launch a
product.
The idea behind the company is simple: People can't afford to
buy all of the latest business software programs. Personable.com
lets customers use the Web to rent any of Microsoft Windows
2000 applications, as well as hundreds of other programs, for a
small monthly fee. The site, unveiled earlier this month, taps into the
growing trend of consumers who are relying on Web-based
applications for mobility and cost-savings.
"We went to John 1/8and David 3/8 and they helped make this
real," Chou said. "They knew we could make it work. They didn't
give us a handout. They didn't ignore us. They believed in us."
Search the archives of the Los Angeles Times for similar stories
about: Kingston Technology Corp, Employee Benefits, Advice,
Legal Aid, Investments, Financial Aid, Entrepreneurs, Business,
Pingpong.com, Personable.com.
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