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