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The mysterious series of lines and numbers called bar coding has provided a thumbprint of products since the 1970s, conveying instant information on model, price, weight, and dozens of other product characteristics. As a manufacturer and international distributor of bar code and automatic identification labeling, Zebra Technologies Corporation develops and builds high-resolution thermal transfer printers to apply bar codes and provides the labels themselves and the ribbons with which to print them. Zebra's strong growth (an average of 34.4 percent from 1991 to 1994) make it a success story that has broken into the ranks of Forbes's Top 200 Best Small Companies, and a perennial favorite of the Chicago Tribune, Crain's Chicago Business, Business Week, Fortune, International Business and others.
In 1969 engineers Edward L. Kaplan and Gerhard Cless contributed $500 each to found Data Specialties Inc., a manufacturer of high-speed electromechanical products such as hole-punching and tape-reading machines. Kaplan had graduated with honors from the Illinois Institute of Technology and received a prestigious National Defense Education Act fellowship (which he relinquished after deciding not to earn a Ph.D.), while Cless had attended the University of Esslingen in Germany, where his mechanical engineering skills had earned him ten patents. While employed full-time as project engineers at Teletype Corp., they began to design machinery after hours.
After a client expressed interest in their work, they pooled their savings and came up with two punch machine prototypes using paper tape. Receiving an order for 500, Kaplan and Cless borrowed $20,000 to produce the machines and worked nights in a Chicago loft to complete the order. Hiring 15 part-time workers to assemble parts during the day and on weekends, Kaplan and Cless then received a second, multimillion-dollar order for 2,000 machines from a client in the banking industry in response to an ad they had placed in a Florida trade publication.
Thrilled, Kaplan and Cless quit their day jobs and pushed hard to complete the initial order--of which only a fraction were finished and paid for. As the remainder of the machines awaited assembly, the client suddenly canceled. Kaplan and Cless then concentrated on designing machines for the second contract, creating a revolutionary punch machine that could print passbook and bookkeeping entries as well as customer receipts, all at the same time. They later discovered, however, that the client wanted only the prototypes so it could manufacture the machines on its own; the client then sued the engineers for breach of contract when they wouldn't hand them over. Unable to afford any retaliatory legal action, Kaplan and Cless were forced to relinquish the machines' designs in return for the lawsuit being dropped.
Citing the incident as "devastating but one of those lessons that can't be taught," Kaplan and Cless were left with a loft full of parts for 475 punch machines and no money from their first three months of business. The two hammered out a new $1.5 million business plan to design and produce printing machinery, then set about raising the necessary capital. Able to come up with only $70,000, they hired themselves out as consultants and continued working on a paper punch machine to collect data while attached to other instruments. The partners decided that Kaplan would handle the management, marketing, and money side of Data Specialties' business and Cless the technological aspects. Kaplan then borrowed his father's car for a jaunt to the East Coast to drum up business. After eating and sleeping in the car the entire trip, the partners were almost ready to give up, but decided they would give their venture another two weeks before calling it quits. Within days an order came in from an Ohio-based division of Monsanto Corp., followed by two more orders in the next several weeks.
By the end of 1970, Data Specialties Inc. was located in Highland Park, Illinois, and had reached revenues of $90,000; in 1971 total sales climbed by 360 percent to $330,000. Then Bell and Howell Co. came calling with a major contract, contingent upon inspection of Data Specialties Inc.'s manufacturing plant--which didn't exist. Thinking fast, the engineers took apart already-assembled machines and spread them throughout their 1,320-square foot office space, hired a secretary and workers to reassemble the machines for the day, and enlisted their wives to call every ten minutes impersonating customers. Their creativity and virtual factory paid off, as Bell and Howell and many other clients signed with Data Specialties over the next few years, eventually earning the company a 50 percent share of the paper tape punch and related machinery market.
When the paper tape industry began to falter due to new technology like bar coding, the partners decided to pursue the latter. Although bar coding had been around since the 1970s, the industry was still in its infancy with just a handful of competitors. The odd-looking black and white stripes were first favored by grocers using UPC (Universal Product Code) labels as a means of speeding up the check-out and payment process, then bar codes caught on in the retail clothing industry. Data Specialties introduced its first bar code printer, The Zebra, at a Dallas trade show in 1982, and despite some minor glitches, the machine was far more advanced than those of competitors. "It had the capability to create on-demand bar coding," Cless explained, "that could revolutionize the industry." The fledgling company began selling its wares to businesses, especially health care and pharmaceutical companies, at home and overseas.
