COVER

HIGH TECH’S NEW STARS

Ian Anderson February 8 1982
COVER

HIGH TECH’S NEW STARS

Ian Anderson February 8 1982

HIGH TECH’S NEW STARS

COVER

Ian Anderson

When Pat Beirne wandered uninvited into the shoebox-size offices of Mitel Corporation six years ago, Kanata was little more than a cow pasture and Michael Cowpland was still plain, ordinary Mike Cowpland. In his faded jeans and long hair, Beirne may not have seemed like one of the most valuable minds in the country, a 21-year-old to whom high technology came as naturally as breathing. But at the time Mitel had only 80 employees, not the 4,200 it has now. It was not one of the two or three fastest-growing companies in North America, and it had yet to become a world leader in telecommunications. For his part, Cowpland was not yet being hailed as some kind of diffident combination of Thomas Edison and J.P. Morgan.

That was before the Ottawa area would find itself dubbed—after California’s prototype—Silicon Valley North, much to the irritation of the 300 Canadian high-tech companies that would mushroom in the sleepy rural suburb of Kanata. It was a simpler time, when Canada allowed its industrial base to erode unchecked. That erosion continues, despite such finger-in-the-dyke programs as the $93 million that Industry Minister Herb Gray announced last week will be spread around the high-tech industry over the next three years. There is a high-tech revolution under way, and one part of Ottawa is on the cutting edge. In six short years Mitel and Mike Cowpland have become something of a legend.

Pat Beirne is named in 12 of the company’s 35 patents, but when they throw the word “genius” around at Mitel they usually mean Cowpland or his highvoltage partner, Terry Matthews. Their fortunes are in the $300-million range, and each day that their high-flying Mitel stock moves a dollar in New York or Toronto* they make $10 million each. Yet the gold-dust twins, both 38, are an oddly unflamboyant pair whosq tastes in clothes and hair leans to the rumpled. Matthews lives in the same house he mortgaged eight years ago to get Mitel started.

Like the other dozen or so members of Ottawa’s high-tech elite, they see themselves as builders, not acquisitors cast * Where it closed last week at $27.25.

in the mould of oilmen and real estate developers. Cowpland shelled out $1 million to buy four faltering Ottawa racket clubs, but no courts are reserved for him. “We’re not that pretentious, I hope,” grins lawyer Glen St. John, his squash partner. Besides, Cowpland now

spends most of his time outside the country overseeing Mitel’s scarcely believable expansion.

The high-tech crowd holds them in awe, not for the money but for the way they have stolen business away from New York, Frankfurt and Tokyo just by being smarter and more aggressive. Some would see this pair of British expatriates as prophets who can lead the country out of the self-imposed servitude of selling wood and copper to pay for cars and computers. For the most part, the Mitel technologists closely resemble Pat Beirne. They are under 30 and arrogant enough to believe they can be the best at manipulating the microelectronic technology that has come to define a nation’s industrial development. They speak the new gospel: “high tech”; “smart-machines”; “the chip.” In the words of one industry executive, that technology is “the crude oil of the 1980s.”

You're all falling asleep!— Terry

Matthews, walking through his plant.

It is an economic war to Terry Matthews. Mitel versus the Japanese. Mitel versus the Americans. Mitel versus the world. The baby-faced marketing dervish will do “whatever it

takes” to sell Mitel telephone systems. When Matthews decided Mitel should put its 12th plant into France, he ran into the usual French demands for control of the subsidiary. Matthews simply went around the mountain instead of trying to bulldoze through it. The new Socialist government of François Mitterrand had promised jobs, so Matthews headed north to the high-unemployment textile district and pledged 1,000 of them. Then he arranged for a worker co-op to be the Mitel distributor. “The last thing a socialist government wants is to let a worker co-op go bankrupt,” he cackled later.

Afterward, he wangled a lunch with Mitterrand himself and put the case forward, starting with the premise that the French phone system would be second-rate without Mitel. And Mitterrand agreed, letting Mitel retain control when far larger high-tech companies had to surrender to the bureaucracy

to get part of the market.

