One Product’s Long Road to the Starting Gate : Innovation: The maker of a new kind of pager phone finds that a good idea is not enough to ensure success.
Early this year, a small company named Universal Cellular Inc. announced that it had pioneered a combined cellular phone and pager small enough to hold in your hand.
The product was a hit at a Las Vegas trade show in January because it was the first device that would allow people to screen calls that came in on their pagers--something that many people already do by carrying separate devices. In the next several months, the company booked $95 million in orders for its PagerPhone.
But what looked like a perfect start for the little company soon fizzled. The company doesn’t have enough money to manufacture its phones, and its huge backlog of business is in danger of shrinking because of the delays.
Despite these setbacks and some legal tangles, the company is still determined to get its product to market, said Cliff Tompkins, president and chief financial officer. Universal Cellular’s troubles illustrate how hard it can be to launch a high-tech product during a recession, he said.
“It’s a real difficult environment for companies that deserve venture capital, and that’s tragic,” Tompkins said.
“The critical factor for Universal Cellular has never been the concept, which is excellent,” said Herschel Shosteck, a cellular market researcher in Silver Spring, Md. “The critical factor is how a small company can do the engineering that they think is required and bring it to market.”
In the past two weeks, the company’s future has brightened somewhat. It received a long-delayed $2-million infusion from an unidentified Japanese investor and negotiated a deal with an Ohio company to manufacture the PagerPhone.
“This should enable us to get the product to market,” Tompkins said. “It has certainly been a struggle so far.”
But significant hurdles remain. Tompkins said it could take three to six months before volume production begins, raising the possibility of more customer defections. And the company is worried about running out of cash before sales get off the ground.
Universal Cellular was founded in 1989 by James Wohl, a veteran cable television industry executive and former president of Original New York Seltzer International Inc., the soda drink company. Wohl, who also writes detective novels under the pen name James Coltrain, invested $250,000 in the company and expected to have a product ready in six months.
But Wohl underestimated the difficulty of combining a pager with a pocket phone, and development spanned several years. The technical trick of eliminating radio interference between pager signals and cellular signals was the toughest task. By August, 1990, the company had spent $1 million and still didn’t have a reliable model.
Tompkins, who joined the company that same month, believed that his troubles were over when a wealthy Japanese investor walked into the company’s Anaheim headquarters and was impressed with the product. He invested $1.5 million in the company and suggested that he could arrange financing from other sources by December.
“We saw a unique value in the product they were bringing to market,” said Go Sugiura, a Schaumburg, Ill., businessman who represents the Japanese investor, whom neither Sugiura nor the company will name. “It has been delayed quite a bit because they needed funding that did not come in a timely fashion. I think it was understood that our investment would be partial and they would seek other funding elsewhere.”
In November, 1990, the company awarded a $5-million advertising account to Minneapolis-based McElligott, Wright, Morrison, White, a high-profile firm whose executives created the popular Energizer Bunny advertising campaign.
In December, the technological hurdles were overcome when the company found that it could program a microprocessor made by Dutch electronics giant Philips to simultaneously interpret cellular and pager signals, Tompkins said.
Universal Cellular executives then began talking to the press. Articles about the PagerPhone appeared in the Los Angeles Times, the New York Times and scores of other publications.
But more problems surfaced. The company’s original manufacturing partner, Japan Steel Works Ltd., a subsidiary of giant Mitsui & Co. in Tokyo, decided not to invest additional funds. Sugiura’s client also balked at the idea of making a second investment at that time, partly because of the prospect of war in the Middle East. Universal Cellular found itself with no money to get the PagerPhone to market.
Despite its problems, the company showed off the product at the Consumer Electronics Show in January. Company executives paid for their own hotel rooms, the exhibit space and advertising with their personal credit cards.
They marketed the phone as a gadget for the busy executive who wanted to screen phone calls that came in on their pagers.
The product generated $25 million in bookings at the show and another $70 million in the next few months. But the Persian Gulf War scared off potential investors and made shareholders edgy as well.
To get cash, Tompkins sold distribution rights to firms in Taiwan, South Korea and Canada. Efforts to attract venture capital funding proved fruitless.
“I spent eight hours a day asking people with money to give me some and spent another eight hours telling people I owe money to that they can’t have any,” Tompkins said.
In May, the product won approval from the Federal Communications Commission and was later awarded its first patent. But last summer, three suppliers sued the company in Orange County Superior Court for nonpayment of bills.
The creditors, including Hewlett-Packard Co. in Palo Alto, sought judgments worth the amount of the engineering equipment they supplied to Universal Cellular, several hundred thousand dollars worth. The company is working with the creditors to pay down the debt, Tompkins said.
The financial problems have caused some employee defections as the company has occasionally not been able to make its payroll. To raise money, the company sold 60% of its stock to outside investors, including Sugiura’s Japanese client.
But two weeks ago, the picture began to brighten when Sugiura’s investor gave the firm $1.5 million in cash. The company said it is discussing a new agreement with Japan Steel under which the Tokyo firm would manufacture the product in exchange for marketing rights in Asia. Universal used some of the cash to make partial payments to Hewlett-Packard and some other creditors.
The company also signed a deal with Dynalab Inc., an Ohio electronics manufacturer, to make the product for sale in the United States. The agreement also guarantees more private investment in Universal Cellular.
So far, Tompkins said no competitors such as cellular phone giant Motorola Inc. have duplicated the product, which would sell for $1,895. Shosteck said, however, that Universal Cellular will have to act fast to keep its $95 million in orders from evaporating.
“If we can hang on and get the product to market, we’ll be OK,” Tompkins said. “We don’t regard this as a happy ending yet, but if we do good from now on, we could produce a happy ending.”
