Indigo: The Share Went Crazy

It started out as a small Israeli company, which decided to float a big idea on Wall Street. It ballooned up to an imaginary company value of $3.3 billion, and a share that jumped hundreds of points. Then came the crash. Indigo chairman Benny Landa talks about the passage from success to failure.

A little before it went down, Indigo was worth over $3.3 billion. When the company traded at $1.5 billion, Indigo CEO and chairman Benny Landa was pictured among the new billionaires pictured in "Forbes" and "Business Week".

Was there a moment, we asked Landa, when you opened the paper, saw Indigo was worth $3 billion, and said to yourself "somethings wrong here"? "Certainly", admits Landa. "Dont forget, it happened over a very short period of time".

"In January 1995, the share was at $14. After five months, it was at $64. It was insanity. No one felt comfortable with it. Looking back, we could regret not doing enough to moderate the excitement".

"In any case, it was our first time too, and we didnt know it couldnt go on like this. Yes, Im sorry people lost money because of us, but that doesnt mean the IPO wasnt made at the right time. The company needed money".

"The irony is that, from the outside Indigo looked great, at that time. Fantastic. The company was growing, backlogged orders were up, sales were up, the share was sky-high The problem was, in the field, things were different".

"There were a lot of problems. Clients were losing money, the machines werent reliable, and there was no market at all. Today, two years later, its all the other way around. The customer base is wonderful, the machine works beautifully, the market is up, the companys foundations are strong, but for anyone on the outside looking in, Indigo looks awful".

The Revolution That Wasnt

Even now, Indigo can serve as a classic case study at any school of management. A legend about a man with a brilliant idea, a vision of a company that would revolutionize the world. The digital print revolution, straight from computer to paper. The print quality was very good. With one push of a button, you could change details on every page without changing plates and other materials. The print shop workers would wear white. There was only one problem: the market wasnt ready for digital offset printing.

And, as in every revolution, Indigos also took a few heads. Most senior managers left the company, there was no lack of embittered clients, hundreds of employees were laid off and thousands of investors were disappointed.

Benny Landas Vision

More than anything else, Indigo is identified with Benny Landa - founder, entrepreneur, inventor, chairman and primary shareholder - who today owns a 57% share. The company was set up in 1977. "I always dreamed of establishing something in Israel" Landa was once quoted as saying, "and this was my chance".

Indigos printers are based on ElectroInk, a proprietary liquid ink which transfers an image from the imaging surface to the printing blanket, and from the blanket to paper. Unlike conventional offset printing, ElectroInk leaves no residual ink on the blanket, creating a new ink image with each impression.

Flagship product the Indigo E-Print 1000 reduces the cost of short-run printing since it does not require film separations, printing plates, complex ink balance, manual registration adjustments or other customary procedures. The E-Print 1000 has the ability to print a different image on each sequential page.

It took ten years to develop ElectroInk, which was guarded with almost military secrecy. Few people knew what was going on there in Rehovot. During that time, other companies around the world were looking into digital printing, but most were geared towards powdered ink-based Xeroxography. Indigo remains the pioneer and only supplier of liquid digital press ink.

The long development time demanded large amounts of investment, totaling $100 million. The lions share came from Landa, another part came from Toyo Ink in Japan, which gambled on Indigo in return for a major portion of the Asian distribution rights.

Half the Market

Indigos first exposure to the general public was four years ago, when US financier George Soros decided to invest $50 million in the company, in return for a 12% share. The company had completed development of its first printing press at that point, the E-Print 1000, and needed additional capital to set up its manufacturing and marketing network, in order to start conquering the world.

A year later, Indigo raised $100 million via a Wall Street IPO, at which time company value was set at $1 billion, a very generous value even in US capital market terms.

Indigo began growing rapidly. Sales jumped all at once, reaching $100 million within a short amount of time. At the same time, the share price rose sharply. In July, 1995, a year after going public, without even a dollar in profits, Indigos company value had reached $3.3 billion. Landa, whose share was then worth $1.5 billion, told "Forbes" he was not interested in fame for his wealth, but for creating a revolution in the printing industry.

But something went wrong along the way. The Indigo printers suffered from reliability problems. The company had to bring in one engineer for every two machines sold, clients seldom used their new machines, and potential clients shied away.

Within a sort time, Indigo was in deep trouble. Sales plunged and the company began recording multimillion dollar losses.

Over the past two years, Indigo bid farewell to 450 employees (one-third of its workforce), most senior managers and $150 million. Shares dropped quickly, losing 90% of their value.

"We thought that if a customer spends $1.5 million on a machine, they know what to do with it. We were wrong. Clients simply didnt know how to use the machine. And those who did know, couldnt rely on them".

"Over the past two years, we had to invest a great deal in improving the machines reliability", says Landa. The reliability problem began to spill over into the rest of the company. "It hurt our image a lot. Its much harder today to convince a potential client that those days are over and done with".

Profits on Peripherals

Indigos business model is structured in such a way that profits should stem mainly from the sale of peripherals, including ElectroInk, rubber blankets and other components. And these spare parts are available only through Indigo.

Every E-Print sold by Indigo today at $200,000-300,000 is expected to yield additional future revenues of $600,000 and more. Peripherals are far more profitable than the machines themselves. Theoretically, Indigo could distribute the machines almost for free, and profit on peripherals alone.

No Sales Staff, No Sales

The problem is that, over the past two years, Indigo could not engage in significant sales promotion, because it had nothing to sell. It couldnt refer potential customers to satisfied customers, because there were none. The company lowered its profile, raised another $140 million from private investors, including Soros, the Landa family, Claridge and the Steinmentz family, and tried to rebuild itself. Indigo continued to believe.

CFO Shlomo Nimrodi: "We ended 1996 with a sales staff of one, who covered the entire US West Coast. Its true, we couldnt market aggressively due to problems of reliability and image. We also made another mistake, because we could have used that time to train new sales personnel. Regrettably, we didnt do that, which is also the reason why we replaced our entire US management team".

"Theres no way around it. You cant increase sales without a sales staff. Today, we have five sales people covering the Western US, and things are starting to improve".

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