The Landa way

Over a year after selling Indigo to Hewlett-Packard for $800 million, Benzion Landa shares the lessons of his experience.

Benzion (Benny) Landa may be a little tired of being ahead of his time on his own. He invented digital printing before the world was ready for it. For years, the only assured revenue of his company - now his former company - Indigo came from infringement of its patents. He experienced the investor bubble and the cold shoulder of a disappointed stock market five years before the whole high-tech world did.

Were now sitting in a conference room. On the table are cups of coffee and napkins bearing the Hewlett-Packard (NYSE:HPQ) logo with Indigo Division written underneath. Looking at them, Landa says, What does it mean to be alone? Its pride, ego, and the desire to say, I did it my way. But thats not important. The important thing is to succeed; for the products I made in Israel to be sold across the world; to employ a lot people. Its true that I was proud and happy to say I did it alone. But I gave it up.

For years, Landa was the dreamer and visionary, the charismatic inventor, the articualte Israeli industrialist. His comments seemed to be printed in a different ink; more daring; more colorful. Like many others of his kind, he is domineering and demanding; the kind of man who is either loved or hated. Former employees may not have fond memories of working for him, but other admire him and welcome the chance to have known him. Its hard to believe that he could leave a tepid impression on anyone. When he is on stage, the stage is his. He is highly conscious of the dramatic impact of his words. He once studied movie direction.

Throughout, Landa has spoken courageously and honestly about the successes and difficulties, the fund-raising and lay-offs. Most of all, he was one of the outspoken prophets of what has been called the Israeli Nokia - the accepted shorthand for the hidden yearnings by Israeli high-tech firms to become world-class companies.

Quite a few people say that were it not for the obsessive dream, Landas company would not have had to wait 26 years to make a net profit, and it could have been bought, merged, or taken over sooner. Landa, however, is focused on a different argument. Some people might still think that we could have continued to experiment alone, he says, revealing the stormy internal argument on this point. There are people in the company who believe we could have stuck with it for a little longer, had a greater influence, and that we would have won. Im not one of them.

The fact that Landa is satisfied with the sale of Indigo and recognized its necessity, does not mean that he has no regrets. Immediately after the sale, and despite all the satisfaction, he said his dream - in contrast to the dreams of many more realistic and calculating Israeli high-tech entrepreneurs - wasnt to become a division of Hewlett-Packard, but to be Hewlett-Packard.

Globes: Why didnt it happen?

Landa: There was a combination of reasons. A key factor was that we were an Israeli company, and you have to understand your customers mentality. Our second market, after the major printers, were private companies with a turnover of $2 million a year. In these companies, the owner is the CEO, his wife manages the accounts, and his son-in-law operates the machines. Its a real family firm.

To buy our machines, which cost hundreds of thousands of dollars, the owner has to mortgage his home. Hes risking his entire business to buy a digital printer. His competitors tell him, Youre buying a machine from an Israeli company? What happens if tomorrow you need ink or spare parts and theyre at war, and cant deliver? Itll be all over. Its a wonder that we overcame that problem.

We survived the intifada as a division of Hewlett-Packard, so I dont know what would have happened had we been an independent company. There are Israeli companies - good ones - that have collapsed like a house of cards. So I dont look back and doubt that I did the right thing. The sale was also correct strategically. Even if the intifada hadnt broken out, if you want to grow rapidly and conquer the world, you need vast resources, and all the money we raised would not have been comparable to being a part of Hewlett-Packard. I think Hewlett-Packard will be a good and productive partner.

