Wisconsin Public Television University Place Entrepreneurship in Society  Fred Foster, "35 Years of Electronic Theater Controls"  December 8, 2010 UP544   cc >> Jeanan Yasiri: This is Entrepreneurship in Society. This is a course that is offered through the University of Wisconsin Madison School of Human Ecology. I'm Jeanan Yasiri. As we begin today, I'd like to extend thanks to our partners in supporting this class: the UW Office of Corporate Relations, the UW College of Engineering for their technical support, and the Ewing Marion Kauffman Foundation for their financial support. They are committed to advancing academic education in entrepreneurship. Additionally, we'd like to thank our media partners: Wisconsin Public Television and their University Place crew for taping today's lecture. I'm very pleased to introduce our special guest today, Fred Foster, founder and CEO of Electronic Theatre Controls, or ETC. Fred and his brother, Bill, developed ETC more than three decades ago in the mid-'70s when they were students here at the University of Wisconsin. Their conviction was that there had to be a better way to make a lighting control console, and they learned that there was. Today, ETC serves clients worldwide and very recently built a state-of-the-art 325,000 square foot headquarter building in Middleton. 

It continues to serve as the hub of the global company headquarters. Fred has performed virtually all roles for the company from original inventor and engineer to industrial designer, tech support, salesman, marketing, chief operating officer, and today, of course, president and CEO. He focuses on ETC's global strategy and product development as well as the cohesiveness of their internal ETC group, which he'll tell us about as well as the external community to ETC. And he is a huge supporter of student interest which I'll hope he'll let us know about as well. He is top in his industry. He's received many, many honors, including the USITT Special Citation for significant contributions to the advancement of equipment, design, and manufacturing in the field of lighting technology for the performing arts, the 2007 Wally Russell Lifetime Achievement Award, the international 2010 Gottelier Award, and he continues to be ranked in the top 10 of the most powerful people in the industry by Live Design magazine. He's particularly proud of the recent Governor's Award for the Arts that was given to ETC just this past fall. When I asked Fred, really just several weeks ago, to come and speak with you all, I asked what he'd like to title his talk, and he said, well, and he said it with a bit of a laugh, how about "35 years at ETC, and too stupid to quit." And we know he's anything but that, but I know that you join me in welcoming Fred Foster. [APPLAUSE]  >> Fred Foster: Hello there. Sure enough, I was a student at the UW in 1975. 

I grew up in Madison. My father was a law professor, my mother was on the academic staff, so I'm a born and bred university brat townie. All of the way through high school I worked back stage. I had to beg my way to get out of high school by getting half a credit for a stage craft course I never took. And the started school at the university. So ETC, Electronic Theatre Controls, what we do is we make lighting equipment. The spotlights that are above your head, the dimmers that control the intensity of those spotlights, and the computerized control system that is the interface between the lighting designing, the artist in the trade, and all the technology that lights the stage. Typically what happens, when I sit down on an airplane with somebody and sit down next to somebody and you start talking about what you do and I say well I work for a company that makes lighting equipment, the typical reaction, almost universally, is they tilt their head and they say, well, I guess someone has to do it. You don't think there's a real business here. It's a tiny little industry. 

I am in the top 10 most important people in an ant hill. But within my little ant hill, I guess that must mean something. The company, 35 years of ETC is really kind of a surprise to me because until I look at myself in the mirror, I still think I'm 19 years old and dropping out of the university. So how it all started. At the UW in 1975 there was a great lighting professor, a guy named Gilbert Hemsley. One of the theatres in Vilas Hall is named after Gilbert. He was a flamboyant, really exciting teacher and a really good lighting designer. And it was one of those moments at a university where he was a bright flame that drew really great students. There were 160 students in first semester lighting. He had 15 graduate students. 

It was a really dynamic program. And the students for the seven or eight years he taught here, his students have gone over throughout the industry and become famous television lighting designers, stage managers, opera lighting designers. So his spawn has been very successful. I was going to be the world's greatest lighting designer. At 18, well now I'm pretty arrogant, at 18 I was astoundingly arrogant. I was going to be God's gift to the art of lighting design. And I got into the university program here and I ran into people who were so much better than I was on an artistic standpoint that I ran for cover. My big problem was color. I can bore you to death with the science of color but I can't pick a shirt that goes with a pair of trousers. So that really undermined my ability to be an artist. 

So I drifted into the technology. At the university in 1973 they installed an early computerized lighting console. This, for any chip heads in the audience, is actually not a computer. It was a state machine. And it was called Cue File. It cost $150,000 in 1973 when it was installed. Three big racks of electronics and a control panel about that big, and I thought it was really cool. So I have a brother who is two years older than I am. He was studying physics at the UW. And I said, Bill, you got to come look at this thing. 

And he came down and he looked at these racks of electronics and the technology. It wasn't integrated circuits, it was discreet transistors, core memory, and he said, his direct quote was: "Gack, we can do this for $5,000." So it sounded like a good idea. We'd been looking for are a project to do together. The other thing that fell into our motivation is one of the things Gilbert would do, he would take us students out on the road when he lit professionally. And we would do anything from getting sandwiches for the design team to assisting him on Broadway shows. And I got to spend two weeks in my freshman year at the Metropolitan Opera House in New York. Now I don't really like opera, but I love opera houses. They're amazing machines with 70 electricians who make tremendous art happen. And so I fell in love with the Met, and the Met had yet to have a computerized lighting system in it. So part of our fantasy was we were going to build a $5,000 light board, computerized light board, and we were going to put it into the Metropolitan Opera House. 

So with that idea we went to a party at Gilbert's house. Gilbert's house is on Stockton Court which is just that way, just off Monroe Street. And his parties were great. You'd kind of get there anytime, and you would leave sometime in the next three days. I remember distinctly at one point sitting on the staircase that went up stairs when Dean Cronon and his wife, the dean of Letters and Science, walked in. They took one look on the porch where people were doing all sorts of interesting things and went into the kitchen and hid. But you never knew who would be at Gilbert's house. Sometimes it would be Jack O'Brien, a Broadway producer and director. Sometimes it would be Sarah Caldwell, an opera producer. It was just a really exciting time to be there. 

