canadianbusiness.com
From the above under Technology...
Bring in the cleanup crew
Certicom got swept up in the wireless craze, then it got swept away. Now Ian McKinnon faces a big mess.
After every wild party, there is someone who has to clean up the mess. In the case of Certicom Corp. (TSX: CIC), a promising wireless encryption company in Mississauga, Ont., that got hopelessly caught up in the wild tech binge, that dirty job has fallen to Ian McKinnon.
“MBA” does not appear on McKinnon’s résumé. In fact, he barely escaped Hamilton’s McMaster University in 1978 with an honors degree in economics. “I swore I’d never go back to school, and I’ve lived up to that,” he says. Still, 48-year-old McKinnon is known for turning around failing tech companies. He spent 14 years at Digital Equipment, a multinational hardware firm (which did pay for some executive courses at Insead, a leading European business school); he spent seven of those years restructuring struggling divisions. In 1995, he went to Promis Systems, a publicly traded Toronto software company on the brink of bankruptcy. By the time Promis was acquired in 1999, McKinnon had turned a net loss of US$11.4 million into a profit of US$5.6 million on US$28 million in sales. He followed that success by leading a series of private tech firms back from the brink.
As for his latest project, McKinnon lays out his simple plan over a cup of coffee and a bagel slathered with peanut butter. “We’re business operators, not stock promoters or financial engineers,” he says with refreshing frankness. “A lot of it is just focusing on the details of managing your expenses, making sure your revenues are growing and keeping your expenses less than your revenues.” What a novel idea. But the old Certicom, under former CEOs Philip Deck and Richard Dalmazzi, seemed to ignore such common sense. Founded in 1985 as research-based Cryptech Systems Inc., Certicom had, by the late 1990s, become a high-flying leader in cutting-edge wireless technology. Its stock shot up 826% between June 1997, when it débuted on the Toronto Stock Exchange, and its $250-per-share high in March 2000, when the company was valued at more than $3 billion. Certicom moved its head office to Silicon Valley, hired high-priced but inexperienced executives, and leased enough office space in the US and at its Mississauga R&D centre for 1,000 people. It never employed more than 450, but even that was too much for a company that in 2001 recorded a US$40.5-million operating loss on US$26.6 million in revenue. “They overhired, they overcommitted,” says McKinnon, who blames Certicom’s downfall on both the market pressure to spend all that easy capital and on executives’ visions of grandeur. “For a while, there was a corporate jet being rented periodically,” he says. “They just went nuts.”
When McKinnon joined in March, drastic measures were necessary. He moved headquarters back to Mississauga and abandoned a Nasdaq listing, saving about US$750,000 a year. Although three previous rounds of layoffs had dropped two-thirds of the staff, McKinnon further reduced the count to 115, firing all but eight of the underperforming 32-person sales force. He also hired a new management team—only cofounder Scott Vanstone kept his job as executive vice-president of strategic technology.
McKinnon says it is Certicom’s technology that will help it survive the slowdown. Its encryption software, which is embedded into wireless devices and applications to prevent hackers from listening in or stealing sensitive data, is still among the best in the industry. The trick is finding better ways to sell it. Certicom spends a lot of time maintaining close ties with manufacturers like Motorola, Texas Instruments, Palm, HP and Oracle in the hope that enterprises will start buying more secure wireless devices for mobile workers. The better opportunity might be the US government’s Homeland Security initiatives, some of which include upgrading wireless data encryption. “It’s really fallen into our sweet spot,” says McKinnon. Certicom’s new sales office in Virginia is working to partner with resellers and integrators that already have DC contacts.
But nothing happens quickly with the government, and enterprises are still cautious about new tech spending. Originally, Certicom was predicting an operating profit for Q2 (ended Oct. 31). But on Oct. 24, it issued a steep revenue warning, cutting expectations by 25%, to $3 million—hardly good news for investors. McKinnon’s attention isn’t on the stock price, however. “The focus is on customers and employees,” he says, “and my view is that if you take care of those two interest groups, shareholders are going to benefit.” If only Certicom’s execs had thought that way from the start. |