The pattern recurs in Matthews’ dealings with Mexico, West Germany, Ireland and the United States. In Britain, he dined at 10 Downing Street with Margaret Thatcher and he could hardly suppress his puckish Welsh yen to arrive wearing a cloth cap, hoping to be mistaken for the chauffeur. Only Matthews could buy the old hospital in which he was born and turn it into a resort hotel, then try to repatriate fellow-Welshman Robert Trent Jones from Atlanta to design a world-class golf course for it. “He sees a piece of business in everything,” laughs a friend. “Even that nursing home.” Matthews dismisses the notion that his first non-Mitel venture might be just a caprice. There were 20,000 Welshmen born in that home, he will argue, 20,000 potential'guests. And besides, “Once I’ve finished illuminating it, you’ll be able to see it from London!”

Nations that do not participate in the competition will surely he its victims. —

Science Council of Canada, 1981.

Cowpland and Matthews are surfing on what has been called the “third wave” of the industrial revolution. Its impact will not be felt on the beaches of public awareness for another three or four years. Still, a precious few politicians, such as Ontario Industry Minister Larry Grossman, have recognized that it will reach into nearly every corner of the economy, from stoves, toasters and cars to the machines used to make them. What the third wave stands for is machines that, loosely speaking, “think.” And that means chip technology, nothing more nor less than a computer on a piece of silicon half the size of a fingernail.

In 1947, when Cowpland was four years old, a team of American scientists led by William Shockley invented the transistor to replace the clumsy and expensive vacuum tube. Cowpland was growing up, interested in cars and motorcycles, as the battle to beat the Soviets to the moon resulted in forced miniaturization of electronics. By 1973,

when the first primitive chips tolled the knell of the Swiss mechanical watch industry, Cowpland was among the boatloads of British engineers lured to work in Ottawa for Bell-Northern Labs or the National Research Council for triple their home salary. That was just the infancy of an industry that, even now, may not be past the first grade. These days it is quite normal to stack 60,000 transistors on a chip, the circuits etched to incredible precision by lasers.

To understand what is happening, it helps to remember Moore’s law of microelectronics: “Every two years complexity and density doubles.” And chips get cheaper. It is not easy for the layman to relate to the revolution, but an American analogy serves well: if engineering for aircraft had proceeded at the same pace, the Concorde would hold 10,000 passengers, travel at 100,000 km an hour—and a ticket would cost one cent.

What Mitel and the other high-tech companies are making is machines with

logic. In the first stage of the industrial revolution, man created horsepower in units smaller than a horse: steam engines, gasoline engines, jets. Now he is substituting smart-machines for brain cells rather than muscle. Watches and calculators were the first consumer products with tiny logic systems. The Singer Company has put a microchip into its modern sewing machine and replaced three-quarters of the parts: instead of gears, the chip “tells” the needle when to zig and zag. “What we have is cheap logic,” explains Keith Glegg, vice-president for industry at the National Research Council. “It is not the smallness that is driving this vast wave of activity. It is the ability to use these chips economically to mimic intelligence.” But Pat Beirne bridles at any comparison with the brain, where memory, logic and emotion are bundled together in a way nobody is close to understanding. “The brain is too magic,” he murmurs.

I don’t know how to say it humbly, but we’re bright.—

Pat Beirne.

When things got tight in the early days, Matthews would declare simply that “this month has seven weeks.” No one would complain about working a little harder when they knew Cowpland had been up all night boxing products. Glen St.

John remembers that at the time Cowpland would show up for a morning squash game looking no more preoccupied than he would three years later when the stock market had contracted Mitel fever and was adding millions daily to his fortune. It was Cowpland’s genius for designing that put Mitel into business. And while he worked with his long-haired design teams, Matthews flogged Mitel products around the globe, the authority in his voice conveying a hugeness to the company that was belied by the 400 square feet it rented in the Kanata Junior Chamber of Commerce Building.

The initial funding came from friends in Matthews’ Welsh choir and $100,000 raised by Ottawa lawyer Kent Plumley, whose $25 million in Mitel stock can be traced to the day his wife met Darlene Cowpland in a maternity class. Matthews was irrepressible. When a Bell Canada buyer demanded to see the “plant,” Matthews feverishly erected a Mitel sign on the front lawn, plastered Mitel stickers on the doors of adjoining

dentists’ offices and sweet-talked the nurses into wearing Mitel lab coats.

It worked. Late at night he would still want to talk Mitel and would drop by Plumley’s house to announce the latest coup, taking care to tap on the window so the kids would not wake up. Plumley babysitters were duly warned not to panic if a bearded face peered into the window after midnight.

