General Automation was founded in 1967 by two former employees of a company called Decision Control, Inc. An engineer named Larry Goshorn and a marketing guy named Burt Yale developed a line of computer products that served as the basis of industrial and commercial automation systems designed to solve automation problems similar to those addressed by the products of GE’s Process Control Division. GA sold its systems both directly and to original equipment manufacturers (OEMs) to be included in their systems.
GA products were selling well but expenses were running out of control. By 1970, although the company showed sales of $5 million it was $5 million in the red. Jay Kear suggested they bring his old boss, Ray Noorda, into the company as a consultant to do some troubleshooting.
“It was an engineer who started the company,” said Ray. “He got off track in a couple of cases. He started using too much money. The company got into what I call the Fourth E problem … and basically had to have some help.” Ray identified five stages in the morale of companies: Enthusiasm, Excitement, Exuberance, Euphoria, and Extinction. The Fourth E blinds management and leads to the Fifth E.
“At that time I was leaving General Electric and was invited to come into the company and help out. It was a difficult situation to come into—one that I learned an immense, literally a treasure of, experience from. It was a very good experience for me, even though at the end it seemed as though it was difficult.”
Ray left GE and began as a full-time consultant for GA in 1970. Larry Goshorn, the founder and President, was impressed with Ray and decided to bring him on as a company officer, so in May 1971 he was named Executive Vice President of General Automation.
At GE, Ray had had the resources of a vast multinational corporation behind him. At GA, he said, “There was nothing behind me. I had a board but I didn’t have any money.”
In 1971 General Automation doubled its sales to $10.6 million and for the first time in its history showed a net profit ($3,000) instead of a net loss. By the end of fiscal 1972, sales had increased 51% to $16 million with net income of $1.56 million. From 1972 to 1973 sales doubled again ($16 million to $30.4 million) and the directors made Ray President in December 1973. From 1973 to 1974 sales doubled yet again ($30.4 million to $61.4 million). Those figures made GA the fourth largest minicomputer company in the world.
In Ray’s four and a half years at GA, sales increased 1000% and the company had been taken public.
In retrospect, General Automation appears to indeed have been an ideal training ground for the future President of Novell. Typical of the experiences of many young electronics businesses, booming sales created havoc in GA’s corporate and physical structure and several major facility expansions were necessary. The closely held company went public in 1971, its fourth year of business. Every year from 1971 through 1974 it acquired other companies and it expanded its international operations, which in 1975 accounted for 29% of total sales.
Rapid sales growth is surely the greatest test of a manager. A flood of money and orders stresses every part of a successful company, and many managers cope simply by throwing money at problems. Others, like Ray, try to focus on key issues and ignore the rest.
One anecdote illustrates the chaos that Ray and the other key people had to wrestle with at General Automation. When Burt Yale, one of GA’s founders, had a heart attack and left the company, the international operations he supervised got a little out of control. Ray and Jay invited their old GE colleague Jack Davis to have breakfast with them at the Howard Johnson’s in downtown Anaheim. They offered Jack a job putting things right in International. Jack said yes and packed his bags.
“The guys in Europe had been running totally out of control,” said Jack. “They had nobody that they had to report to. They were sick and gone. I got over there and found a guy in France, an American expatriate, building a new home. He hadn’t been in the office more than half a dozen times in the last six months. He left a message with his secretary to call him if anybody needed him.”
But then in 1975 crisis struck hard. A new generation of GA products with a silicon-on-sapphire CPU at their heart never appeared; the technology was fast but turned out not to be commercially feasible. Adding to that problem was a deep recession. Spending nose-dived in the automotive, factory, and electronics markets that were GA’s core. Sales sank by $5.5 million (9%) in 1975. Net income, which reached a high of $4.3 million in 1974, plunged to a loss of $4.1 million in 1975. This crisis precipitated a fierce management struggle between Larry Goshorn and his outside directors, who were backing Ray. Ray left the company in October 1975.
Looking back on GA, Ray considered the company typical of entrepreneurial ventures. “The same principle applies every time: A little too much money; a little too much euphoric attitude towards the market opportunity; a little over-expenditure here or there. And before long the company is running out of control, morale is gone, and the incentive for making it improve is dissipated.”