Landa still believes in Indigos success, and this faith has a practical expression. Hewlett-Packard had previously bought 13.4% of Indigo in September 2000 for $100 million in a share-swap deal. When Hewlett-Packard bought 86.5% of Indigo in March 2002, they made two alternative offers for its shares: a straightforward share-swap deal at $7.50 per Indigo share; or a three-year contingent value right (CVR) at $6 per Indigo share, contingent on revenue from sales of products based on Indigo technology. The CVR would be rendered a historical curiosity if total sales over the three-year period were less than $1 billion. If total sales reached the maximum stipulated amount of $1.6 billion, Indigo shareholders would get $4.50 per share. The gamble was great, since Indigos sales to date were not even close to these figures. The Landa family, which owned 44% of Indigo, chose the second option, while most of the other shareholders took the first.

Its not enough to be first

Its unusual to carry the title The company that was ahead of the bubble, but that summarizes Indigos history. The companys invention won praises and aroused great expectations. Printers could change the content being printed while in operation with a single computer command, thereby enabling shorter print runs, personalized printing, personalized catalogues, etc. The invention was based on ElectoInk (electronic ink) that could be moved by changing electric fields.

Indigo held its IPO on Nasdaq in 1994 with high hopes. After the IPO, the share reached $85, and Landas stake was worth $1 billion. Fortune called Landa a billionaire, and Forbes put him on its list of the worlds richest men. But then, in a prologue to the high-tech bubble five years later, it turned out that the customers werent ready, the product wasnt mature, the price was too high, breakdowns were too frequent, etc. The share price plummeted to single-digit figure, reaching a low-point of $3, while Indigo suffered heavy losses, and was forced to carry out a painful restructuring and fire hundreds of employees.

Its hard to grasp what happened to us in 1995, says Landa. We were the technology leader, and were the first on the market with digital printers. Everyone knew the market would be huge, and the industry leader would conquer the world. Thats why the share price skyrocketed.

As with the Internet five years later, we believed the revolution would be great and profitable. Just as the Internet discovered that profits came slowly, we discovered the same truth held for digital printing five years earlier. Just as the Internet was a disappointment and everything fell, we disappointed five years earlier when investors discovered that things didnt happen so fast, that there were problems with our business model and product, and it would take longer than we thought.

Besides the great hopes, there were also problems in the field, and customers needed a great deal of support.

The product wasnt ready, it wasnt sufficiently reliable, and it therefore needed a lot of support. But that wasnt the problem.

What was the problem?

It was the classic problem. A new technology has a natural distribution curve. The first 10% of customers are the early adopters, and there is chasm between them and all the others. You need a major push to overcome the chasm. The product must be very successful among the early adopters. If things are delayed, if the company has a problem, or the money runs out, and things take longer than anticipated, you fall into the chasm.

Thats what happened to us. The initial customers were enthusiastic, but found it hard to make money. Mainstream customers therefore postponed decisions and waited to see if the early adopters could make money. It took us two to three years to improve our product and create market awareness. By the end of this period, we began selling to mainstream customers. During the crisis period, our competitor, Xeikon, controlled 65% of our market. When we recovered, we grabbed 80% of the market, and Xeikon went bankrupt.

The recovery required massive investment, time, and patience. We told Wall Street wed need investment for two to three years to finance the recovery, so that first our customers would be profitable. Only after they were making profits, could we begin talking about our own profitability. You tell Wall Street that, and theyll tell you to forget it. Wall Street prefers investing in companies that will post a profit in the next quarter. Wall Street doesnt have a two to three year perspective, but a one to two quarter perspective.

Were you angry with Wall Street and the analysts who recommended selling the share, even after it began to go up?

No. I was never angry. Thats the nature of Wall Street and the market, and I knew always knew it.

Maybe you werent angry, but your investors were, judging by the class action suits brought against Indigo in late 1995.

We missed one quarter, and the share price promptly fell from $60 to $40. If a company drops over 20% in one day or in a brief period, class action suits automatically ensue. Its a gimmick. There are lawyers whose sole business is to monitor companies, and if their shares plummet, they call up people who own even one share. Thats cause enough to sue. Its pure extortion. They know that if they sue you for $100 million, youll settle for $1.5-2 million, which is exactly what happened in Indigos case.