When their board of directors looks uncertain about something the golddust twins propose, the response usually begins, “You’re looking at this the wrong way. ...” It’s hard to argue with

people who have made you millionaires. Democracy is more a feature of the Mitel plants than the boardroom. In the low-ceilinged, well-lit shops, rock music throbs softly as technicians in football shirts and sneakers pad around. Cowpland and Matthews adapted their own version of the decentralized Japanese management style after their frustrating experiences with traditional pyramid-style management. “A guy feels he can make a decision without me stepping in,” says Matthews. “So he works his ass off because it’s his own decision.” Turnover is almost nil. People are drawn to a winner. And there is another reason: “Anyone who has been with the company five years has made hundreds of thousands,” grins Don

Gibbs, the bushy-haired executive vicepresident of finance. “You’ve got girls on the assembly line [paid $5 an hour] who have made $40,000 or $50,000 in the stock. That’s not unusual.” And then you have the “10 or 15” millionaires running around the place.

The microcomputer brought entrepreneurship within the grasp of everyone.— Denzil (Denny) Doyle of NABU.

It is now axiomatic that a high-tech company start with a basement and a gleam in someone’s eye. Colin Patterson opened shop in the lobby of Ottawa’s Skyline Hotel in 1970, using a pay telephone to drum up business and doodling electric circuits on his lap. He and his partner, Des Cunningham, could not even afford the $500 corporate registration fee for Gandalf Technologies, so they chalked up $1,200 on Patterson’s credit card to get components for a black box that allowed computer data to pass along a telephone line. It was a simple idea that no one else had perfected before the British-born boffins. When they took Gandalf public last year they found their stake was worth $40 million each. Patterson promptly took his first vacation in two years.

Finding a world market is what every engineer dreams about when he adds his name to the list of nearly 300 hightech companies blossoming in the Ottawa area. Only the limits of his imagination can contain the opportunities. “The challenge is to weed ,them out,” says Patterson.

! Systemhouse, another major Ottawa high-tech outfit, will triple its sales to about $100 million in 1982 because founders Jack Davies and Rod Bryden believed that they could write computer programs for companies that previously could not afford a computer. Every company, says Davies, has recognized that it must be “more technologically innovative to survive,” especially in a recession.

Bryden is an anomaly in the new elite. He has no technology in his education and tends to lose calls on his fancy Mitel telephone. Yet he is a phenomenon, a man who has put together a fortune of some $50 million at age 41, just eight years after he left the federal civil service with $15,000 in his savings account. An entrepreneur, says Bryden, believes “there is no appropriate response to a problem other than a solution.”

That is not an attitude the New

Brunswick farm boy found prevalent in bureaucratic Ottawa as he rose to become an assistant deputy minister at age 29, the youngest at the time. “The mandate for Systemhouse is to run as fast as we can,” Davies says flatly.

“We have a lead,” says Douglas Parkhill, the untypically hard-nosed bureaucrat who shepherded Telidon from innovation to world prominence. “The idea is to keep on going so when others are starting to catch up, we’re onto the next step. That’s what high technology is all about.” It was Parkhill who ushered

Telidon out of the department of communications and into the hands of the three Norton brothers, Mark, John and Chris—all under 33. Their company, Norpak, is now largely responsible for keeping the world lead in the two-way television technology that the Telidon program gave Canada—a program that Parkhill and his minister, Francis Fox, had to claw and scratch for to keep alive. Farmers in Manitoba and California are now plugging into trial runs that allow them to “call up” weather data and commodity prices.

Another young Ottawa company is betting $17 million that it, too, can put two-way video capability into the average home. NABU Manufacturing (named after the Babylonian god of writing and vegetation) is developing a microcomputer to be hooked into an ordinary cable-TV system. For a couple of dollars, Ottawa subscribers will be able to call up video games, but the longerterm uses are more sophisticated. “A small number of Canadian families are prepared to shell out $1,400 to buy the Encyclopaedia Britannica,” reasons

NABU’s John Kelly, 41, who made his first million at Systemhouse. “When you pay three or four dollars a month for access to it [by cable], the cost of a microcomputer at $700 or $800 is a real decision for a household.”

Kelly’s rationale is simple: “Why not? Someone will do it.” The power of a system such as Telidon or NABU has forward-thinkers like Parkhill worried about the people who could not afford it, the have-nots who soon could become the know-nots. “We may have to subsidize [Telidon] or grant it to people,” muses Parkhill. “The ability to use their minds is their birthright.”

