Adatek Goes From Boom To Bust In Eight Short Years Leadership And Product Changes Signaled Start Of Firm’s Fall From Grace

In 1990, Adatek Inc. was a million-dollar company employing 20 people in Sandpoint.

Business recruiters used it as a model for relocating firms and a magnet for grant money.

Eight years later, the only evidence Adatek ever existed is a liquidation bank account set up in its name.

The defining chain of events started in 1990, when company leadership changed hands and the high-tech firm shifted from manufacturing a line of factory-automation hardware to software development, and then jumped at the chance to sell out to a General Electric subsidiary.

After two years of negotiations, that deal fell through.

Adatek held a shareholders meeting Dec. 29 to announce it would close its 5,000-square-foot facility in the Sandpoint airport industrial park and, rather than sell the company, license its technology to G.E. Fanuc in Charlottesville, Va.

As one company observer put it, Adatek went “from hardware to software to nowhere.”

“I started the company in my garage,” said Ray Pelland, who formed Adatek in 1979 and led the way to peak employment in 1990. “That year, we grossed over a million bucks and showed a net profit of about $160,000.”

Always undercapitalized, Adatek nonetheless grew to become Sandpoint’s darling startup firm. By the late 1980s, the now-defunct Sandpoint Unlimited was using Pelland’s business as the showcase for economic development.

“It was their commitment to create jobs that allowed us to get the grants we needed to put in sewer and roads and build that business center at the airport,” said Debbie Ferguson, who served as executive director of Sandpoint Unlimited from 1988-1993.

In 1989, the Adatek board of directors convinced Pelland to hire Ken Brookings, who the founder said was introduced to him as “a hot-shot marketing guy from the Silicon Valley.” Brookings was immediately impressed with the potential of Adatek’s software; less so with what he saw as the limited horizons presented by manufacturing hardware. Within six months, the two men were discussing the prospect of licensing their automation control programs to the two biggest names in the industry - G.E. Fanuc and Allen Bradley Corp.

Pelland worked on and won a contract with Allen Bradley, giving them an exclusive licensing agreement that still allowed Adatek to sell the software in its line of controllers, something Pelland viewed as a financial fail-safe.

“You have to look at every ball that comes over the plate as a potential home run,” he said. “In business, you never know where the home runs are going to come from.

“I thought we should be developing both hardware and software and let the market tell us what it was looking for,” Pelland continued. “That was the point where Brookings turned the board of directors against me.

“It was a classic case of engineer versus marketing guy,” he added. “And if there’s a lesson to be learned here, it’s that shareholders and boards like marketing guys.”

Brookings was named to lead Adatek in 1990, after Pelland agreed to a buy-out. All available resources were turned toward marketing software. Production staff was scaled back and hardware manufacturing steadily tapered off.

“The real value in the company was always its software design,” Brookings said. “The challenge and the chase was to figure out how to deliver that technology to market in a profitable way.”

The means for getting Adatek software to market was first thought to be a partnership. Only after that effort stalled did Adatek turn to licensing as the vehicle for building a global customer base that would be served from a headquarters in Sandpoint.

The last stage was dropping the concept of a physical base of operations.

“I wouldn’t want to present all of that as a well-thought-out strategy,” Brookings said. “It was more a situation of regrouping and regrouping and trying to make money along the way.”

“Ken’s idea of getting rid of the hardware and going with the software was right,” said John Rinck, who worked as an Adatek engineer from 1984-1997. “Had he done that and stepped out of the picture right away, we would have done great.”

What Brookings brought to the company in marketing prowess, he lacked in leadership skills, Rinck said.

Brookings eventually did step aside at Adatek. The successor he hired as his replacement, Bill Chambers, spearheaded acquisition talks with G.E. Fanuc, drafted the licensing agreement approved by shareholders last month and went on to be hired as president and chief executive officer of G.E. Fanuc’s new Asia-Pacific division.

“The third and final phase of Adatek was the company under Bill Chambers,” Rinck said. “To Bill’s credit, he kept Adatek going a lot longer than it probably should have. Had he gotten it after Ray and before Ken, it might not have gone the way it did.”

Chambers took over soon after it became apparent the Allen Bradley contract was not bearing fruit.

“Allen Bradley didn’t take anything to market,” Chambers said. “Ultimately, Adatek’s strategy became one of trying to align itself with a company that, before, may have been seen as a competitor.”

For seven years, that company was G.E. Fanuc, which came close to buying the Sandpoint firm until it discovered a clause in the Allen Bradley contract stating it holds access to the Adatek software “in perpetuity.”

Under the ensuing licensing agreement, royalties that do come into the liquidation trust have a long road down to common shareholders, whose stock was heavily diluted when preferred shares were sold to raise capital. The initial payments will go to cover $360,000 in back pay, most of which is owed to Brookings and Chambers. From there, the major shareholders will be taken care of.

Like Chambers, Brookings believes the licensing agreement was the best that could be hoped for under the circumstances.

“The down side is that there’s no working model to bring jobs into the community,” he said. “The up side is that the shareholders have their best run in years at seeing some return on their investment.

“At least, as the company’s largest stockholder,” he added, “I certainly hope so.” With Chambers now living in Singapore and Brookings involved in a private consulting practice, Pelland is the only former Adatek executive who both stayed in Sandpoint and kept his hand in automation technology. He now runs a company called Pelland Automation, which develops software and builds it into a line of automation hardware manufactured and marketed from North Idaho.

“Philosophically, value-added is greatest when you take software and put it into something that can hold it,” Pelland said. “That also makes it very difficult for people to rip you off.”

, DataTimes