Parametric Technology Corp. History

Address:

128 Technology Drive
Waltham, Massachusetts
U.S.A.

Telephone: (617) 894-7111
Fax: (617) 891-1069

Public Company
Incorporated: 1985
Employees: 2,200
Sales: $394.3 million (1995)
Stock Exchanges: NASDAQ
SICs: 7372 Prepackaged Software

Company History:

Less than ten years after introducing its first products, Parametric Technology Corp. had established itself as a leader in the computer-aided design (CAD), computer-aided manufacturing (CAM), and computer-aided engineering software markets. Incorporated in 1985, Parametric Technology Corp. developed and started selling software that engineers use to design products ranging from tires and toys to engines and buildings in 1988. The company has profited by developing high-performance software that, among other benefits, reduces the amount of time necessary to take a product from the conceptual stage to manufacturing.

Coming to America

Parametric's swift success was largely attributable to the efforts of Russian immigrant and mathematics genius Samuel P. Geisberg. Geisberg, a math professor in Leningrad, fled the Soviet Union and moved to the United States in 1974. He took his 11-year-old son with him, but was forced to leave his wife, Mira, and their six-year-old daughter behind; Soviet officials refused to allow Mira to leave until the late 1970s because she had worked as an electrical engineer on several defense-related projects. Despite his lack of familiarity with American culture, Geisberg's sheer intellect allowed him to quickly find work as a software designer. Indeed, Geisberg soon became recognized as a mathematics and software prodigy.

Geisberg worked for software-design firms Applicon and Computervision during the late 1970s and early 1980s. His stint at Computervision briefly overlapped with that of his brother, Vladimir, who had emigrated from the Soviet Union in 1980. Vladimir would also go on to start his own software firm, and would be a major impetus for the creation of Parametric Technology. In fact, it was Vladimir who suggested that Samuel speak with an attorney named Noel Posternak about setting up and financing his own company. Samuel had spent nearly ten years designing computer-aided design and computer-aided manufacturing (CAD-CAM) software, and he was ready to start developing and selling some of his own ideas.

Posternak helped Geisberg round up about $150,000 in seed money, which he used to develop a prototype of his own CAD-CAM software package. Geisberg, suspicious that Posternak might be trying to take advantage of him, would accept only $125,000 of the $150,000 that was offered. He asked Posternak to contribute the other $25,000 out of his own pocket. "I think he wanted 150 percent effort from me," Posternak recalled in the August 29, 1993 Boston Globe. "I think that having come from Russia, Sam wasn't sure who his friends were and who his allies were ... he felt that if I had some money up, I would fight even harder for him."

The Startup

Geisberg incorporated his company as Parametric Technology Corporation in May of 1985. He spent the first few years developing a new CAD-CAM program, and then looking for venture capital to help market and distribute his software. Geisberg&mdash⁄ort, rumpled, demanding, and with a thick Russian accent--was turned down by a number of venture capital firms. He was finally able to get Charles River Ventures and two other venture capital companies, along with some individual investors, to provide a total of $4 million to launch his new CAD-CAM product. Parametric had burned through more than $2 million by 1988, when the company began selling its first products.

Parametric was jumping into the CAD-CAM industry relatively late in the game. CAD-CAM technology had been introduced in the late 1960s, and by the 1980s the industry was dominated by a handful of players. In essence, CAD-CAM software allowed engineers to create three-dimensional, to-scale computer models of almost anything ranging from bolts and carburetors to golf clubs and truck tires. By the 1980s the technology had advanced to the point at which it offered important advantages over traditional paper-and-pencil design techniques. For example, engineers could transpose imaginary layers over a computer drawing, thus allowing them to make additions or deletions to a design. The technology could view three-dimensional drawings from different angles by rotating them.

Geisberg's software brought an important innovation to the CAD-CAM world that even his competitors conceded was revolutionary. His software could recognize a change in a single variable of a design and adjust the rest of the model accordingly. For example, a person designing a plane could change the length of the wings, and Geisberg's CAD-CAM software would indicate what implications that change would have on the rest of the plane. The innovation sped up the design process and made it much easier for engineers to experiment with new ideas. Parametric's breakthrough software, dubbed Pro/Engineer, was quickly accepted by the marketplace. Sales topped $3 million in 1988 before rising to $11 million in 1989. Parametric became profitable in 1989 with a net income of more than $1.5 million.

The Late 1980s and Early 1990s

Parametric spent the late 1980s and early 1990s parlaying its cutting edge mechanical design software into commercial success. The company went public with a stock offering in 1989 to raise expansion capital. With the extra capital, Geisberg increased Parametric's offerings to include a number of different versions of the Pro/Engineer software developed to operate on various operating systems and to complement different technical applications. Many engineers quickly recognized the software's advantages and purchased it. By the early 1990s Parametric was controlling about ten percent of the entire CAD-CAM market and was aggressively boosting that share every quarter. By 1991, in fact, Parametric was generating $45 million in sales and netting more than $10 million in annual income.

