A triumvirate of leaders from bay area heavyweights Digital Lightwave, TECO Energy and Tech Data sound off about everything from their challenging jobs to the problems facing the bay area.
© St. Petersburg Times,
published June 3, 2001
Their companies are very different, but three of the Tampa Bay area's most successful chief executives say they have learned many of the same lessons -- about taking risks, adapting to change and cutting their losses.
"You have to be willing to take risks and also recognize that along with those risks will be failures," said Steven A. Raymund, chairman and chief executive of Tech Data Corp. of Clearwater.
Raymund; Robert D. Fagan, CEO of Tampa-based TECO Energy Inc.; and Gerry Chastelet, CEO of Digital Lightwave Inc. of Clearwater, sat down at the St. Petersburg Times on Friday morning to talk about a wide range of topics, from their challenging jobs to their views of the problems facing the bay area. Their companies topped the list of best-performing Tampa Bay-area public companies published in today's business section. (See pages 8H-9H.)
Fagan is transforming TECO from a local electric and gas utility to an independent power merchant, building plants and selling electricity wherever demand for power justifies the investment. Income from this non-regulated business is allowing TECO's profits to grow at a double-digit clip.
Chastelet is focused on keeping Digital Lightwave on the cutting edge of technology. Demand for the company's equipment, which is used to test and monitor high-speed fiber optic lines, is growing along with Internet use. But "if you don't have innovation on an ongoing basis, you will very quickly get replaced," he said.
Raymund is dealing with a sharp slowdown in technology investment, which means less business for Tech Data, a distributor of computers and related products. And he's out to prove wrong the pundits who predicted middlemen such as Tech Data would become obsolete as more manufacturers turned to direct selling.
Here are capsule introductions to the participants of the roundtable:
Gerry Chastelet, 54. Chairman, president and chief executive of Digital Lightwave Inc. Joined the company in 1998 after working for several other high-tech companies. Has a degree in electronics engineering from Devry Institute of Technology and is a graduate of the University of Toronto's executive MBA program.
Robert D. Fagan, 56. Chairman, president and chief executive of TECO Energy Inc. At TECO for two years; previously worked in power plant development. Has a bachelor's degree in engineering science and a master's degree in chemical engineering from Dartmouth College. Served in the Navy.
Steven A. Raymund, 45. Chairman and chief executive of Tech Data Corp., which his father founded in 1974. Joined the company in 1981 and became CEO in 1986. Has a degree in economics from the University of Oregon and a master's degree from Georgetown University School of Foreign Service.
* * *
An edited transcript of their comments follows:
Q: Can you offer some lessons learned on what works at your company at a time when others have stumbled?
FAGAN: When I came into the company, we had gone through several years of kind of flat earnings. We had a cadre of super people and had done very well in some of our diversification. But we needed a new focus and a look at where we could really expand. With that strategy comes execution. I used to kid people when I walked through the door: Either execute or be executed. We saw a real opportunity to expand in independent power. We've had 25 percent growth in that area. I think it's really having good people, focus, executing and rewarding.
CHASTELET: Well, if execute or be executed is one lesson, I would say paranoia is another. To maintain a leadership position in the market from a technology point of view is probably the most important factor in the growth of Digital Lightwave, next to the strength of the people. If you don't lead with technology, if you don't have innovation on an ongoing basis, you will very quickly get replaced and very quickly become second, third or fourth in the industry.
We've been able to execute with new technology. That means the highest speeds, the faster optical transmission, the diagnostic equipment and at the same time, expanded (into) markets that we weren't in before.
Obviously with the toughness in the U.S. market, going abroad last year is certainly helping us.
RAYMUND: Our industry underwent a very turbulent time a couple of years ago. Within probably a six- to nine-month time span, four Fortune 500 competitors went bankrupt or something equivalent. I look back at the mistakes they made and maybe some of the ones we avoided. You have to have the right strategy. It has to be well-understood by everybody from the CEO to the front-line employees. It's easy to forget all of the mania surrounding dot-com companies who were going to displace and replace traditional companies. Somehow we were going to be disintermediated -- that was the popular word of the day -- by dot-coms. I began to get a feeling that this was an emperor with no clothes on and decided rather than jump into some of these fashionable new areas, we would stay focused on our core business model and not get distracted by these popular fashions of the day.