In 1986, to combat scanning problems due to poor resolution from off-shaped or uneven-surfaced products, the company built its first "thermal transfer" printer using heated printer heads that melted characters from a waxy ribbon onto labels made from paper, plastic, foil, or other smooth materials. Unlike standard bar codes, thermal transfer labels were able to withstand temperatures as high as 400 degrees Fahrenheit or as cold as minus 110 degrees Fahrenheit. Although there were other printing processes using heat, thermal transfer didn't require specially treated labels, lasted much longer, and soon became an industry standard for affixing labels to items of all shapes and sizes--such as U.S. Steel's strip steel coils and bars and hospitals' blood bags and specimens.
With the success of its Zebra printer and other products, Kaplan and Cless changed the company's name from Data Specialties to Zebra Technologies Corporation in 1986. Over the next few years, the company began transferring its Japanese manufacturing (which began in the early 1980s through a partnership) back to the United States, to maximize profit and decrease product defect rates. While manufacturing in Japan had initially been beneficial, the fall of the dollar by nearly half, government embargoes, and import duty increases had taken their toll on Zebra, and both Kaplan and Cless wanted to regain control of their manufacturing. Yet the years in Japan had given Zebra an important technological edge, which when combined with Cless's German background and their location in the United States, gave the company a valuable international orientation.
The next year Kaplan and Cless's hard work was recognized when the company was awarded the prestigious 1988 High Technology Entrepreneur Award from Peat Marwick Main & Co., a Chicago-based accounting and consulting firm. Zebra finished the year with $30 million in sales and income of $5.5 million; the following year, 1990, sales jumped nearly 30 percent to $38 million. In 1991 the partners decided to take their company public, and in August 1991 Zebra successfully completed an IPO of 2.8 million shares at $15.50 each; within hours, the stock traded at $18. By year's end in 1991 analysts estimated the bar code industry at $380 million with Zebra having captured over 25 percent of the market. There were more than 23,000 of Zebra's bar code printing systems installed at some 5,000 sites worldwide, pumping the company's net sales up to $45.6 million, including nearly 36 percent from international sources. As Zebra prospered the company increased its funding in R&D proportionately, spending nearly $2.4 million.
By 1992 Zebra was considered the premier manufacturer of high-performance demand printing materials used in factory assembly lines to label a wide variety of consumer goods. With over 30,000 machines installed worldwide, Zebra's product line of 20 thermal-transfer printing systems and 12 different symbologies had earned a reputation for excellence as well as durability, especially in harsh conditions. As a result, Zebra was ranked number seven on Forbes's "200 Best Small Companies" in November. The company then ended the year with net sales of $58.7 million and earnings of $11.8 million, due in part to its increasing supplies business, which accounted for a quarter of 1992's sales. By the end of that year 90 percent of Zebra's operations were housed at its 67,000-foot Vernon Hills facility, which added another 37,000 square feet to accommodate the growth.
In March 1993, Zebra's second public offering of 2.6 million shares (at $22.75 each) went off without a hitch. The company now had 45,000 machines in circulation, and Zebra's engineers began looking in another direction. While its printers were intricately crafted, high-performance machines (which became known as the trademarked Performance Line), the company continued to research ways to make their printers more technologically advanced, less expensive, and accessible to a wider client base. In general, Zebra's customers were divided into two market segments and two subdivisions--the first between the industrial and retail markets (nearly 90 percent of retailers used bar codes, while only 20 percent of the industrial market had been tapped in 1993), and the second between clients whose primary purpose was compliance with bar-coding standards vs. those who used the bar codes for the detailed information the labels could provide about production, including tracking inventory and routing deliveries.