We have had economic growth, but little economic development.—Science Council of Canada, 1981.

When Gandalf Technologies gave $30,000 worth of equipment to the corn-

puter engineering school at Carleton University, Colin Patterson was shocked to discover that the donation totalled more than the Ontario government’s grant for the program. “That’s ridiculous!” Patterson exploded. “By 1983, people will be saying ‘Thank you very much’ [for the 20 graduates] but where’s the 400? There’s no sense of urgency.”

Japan, with five times the population of Canada, graduates 40 times the number of electrical engineers. But reduced government funding is causing cutbacks in Canadian electrical engineering programs—even in the nation’s high-tech capital. Enrolment in Carleton’s computer engineering program could easily be quintupled if the university had the resources, says Spruce Riordon, dean of engineering. The requirement for electrical engineers in the Ottawa area alone is estimated at

700 to 1,000 for 1983, but, says Riordon, “the hirings won’t materialize because the people aren’t there.” Mitel is so hot for recruits that it is offering a $25,000 De Lorean sports car to whichever employee ropes in the most outside talent over a year.

There exists no national strategy yet for development of the high-tech sector—in terms of corporations or manpower. Yet high-tech companies in Canada and the United States tend to create jobs eight or nine times faster than traditional manufacturing, which is growing at the petty pace of two per cent a year. No powerful political voice in Ottawa can be heard trumpeting the importance of high-tech to the nation. It seems that 18-year-old high school computer student David Thomson could be right when he says, “Most adults don’t like computers” (page 29).

Even in the key area of research and development, Ottawa has resorted more to rhetoric than to deed. Science Minister John Roberts announced a year ago that he would boost R-and-D spending back to 1960s’ levels—from where it fell to share the doormat’s position with Italy among leading industrialized nations.

We should be the Switzerland of North America.—Michael Cowpland.

Amid all the hoopla about Silicon Valley North, the more experienced minds offer sobering thoughts. “You look at the sum total of what’s going on in Ottawa and it’s no more than $200 million a year,” says NABU’s Doyle. “By 1990 the trade deficit [in computers alone] is going to be $10 billion. We should be ashamed of ourselves for not having the same industry around every city.” His partner, John Kelly, esti-

mates that private U.S. investment in high-tech companies is 100 times larger than in Canada. “And that is a conservative number.” Canada has only two chip manufacturers (Mitel and Northern Telecom), and both companies restrict themselves to work in telecommunications. Other companies are using “off-the-shelf” chips, available to anyone, anywhere. Compared with the nearly $2 billion the Japanese government is making available for high-tech research this year, Herb Gray’s $93 million over three years seems somewhat puny.

The system clearly does not make much sense to Cowpland. “I think the government should be charging ahead at 100 miles an hour,” he says. “It’s a worldwide race. The whole key to technology is the speed, and every year you miss is a year when someone else filled the gap. We should be the richest country in the world based on the natural resources and the talents of the people here.” Yet the Science Council gloomily reported last year that the country’s share of world trade in manufactured goods fell to 2.8 per cent from four per cent in the 1970s, and it concluded, “This situation can only be described as a massive failure of the country’s industrial system.”

All that causes no lack of sleep at Mitel, Gandalf or Ç Systemhouse. “We’ve been ^looking at the Japanese robotics stuff for a while, and g it’s really not that difficult,” I a Systemhouse staffer rez marks in passing. As all the 1 boffins understand, the technology is available; all you need is the money, the know-

how and the will to use it. The Mitel brains talk excitedly of opportunities in the Third World where only one phone exists for every 100 people, compared to North America’s 75 phones per 100.

Jack Davies talks of getting Systemhouse to $500-million sales by 1985, the same year Cowpland and Matthews plan to celebrate the $l-billion mark at Mitel. “We look ahead and see what we can do, and it’s mind-boggling,” says Davies. Retirement is out of the question. “It’s not the money, it’s not the power—it’s the fun,” explains one man close to Cowpland. Innovate! Grow! That’s all that matters. “We’re going to walk all over the world,” Pat Beirne bubbles. Such is the confidence of a 27year-old high-tech whiz who knows his seat will be in the front row of the future.

Julie Van Dusen

Michael Posner