And when you wanted an appointment with Gilbert you had to wait your turn. So the four of us, by this time  it was my brother Bill, myself, a high school friend named Gary Buick and a friend from sailing named Jim Bradley. And we went over to Gilbert's house to have a meeting with him and say hey, Gilbert, we're going to build a Cue File. So we waited until our time came. It was about 11:00 o'clock. And the only other thing that happened is you got to have a meeting with Gilbert wherever there was a room or a quiet enough place to do it which turned out to be his bedroom. Now at 18 years old, being referred by Gilbert as a Wisconsin farm boy butch, that was not a room I really desired to be in but I was surrounded by a bunch of people so it was okay. So the other rule at Gilbert's house is that whoever was in the house could participate in a meeting. So there were people sitting on the dressers, graduate students, lighting designers, that sort of thing. And we said we're going to build a Cue File, and they all said, yeah, sure. 

Well, that kind of -- us off, and we went away. It was Christmas Eve of 1975, and we consider that our birth date or inception date. So to finance the whole thing we stole parts from anywhere we could. There was have electronics company that you could order from in the back of an electronics magazine called Poly Packs and we thought their motto was if you brought a chip from them, sure some pins are missing but at these prices who cares. So we did it all out of the back of spare parts magazines. And there was one part we couldn't beg, borrow, or steal, and that was an 8-inch floppy disk drive. It cost 1200 bucks. So the four of us each had to come up with 300 bucks to fund this one purchase. And for that $300, we each got a quarter of the company, which at that point was just four people and no organization. But at that point, my parents were living in Afghanistan and every time I needed money, I needed allowance, I'd have to go to my father's secretary at the law school and ask Gail to give me 50 pucks. 

And she finally said she was uncomfortable to my mother and my mother said, well, you can give 50 bucks to Freddy anytime he writes me a letter. So I would have to bring a letter to Gail and hand her this letter that she would mail to my mother and hand me 50 bucks. So my mother kept my letters and that's what's up here. And what this is, is a first financing. I'll read the last paragraph. The first goes on about how the Cue File seems to the working. "Oh, that reminds me, the insurance came through for $750." I'd been in a car accident the previous summer. "What a welcomed relief. That means we will be able to make the prototype with no financial help." So that was our angel investors. The angel who kept me alive in the car accident. 

And that was where I got my 300 bucks to do it. So a year and a day later, Christmas day of 1976, we had built what we were called Mega Cue. It was in a box. You see it, three feet wide by about a foot by a foot. That's my charming back and side profile at 19, a really scraggly beard but I had hair. And so we had this thing, and we took it back to Gilbert's house. There was a party on Christmas day, chances are it was the same party, we came back and we dropped this thing down on the coffee table and many of the same people were there. And their general reaction was oh, -- you've done it. What are you going to do now? And we said we don't really know but we're going to be rich, we're going to get in it the Met. So we then took it and its first use was at the Union Theatre down at the Memorial Union for an opera that was being broadcast live on television, live on stereo radio because they didn't have stereo television at the time, with a live audience. 

It was the first time this was going to happen anywhere in the world. And Gilbert was so proud of this that he had Clem D'Alessio from the Metropolitan Opera come in to see what his children had done, his students had done. And so the board made it through. I was so terrible nervous when they did it. But we didn't black out, we blacked the theatre out three times before the performance but luckily it made it through the performance. And then at the end of the night opening night, Clem D'Alessio came back stage, they were still emptying out the audience, the portly opera guild ladies were waddling back stage to shake hands with the cast, and Clem D'Alessio came and he pushed one button on the light board and the whole theatre blacked out. It was a great moment. We didn't get the order. So we had a product and we didn't know what to do with it. And Gilbert knew a company called Kliegl. 

There's a phrase, a generic phrase for a spotlight called a Klieg light and that comes from the Kliegl Brothers Universal Electric Lighting Company established in 1895. And Kliegl was the top company in the business. And we thought Gilbert had arranged for us to go to a trade show in Washington, DC, to sell our idea to Kliegl, and then Kliegl, with a big enough name, would put it into the Met. So Bill and I loaded Mega Cue into what can best be described as a baby coffin. Something about that big, made out the plywood. We flew to Washington, DC. The trade show was at the L'Enfant Plaza Hotel, which is just off the mall. Really flossy hotel. Flossier than we'd ever stayed in, and we couldn't afford it so we actually shared the hotel room with a struggling lighting design student of Gilbert's as well. And the first night we were there, we took it out, we set it up in our hotel room, it all worked, which was kind of amazing, and we went to the Kliegl hospitality suite figuring this was going to be the beginning of our riches. 

We walked into the suite and we saw presented a great big machine that did exactly what ours did. Our dreams of riches just blew up on us. And he were kind of despondent. So we stayed around and drank their booze. There's a recurring theme of drinking through this story. [LAUGHTER] We stumbled back to our room. We were despondent. We got up for breakfast, went to McDonald's because we couldn't afford the breakfast in the hotel, and we went down to the trade show floor. It was a tiny, tiny, little trade show. We figured we would approach companies one at a time. 

And we started with the smallest company we could find, a company called Hub Electric. And we walked in and we said we have a light board to show. And we met a really nice man named Al, and Al came up and he looked at our board and he said wow that's really amazing but our company is too small to be successful with it. But he took us out to dinner and gave us some encouragement and that was nice. The next day we started in earnest to try and sell the board. We went down to the show and there were about five manufacturers that were worth talking to and we, now I don't think, well, I will admit I have no direct experience turning tricks but I think it was a lot like this. We went down to the trade show floor and said we got a light board to show you in our hotel room, come up at 10:00 o'clock. And the company, the John, would come up, knock on the door. We'd let them in. We'd show them the light board. 

They'd be done. We'd empty the ashtrays as they left and the next company would come in and look. And the inevitable happened when one company was coming in and the other company was going out and they hid their faces. They wanted to deny they were looking at the product. So at the end of the this opportunity, we had two nibbles. One was a company from Belgium. The other was a company from California. But nobody signed a check for a million dollars. So we put the thing back in its baby casket. It was held in with 20 number eight pan head screws. 

We didn't have power screwdrivers at that time so we screwed it back in its box. We were too poor to get a bellman to carry it down stairs so we beefed it down the freight elevator. And Bill and I were sitting on this plywood box in this flossy hotel, waiting for the shuttle to the airport when somebody from Colortran, the company from California, came up and said hey, I want you to show this to one of my colleagues. And I was tired and I grumbled, sure if you get a bellman to take it up to your room, we'll show it to you. Thinking that would be too rich for their blood. So they paid a bellman a buck to carry it up stairs and we unscrewed all the screws and just as I lifted the top off the box, I remembered I'd thrown my dirty underwear in on top of it. [LAUGHTER] Class, class. It turns out we got the order. And what we called Mega Cue became Channel Track. And if you look at the picture, we produced the face panel, the bottom half of the face plate. 

