INTERVIEW WITH GARY STIMAC FORMER CEO AND DIRECTOR OF RLX

The "ex-dean" of Compaq's server operations, Gary Stimac grew Compaq's server unit into a $4 billion business, Compaq's most profitable, by the time of his departure in 1996. In the process, the 14-year Compaq veteran became known as the founding father of the Intel server industry. After a five-year stint reading business plans, Stimac signed up as the first chairman and CEO of RLX Technologies. He has since stepped down from day-to-day operations but remains a director of the company. We caught up with him at RLX's headquarters in The Woodlands, Texas

Employee No. Five
Gary: I was employee number five at Compaq, and helped Compaq develop three different businesses (the portable business, the desktop business, and the server business). In 1996, I left Compaq and went on ‘the board circuit’. I also participated with several venture firms [including Sternhill] in looking at business plans. Most of the business plans that I saw in the last five years were fairly evolutionary in the server space.

But I saw (RLX's) blade technology as a discontinuity in the marketplace. And so, when making my own personal decision [whether to join RLX], I contacted a few of my friends who were also very familiar with developments in the server space. They saw it the same way. This was extremely exciting technology—disruptive, revolutionary technology. We saw it as an opportunity to change the market, to grow another business, and that's what we're doing.

SHP: One of the remarkable things about RLX is the caliber of its management team, which you put together during the course of a few months last fall. How did you do it?

Gary: Well, I saw the technology as an opportunity, and so I called people I had
acquaintances with who participated in growing the businesses I ran at Compaq.
Everyone felt this was an opportunity to change the market again, and wanted
to participate. One of the things we shared in the past was a lot of experience
working together. We enjoyed the team and enjoyed the process of building
a new company.

SHP: Another quite remarkable thing about RLX is that it got a lot of money at a
time when VC funding is hard to come by. How do you attribute that achievement?

Gary: I would attribute it first to the fact that we have a track record of being able to deliver products, grow a business, and establish partnerships with different technology providers. This isn't the first time we're doing it; it's really the fourth or fifth time we're developing a business. Typically, venture capitalists first look at people, then at the business plan to see if it makes sense, and [in RLX's case] both of those seemed like excellent opportunities. We have a team that is committed to executing and is also invested in the company itself, and we have a business plan that has a lot of promise and opportunity.

On the Other Side of the Fence
SHP: Did your experience on the other side of the fence as a venture capitalist looking at business plans affect how you looked for financing, or how you manage the company?

Gary: I think the five years that I spent either in ‘the board business’ or looking at business plans has significantly helped me communicate our value proposition to investment companies, as well as present a plan that they feel comfortable with. I've seen so many business plans, it was easy to develop a business plan that would meet the requirements of different venture people.

SHP: Another problem you've had to deal with—fortunately a great problem to have—is how to decide among a number of investors, all of whom are eager to invest in your firm. How did you do that?

Gary: What we're looking for is to have investors who have a similar view of the market, a similar view of the opportunity. They're either people whom we've worked with in the past, or people who can help us run the business. So specifically with Bob Stearns, we've worked with him in the past. There's a level of trust both ways. That was very important. We want board members who are helpful and friendly and also have the experience to judge what we're doing and provide good feedback. Bob has been part of this industry; knows this part of the industry, and has helped us in various business decisions that we need to be able to make.

SHP: Can you tell me how you know Bob and in what capacity?

Gary: I knew Bob when he was running the investment arm of Compaq. Bob participated in the senior levels of management within Compaq and did an excellent job evaluating different companies and technologies. He assisted me (I was a senior vice president and general manager of one of the businesses) as we looked at doing several acquisitions. So I felt comfortable with his technical capabilities as well as his business capabilities and business judgment.

SHP: How do you view Sternhill?

Gary: I think Sternhill is a first-time venture capital fund with a wealth of experience, and a very conservative, seasoned team of people. I felt comfortable enough with Sternhill to invest my own money in it, and was fortunate that we could bring Bob to invest in our company.

A Difficult Marketplace
SHP: You've been in the computer industry for quite a while. What is your outlook?

Gary: At this point in time, the server marketplace is a very difficult marketplace. Because of the economic slowdown, there is a tremendous amount of over-capacity, so it's a very, very difficult time. There have been some advances, but they've been evolutionary. And we really haven't seen or talked about any disruptive technology for a long period of time.

What we're doing is a classical disruptive technology: a new way of looking at the product, a whole series of very strong advantages improving the density, improving power consumption, lowering the cost of ownership. Even in this very difficult market, people are evaluating our product and see its advantages. We feel good that the benefits that we offer are going to be important to customers, and that over a period of time, they'll be shifting to this new technology. Our product is most applicable to the Web server space, but over time, will have more general purpose server characteristics.

SHP: Do you see the challenges ahead more in technology or in marketing?

Gary: Both. For us to succeed in the marketplace, we need to have a development team that can continually enhance the technology—let's say, three or four times a year—take the latest processors, add the right server characteristics around them, and put the right software pieces in as well. We need to have a very strong product evolution for people to believe in this technology and use it.

And right now, we're in a very difficult market space, where people aren't buying a lot of servers. We're also in a market development phase, in the sense that there's no pre-existing market for blade technology. People have to understand the benefits, feel comfortable with evaluating and using them.

SHP: Is education an important part of what you need to do right now?

Gary: I'd probably call it communications, as opposed to just education. So part of it is communicating the benefits of our product, and then giving people the opportunity to evaluate the technology.

SHP: What does a successful company need to survive in this market?

Gary: There are no short-term cash out opportunities in this marketplace. It's back to building a viable business which is both product, market development and preserving cash. So it's running the business in a very, very conservative way, but still showing a lot of results - that's very, very important.

You can't be discouraged on short-term economic issues. You just have to take the long-term perspective that you're building a business and you're building technology that's interesting to customers, and continually refine that.