Q: As CEO, what have you done right?
CHASTELET: One of the big cheerleading roles for a CEO in a high-growth company is also to be the change agent -- and that goes inside the company as well as outside the company. Two years ago, we had no analyst coverage. Today, we have 10 analysts covering the company, so Wall Street takes a lot of my time.
FAGAN: I think it was energizing the company. I'm getting very positive feedback. From our organizational standpoint, basically we used to have a president and chief operating officer and I did away with that. I'm the president, CEO and chairman, so we did away with a whole layer of management. I have all the operations, operational presidents reporting directly to me. We have a very tight team, and I think we have fun, too. We've very competitive as a group. Nobody gives anybody any putts.
RAYMUND: If you're still CEO you've probably made more correct decisions than incorrect ones, but I can look back on any number of decisions I made and go, "Oh, you know, that was silly." You have to be willing to take risks and recognize that along with those risks will be failures. If I were to be proud of anything, it's been my ability to grow with the company over 20 years.
Q: Can you note something that you did wrong as CEO?
RAYMUND: Oh, God. Where do I start? I can remember one or two little acquisitions we made which today are immaterial relative to the size of the company, but were probably poorly conceived and not particularly well-executed. Had we done a little bit more homework, perhaps been a bit more patient, (they) might have (been) avoided.
We acquired a little software company on the West Coast, gosh, a number of years ago. After banging our head trying to get into the software distribution business, we grew a little frustrated and figured through acquiring this little company we would accelerate our growth. As it turned out, the company was probably a lot worse than we realized.
FAGAN: We didn't make any mistakes till we came to this meeting. (laughter)
CHASTELET: If I had to do it over again, I'd surround myself with more tenured executive management earlier. It is absolutely amazing how fast you go through a growth curve where all of a sudden you're hitting things that you haven't had to deal with before. We haven't gone through the acquisitions yet, so I have yet to make those mistakes.
RAYMUND: I've made those mistakes you're describing, too.
Q: Okay, Bob, other than showing up here, what mistakes?
FAGAN: I think we all live day to day, you make the decisions. Steve's right: To grow your business, you have to take risks. When I joined the company we were a Tampa-based electric utility, and we decided we were going to be a national energy company, and with that obviously go a lot of risks. I would have liked to move faster in some areas. I saw some acquisitions that were major ones that maybe slipped by.
RAYMUND: Just to add a point about mistakes. These days, with the benefit of more experience, I'm more likely to listen to my own intuition. I think those are the mistakes I regret the most -- the ones I had a feeling we were on the wrong path and I didn't do anything about it.
Q. Given the slowdown in the U.S. economy, what signs do you use to gauge whether it is getting better or worse?
RAYMUND: We have to spend quite a bit of time talking to our customers, who are resellers and not the end consumers of the product. We talk to our vendors but, typically, they're downstream in the overall demand chain. They're probably lagging rather than leading indicators. I read business publications and all of us have networks of key people we talk to about different things in our industry. Some of them may be CEOs or hedge fund managers. They operate much wider networks.
CHASTELET: We're in that part of the food chain where we are involved with building up more bandwidth, so one of the key indicators to us is appliance growth, communication technology appliance growth. There are 25-million new Internet users every quarter.
Another indicator is the adaptation of newer and higher technologies. Even though we see a tremendous slowdown in capital expenditures in the U.S. today, we still see a strong embracement of higher speed, new optical technology.
FAGAN: We try to look at trends of where to locate in areas that are going to be high-growth from an energy-usage standpoint. The Sun Belt is where you have the heavy energy-using states and also they happen to have a higher growth rate.
Q: There has been a lot written about how we're going to have this great recovery in the economy in the second half of the year. Is the worst over? Are we going to get that second-half turnaround?
FAGAN: Who can crystal-ball that?
RAYMUND: The truth of the matter is we lack visibility beyond today's working day. Sometimes we'll go out on a limb and maybe offer some projections for the quarter, but we're in uncharted waters right now, at least in the technology world where the bottom really fell out in a way nobody would have anticipated in their darkest nightmares.