Sold them an 8-inch floppy disk drive and a processor board that had a 4 megahertz Z-80 microprocessor on it with 16 kilobytes of dynamic ram. Not megabytes, not gigabytes, kilobytes. And we sold them that for $5,000, just like Bill said we could. Now they put a thousand dollar box around it and sold it to their customers for $30,000. We were -- off. We didn't think that was particularly fair. But we were a complete joke as a company. Three out of four of us were Hoofers, sailors, and we spent all of the time sailing. After we moved out of the basement of my apartment on Mound Street, we moved into my brother's bedroom at my parent's house. And this shows, in the blue shirt on the bottom corner, that's me, my brother with kind of the interesting page boy. 

He later just finished his term as a US Congressman from Illinois. And Jimmy Bradley, one of the other partners. And we were working in my parent's house. We were building maybe two of these things month. We were still going to school at this point. And Ken Vannice, who worked for Colortran, tells a story of calling up because we were late on shipping a product and saying that, and my mother answered the phone because we were hiding from him, and he said that my mother said oh, Ken I'm so terribly sorry, I'll get the boys to come in from sailing and I'll make sure they send you a light board by Friday. Really professional, right? But we weren't paying ourselves at this point. We were just barely able to make these things work. Then what happened is after the first year of the contract, we had sold them maybe 30 boards, we felt that they were making too much of the money, and we went back and we did something in the contract negotiations that, today, I wouldn't do. I don't think it was ethical. 

But we went back and we said we're not going to continue this contract unless you give us $60,000 of development costs that we didn't think to mention or ask for beforehand. This is changing the deal and blackmailing them. They had invested a lot in the product. But at that point we just thought it was righteous. And so we had a problem with our contract. The contract was written in a way that allowed Colortran to order as many boards for immediate delivery and if we didn't deliver them within 30 days they could take the technology away from us. Well, so in the middle of these communications, and this is before faxes or email, we got a telex with an order for 30 of them for immediate delivery. They not only aimed the gun at our heads, but they cocked the trigger. So we flew, Jimmy Bradley and I flew out to Burbank where they were and we showed up at the Colortran offices. I had this kind of nice, it was Saturday Night Fever days so I had this polyester white suit with flared pants, Frye cowboy boots. 

I was really sporting. And we went into a Colortran's offices to negotiate this. It turns out the president of Colortran, this guy named Ken, I won't say his last name because he doesn't come out well in this story. But Ken was not only a Harvard MBA, he was captain of the Goddamn football team at Harvard. He was chiseled handsome with ice blue cold eyes, shark's eyes. And he walked into the conference room and sat down across from us and dropped a copy of the purchase order on the desk and he said you know I can take your company away from you. Jimmy Bradley, and Jimmy and I were kind of loggerheads at this point, and Jimmy said a great thing and he didn't know what he said. He said go ahead, I've always wanted to go sailing in the Mediterranean. And for some reason I picked up on it. And I said yeah you know what? We're not paying ourselves anything for this. 

We're not making any money. I can make a hundred thousand dollars a year being a stagehand running these things on Broadway. So go ahead, do this. And it was amazing. He looked like all the blood drained out of his face. He got up and he left the room. And Jimmy and I are looking at each other saying what the hell happened. Five minutes later he came back in with the contract signed with the $60,000 in it, threw it down on the table said sign it, and get the hell out of here. And we did. We had no idea what happened. 

We got back on the airplane, a red eye special from LAX to Chicago, and we simply started drinking. [LAUGHTER] I do want to point out that in 1975 you could legally drink if you weren't 21 years old. And somewhere over the Rockies we figured that what happened was his Harvard business school training taught him that if you threaten a small business man with driving him out of business he's going to capitulate. And what Jimmy had done by saying I'd rather go sailing was to call his bluff. And he did not know how to work outside of his box. He didn't know how to process it. The blood draining out of his face was exactly that. He didn't know what to do. He knew that they couldn't make them without us. But it was not an intentional business move. 

And that's one of the first examples of being too stupid to quit. So we moved from my brother's bedroom at my parent's house on Lake Mendota drive down to a garage, our first garage. This is my brother. At this point he graduated from the university with a degree in physics. I dropped out. It took me two years to be become a sophomore. I was in theatre and I was working. So those two things kind of are hard to graduate I found. And so he was off going to graduate school in Harvard studying physics. He eventually got his PhD in physics. 

He took his girl friend, Annie, with him. And Annie was a pharmacist and she got tired counting pills at a hospital and said, Bill teach me how to program. So he did. And to this day, Annie is considered employee number two because I was employee number one, I got the first paycheck, she's the longest standing employee who got a paycheck. And when my brother and Annie finally got divorced several years ago, we kept her. [LAUGHTER] And she still works for us. She's fantastic. So in 1979, through Colortran, we got a contract to do a variation of the Channel Track that would track the progress of a parade down main street in Disneyland. And we called it Mickey Track, cleverly. And it was a great time except my brother was supposed to write the software, he was going to school, he didn't get a line of code written before we got out there. 

We had two weeks for him to write all the code. So I spent two weeks back stage at Disneyland. I blacked Disneyland out twice. I've got another recurring thing of the wonderful venues around the world I've blacked out. Turns out they don't really like it when you black the park out when there are guests in it but oops. But through that, two things were happening. Colortran was getting pretty tired of working with us, and we were getting pretty tired of working with Colortran. And then we got another contract from Disney to develop a larger parade control system for Epcot. They were just doing the final design of the Epcot park down in Florida. And we ended up as well getting a contract to develop a theatre lighting board for Disney. 

