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JIM FAROOQUEE : Trying to Crack Fortune’s 500 : Computer Firm Aims to Make Magazine’s List by 1990

Times staff writer

When Jim Farooquee came to the United States from Pakistan 13 years ago, he carried with him $40 and a civil engineering degree from Karachi Technical College.

What he lacked in financial resources, however, he more than made up for with a determination to succeed.

After first making his way selling insurance and carpets, Farooquee saw an opportunity to strike out on his own when International Business Machines Corp. introduced its first personal computers in 1981. IBM’s entry into the then-fledgling PC industry sparked a rapid growth in the market, especially in the business world.

“I began to look into what could be done with the (IBM) machine,” Farooquee said. “Since the industry was new, I figured if I got into the field and worked hard, I should be able to catch up in the next few years.”

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Farooquee and a friend, Mason Tarkeshian, an Iranian haberdasher, decided to pool $12,000 and go into business selling products that boosted the performance of IBM’s computers and compatible machines from other manufacturers.

The decision was fortuitous.

Today, Farooquee’s company, CMS Enhancements Inc. of Tustin, is one of the nation’s leading sellers of add-on memory devices and other components for personal computers. The company had revenue of more than $150 million for the year ended June 30, 1988. Revenue has soared from just $10 million 3 years earlier.

Farooquee, 35, is CMS’s president and chief executive.

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CMS specializes in supplying hard-disk drives and other accessories for leading personal computer manufacturers such as IBM, Apple and Compaq. Its products, numbering more than 200, are sold mainly through major computer retailers, such as Computerland or Businessland, to PC owners who want to add options to their machines not offered by the manufacturers.

In January, CMS ran into trouble when computer software it had shipped to customers was infected with an electronic virus. A form of high-tech vandalism, a virus is a piece of computer software that has been designed to spread itself throughout a computer system and to alter or destroy programs within a computer. CMS has denied it was responsible for the virus reaching a handful of its customers, but it provided free programs to get rid of the virus and instituted stricter production controls.

Farooquee concedes that the virus was an unwelcome distraction but says CMS is back to business as usual. His goal for the next couple of years: to crack the Fortune 500 list of the nation’s largest corporations by 1990. In a fiercely competitive industry, he has his work cut out for him.

In a recent interview with Times staff writer David Olmos, Farooquee discussed how he got started in the computer business, the reasons behind CMS’s rapid growth and the company’s recent problems with computer viruses.

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Q. What made you decide that you could go into the computer industry and be successful?

A. I really didn’t know that I would be successful. I just knew that I would survive, and I’m still doing the same thing.

Q. What do you mean by survive?

A. When I came to the United States the first time I had $40. So I knew that I had to build things from scratch. And I’ve been able to do that for the last several years.

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Q. I’m told you started this company with just $12,000.

A. Yes. And we went to the bank and told them we needed some money. They looked at our balance sheet and said, ‘Yes, you need some money.’ But we didn’t get any money from the bank. So we learned to make money early and that was good training for us. It’s a good habit to have.

Q. And what other businesses had you been involved in prior to starting CMS?

A. I have had several different types of professions. I have a civil engineering background from Pakistan, and I have worked in construction. Since I came to the U.S. in 1976, my first job was to work at Systems Magnetic Co. in Anaheim, where I spent 2 years working on some printer products. And after that, I moved into the insurance industry, selling small business insurance plans for Equitable Life Assurance Society.

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Q. Did you find any similarities between selling insurance and carpets and selling computer products?

A. Some of the best training I have received was selling insurance. The person who trained me to sell insurance told me to remember that the customer has children and grandchildren. So I built that attitude in the early days of the customer being a customer for a lifetime. As long as you support and service the customer, they keep coming back to you, and you keep reaping the rewards.

Q. Has that proven to be good advice?

A. Yes, I would say I have tried to maintain that advice for all the people in the company. Some people would say we are successful. But success is not a destination; it’s more of a journey. So it is a continuing type of thing.

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Q. And where would you say CMS is in that “journey”?

A. Most business people have the anticipation of growing to be a $100-million company. But then what? (Reaching the $100-million sales mark) is something that most people just don’t plan for. So, when it happens, they sort of slow down and get sidetracked. I said in 1986 that we would become a Fortune 500 company by 1990. That’s still possible, but we would like to reposition ourselves as a Fortune 500 type of firm. (CMS would have had to achieve sales of more than $460 million to qualify for the Fortune magazine listing in 1988.)