Parametric's success surprised many observers who had previously believed that the CAD-CAM industry was mature and offered little growth potential. By the time Parametric came along, big companies like IBM and EDS were entrenched in the niche, which amounted to roughly $1 billion each year in total sales. Seeing little opportunity for expansion, those companies had produced few new major products in a number of years. And few doubted the viability of a new startup in the industry. But Parametric's Pro/Engineer system destroyed the old paradigm. Besides breaking into the industry and stealing customers from established competitors, Parametric was able to broaden the reach of the industry by appealing to electrical engineers, a group that had not used much CAD-CAM technology in the past.

As important as Parametric's technology to its success during the late 1980s and early 1990s was its stellar marketing and sales team. Indeed, Parametric became known within the industry as much for its aggressive sales strategy as its Pro/Engineer software. The sales effort was directed by Steven C. Walske, the man who would eventually head the entire company. Walske had been coupled with Geisberg early in the startup by Charles River Ventures. The pair was a good match. Geisberg was happy to spearhead technical advances, but, largely because of his accent, was publicity shy and disliked the limelight. The gregarious Walske, on the other hand, was happy to assume a high profile.

A 1978 Harvard Business School graduate, Walske joined Parametric at 35 years old. He quickly assembled a crack marketing and sales team at the company, and, with the help of Dick Harrison, managed to whip them into a fervor. Its enthusiastic sales force earned the company a reputation as the "Mary Kay of the CAD-CAM industry." But Parametric's sales force also managed to ruffle the feathers of some of its potential customers. The company was known, for example, for going behind some of its prospects' backs and trying to get their superiors to pressure them into buying Parametric software. Walske made no apologies for his aggressive tactics, believing that his sales force's siege mentality was necessary to overcome entrenched, status-quo competitors like IBM and Computervision.

Its advanced software and assertive sales initiative allowed Parametric to land major manufacturing clients like Ford Motor Company and Caterpillar Inc. Just as important, the company was able to secure a very high portion of new entrants into the CAD-CAM market, because those buyers were not already accustomed to using a specific software system. By 1993 Parametric's share of the CAD-CAM market was approaching 20 percent. As sales flourished, so did Parametric's operations. By 1992 the company employed a work force of 300. But that number rose to more than 800 by the end of 1993. Likewise, annual revenues doubled in both 1992 and 1993, rising to $163 million. Net income for 1993 hit $43 million, securing Parametric's claim to one of the highest profit margins in the industry.

Parametric's success during the early 1990s and going into the mid-1990s continued to be based on its core Pro/Engineer CAD-CAM software systems. The packages sold for between $1,500 and $9,500 each, but were often sold in sets of six to eight for workstations at a price of roughly $18,000. Relying on the innovative software, Parametric was able to place among the top five in the Boston Globe 100 survey of best-performing public companies in Massachusetts for five straight years between 1989 and 1993. By 1994, moreover, Parametric was the second-largest seller of CAD-CAM software in the world, trailing only IBM.

Geisberg moved aside during the early 1990s and let Walske and other executives assume more control of Parametric. He finally cashed out in 1992, taking a payout of $13.7 million in cash and stocks with him. Although he continued to be involved with Parametric's research and development arm, he left his management posts to devote more time to his Geisberg Foundation, which was dedicated to the research of diabetes and arthritis. Walske became chairman and chief executive, and Harrison moved to the president and chief operating officer slots in 1994; Harrison had helped direct Parametric's sales and marketing arm since 1987.

The Mid-1990s and Beyond

Although it continued to be the technological leader, by the mid-1990s Parametric was facing greater competition from companies that were beginning to offer similar features in their CAD-CAM packages. In an effort to bolster its product offerings and exploit the respected Parametric name, the company began looking for new avenues for growth. To that end, Parametric purchased Conceptual Design and Rendering System's software business in April of 1995. The acquisition brought new industrial design and visualization software products and technology to Parametric, thus bolstering its ability to appeal to conceptual designers who used free-form shapes.

Shortly after that purchase, Parametric paid about $180 million for Rasna Corp. software, which had a breakthrough innovation that allowed mechanical engineers and analysts to simulate the real-life operation of products. Although several companies had developed similar technology, Rasna was among the leaders in that burgeoning market. The purchase was a welcome boost to Parametric's older Pro/Engineer line of software. The new line of products were called Pro/Mechanica. Parametric integrated some of its proprietary technology used in the Pro/Engineer software to significantly speed up and improve the Pro/Mechanica line. It then introduced the Pro/Mechanica products with its proven sales and distribution mechanism.

The Rasna buyout helped Parametric to increase sales from $244 million in 1994 to $394 million in 1995, while net income moved toward the $100-million mark. Going into 1996, Parametric was the leading global supplier of CAD/CAM/CAE software. It employed a work force of 2,200 people in 140 offices in 26 countries in North America, Europe, and the Far East, and its customer base had swelled to about 9,000 companies. For the mid-1990s, Parametric planned to focus on international growth and the development of new products.

Principal Subsidiaries: PTC International, Inc.; PT Technology Scandinavia AB.

Parametric Technology Corp. History

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