I2V: Al Kurtenbach of Daktronics -- Is Technology Entrepreneurship for You?

Comments from Dr. Aelred Kurtenbach on what it takes to be an entrepreneur. Madville Times commentary in italics.

Al Kurtenbach, founder of Daktronics, worked on information systems theory forty years ago. He says the work then was all theory, because the hardware necessary to test the ideas he and his fellow students and faculty had didn't exist. Now that technology exists on our desks (and our laps!). Academia thus has a key role in technoentrepreneurship: even if it looks like the stuff the profs are talking about is all theory with no application, those profs are really laying the theoretical groundwork for the industry applications that are just around the corner.

Entrepreneurship isn't for specialists. Exploiting an idea and building a company means learning a little about finance, marketing, logistics, the whole works! The entrepreneur has to be an interdisciplinary big-picture gal (or guy).

The entrepreneur also has to be comfortable with uncertainty. No one (not even the founder of Daktronics!) can offer you the playbook that guarantees optimal performance. There are an infinite number of right answers, and probably as many ways to screw up. You need to be ready to acknowledge mistakes, change direction, and be nimble.

Daktronics started in a rented 250-square-foot garage in downtown Brookings. They had 3 full-time employees and 3-4 part-timers. They moved out to the current site in Brookings in 1974, and Kurtenbach had the same office until two weeks ago, when he got moved up to a nice second-floor office. (He says the move was a bit traumatic, since he's a bit of a packrat, and moving all that stuff wasn't fun.)

Kurtenbach and Sander were frustrated to see the talent passing through their classrooms and heading elsewhere. They wanted to keep that intangible asset in Brookings. And what a resource to capitalize on! It's renewable -- another crop comes to the university town every year. The community was doing some business, selling food and clothes to the college students, but it wasn't working hard to really turn all that talent to its benefit. Kurtenbach thought his company idea could change that.

Kurtenbach says he caught a wave, the "go-go years" for electronics in the late 1960s. he and his friends read the tech and business journals, saw the potential, and thought they could make a go of it in South Dakota.

At the time, Kurtenbach and his fellow researchers were working on applications for medicine, like an electronic thermometer. They were caught by surprise by the FDA approval process and realized they didn't have the money to get through it. (Indeed, regulation can hamper the development of new businesses.) "Rich in children but poor in dollars," he and his partners sold that first venture off in parts to folks around the community, including themselves. They offered interested buyers one share of stock and three "warrants," options to buy more stock in the immediately following years. With lots of local shareholders, they got lots of local input Kurtenbach and his partner Duane Sander worked for sweat equity, taking shares instead of pay while still working full-time for SDSU.

Kurtenbach and Sander decided they could compete better by identifying a small market; they feared that if they pursued a large market, a larger company could easily jump on their ideas, outspend them, and drive them out. A guiding principle became: "If General Electric is interested, we're not."

Then, the SDSU wrestling coach came to them and asked if they could make a good scoreboard. The idea sounded good: no regulations, no federal agency rigamorale, just a nice straightforward design problem. In fall 1970, that coach brought a national tournament to Brookings, including U of M, Missouri, and the Naval Academy. Daktronics rolled out its scoreboard, and the coaches at this tournament provided all sorts of useful feedback. That feedback led to improvements that got the scoreboard approved for three national tournaments the following spring.

Another small market popped up: legislative voting systems. 99 customers (remember: Nebraska is unicameral!), easy to serve. Daktronics capitalized on electronics (transistor logic! the big thing in 1970!) that the existing couple companies in the field weren't interested in pursuing. Daktronics scored immediate profits on this venture. They adapted through the 1970s as the tech changed, moving from hardware to software. Of course, Daktronics is no longer in the voting system business: it's still a small market, and Daktronics is now big market. But the venture gave Daktronics the cash it needed to do more.

Kurtenbach left SDSU in 1973, but Sander remained, maintaining a good channel for recruiting talent and sharing information. That interaction has been great for Daktronics, and Daktronics sustains that interaction more than any company Kurtenbach can think of.

1973-1974 was the transition from operating on investment dollars to supporting operations through sales. That's a tough time for any business. High-tech companies usually depend on three or four rounds of investment for their revenues that allows them to operate on a loss. Daktronics didn't have that advantage; they felt they had tapped their local investors for all they could and moved right to standing on their market performance.

Daktronics negotiated a 20-acre purchase with a local landowner on the edge of town, used two Small Business Administration loans: $110K to finance building the first facility on that property, and a working capital loan to finance inventory, receivables, etc. "The SBA was very important to us," says Kurtenbach, demonstrating, oh fans of Grover Norquist, that lots of the successful businesses around us owe their existence to the government's helping hand).

Kurtenbach likes to tell audiences that "Only one industry in the country has an entire section of USA Today devoted to it: Sports." Scoreboards pay the bills!

The Internet is great for some support functions, but Daktronics depends on a very active and present sales force that goes everywhere. They have to sell and service the tech in person. Daktronics thus has 75 or so sales and service offices around the country. Daktronics has also been able to capitalize on the abilities of school athletic directors, a group of professionals who work very hectic schedules and tend to burn out quickly and retire. Daktronics recruits these guys (yes, they are mostly guys) to act as sales people. These guys have all the contacts -- huge asset! They make the sales, and the Daktronics specialists can focus on installation and service.

Daktronics plugged along for twenty years before breaking $20M in annual sales. Now Daktronics is growing at 15% a year. Sales in FY2007: $430M. They now have 3017 full-time and 826 part-time and student employees working in 745,000 square feet of facility space (that plant size has doubled in five years).

So where does Daktronics go next?

1. Further penetrate existing markets (more expensive than other strategies!)
   
2. Add more products and services
3. Add more markets
4. Expand international efforts (you can do this from Brookings, Madison, Carthage, etc.)

Kurtenbach on risk: There is as much risk in inaction as inaction. Rural communities sat around and did nothing for a long time. most of them are going to go away because of this inaction. The ones that will survive will do something. Everything is risky. Sitting on your hands is the biggest risk you can take. We must celebrate action and critique inaction.

What makes a good entrepreneur:

1. Alertness and ability to see opportunity
2. Commitment to responsibility (if you tell a customer you're going to deliver at a certain time, you better do it!)
3. Specific knowledge
4. Perseverance: People will tell you you're nuts. Don't let them stop you!
5. Willingness to present and promote: quit hiding behind your weaknesses; get out there and do it!
6. Ability to adapt quickly: everything changes; so must you!