The recession is good for us

Indigo knew for years that it could not survive on its own. For that reason, Landa headhunted Mimi Sela from her PR agency and appointed her VP strategic relations. Sela says Landa is the kind of man who allows talented people rise high.

From that point, there was talk about collaboration and acquisition. It was logical to merge with a neighboring firm like Scitex (Nasdaq: SCIX; TASE:SCIX). We sought partnerships and mergers, and spoke with all the relevant companies, says Landa. Scitex was one of them. We were in contact for years, but nothing ever came of it.

Why not?

Scitex will tell you it was because of me. But I disagree. I think that Scitex was unrealistic in the negotiations, and the results speak for themselves. Im not happy to say it, but Scitex is in serious trouble now.

Indigo marked Hewlett-Packard as its target in 1997, and pursued them for years. We told Hewlett-Packard that they controlled 65% of the office and household printer market, says Landa. Growth couldnt therefore come from increasing their share in their existing markets, because they were saturated. The only way to grow was by entering new markets. There is the mechanically primitive printing industry that hasnt yet discovered digitalization. A $400 billion industry has barely changed in 500 years. We have the most advanced technology to lead the revolution. Thats what we told them.

In other words, you told Hewlett-Packard, Ill tell you your strategy.

Yes. I told them, Your strategy must be to enter the commercial printer market.

Why did it take so long?

The delay wasnt because they didnt like us or our technology. They simply werent ready to enter the field. Hewlett-Packard is a very conservative company. They said well stick to our market, which we know. Maybe well make faster office machines. But to suddenly switch from machines we know that sell for a few hundred dollars each to machines that cost hundreds of thousands of dollars, from a consumer-oriented market to a sales-oriented market - thats not in-house growth. Thats like parachuting into the middle of the desert.

The only thing Indigo had at the time was its partnership agreement with Hewlett-Packard. There were always attracted to us, says Landa, but their executives werent ready to make a decision, because it was a huge leap. When Carly [Fiorina, Hewlett-Packards first CEO who is not a descendent of the companys founding families, Hewlett and Packard, S.L] arrived, she shook them up. She wanted to make Hewlett-Packard a more aggressive, risk-taking, company, ready to enter new fields. It wasnt long after Carly took over that the first deal was concluded.

Does the agreement stipulate that Indigo will remain a division and not be swallowed up by the parent company?

Yes. Hewlett-Packard committed not only to preserve the Indigo name and keep it as a separate division, but they also promised to invest in infrastructure and turn the Israeli plant into a world-class manufacturing plant on Hewlett-Packards own scale.

What is your current market share?

That depends on how you define the market. Were the biggest in machines for printing houses; we sell the most. Our two main competitors are Heidelberger Druckmachinen and Xerox (NYSE:XRX). Out of Hewlett-Packards $80 billion annual revenue - which is similar to Israels GDP - printing imaging contributes $22 billion, and were a division in this unit.

Im unemployed

Landa has no official position in Indigo, except as founder, of course. He is a special advisor to Carly Fiorina, which he says, means Im unemployed, because she has a clear vision, adding, Shes a woman who thirsts for knowledge, who wants to know what Im thinking about the digital printing industry. At her request, Landa joined Hewlett-Packards strategic technology board, the companys think-tank about the future.

Landa is not a Hewlett-Packard employee. He notes, When they acquired Indigo, I said I wanted to influence, and Carly wanted my input. I insisted that I would not receive a salary, because I think that they then cant fire me. I have no boss. I think they can consider my views without thinking that I have any hidden agenda. That is how I can really exert influence.

Naturally, Landa can allow himself this freedom. His biography includes childhood poverty, but he has been a very rich man for a long time now, and he does not like being asked about it. First of all, its embarrassing, he says. Secondly, it was never true, because a holding in a high-tech company is only paper. I never sold my holding until the sale to Hewlett-Packard. Besides, I dont admire rich people because theyre wealthy, and I hope Im not esteemed on the basis of whether I have money or not.

