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LEO SMITH

Business Founder Follows a Policy of Getting Out of the Way

July 07, 1998|LEO SMITH | TIMES STAFF WRITER

Entrepreneur Martin Shum, founder of Camarillo-based ACT Networks, has been around the corporate world long enough to have adopted some clearly defined business philosophies. Topping that list is a strategy on long-term business growth.

"I've seen companies where the founder has stayed around for so long that the business becomes so dependent on him that it can't go forward," Shum said.

"There are very few entrepreneurs out there who can take a company from zero to a multibillion-dollar company, except for maybe Bill Gates, and he's the exception to the rule," Shum said. "New blood is always good, and for new blood to be effective, you have to start from the top."

Shum takes that philosophy to heart--so much so that he has stepped down as president and chief executive of his own firm and has replaced himself with ACT's former vice president of business development, Andre de Fusco.

Shum will remain a large shareholder of the company, which designs, distributes and manufactures high-tech communications products.

"We're at the next phase now," Shum said. "When you're going from a $50-million company to a $200-million company, it is time to change from a family-oriented culture to a more process-oriented culture.

"Very often, companies try to stay with the first culture and they get bogged down," he said. "Some of the problems we have had the past year have to do with this. We have to break out of the mold."

For the third quarter of the 1997-98 fiscal year ended March 31, ACT reported net income of $3.1 million on revenue of $13 million. That compares to a net loss of $1 million on revenues of $13.6 million for the same period a year earlier.

For the first nine months of the fiscal year, the company posted a net loss of of $6.3 million on revenues of $41.3 million, compared to a net income of $1.4 million on revenues of $35.7 million for the same period in 1996-97.

When Shum founded his company in 1987, his voice-over frame relay products, which enabled the transmission of voice and data information on the same computer circuit, were new on the scene. But now, he said, the technology has become a standard part of the communications world.

"When we came up with the products, people laughed at us, but now they have turned really mainstream," Shum said. "A lot of carriers have been adopting this technology, so we have been building up our carrier business, building relationships and launching into major developments."

Shum said he has spent the past several years working on a succession plan with a change of corporate structure in mind. He said close observers of his company probably are not surprised that the company is expanding its customer focus, nor that Shum has stepped down from the top position.

Shum hired De Fusco in 1994 as ACT's president of marketing, and since then the firm has focused on developing products for a client base of communications providers and users. Transactions such as the 1997 acquisition of assets of SourceCom, a Westlake Village communications firm that filed for bankruptcy earlier in the year, were intended to open new markets for ACT.

"We want to leverage on SourceCom's high-speed technology and our voice technology to give us increasing focus on the carrier market," Shum said. "I think we're going to be more successful than we are now."

The combined technologies have enabled ACT to product high-speed, high-density voice channels for Internet providers.

"Now the IP and ATM markets are our focus--we're not going to stop what we are doing, we are going to diversify the company," De Fusco said. "I've worked closely with Martin for 3 1/2 years. We did four technology acquisitions and we always had a plan to expand ACT business."

De Fusco agreed this is a good time for the company to try to step up to the next level of growth. In addition to an expanded product line, he said, the company will change its customer service approach.

"We sell through channels, distributors," he said. "We'll continue that, but there are certain segments of the market, particularly the service providers, that need to deal directly with the manufacturer."

Though Shum has distanced himself from the leadership of ACT, he intends to be available for advice if needed.

"They're not going to get rid of me that easily," Shum said. "I'm going to come back as a shareholder. . . . It is in my best interest to make sure ACT does well."

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