Q. How would you describe your business strategy?

A. Focus. We are a data storage company, and we are providing storage products to all the different computers available in America. We are complementary to the computer manufacturers. We are very focused on supporting our dealers and customers, and on supplying a very extensive product line. We have focused on nothing but that.

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Q. Doesn’t the company pride itself on reacting quickly to changes in the marketplace, particularly new product introductions?

A. As a company, we are dedicated to being more efficient than other people in the industry. We just work hard. There’s no mystery to it. We believe that, all other things being equal, we will always win because we are willing to put in that extra hour or 10 minutes, or whatever it takes.

Q. Can you describe how you work with the computer manufacturers?

A. We have several confidential agreements with computer manufacturers. Many times we have developed enhancement products without any knowledge of the personal computers that are coming out. We have been able to introduce new products within 24 hours of a product introduction by a computer manufacturer. For example, within 24 hours of IBM’s announcement of the PS/2 Model 25, we had announced several different products designed for that machine. We took all the existing products that were available and started working on it as soon as the machines were available. Within 24 hours, we knew how many products would fit into those machines, and what changes and modifications had to be done.

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Q. What’s required to respond that quickly?

A. I haven’t bottled it yet. I’m still searching for what it takes. But what it takes is a desire. In addition to that, we also have many confidential agreements with major computer manufacturers. They are in the business of selling more computers. We are in the business to help them sell more computers. Because we do not sell computers, we only sell enhancements to their computers, it has been very helpful for the computer manufacturers to come in and tell us which products would be complementary.

Q. Your company’s revenues have grown rapidly, but profits haven’t kept pace. As you know, some Wall Street analysts have criticized the company for not being more profitable. What is your view of such criticism?

A. I think it’s very difficult to help people understand some of these things. We have built a business a lot different from what most people are accustomed to. We went in and took a very large market share. We bought that market share by reducing our profit; we made thin profit margins. Most people wouldn’t dare come in and compete for those margins. In the future, we will always maintain our strategy of being an aggressive competitor, and we will do whatever it takes to win the customer.

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Q. So what kind of profits is CMS shooting for?

A. In the computer industry, most people are comfortable at a pre-tax profit of between 5% and 8%. We will shoot for those profits down the road sometime.

Q. But the company’s pre-tax profit recently has been closer to 2% and 3%, right?

A. Yes.

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Q. And that doesn’t keep Wall Street happy, does it?

A. We are sort of stubborn in certain ways. We haven’t done anything in a traditional fashion. I have the patience and I have a strong feel for the market. People will learn to respect the things we have done.

Q. Doesn’t it require rapid sales growth to operate on narrow margins like that in a highly competitive market?

A. It just requires being nimble on your feet. It requires having understanding and knowledge. It also requires moving your inventory better than the other people in the industry.

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Q. What are some of the trends you see for the industry in 1989?

A. Some research analysts said last year that 1989 would be kind of slow for the computer industry. I disagreed with them at the time, and I disagree with them now. I think the computer industry will continue to grow at a rapid rate, which is about 20% per year. And our part of the business will have a stronger growth than that. There are many segments of the industry that are growing a lot faster than the average industry growth. And we happen to be in a faster-growth segment.

Q. What portion of the company’s sales are international?

A. In 1987, 3% of our sales were international. In 1988, 15% of our sales were international. And that is continuing to increase. We anticipate that 40% of total revenue will be from international markets down the road.

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Q. Is that because the international markets are experiencing strong growth, or because you really targeted that as an area that you want to strengthen?

A. I would think both. The international markets are continuing to grow at a very strong rate, partly because they’re behind the United States in growth a year or two.

Q. How did the recent computer virus incident affect the company?

A. It really didn’t have a major impact one way of the other. It was something people noticed, but we weren’t significantly impacted.

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Q. What did you do when you first learned that the virus might have originated from your plant?

A. We launched an extensive internal program to check all inventory and check our production to make sure we didn’t have a continued problem with viruses.

Q. Did you ever discover the actual source of the virus?

A. It could have been a lot of different ways. One of the places might have been in products our customers send in for repair. We have not determined where it came from and how it ended up at one of our customers.

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