Landas family fund, which was once the controlling shareholder in Indigo, now owns a major stake in Hewlett-Packard, thanks to the share-swap deal. Landa also heads Indigos lab, which develops patented products. Patents have always been Indigos strong point, generating $200 million for the company in compensation from infringements alone.

Our patents are so strong, there is no need to go to court. We only have to make a claim, says Landa. If the claim is solid, theyll pay. Its like a minefield, each time you tread on a patent, either it blows up, or you pay.

Youve been paid $200 million solely on the basis of your allegations of patent violations?

In most cases. We did only R&D for 16 years.

Thats an interesting way to recoup R&D costs.

I believe strongly in patents. A patent is a piece of paper that gives you a 20-year legal monopoly. It doesnt matter who owns the paper. The courts will give you the monopoly even if you invented a processor in your basement. If you succeed and have a patent, you can stop General Motors (NYSE:GM) and IBM (NYSE:IBM). You can stop the world. Thats a powerful thing, and Indigo was a very fertile producer of patents.

How do you explain that fertility?

We have a lot of brilliant people, but you dont have to be the brightest inventor in the world to invent good patents; you have to be the first.

What does the Indigo lab do now?

Were working on a number of projects: two in printing; one in nanoparticle manufacturing; one in energy; and one that may be only a curiosity, but I think is cute - dust-rejecting paint. Ive always had a deep blue car, and was bothered that it was instantly covered in dust. The project team is tiny - me and two others. Thats the way I like it. Its how I started Indigo.

Do you consider yourself an Efi Arazi, who moves onto something new each time he finishes a project?


You wont found another Indigo?

If the things were working on succeed, something might come out of them. I personally wont run things on a day-to-day basis. I can imagine founding a company to manufacture and market products, but Id find the right person to run it. Personally, I wont begin again from zero.


Because I think I can contribute a lot more to a company as a consultant, rather than a day-to-day manager. I was always more a leader than a manager. I havent managed Indigo in the past ten years either. Besides, I can do a lot more than that, because a manager has to concentrate on only one thing.

I wouldnt survive in politics

In addition to serving on Hewlett-Packards strategic technology board, Landa works with the investment company of which Sela is CEO. The company looks for Israeli companies that Landa believes he can invest in and influence. He also gives Hewlett-Packard similar investment advice.

Sela also manages Landas NIS 75 million in philanthropic endeavors. Landa recently donated NIS 10 million to Ben Gurion University in the Negev. The donation will fund scholarships in subjects that help Negev communities, and finance pre-university courses for minorities, with an emphasis on the Bedouin.

My success ended with the sale to Hewlett-Packard, says Landa. I now think about how I can contribute to society; how to give back to society in the most suitable fashion. I think providing equal opportunity in higher education is good.

I consider myself more as an investor than a philanthropist. I dont solve somebodys poverty today. I invest in the countrys future, hence my investment in higher education. Todays graduates will be tomorrows producers and teachers. They will be the ones who will solve other peoples poverty. It wont happen without them. Education costs money. Material wealth shouldnt determine who gets an education and who doesnt.

A third of Landas philanthropy goes to the IDFs Atidim pre-university program. These are children from the periphery. The brightest children are identified and tutored in high school, because their home environment isnt always conducive to learning. They go on to take pre-university courses, receiving tutoring, advice, help, and a computer, giving them a chance to succeed before being drafted.

The aim is to foster professions the IDF needs. There is no psychology, or philosophy, or literature, or education - the professions society needs. That is why two-thirds of my philanthropy goes to the universities.

There are now a lot of groups of businesspeople becoming involved in social projects. Are you affiliated with any of them?

No. I dont like cocktails. Thats not for me. I do what I do, and thats all.

Published by Globes [online] - - on June 3, 2003

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