How Company Wired for Success
Chances are you’ve never heard of Chet Pipkin. But if your computer is talking to your printer, you may have him to thank.
His company makes “connectivity” products linking your PC, peripherals and the wall socket. That’s the fancy term for those $30 cables powering your $1,000 system. In a tech world teaming with hotshots and superstars, Belkin Components is the roadie that makes the green light come on when it’s supposed to.
Boring? Sure. Soaring? You bet.
From humble beginnings in his parents’ garage, Pipkin has built Belkin into the nation’s leading provider of PC cable assemblies, with a 60% market share and revenue topping $200 million. The company also accounts for more than half of U.S. sales of surge protectors. And it has grabbed an early lead in hubs and connectors for the exploding universal serial bus (USB) market, the hot new plug-and-play interface between PCs and add-on devices. All of which makes Belkin one of the Southland’s fastest growing companies. Still it’s one of the quietest success stories on the Tech Coast.
Perhaps it’s because the markets it dominates are niches, and its products are about as sexy as galoshes. Or that Belkin is privately held and hidden in an industrial park in Compton. Or that 39-year-old Pipkin spends his free time playing baseball with his six boys rather than hanging with the digital in-crowd on the Westside.
What’s clear is that retailers know Belkin. The company’s products have become best-selling accessories in stores such as CompUSA, Best Buy, Office Depot and Circuit City.
Competitors grumble that Belkin has bought its way onto shelves by paying huge slotting and promotional fees, a growth strategy that could be derailed by fickle retailers and Internet shopping. But analysts say Belkin has made generic products such as computer cables exciting for chain stores by offering them fat margins, quality products and unrivaled service.
“They are in a tough business where it’s pretty easy for retailers to switch vendors,” said Stephen Baker, vice president of research for Reston, Va.-based PC Data. “Belkin keeps coming up with good reasons to make sure they don’t.”
Pipkin didn’t intentionally set out to become the nation’s PC cable king. He stumbled into it by accident as a college dropout wanting to start a business of his own.
It was the early 1980s, and other young entrepreneurs such as Steve Jobs were shaking things up with personal computers. Pipkin sensed opportunity in this convergence of business and technology. But how to capitalize on it?
“I didn’t know anything about software or programming,” Pipkin said. “So I started reading magazines and catalogs and hanging out in computer stores to see if there was something else I could do.”
That something turned out to be making PC cable assemblies. With desktop computers in their infancy, accessories were almost an afterthought. Computer dealers were so frustrated with erratic quality, pricing and availability of existing cables that some had taken to constructing their own.
As it happened, Pipkin knew plenty about putting connectors and wires together, thanks to a previous job with a military electronics contractor. He persuaded a few dealers to give him a shot at providing them with cables, assembling those first orders at his mother’s kitchen table. He soon expanded to the garage, then to a small storefront in Lawndale.
“When I first started I was convinced this was a dumb business. I mean, who ever heard of building a company around computer cables?” Pipkin said. “But we just kept growing.”
And growing. Belkin has twice made the Inc. 500 list of the nation’s fastest growing private companies, as well as the magazine’s Inner City 100 list of up-and-comers in the urban core. The company has registered compound annual growth of nearly 50% in recent years.
Today Belkin employs more than 600 workers at its U.S. facilities in Compton, Torrance, New York and Georgia, and 100 at its European subsidiaries in Britain and Holland.
Cable assemblies still account for about half its revenue. But the product line has expanded to include mouses, keyboards, laptop cases, surge protectors, uninterruptible power supplies, switch boxes and USB products, to name a few.
Because many of those items are price-sensitive commodities, Belkin sources about 80% of its products from subcontractors in Asia. The company still manufactures some cables in its Compton plant. That allows Belkin fast turnaround on special orders, and gives it some insurance in the event that suppliers don’t come through.
Most of the headquarters facility is a distribution operation, teaming with beeping forklifts, whizzing conveyors and bustling clerks clutching hand-held computers. The technology is state-of-the art, allowing orders to be picked, packed and shipped within minutes of being received.