The spending slowdown has been so sharp, so severe that we can't help but feel that over time a backlog of pent-up demand is likely to build up. And eventually companies will have to move forward with refreshing their technology 'cause, thanks to people like Gerry, technology does change and your existing investments become obsolete and then it becomes a competitive issue.
CHASTELET: I don't know that you're going to see a real recovery in the immediate short term, in the next six months. I think you're going to see indicators that might suggest there are certain businesses and areas recovering. I think this round of earnings that are coming out, you're going to see certainly people taking a hard look at what they need to do in their companies to start rebuilding.
FAGAN: We actually are kind of contrarian. We don't see a local slowdown. I wouldn't say Florida is recession-proof but certainly when you have the downturns in other places of the country, you don't see the impact here as much as you do, say, in Detroit. Our sector is going to probably continue to deliver good growth this year and in the foreseeable future because the infrastructure wasn't there for power generation in the United States. There's probably 100,000 megawatts of generation capacity needed in the United States.
Q: What's your take on the health of the various markets around the globe -- places that are on the rebound or good for your particular business?
CHASTELET: This is our third quarter that we have embarked upon foreign ventures, and we today have about 70 percent of the globe covered with distribution partners, and we certainly see that business as being able to give us a 15 to 25 percent growth opportunity over our business last year. We think there is significant expenditure happening in China for telecommunications backbone infrastructure.
RAYMUND: We have extensive operations in both Europe and Latin America and, at this point at least, with regard to high technology, both those markets are exhibiting less decline than we're seeing in the U.S., so they're relatively stronger. Part of that is because they never indulged in the dot-com hysteria and the huge overinvestment that took place in the U.S. in technology products, so they didn't soar to the sun and then crash and burn back to Earth in quite the same way the U.S. did. Business conditions have softened, to be sure, in Europe, and now we're beginning to see it in Latin America.
FAGAN: Well, our primary operation is in Central America, and within that area, we're still enjoying good growth. You're electrifying companies down there that really didn't have electricity delivered in a lot of the areas. But our main focus right now is in the U.S.
Q: Do you have your sights set on any particular new market?
CHASTELET: We want to move the company from a tool-oriented business, or an instrument business, to a technology business where we become part of every optical network buildup. So that's a very, very large opportunity for us. It's a business that was $5-million for us last year; we expect it to be significantly larger this year.
FAGAN: We instituted a new strategy and it's really a transformation of the company from primarily a regulated utility to primarily what we refer to as a generation company that's non-regulated. And with that you attract a different investor set because you go from a traditional dividend-driven investor to a growth investor. We'll be 50 percent non-regulated in 2003 time period. We can be up to 70 percent non-regulated.
RAYMUND: Although I think Wall Street and others love growth, the fact is, operating a global company, particularly in a service-oriented business like ours, is more complex than a single-company corporation. Today, the U.S. accounts for only about 60 percent of our revenue, and we have over 30 companies operating worldwide. It's a much more daunting task to generate consistent performance, good results, good customer service across all of our operations worldwide. We have quite a disparity in performance among companies within our group and particularly between the U.S. and Europe on average.
The economy has globalized truly in the last 10 or 15 years, so you have a lot of new business models. I think Bob's probably correct in focusing on the U.S. and some near markets where there's so much opportunity before complicating his life and his business prospects by overexpanding into regions where, frankly, the control factor is much more problematic.
FAGAN: I found out one thing: You lose more money faster internationally.
RAYMUND: Especially in Latin America.
Q: Turning a little closer to home: Considering the strengths and weaknesses of the Tampa Bay area, where are we headed?
FAGAN: The one thing that I saw here in Tampa Bay was a lot more than I expected from a cultural standpoint. From a business standpoint, this is a very attractive area with the inherent growth that you have. With that growth obviously comes a lot of issues we have to deal with. One of them is the water. I really do think there has to be an areawide Tampa Bay initiative to really focus on that. If that is not resolved, growth in this area is going to come to a standstill. The sad point is you will continue to build even if you don't have the roads to serve, but once you run out of water, I think you're going to stop development in its tracks. And I think we're at that point.