While some clients easily spent over $10,000 for a sophisticated, custom-made printer (prices ranged from about $1,600 to $12,000) others required as many as a dozen printers and supplies for factory assembly lines. With this in mind, in 1993 Zebra launched its Value-Line of economically priced products, consisting of completely reengineered and redesigned printers and accessories. While the technology of the entry-level Value-Line was still state-of-the-art, the products themselves were smaller and easier to assemble (with the number of parts reduced by up to 40 percent), lightweight (due to their use of structural plastic), manufactured in up to 25 percent less time, and, consequently, lower-priced by nearly half. When the Stripe S-300 and S-500 were introduced in the fall of 1993, sales were impressive. Yet romancing the mid- to lower-priced market didn't affect Zebra's higher-end markets--its specialized Performance Line machines continued to be purchased by its regular clients (which mainly consisted of Fortune 500 companies) and steadily attracted new ones as well.
While laser and ink-jet technology became hot topics of discussion in the bar code industry, Zebra's thermal transfer printing continued to reflect record gains: 1993's net sales rose to $87.4 million and income to $18.2 million, both well over the 27 percent in sales and 19 percent in profits predicted by analysts. Stock value, too, increased to $23.25 per share, and Zebra raised its R&D spending to $4.6 million to fine-tune its product line still further. Except for a setback in 1994's second quarter after manufacturing slowed due to extreme weather and the California earthquake, Zebra's growth continued unabated&mdashàin with record high sales of $107.1 million (up 22.5 percent from 1993), helped in part by the introduction of new products and significantly by an increase of almost 53 percent in international sales (which accounted for about 40 percent of Zebra's total sales). New products included an accessory called the Verifier, which identified unscannable or faulty labels; the STRIPE cutter, which sliced labels as they were printed for immediate application; and several new label surfaces resistant to not only excess heat and cold, but to abrasions, chemicals, light and moisture.
As the bar code industry saw its best year yet in 1994, due to clients like Kmart, Wal-Mart, and Lowe's, who demanded merchandise with bar coding--the company achieved number one status with its popular and durable Performance Line in the higher-priced market while possessing a healthy 33 percent share (second only to Datamax Corp. with a 40 percent share) in the economy segment. By the end of the first quarter in 1995, Zebra's overseas sales grew by 89 percent as a result of a weakened dollar and increased penetration of markets in the United Kingdom and other countries. Operations in High Wycombe and Preston, England, helped speed delivery to the company's international customers. The High Wycombe facility, completed in 1994, comprised 17,000 square feet and became Zebra's international headquarters, while the operation in Preston, near Manchester, occupied nearly 20,000 square feet and served as the company's European distribution center. Back in the United States, Zebra built a 50,000-square foot addition to its manufacturing facility and added another 11,500 square feet to its corporate headquarters in Vernon Hills. As square footage expanded worldwide, the company's work force approached a new high of 500.
By mid-1995 Zebra's $119.5 in sales had doubled from just three years earlier and the company was ranked number 72 on Business Week's list of "100 Best Small Corporations and Hot Growth Companies" in May. Zebra invested $5.8 million (up 26 percent from 1993) into R&D to explore new possibilities in engineering and design as well as materials and adhesives. The company's internal structure was overhauled after several senior employees left to work for competitors. With very little long-term debt and plenty of cash and marketable securities (estimated at over $54 million), the increasingly acquisition-minded Kaplan began hinting at diversification when he told Equities Magazine Inc., "We're not married to the thermal transfer printer market." In July 1995, Kaplan and Cless purchased the Utah-based Vertical Technology Industries, a company specializing in bar code software. Kaplan turned day-to-day operations over to new president Jeffrey Clements (former CEO of Miller Fluid Power Corp.) while Cless continued in his role as executive vice-president of engineering and technology.
With distribution in 60 countries throughout Africa, Asia, Europe, the Middle East, the Pacific Rim, and Central, North and South Americas, Zebra Technologies' bar code printers have produced labels for myriad products, including millions of Microsoft's floppy diskettes, Motorola's cellular phone batteries, Philips Consumer Electronics' audio and video components, and even postage stamps and labels in 35 post offices in Taipei. "We have never seen a company that could not benefit from our technology," Kaplan told Fortune in 1993, and he and his partner Cless have been proved right repeatedly since founding their company in 1969.
Principal Subsidiaries: Zebra Technologies Europe Limited; Zebra Technologies Preston Ltd.; Zebra V.T.I., Inc.
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