With us, Disney was working two ways. For the parade control system where they paid for all of our development they owned all of the idea. They didn't want to be solely responsible for the evolution and maintenance of the light board so they offered us a large enough order that we would build a product to their specification but then we could sell it to other people so they could amortize the development costs in the future over more customers and they wouldn't have to pay the whole thing. So that was six consoles for $18,000 a piece. Quite frankly you could roll a penny down the west Beltline highway in Middleton and I'd go chasing after. So this was a big order, $180,000, $160,000, something like that. So we started developing that board, and somewhere along the line, in March of 1980, this is a letter, our bookkeeper was a shipping clerk at Gilson Medical Electronics next door. And this is a draft of the letter he wrote to the IRS. The red part is: "In December of 1979 it became apparent that we would have an income tax liability for the first time." Hey, we were making a profit. It goes on to say that we didn't have the right form, and if they send us a proper form we'll fill it in. 

It says, "I can assure that this will not happen again as we've become much more organized." Well, I don't think that particular thing has happened, but I wouldn't say we were much more organized for quite a while. So this is a board we did for Disney for Florida. And this is a letter that my mother wrote to her father, to my grandfather Pop. And it says, "Fred is doing okay, though it seems he's seems overwhelmed by personnel problems at ETC and problems of cash flow. A big inventory to make the Disney boards but no money coming in... However, he and Mike, the book keeper/treasurer, went to the bank and borrowed $50,000 which is something." In my family that was a lot of money. "Sounds pretty gutsy, but as they say that's the American way of doing business." So this was our second round of financing. Of course, I didn't know what venture capital was, I didn't know any of this stuff. But this $50,000 allowed us to do this. We made a half hearted attempt to sell this product to Colortran. 

They didn't want to buy it, and we didn't really want to sell it to them. So in about 1983 we started selling the first products as ETC products. So in 1982, ETC was about six people. We hired our first woman, one of our girlfriends so we had to put walls around the toilet in our garage. Pretty classy operation. And the problem we had is we just made the computerized consoles which are only one part of a lighting system. We didn't make the spotlights, we didn't make the dimmers. At that point there were four companies in the country, Kliegl, that I mentioned earlier, a company called Strand Lighting, a company called Electro Controls, and a company called Colortran, who made entire lighting systems. So when they built a theatre or television studio or lecture hall they could be the sole source provider. But we only made one part of it, albeit we thought the heart of the system. 

So we really couldn't compete for a lot of the business. And our strategy was to work with two small companies that just made dimmers. One was a company called Tiatronics in San Luis Obispo, California. And the other was a company called Lighting Methods in Rochester, New York. If you look at the market, there were those four big companies and they were doing between $10 and $30 million a year of business at that time. And then were a whole bunch of companies, largely known by our initials, Electronic Theatre Controls, ETC; Lighting Methods Inc, LMI; and we called ourselves alphabet soup. So in the alphabet soup we teamed up with these two companies. They were going to distribute our product and put our consoles in with their dimmers to provide entire systems. It worked really well when they could sell their dimmers, but they weren't that excited about just selling our consoles. So it wasn't a great solution yet. 

And what we then did is ETC started opening up our own dealers and resellers who, for the large part, and selling directly to the theatrical dealer who then sold to the theatre. And so we can work to promote just our console sales. That worked all right. We got some traction. We were, by 1988, we were up to about $2 million in sales almost. And the problem was that the big companies had a perfect argument against us. Why would you want to buy a lighting system from ETC and LMI because when the lights blink these two little companies are going to point fingers at each other. But we make the whole thing, we can service the whole thing. Really good argument. And that's actually why one of the strongest ethics in ETC at this point is our dedication to service. 

We realize that we could never have a situation where the lights blinked and we couldn't solve the problem. So we started working very closely with these two companies to make sure that we could support either company or any combination of the companies could support the systems. But as things went, we were still kind of hitting a ceiling that we couldn't get through. There were some other things that were happening in the industry. Strand Lighting bought Electro Control so now there was strand, Kliegl, and Colortran as the big guys. Then Kliegl went out of business, and so now there were only two companies that were full range companies. So in about 1988 we started talking to Lighting Methods to see if we could merge the companies together. Lighting Methods in Rochester, New York, was started almost on the same day as ETC started by two kids going to school at the Rochester Institute of Technology. And they started making dimmers. So I called Al up and I said Al I think we should put our companies together. 

And we talked about it. We got all the way to a letter of intent and it fell apart. It fell apart because neither of us could admit or could agree that the other person would run the company. The whole thing about mergers of equal, this is what Daimler Chrysler tried to talk about, there is no such thing as a merger of equals. Somebody always eats the other company. And so that is where that one fell apart. And at the same time, with Kliegl going out of business, both of our businesses jumped up a little bit. We said nah, we don't need this right now. About a year later, oh, at this point we actually moved into a real building. One of our patrons and actually the largest shareholder in our company is a guy named Bobby Gilson. 

Bobby Gilson owns a company called Gilson Inc. that makes medical electronics equipment. His father started the company, and he has been a huge help to many companies getting going. I would go in on the weekend and use his machine shop, and I would tear apart production setups. I would break the machinery. His shop foreman would come in the next Monday and say that -- Freddy Foster's been here. And Bob would say eh-- And Ken, his foreman, never liked me, but we couldn't be in business without Bob. And we needed more space, and we said Bob we need a building and he said how big. And he plowed down some cornfield and built us a building. So we moved into this really sparkly white building. 

But then in 1990 it still made sense to put the companies together. And Al and I came back together and started talking. By this time something had changed for Al. The two companies beforehand, ETC in 1989 was selling almost $2 million worth of products. We were about 19 or 20 people. Lighting Methods was selling $5.5 million worth of product, and they were about 65 people. But Al's an engineer and he didn't want to run a company with all those employees. I can understand some days, but he didn't want to do this so when we started talking this time, he said that's fine but ETC has to buy Lighting Methods. So I said okay. And the transaction wasn't very big. 

It was a couple million dollars. We did a business plan that said that we needed to borrow a million and a half dollars, or two million dollars we needed to borrow. And we had the whole deal worked out, and then somebody mentioned to me, asked me, do you have the financing sorted out? And I said oh, I suppose I should talk to the bank. This is another part of being too stupid. So I went to the bank and I said gee, we need $2 million. They said where's your business plan? So I went back and wrote a business plan and came back and said hey, we need $2 million. And they said we'll give you $1.2 million. Two weeks away from closing. I said no, that's not going to do it. So then we found a new bank and this is where I learned that bankers, I thought bankers were absolute. 