Products aren’t the only thing being tracked. Belkin’s sophisticated systems also tally worker productivity, a key measure in employee compensation, from entry-level cable assemblers to top management. Production supervisor Emma Montenegro acknowledges some workers feel pressured by the system. But she says many of the plant’s front-line employees have come to appreciate their performance bonuses, which can run 5% of annual pay or higher.
“A lot of them are making more money now,” she said.
Which is exactly how it should be, according to Pipkin, a lanky, no-nonsense fellow who eschews neckties and a lot of corporate mumbo-jumbo. While he’s proud of Belkin’s Inner City 100 recognition and heavily minority work force, Pipkin doesn’t go around trumpeting his diversity do-gooding as a lot of chief executives do. Hiring and promoting loyal workers such as Montenegro, a Central American immigrant who has been with him 16 years, just makes good business sense, he says.
And as for the Compton location, it was affordable and Belkin got some tax breaks for creating jobs there. Now that those credits have expired Pipkin says he’ll probably expand elsewhere in the future, though he admits to lobbying to make Compton a state empowerment zone.
“Philosophically, I’m against all that stuff,” Pipkin said. “But if other communities have them, why shouldn’t Compton?”
Though keeping a lid on costs is a major competitive concern, Pipkin’s real passion is customer service. He figures it’s the only way to set Belkin apart in an industry where someone can always make a product cheaper.
That requires turning around custom orders the same day. Or redesigning packaging to save a retailer stocking time, as Belkin did recently for Wal-Mart. And hanging out in computer stores, as Pipkin often does, to quiz consumers about why they bought one product and not another. It also means training clients’ employees, and installing tracking systems so precise that Belkin can tell the stores what’s hot, what’s not, and which product mix will maximize their profits.
Keeping big retailers happy is the name of the game in computer accessories, where brick-and-mortar merchants still account for the lion’s share of sales. Industry watchers say few do it better than Belkin.
“The key word is dependability,” said Jonathan Magasanik, vice president and general merchandise manager for the office superstore chain Staples. “I’ve worked with Belkin for three years and they’ve never let me down.”
Others say Belkin’s chummy relationship with national chains may have something to do with its willingness to pay hefty market development funds and “slotting fees.” Once the purview of grocery chains, the practice of paying for shelf space has made its way into computer retailing, though neither the chains nor their suppliers like to talk about it.
Some say the practice is reshaping the industry, squeezing out small fry and requiring fast movers like Belkin to pay through the nose for market share. While competitors acknowledge Belkin’s success, some say the company’s rapid growth is coming at a cost.
“They’re executing very well, and I give them credit,” said Aaron Davis, vice president of marketing for Rhode Island-based APC Corp., which makes uninterruptible power supplies. “But they’re playing a game where one vendor can be supplanted by another vendor with a bigger check. . . . It’s like dancing on the edge of a razor blade. It’s fine as long as you don’t slip up.”
Pipkin dismisses the criticism as sour grapes. He says Belkin is subject to the same market forces as everyone else, paying slotting fees for some accounts but not for others. And he denies that the company is sacrificing profitability to boost sales.
However, he does acknowledge that growth is critical to long-term survival. The company is currently shopping for acquisitions to extend the product line. It’s moving aggressively to expand international sales. And Pipkin hasn’t ruled out the possibility of taking Belkin public.
Analysts say the next big battle will be in USB hubs and connectors, where Belkin has jumped out to an early lead in a fledgling market that’s expected to approach $200 million by 2004.
Growing Internet sales will also challenge traditional brick-and-mortar merchants. To prepare, Belkin has invested heavily in an Internet platform to serve retailers and consumers alike.
“A lot of companies have tried to unseat them, but Belkin has done a remarkable job of maintaining its place,” said Chris Lanfear, an analyst with Natick, Mass.-based Venture Development Corp. “It’s an extraordinarily competitive space . . . but they’ve got the relationships, the products and the service to compete.”
