SPECIAL REPORT

AFTER SUCCESS? REINVEST

At RIM, huge BlackBerry revenues mean lots more cash for research

CHARLIE GILLIS April 11 2005
SPECIAL REPORT

AFTER SUCCESS? REINVEST

At RIM, huge BlackBerry revenues mean lots more cash for research

CHARLIE GILLIS April 11 2005

AFTER SUCCESS? REINVEST

At RIM, huge BlackBerry revenues mean lots more cash for research

SPECIAL REPORT

R&D

CHARLIE GILLIS

Sales almost doubled the year RIM added voice capability to Its versatile communications device

IN THE HIGH SCHOOL quiz game Reach for the Top, brainiacs who seem to have all the answers draw cheers from their classmates for the sheer breadth of trivia at their fingertips. At W. F. Herman Secondary School in Windsor, Ont., in the late 1970s, Mike Lazaridis had just one answer,

but it paid him in more than cheers. After noticing the frequent breakdowns afflicting his school’s Reach for the Top buzzer system, the techsawy teenager used his knowledge of circuitry to come up with a more durable, efficient design. His invention was adopted in high schools through-

out southwestern Ontario. “I sold them for about $600 apiece to a whole bunch of schools,” recalls Lazaridis, now 44. “I had enough money for my first year of university.”

The story neatly encapsulates three keys to Lazaridis’s success: know your fundamentals, reinvest in yourself

and, above all, have a customer. From his early achievements in the buzzer business to his bequest of the BlackBerry to an unsuspecting world, the now-snowy-haired entrepreneur and his partners have grasped the link between sales and R&D: to make better products, you need to make money— and vice versa.

His company, Waterloo, Ont.-based Research In Motion (RIM), embodies that philosophy. With market capi-

The not-so-sleek early versions of the BlackBerry were so large that RIM’s employees were embarrassed to take them out of the office

talization of $18.5 billion, and a product in use everywhere from Wall Street to the House of Commons, it brings new technology to market each year, then uses proceeds to develop still better software, hardware and service. The results speak for themselves: in fiscal 2003-04, RIM hauled down $719 million in revenue while its share price steadily climbed, recently fluctuating around the $90 mark. If there’s one thing the market loves, it’s the prospect of growth.

Of course, tales of brazen risk make better business copy than caution and, as tech innovators go, Lazaridis took a rather sedate path to fortune. He founded RIM in 1984 while still

a co-op student at the University of Waterloo, having gained experience working with local-area networks (essentially, computers communicating with computers). He and his partner, Doug Fregin, soon got a contract at General Motors, redesigning a system of large, marquee-style signs that sent messages to workers on the factory floor. The deal allowed them to explore network technology while making a bit of cash—much of

which they reinvested in research. “We were looking for something to get into,” Lazaridis recalls. “In the meantime, we did any project that had customers.”

After seeing a Japanese system that linked pop vending machines to a central computer (allowing truck drivers to stop only at machines needing refills), Lazaridis turned his attention to wireless networks. He assembled a team that in the early 1990s produced a forerunner to the BlackBerry—a twoway messaging pager with a small keypad. Early versions were so large that users called them “hamburgers,” and even his own employees were embarrassed to take them out of the office.

But Lazaridis knew they were onto something. By 1999, RIM had a sleeker, more user-friendly version on the market, and over the next few years sales exploded. In 2003-04, the company’s revenues nearly doubled as RIM added voice capability to the BlackBerry, letting it function as a cellphone as well as a STYLE: handheld computer with email, text messaging, Web browsing and organizer applications. The latest versions operate on more advanced software and networks, cutting down on bugs and malfunctions.

Lazaridis, meanwhile, has grown rich. According to Canadian Business magazine, he is worth an estimated $1.5 billion, while his co-CEO, Jim Balsillie, clocks in at about $1.46 billion. But wealth beyond their dreams hasn’t dampened their enthusiasm for research. Last fiscal year, the company plowed nearly $88 million of non-government money back into R&D, while Lazaridis himself donated $100 million to found the Perimeter Institute, a think tank in Waterloo dedicated to theoretical physics. “It’s part of my message that basic science is incredibly important,” he says. “Sometimes all we want to do is harvest, and we’re not willing to sow seeds.” The BlackBerry, he notes, was built on fundamental discoveries made over 100 years ago. “So who’s funding the next century’s discoveries? That’s something we need to think about.”

At RIM, at least, the emphasis on renewal is paying off. At a banquet the company threw for in-house innovators, three of the celebrants had registered 40 or more patents during the previous year—more than Lazaridis had logged himself. All three had come to RIM through co-op or high school summer programs, and all had contributed ideas that improved the BlackBerry.

That alone wouldn’t have got them far in Reach for the Top, of course. But tech is all about the quality of knowledge—not the quantity. And as their boss demonstrated at an early age, some answers pay a lot more than others. 171