They had a formula they applied and nowadays this is impossible to believe what we've just been through, but I thought there was no flexibility in banks. This is when I learned that bankers sell money, and so you can negotiate and get the best deal. So we went to a different bank, and we found a bank that would give us $1.5 million. Well, that was close enough. And we closed the deal, and we had a very simple and very flawed business plan. We were going to move all of the operations from Rochester to Middleton in six weeks. We were going to move 65 jobs. We were going to move big punch presses, technologies that we didn't know about, but we had this arrogant Midwest work ethic attitude. We've got this great work ethic. If we can build computers, we can obviously build dimmers. 

Big fat wire, we can do that. And then we looked at the workforce, and this is my personal mistake. We looked at the workforce in Rochester, and Rochester is a much different place than Madison is. Madison has very little manufacturing. Rochester is a big industrial town. Kodak, Xerox, IBM, Bausch & Lomb, all were huge unionized operations. And the type of people that Al could afford to hire in his business were young people trying to get the skills to get a union job or people who didn't fit in in a big structured company and fell back into his job market. So we looked at these people and oh, god I was so stupid. I said well, you know, we don't need them. So we will replace them with people in Wisconsin, with a few exceptions. 

Of the 65 people, we had identified about 12 people that we really, really needed. Engineers, product people, service people, mainly. Sales people. And so before the acquisition actually happened, we went to Al and we said Al, we're going to make a condition on the sale that we get to hire these people. So we need to speak to them beforehand. And we would sign them to nondisclosure agreements. We'd sit down, and I knew these people, I'd worked with them for three years for the most part, and I'd sit down and I'd say so, Bill, we're going to buy Lighting Methods and we're going to move it to Wisconsin and we want you to come with us. And we would talk for about an hour and what we discovered is that every one of those 12 people heard only we're going to buy your company and we're going to move it Wisconsin and that's all they heard in an hour of discussion. That's all they took away. They each came back the next day saying can I come? Yes, we want you. 

What about vacation? What about little things? Will you help me with moving expenses? Will you help me find a place to live? This sort of thing. And it was really eye opening, and I think this is one of the first times I started learning this about people that when confronted with a really shocking thing, you shut down. If you've ever been fired or you hear you're fired and you don't hear the rest of the things that are said. And so this is a discovery. About a week before the sale actually happened, the financing was in place, I convinced Al to let us have a company meeting at his factory because I wanted the people of Lighting Methods to hear what was happening from us, from Al and me, not from a rumor coming back in through the back door. And so we had company meeting that went like this. We were standing in the grungy factory building about twice this space. There were 65 people standing around. I was in a suit, different suit now, and Al was standing next to me. And we had done one thing right. 

We took those dozen questions that the people would ask from our previous experience and we wrote them out on a handout with answers on them with some other explanations of what was going to happen. And as we started to talk we had people handing these out. So it went like this. Al stood up, he said well this is Fred Foster, he is the president of ETC. You might know that we buy our consoles from him, Fred. I said yeah, you're not even going to take the bullet, are you? So I said well there's no good way of saying this. We're buying your company. In six weeks we're going to move it to Wisconsin, and I'm afraid I can't take any of you with us. Our plans are not to do that. Then I went on and on and on saying but we're going to do everything possible to make sure you have jobs before we leave. 

And this is where I learned the phrase outplacement services. Outplacement services, the outplacement function is a phrase that managers who fire people use to make them feel better about themselves for firing people. It says, basically what you're saying is you're fired, you're out of a job but outplacement means we're going to find you a job. It's euphemistic, all right? So we promised that we'd help them find jobs. The six weeks turned into nine months before we moved out of Rochester. From February 15th of 1990 to about May, I was out in Rochester in May. Dick Titus, who is now our president, who actually runs the company, was running manufacturing and he was out there. And he came into the office where I was, and he said Fred we made a big effing mistake. We need these people. What we found is this group of people who we didn't think were really special, as lame duck employees had taken production 30% higher than they had ever gotten before. 

They knew how to make this stuff. And more importantly we found there was no such thing as documentation at LMI so it was all done through oral tradition. So we really needed these people. So we just completely changed our mind in May of that year, and we started saying anyone who wants to move to Madison, come on out. We would fly kids making six and eight dollars an hour out to look for houses to live. And as it turns out, by the time we finished in November of that year, we had moved 25 people, more than half of them were in that direct labor group we thought we didn't want, and all but three people had jobs. We had succeeded in that. Now the three people who didn't have jobs, two were woman with large families, single mothers and they could make more money on AFDC payments if we fired them than they could working so they asked us to fire them and we did. And one guy's rap sheet was just too long. But it was really, I think, rewarding to us, to me personally, that outplacement we were good to our word. 

We were able to get people their jobs. But more importantly, we stumbled into the benefit of having 25 people come from Rochester to Middleton. There were more LMI people than there were in ETC. So there were only 20 ETC people, 25 Lighting Methods people. Then by the end of the year we added another 45 people, new hires. But what that did is that really didn't make that ETC was eating LMI. It really allowed us to put the two companies together in a much different shape. I don't like business books, I think they're all generally pulp and self-referential, but I did read one once about mergers and acquisitions while I looked at the pictures. And there was a really useful picture that describes acquisitions. And we've tried it all sorts of different ways. 

If you imagine one company is a circle and one company is a square and you're going to put them together, one way is you just overlap them a little bit, usually in finance and that sort of thing, but you leave them as separate companies. Another one is the put the circle and the square together and you come out with an entirely new shape, a triangle. And the other one is the circle consumes the square and you just have a bigger circle. With Lighting Methods we just did the circle with the square and ended up with a triangle, something entirely different with arguably the better parts of both companies. But remember when I said we needed $2 million and the bank only gave us half a million? We got to the end of 1990 and we had lost half a million dollars. That was a lot of money to us. This is another place where I was too stupid. This is a time that I knew the financial statements were horrible and bleeding red ink, so our accountant would give them to me in sealed envelopes and I would just open up my bottom drawer and slide them in. When I finally changed desks, I found a stack of unopened financial statements. And I looked at them and I understood why I didn't open them. 

At the end of the year, we were nearly out of business. There's a number at that have subsequently learned is an important number. It's the debt to equity ratio. It's how much the company has borrowed from the bank compared to how much it's worth. And at that time you could borrow twice as much as you're worth pretty easily. You didn't need very many vice presidents of the bank to say that's okay. You could go to three times, a three to one debt to equity. And by that time you had to have the whole board of directors of bank talk to you. We had an eight to one debt to equity ratio. That's the kind of number that they should have pulled the rug out and thrown us into bankruptcy. 

