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Author: Melinda Sherwood. Published in U.S. 1 Newspaper on March 22, 2000. All rights reserved.

Dialogic’s Formula: Build from Scratch

The older generation has a knack for making younger

generations look spoiled. In the early 1980s, when Kenneth Burkhardt

Jr. set out to build a company that sells components for automated

voice systems, investors unanimously turned him down, saying he couldn’t

possibly turn $10 million in profit selling "parts."

Today’s venture capitalists think somewhat differently, and profits

aren’t always of immediate concern, but for Burkhardt, co-founder

of Dialogic, financial hardship can be character-building for a start-up.

"The best thing that happened to us was not being able to successfully

raise money because it forced us to get a good business and marketing

plan," he says. "By not having money, we couldn’t go out and

waste it."

Last year, Dialogic sold over $300 million in components that account

for most of today’s voice mail systems, and that was just before it

was bought out by Intel. Now, Burkhardt is back at it, this time building

a company on the West Coast that is pioneering developments in a wireless

Internet.

The thrills of building a high-tech company from scratch will be the

topic of Burkhardt’s lecture at the 10th anniversary of the Rothman

Institute of Entrepreneurial Studies on Thursday, March 30, at 6 p.m.

at the Mansion on the campus of Fairleigh Dickinson in Madison. The

lecture and dinner are open to the public. Call 973-443-8842. Cost:

$50.

If Burkhardt had listened to his critics, or worse, listened to over-eager

investors, Dialogic might never have come into being. "I just

had this idea that you could build a computer board that you could

plug into a PC that would connect voice to a computer, and that using

the PC as a computation resource, you could build very powerful voice

processing systems very cheaply," says Burkhardt, who has a BS

in physics from Cornell, Class of 1967.

A former systems programmer with American Cyanamid who taught at Rutgers

for seven years, Burkhardt proposed his idea for voice cards to his

former employer, Burroughs (now Unisys), but executives there canned

the idea. Unlike today, Burkhardt explains, the concept of open software

and hardware was strange and unfamiliar in an industry dominated by

companies like IBM. "People didn’t understand how you made money

by selling individual parts," he says. "It was the basic semiconductor

model, but they didn’t understand what the added value could be in

selling low level components."

So Burkhardt gathered interested colleagues, raised $1 million in

capital, and founded Dialogic in 1983. By today’s standards, the company

had little start-up cash, but in the end it helped the company, says

Burkhardt. "You see a lot of companies raise $5 or $10 million

and burn through it in a year," he says, "and if the market

isn’t ready for it, they disappear. By bootstrapping we were able

to synchronize the development of the product with the development

of the market."

When the company went public 10 years later, Dialogic had roughly

$100 million in sales, and its components made up nearly 40 percent

of the market. "We pretty much enabled the growth of the voice

mail market by making the voice mail products inexpensive," says

Burkhardt.

Not every successful company needs to be built as painstakingly as

Dialogic, says Burkhardt. It just depends on the situation. "I

would say that there are instances when there’s a narrow market window

and you need money, but in our situation we were profitable in a short

period of time," he says. There were also benefits to not seeking

an IPO early, says Burkhardt. "By the time we went public, my

partners and I owned 90 percent of the company." Burkhardt’s advice: