At the start of this year, the parts of CoolSign that were not sold to Bally Technologies [1] back in November 2007, were sold by Planar (PLNR) a Portland, Oregon maker of high end LCD screens to CS Software Holdings, LLC [2]
Planar had picked up CoolSign as part of its USD 46 million dollar acquisition of Clarity Visual Systems. Clarity in turn had picked up CoolSign (the brain child of industry guru Lou Giacalone) for almost next to nothing after CoolSign had been injected with USD 20 million in VC money in the late 1990’s and early 2000’s but failed to deliver (meaningful) sales.
Price
With good yearly sales figures of approximately USD 6 million we believe that CoolSign was sold this last time around for anywhere between USD 1 million and USD 3 million – with the best estimates being that it was sold closer to USD 1 million rather than 3 !!!
This would be ‘sold for a song’ whichever way you analyse it but especially so if you consider the large ‘investment’ (aka losses) made and sustained by Planar in CoolSign during the former’s ownership of the latter.
Good Deal / Bad Deal
All well and good, but what does this and other information gleaned from the corporate machinations of Planar and other high profile digital signage companies tell us about what is going on and what we can expect in the future? What has gone right and wrong with ‘the deals’ in the industry to date?
As has been reported elsewhere Planar had the idea, as many hardware companies did / do, that having a software business as a bolt on sale to their existing LCD business would be ‘easy’ and somehow be a natural fit. It wasn’t and Planar also, unfortunately had other issues to deal with…
I believe that Planar combined a naive understanding of the software business with the even greater sins of arrogance and lack of leadership. In fairness to Planar they made many important improvements to the product but they simply did not understand or care to understand the nature of the digital signage industry (and certainly did not listen to many of the folks employed to run CoolSign).
Entrepreuners
First off, Planar did not understand that the digital signage business is still largely an entrepreneurial business. Almost all efforts, if NOT every effort, to pour large amounts of investment capital into the sector in order to ‘buy’ success has failed to date.
The history of CoolSign is case study number one for this observation (there are many others) – as Warren Buffett has said “the only thing to know about history is that people do not read history” – in this particular case, not even the history of the product they were acquiring.
Corporate Overheads
Instead of immediately cutting overheads and running CoolSign like a start up (which it was) they hired highly paid executives and sales people who were used to getting the ‘big bucks’ selling hardware and expensive services.
When Planar acquired CoolSign they brought it into Planar’s beautiful class A office building in the technology corridor in the Portland area AND no doubt Planar’s management hit it also with the ‘appropriate’ corporate over head charges – as it would with any new business division.
These payments we would guess, also helped pay for the many more highly compensated VPs in the Planar organization and of course for the CEO.
Planar took CoolSign to every trade show in the US and often took out the largest space.
They poured money into the development of the product (which someone will eventually monetize – BUT not Planar) and reportedly had the software team on a monthly update cycle – a schedule that any software development company would find ludicrous!
Instead of partnering with content companies (like other digital signage software vendors have typically done) they started their own.
If you ever wanted to sell the product they had a large stack of over lawyered papers for you to sign – for example, even if you did not want to buy CoolSign on credit they wanted to know all your financial information. Oh, and did I mention the price point. It was the highest in the digital signage industry.
In short, they did everything ‘right’ if Planar/CoolSign had had an overwhelming market penetration and positive cash flow to support these activities which of course they didn’t!
RUNCO
A reasonably short time after Planar acquired CoolSign it also acquired a high end home theater business called RUNCO for USD 40 million in cash.
RUNCO never made a dime and started to immediately bleed lots of cash. If an analysis of Planar’s balance sheet is done just before and just after the RUNCO deal an argument can be made that Planar in effect traded USD 40 million in cash for a like amount of account receivables. This acquisition depleted any cash Planar had that could have been invested in a leaner, meaner CoolSign.
Lessons Learned
What can be learned?
- First, I believe that the digital signage business is still primarily an entrepreneurial one.
- The most important goal for a new business in this industry is to get to positive cash flow and stay there. If you cannot do that quickly you are fooling yourself and your investors.
Many companies, like Wireless Ronin (RNIN), who have taken on lots of investment capital are not doing well and will likely not emerge from this storm.
- Leadership and good management matters. The business world is going through a profound change right now. This is being driven by the breaking of the first ‘worldwide all asset class bubble’.
During the decade(s) that led up to this a premium was placed on style over substance – how else can you explain an executive buying a USD 35,000 toilet when his company is getting a bail out!!!
What looked good, was good, isn’t that right?
What the business world is learning now is that substance; a measurable track record, a history in this industry, hard work, drive, and yes leadership all count.
6 Comments To "The True Cost Of Coolsign"
#1 Comment By Sultan of Brunei On 28 January 2009 @ 16:18 @721
So are you saying that CoolSign has gold toilets, neato
#2 Comment By DigiPunk On 28 January 2009 @ 16:41 @736
Sounds like Ronin is following the same path……
#3 Comment By Just Out-Of-Home On 28 January 2009 @ 18:07 @796
This is an Excellent post! Having to work in the industry, I know first hand how some companies in our industry try to make themselves bigger than they are, and take VC money when they don’t really need it. Especially with VCs, having such backers places unnecessary pressures on the employees at the company as the goals for quality systems, networks and ad campaigns start to take a back sit compared to the all mighty “revenue.” In combination with the economy, I do feel that this could be one of the main reasons why there are so many lay offs in our industry these days.
Let us remember the Tech bubble in early-2000; we have to work to build our industry and media based on Actuality & Quality for the long term, and not as a “flavor of the month” medium…
#4 Comment By tk On 28 January 2009 @ 18:14 @801
3M digital signage (FRED Mercury) is on the same path too. 3M pushed it out of the corporate fold to a distributor.
#5 Comment By Befuddled On 28 January 2009 @ 22:16 @969
This article is rubbish, based on a series of outside-in observations that belie a general lack of understanding as to what transpired with Coolsign, or with any of the other . Chief among these:
* Entrepreneurs: Clarity, who initially bought Coolsign, was really no older than Coolsign itself, and it was run by Paul Gulick, who won numerous awards for his successful launches of Clariy and Infocus Systems, among others. Planar, for that matter, is also run by executives with proven track records in entrepreneurial and mezzanine-level technology firms.
* Corporate overheads: Clarity was located in Wilsonville–one of the cheapest commercial zones in the greater-Portland area–and Planar is in Hillsboro. Both are vastly less expensive from a CRE standpoint than where Coolsign was located outside San Francisco. The Coolsign acquisition actually resulted in a net-decline in staff (most from CS, not Clarity, admittedly), and day-to-day management was rolled under existing senior managers–another cost net reduction relative to Coolsign as a standalone.
* Content partners, or just partners in general: Ludicrous claim. Coolsign’s largest orders came from resellers and content partners. They even exhibited with Creative Realities, Marketforward, and others at tradeshows if memory serves…
* RUNCO: Total dud; what were they thinking? Terry’s on point there.
My conclusions:
1. The Coolsign deal was a good deal for Clarity (the author himself said Clarity paid practically nothing). Maybe the Clarity deal is what wasn’t good for Planar?
2. I agree that the large entrants (Planar, 3M, etc.) aren’t doing well, but I don’t see the myriad start-ups without corporate parents or VC backing doing much better as a whole
3. The only thing that deserves to be in the $35 K toilet mentioned above is this article.
#6 Comment By Andrew Starks On 10 February 2009 @ 20:00 @875
I have no insight into the Planar/Clarity deal. My observation is that the article’s larger points are right on, no matter the case for Planar. Here are some rambling thoughts.
First, I think the most important ingredient for success in business passion for what you’re doing. A good sign that you don’t have passion for something is when you go out and acquire a solution, as opposed to building it from scratch.
I walked into my independent rep’s office a few months back. He was watching a webinar on a new product line from his largest manufacturer. I watched a bit of it, only to realize that it was for a new DS offering… from TOA. You know TOA? It’s the first name to pop into your mind when you think distributed audio… and digital signage, I guess. Planar and Cool Signs made more sense than that, but not much more. Monitors and manufacturing is a very different business than software development.
Well, now TOA doesn’t do DS anymore because they realized that it wasn’t their passion and they wouldn’t be any good at it.
This reminds me of a friend who recently wrote in a Facebook bio that she started her own business and failed. I witnessed her experience. I watched her start her work, market it, get clients, have some of them not pay, get frustrated and then quit.
That is not failure. I know failure. Failure is men with trucks taking your computers away while you’re still typing on them. Failure is not having anymore money to make payroll or buy parts and you’re out of relatives to ask for money from.
My friend quit. When you acquire a company, you have money in the game, but that is not a substitute for passion. If you’ve got a good thing going and acquire a company to bring you to the Next Level in a market that is a sure bet to be The Next Big Thing, you’re in a land grab. You’re building Amazon.com, not Ben and Jerry’s. You had better plan on losing money until you can count your major competitors on one hand. Right now, the number of companies claiming to make DS software is more than 500.
Amazon.com is really successful. It is just very hard to do what they’ve done and there are very few companies, let alone venture capitalists, that have the patience for that. If you are passionate and your business plan has you always making more money than you spend, you have a much greater chance of still being around after the blood bath that will happen when everybody’s attention moves on to The Next Big Thing and DS isn’t cool anymore.