I was pretty sure we were going to go out of business. So I had a company meeting in our shipping area, the only area big enough, and I stood up in front of everybody and I explained, hey, this is where we are. Showed them all the numbers. And I said so we have two choices, we're going to ask for a lot of concessions, we're going to put in a salary and wage freeze, we're going to stop our contribution to pension plan, we're going to stop free hot lunch on Mondays, we used to give everybody free lunch, and we're going to put in a bonus plan. I said we had an alternative. I used a really dirty trick. I turned to everybody and I said the alternative is look to the person to your left, look to the person to your right, look at yourself and which one of you shouldn't be here? Dirty trick but it's really what we were confronted with. So over the course of the next year we turned things around. We become profitable. Our growth continued up. 

And we didn't lose a single person. It was amazing. And of those 25 people, we just celebrated our 20th anniversary this last February, of those 25 people who came from Rochester, I think 14 of them are still with us. And they're managers, they're lead engineers, and they are a key part of our company. And I find that to be a huge advantage. Something else I learned at this point was that one day after we moved a bunch of people in we had to pave our parking lot between the buildings we were in. And I arrived late that day, and I had to park two blocks away and walk into my office. My office is in the very back of one of the buildings. And I got in to my office and I felt sick to my stomach and I didn't know why, so I sat and stared out the window, which I kind of do a lot any way, but I stared out the window to figure out what the problem was. And I finally figured it out. 

Something had changed. And up until that point if ETC, I was what, 26, 28 years old, if ETC had blown up I'd had gone back to school and gotten a real job. It was a lark. It wasn't very important. But walking past all of those cars made me realize that ETC was now responsible for those car payments. Responsible for those people and many of those people had moved a thousand miles to join us. And it just completely changed my viewpoint. No longer would I roll the dice like we did in that story with I'd rather be sailing. I would never take a risk with a company that significant again. Well, maybe once or twice. 

And it was a real change in my mind set. And now we have families and houses and grandchildren in some cases. So it was really a moment where ETC started becoming much more of a community and an organism rather than an organization to me. I got to get going. I'm probably past my time. So in 1992 we introduced some really revolutionary products: the sensor dimmer, the obsession console, the source four spotlights. Those spotlights up there we sell for about 250 bucks. We've sold three million of them. It's just been a great product. It's almost 20 years old. 

The patents are almost run out on them. But in 20 years nobody's been able to make a brighter spotlight than that. It's really been a great product. In 1994, we had really stayed in the North American market. We decided it was time to get bigger and become global and so we, in 1995, we had a distributor in London so we bought them and opened up European operations in London with a suboffice in Rome. We opened up an office in Hong Kong to serve the Asian market. And then in 1998 I got fired. Well, kind of. We had sent an American over to the London operation to run it, and he was supposed to replace himself with a European and come back. He came back before he replaced himself, but we were talking about his reintegration into the company, and at this point ETC, I was still trying to run the whole company and I had six vice presidents and every Monday I'd have a meeting with them. 

And to be honest I suck at daily operations. And so we were talking about, because now Bill, the sales guy who was running London, had run a whole company, how could he come back and be a vice president on par with all the other vice presidents? Dick Titus was in charge of manufacturing, and we started talking about when Bill came back we would turn ETC into two companies. One would be manufacturing and operations and Dick would run that, and Bill would run the sales and trading part and I would become CEO. And I didn't deal with that. I didn't deal with it. My false reason for not dealing with it was that I didn't want to go through the politics of making two vice presidents more important than my other four friends who were vice presidents. The real reason is I wasn't ready to let go. I pretty much thought that becoming CEO would mean being put out to pasture. And I wasn't dead yet in my mind. So I didn't pull the trigger. 

And then apparently in some meeting with Bill at the other end of a telephone in London, I went off on Bill. I can't tell you why I went off on him, but I must have done a really good job, I'm sure he can tell you. But it took days, it was on a Monday, it took two days before Dick calmed down enough to come into my office and say Fred it's time to make me president. Hmm, I said. At least I said hmm. So I had two ways of looking at this. One was it was simply the execution of the business plan we had. The rational way of looking at it. Or it was a palace revolt. Guess which way I took it. 

One of the problems is this is my it's lonely at the top entrepreneurial speech here. We don't have a board of directors. I think for me it's a good thing. I don't like people telling me what to do. But I don't have a board of directors to turn back and say I've got a problem here, I've just been displaced. So I had to do it by myself. And I did a trick that my wife, Susan, who used to work for us, made me do once when she didn't think I had a real job description, which is I made a list of the five things I did best, a list of the five things I did worst, took those two lists and tried to come up with the five ways I could best help the company. I call it the list of fives, or lists of five I guess it is. And that let me realize by myself that I was not in the right role trying to run the company on a daily basis. What I was really good at was knowledge of the product, knowledge of the market, knowing how to develop products, and what I really sucked at was planning, operation, execution, process, all of that stuff, procedures. 

And so that let me say okay, we're going to come back and I'm going to let Dick take over the operations of the company. Bill, it turns out, didn't come back to work for us. He went to work for one of our customers. So we still didn't fill the spot in London, and we didn't actually split the company in two. So Dick had the unfortunate job of trying to run the company with me still in his way. And every time I saw Dick making a change, I would stop it. I would find some way to undermine and pull the rug out because he was changing it from the way I did it. And if I didn't happen to see it, somebody would come up to me and say Fred, Dick is doing this. I'd say he is, is he? And I would pull the rug out from underneath him. So it wasn't going very well. 

And when Bill announced that he wasn't coming back, we looked around and we needed somebody to run the office in London. So I looked around and my nose was bent any way and I looked and I decided I was not only the most superfluous person in Middleton, I was also in the way. So I went to London. And I had a fabulous time. London is a great city. It was like going back to high school as a grown up because the operation in London was 30 people. I don't know if any of you have that fantasy but the fantasy in my mind is I could go up to any varsity cheerleader who wouldn't have talked to me in high school and simply ask her out on a date and she would say yes. So that's what the fantasy reference was. So in any case, not that I found any varsity cheerleaders in London. But I went to London and the small company was at a point that ETC was several years earlier. 