CHASTELET: I think the strength of the area is the quality of life. But there's one very significant weakness, and that's the talent pool that we can draw from as technology companies. Whether it's at a highly skilled production level or at a highly skilled engineering level, there is a very limited technology talent pool available to emerging technology companies in the area. And it is actually not very easy to attract people to move to the Tampa Bay area if they're used to the California lifestyle.
RAYMUND: I think the over-arching fact of life for Florida, and probably Tampa Bay, will be a continuing influx of immigrants, and the challenge for our government and for our community will be how to manage the inevitable growth, whether we do a good job of it or whether we botch it. There are some significant advantages that Tampa Bay would enjoy over other regions of the country. The weather's nice, the cost of living is low, transportation, particularly airport access, is very, very good here. Probably the major disadvantage is, as Gerry notes, the quality or lack thereof in the employment pool.
Q: We have so few large, public companies and you don't see as many high-level CEOs involved in community activities as you do in some other metropolitan areas. How do you decide how much time to devote to causes outside of running your own company?
FAGAN: Squeaky wheel. Clearly, a traditional role in electric companies has been involvement in the community. I committed to my board I wouldn't go off and go serve on another corporate board until I saw our strategy working. All our senior executives serve on the various community activities which, again, frees me up a little bit.
RAYMUND: We encourage our executives to have some local community involvement. We just think it's a healthy thing. We live here and we should be involved in supporting our community, so I'm on two non-profit boards. There's a few I'm interested in because maybe it touched my kids or touched me or another executive in the company.
CHASTELET: I think we're just at the cusp of starting to get involved in more things. My CFO is on the Tampa Bay Technology Council, which is obviously one of those organizations that's trying to fuel additional technology companies in the area. I'm relatively new to the area. Our first objective was to get the company profitable.
Q: What worries you about the future?
FAGAN: The biggest concern that we have is attracting the capital to maintain our growth. And thus far, we've been successful and we had a good equity placement early in the year, very successful road show. We hit more cities than I wanted to hit in a short period of time but got a very good response to it.
CHASTELET: I'll go back to my initial comments about the paranoia of being able to maintain our technology leadership. The biggest worry I have for continued growth of the company is for us to be able to execute that strategy -- moving from being a single-product company to a highly diversified company. That's the only way we're going to maintain the kind of revenue growth that the company's enjoyed over the last four years.
RAYMUND: Well, we have all kinds of things to worry about. In the technology industry, not only the products change but distribution, so if you're a middleman, you always worry about your vendors selling direct.
We also worry about being able to generate good performance across our operations worldwide without having something blow up somewhere, which does happen from time to time. We also worry about being able to fund much of the necessary investment we foresee in our business over the next few years.
Q: Have the interest rate cuts made any difference in your businesses?
RAYMUND: We're still waiting to see the impact of the interest rate cut because, so far, technology is in a swoon right now, with demand falling, not increasing, and we're as guilty as anybody. We've tightened our own capital expenditures and cut our own spending. We've frozen deployment of new PCs just like every other corporation appears to have done in America.
CHASTELET: Interest rates really don't affect our business, and I hate to be the spoiler but because we're very much a small company between these two giants, we're actually increasing our capital spending. But we have to do that. We're coming from a much smaller base and certainly we will continue to spend as we had expected to do in our original plans back in September-October.
RAYMUND: Almost no matter how low the interest rate, if people have too many computers sitting on their shelf, or too much disc storage, too much processing power, they'll wait until they grow in to that capacity before they begin to spend again.
CHASTELET: There's a significant difference now, though, in this "recession" we're in. The pull is coming from exactly where we want the pull to come from: the end users and the consumers. And that's significantly different today. Every high school individual today carries a cell phone or a beeper; that's technology, that's absorbing bandwidth.
Lots of large corporations have laid off 5,000 to 10,000 employees. You can assume that 80 percent of those employees laid off have Internet connections. They will no more cancel their Internet connection than they'd cancel their telephone connection.
Who does a CEO turn to for advice? How can more tech workers be lured to the bay area? How's President Bush doing? What advice would you give to students? The business leaders who participated in the Times 50 roundtable answer these and other questions in further excerpts. Click here.
Times 50 story lineup