They had a whole mountain to climb and hadn't even seen the mountain. So I set myself the goal of not making the mistakes I had made before and see if I help that company grow. And my learning curve was vertical. The European markets are so complex compared to this big homogenous North American market we have. And the 30 people in London just brought me into their lives, it was fabulous. After five weeks when I couldn't take the British plumbing any longer, I got to come back to America for a week. So it was a really interesting time, but it also got me out of Dick's way, and he could fix the company in the ways the company had to be done. The little toy sailboats, I raced radio-controlled sailboats on the round pond at Kensington Gardens. I keep a boat in the clubhouse; I have keys to the palace gate. So jumping ahead, another really traumatic time from a people point in the company was when the 9/11 tragedies hit, it hit us really hard. 

We got away September, not a problem. We had a backlog of orders. But in October our orders cut in half. In November they were down another half. And even though the business had been slowing down, there was a big part in our business for the millennium. The year 2000, everyone needed spotlights, but after that there was a glut in the market so the business was slowing down. In the summer of 2001, we were talking about having to reduce, we'd never had layoffs other than when we closed in Rochester, we were talking about the L-word. And Dick said no we can do it through attrition. And we we'll just be careful, and we'll wind it down gently. Then 9/11 hit and we didn't have a choice. 

And we're not a company, we are a company based on the quality of people we have, and we just had no way of working through what turned out to be laying off or getting rid of 17% of our workforce. 63 people. So I went over to Dick's office, he was in a different building, and we had the discussion where we said we have to do this. And I said okay, how are we going to do it? And he said well, I think we should ask the managers to go through all of their positions and pick strategically the people they don't need and we'll let the managers decide. So I got back in my car and at this point I had a built in mobile phone in my car. And he called me before I got back to the office and he said well, I have a problem with what we just planned. And I said what's that? And he said what happens if we have two people doing the same job and one person is employee number four and the other person has just been hired and the manager says we get rid of the new person. What do we do? And I said oh, damn. I'm not going to get out from underneath it. So what we agreed to do was to have the managers make their suggestions but then the final decision on every single position came down to Dick and me saying you've got a job or you don't have a job. 

Really a hateful, hateful place to be. We did the layoffs. We did them as strategically as we could but we had to do it so quickly that it actually had a benefit. I guess there was a benefit. Anytime you have to make a dramatic change in the business, urgency is a good way, you can either plan it and it takes forever and you never make any changes, or because we had to get rid of so many people so quickly it was like taking all of the jobs and throwing the deck of cards up and we could restack them as we came down. We found that every department, eight departments, every day would make a different report on how much we shipped that day. So now we have that down to one report. But we found a lot of efficiencies by doing this, but it had a huge, huge personal cost. Probably the hardest thing to do at ETC right now is to convince Dick and me to let you hire a new person. We make you hire a temp for a year, prove that there's a job there, then wait another year, and then, yeah, may be so because we don't want to have to go back through that process until we have to, if you ever have to. 

Really difficult thing. So throughout the course of ETC, and this kind of shows different companies that going back to companies that started before ETC did, Transtechnik in Germany and AVAB in Sweden, and as you see them join the rainbow, this is when acquisitions have happened. So we brought the cultures of many companies together, international cultures together, and boy is that a challenge. They've been hating each other for thousands of years in Europe. And we have companies in France and Germany and England and it's quite a challenge. So we've grown by acquisition. Right now we have, I think there's another chart, in 2004 we moved into our headquarters building which is a lot of fun. I got to build scenery. That kept me busy for a while. Our atrium is decorated like Edward Hopper's paintings. 

And this shows you an idea of our growth rate. If we started, and it starts in 1979 because that's when I had records to. You see that we had essentially no business until 1989. In 1989-1990 we brought Lighting Methods. In 1992, we introduced those revolutionary products, and we grew from essentially nothing to $200 million a few years ago before the economic downturn we've had. We've done that without venture capital. We've done that without, the strangest or most alarming financing we've done is mezzanine financing which means that our receivables were sent to, or no lock box financing or asset based financing, our receivables were sent to the bank before we got them. But right now we are financially healthy. We could pay off our debt if we wanted to. And we are, by a factor of four, the largest company, probably a factor of five, the largest company in our little business. 

It's done because of the people. It's not about the best products; it's not about the best service. I think the reason ETC has been successful all of this time is that we have always tried to find and keep the best people in the industry. And if you focus on that, you automatically get the greatest products and the best service because the best people, the best engineers want to make the coolest stuff. The best sales people want their customers to be happy. The best customer service people and phone support people want to solve their problems. And if you focus on the quality of people, I think success is almost guaranteed. So I need to stop this. I'm over. But I meant to ask this question before I started. 

This morning at 3:30 when I woke up and decided to do my homework and do this PowerPoint, I had to name it and I took a PowerPoint I had, and I had to rename it, and I had to look up how to spell entrepreneur. [LAUGHTER] But when you think of entrepreneur, and you're all in a class on entrepreneurialism, is your vision, if you're an entrepreneur, do you want to start a company, have an idea, and be an Internet billionaire and cash out and fly around on your 767 in three years, or do you want to build a company that 35 years from now has 700 people who are you responsible for your lives but they will give it back to you in spades? And I think there are two paths. Today's business. I just don't get it. This idea that you start an idea. You borrow too much money. You borrow more money. You get angel investing. First round venture capital. Second round venture capital. 

And eventually the venture capitalists take your idea and kick you out. Or you get a couple million dollars and then you do it all again and you're serial entrepreneur or whatever it is. There are kind of two paths. I bet you my path is pretty old-fashioned. But it's hugely rewarding in the fact that the thing that keeps me going is there are many days I walk in and I don't want to be there, I've been there for 35 years, but I hardly ever get to my desk without somebody coming up to me and showing me a picture of their kid, talking about a new house they bought, or saying there's something really screwed up about ETC we have to fix. I hardly ever get to my desk without smiling because of the quality of people. And that's really why I think it works. So sorry I can't talk for only 45 minutes. >> You don't have to apologize for a darn thing, Fred. These are fabulous stories and we thank you so much. 

I know the students aren't necessarily used to how this operates, but what I want to do is if you've got a question, I want you to just wave at me and I'll hand the mic over to you. So just raise your hand as you have a question, and I'm going to start by asking you the question back that you just asked the students, which is essentially, if you were to have asked yourself back in 1975 what your objective was, was it to drive this technology or was it eventually to be responsible for all the people that you are now? How would you think you might have answered that? >> Well, I've described a little earlier that at first we thought we were going to get rich quick. That didn't turn out to be the case. The rest of it was just being too stupid to quit. There were times when we had an eight to one debt to equity ratio, I should have quit. Had I gone to business school and had an MBA I would have realized how awful it was and I probably would have quit. It just became something that we had to win. We had to keep growing. And then as I kind of ended up saying, I get a personal reward out of the interactions with the people, and so I've evolved into somebody who did it for the organization and the people, not for the product. I care much more about the longevity and the quality of life at ETC than I do making the brightest spotlights. 

But we have people who care about the bright spotlights. >> Hi, I'm Jeremy. And I was wondering how expanding your business globally to places like Denmark and Hong Kong and Rome helped improve your system. >> Wow, helped to improve the system, they didn't for many years. Hong Kong was successful immediately because the fellow who started that company walked into our trade show booth, he'd worked for our competitor for 26 years, walked into the trade show booth, said I'm tired of selling for Strand in Hong Kong, I want to open up ETC. He had a business model. He took his secretary, his best engineer, and his business model was when I reach this level of turnover this is the next fellow I'm going to pinch from Strand. And that worked for about nine people. But he always had revenue leading expenses. In Europe when we opened up in London, we were really naive. 

We thought that there was a single European market. That's the first fallacy. Every country has its own market and France has five of them. Somebody from Marseille in the south will not buy from somebody in Paris. So the complexity of the markets were overwhelming. And it took us 10 years and millions of dollars of investment to turn the corner on that. How it works right now and how it's helped is right now the US economy, you see that dip in sales? That's a dip in the US market. However, in London out of our London office and our Hong Kong office, they're doing really well. And I remember standing up and front of the employees when they  knew their bonuses, the American employees knew their bonuses were being reduced by the support we were giving London, and I got this grumble that I had to address. I said someday I'll be able to stand up in front of you and say your bonus is because of London and I've been able to do that. 

So that's, I think, a good way that's it's done. >> Hi, I'm Lauren. My question is, what was your biggest fear with starting your own business and bringing your ideas to the table? >> Back then I didn't have any fear. I didn't know to be afraid at any level. It was a joke. It was a total joke. We did this is the basement for $300 a piece. I don't think the fears, with more time committed to it and more people responsible and more customers out there, then concerns start coming up of, the first time our board was used for Miss America live on television, I did not sleep. Largely because the night before it got hit by lightening and I had fly parts down there. But those kinds of tensions are there for customer related tensions, but I think now the fear is every other company that we've competed against over the years has had a ballistic curve. 

I never want to go down the other side of that ballistic curve. That's what scares the crap out of me. I want that tick. That last tick is our budget for 2011. I want that to happen in the biggest way. >> Hi, I'm Melissa. Since your business has been around for 35 years, I'm wondering what is your biggest challenge with living in an era where technology is advancing every day and having to alter your equipment and ideas to keep your business competitive? >> Big question. Okay, I got another, you've just identified another fear. [LAUGHTER] It's amazing. When we look at what we build, we build these great big desks which are essentially a PC inside of a big piece of hardware, sell them for $30,000 or $40,000 and now you with do it on an iPad. 

And that's pretty game changing. So technologies can change. You hear all these stories about the plans to outlaw incandescent lights. Light bulbs are going to be become illegal and you have to use horrible compact fluorescents or LEDs. Those kind of technology changes are challenging. We are investing heavily in new lighting technologies, but LEDs don't make as pretty light as a glowing piece of tungsten. So technological changes are challenging. I think the best way we mitigate that is, and it's really hard for me to do is I have to step out of the decision making and let people who are closer to the technology, younger people or fresher people, make those choices. Which is really hard because I'm smarter than they are. [LAUGHTER] So it's hard. 

>> Hi, I'm Jillian. I'm just wondering, you said your company is successful because you like to have the best people in the industry, I'm just wondering if it's difficult for the best people in the industry to work well together? >> Well, that's a good one. How do you define the best person? Dick Titus, who's the operations guy, would probably define the best person as the person who follows the rules the most closely and causes the least problems. Our sales vice president has a definition of a person they call a hump. A hump is somebody, an employee, who works for you who is so difficult to manage, who causes so many problems you just want to slug them but they are so valuable you can't get rid of them. I think you need both kinds. You need people who think outside of the box, who challenge authority and you need people who follow process and procedure. So I think you have to have a balance of character types. I said it earlier, I don't think a company is as much an organization as an organism. It's a group of individuals and you need to constantly work to find the ways that challenge them and challenge us and use our talents in the best way. 

>> We have a final question over here. >> Yeah. >> Hi, Tyler Lark. I was wondering the best threat and competition is posed to ETC's business by current entrepreneurs and startups and if you view that competition differently since you were once a start up? >> For years and years I've said I'm more afraid of the little 10-foot square booth in the back of a trade show than I am of the big ones because I know what the big ones are doing. And so it's always been a concern. At some point it's, I think we reached a point and it's oh, right around 1993, '92-'93, when we introduced these spotlights. To develop that spotlight and get the molds and tools made for it cost about $2 million. And that just set the technological bar or the investment bar so high that it was hard, at that time, for a small start up. Now I think the challenge is much greater because of the app store. Certainly that is a concern. 

And it's a potentially business-changing concern because you got a bunch of a little boxes, and the real question and what we're hoping for, a theatre is different than, if your job is to repair office copiers, you work for Gordon Flesch and the copier is down, my contention is you're actually a hero to the people who use the copier because that gives them another excuse for the fact they really haven't done the report yet or another cup of coffee while you fix the copier. But if you build a lighting system and it's in a theatre and a half hour before opening night and there are two thousand butts in the seats in the theatre and the lights blink, you can't not fix the problem. You have to have a service organization and reliability that is very important. We're hoping that that helps us continue our business as we respond to the technology changes. That's our hope. >> Well, I want to thank the students for starting our semester right with lots of great questions for you, Fred, but I know they join me in thanking you for coming and talking with us today. And we wanted to provide you with a sign that you will forever be a Badger. >> Oh, boy. Now can I get my diploma? [LAUGHTER] >> I think we can work on that. Thank you. 

>> No, I'd have to go to class, it's all right. [LAUGHTER] >> And you've been here. Thanks everybody. Let's thank Fred Foster. >> You're very welcome.