Startup Readies for Growth

Startup Readies for Growth

Entrepreneurs Mike Varga and Joe Philipose left the security of longtime jobs at Honeywell

to start a high-tech business.

By Bob Andelman

Special to the Review

Maybe there was a better time to launch a new technology company than in the months following the terrorist attack of 9-11.

On the other hand, says Mike Varga, 45, chief executive officer of Clearwater-based Tandel Systems LLC, maybe February 2002 was the perfect time, after all.

Tandel began as a commercial spinout of technology created at the Honeywell Defense and Space facility in Clearwater. Varga and co-founder Joe Philipose each had 22 years under their respective belts at Honeywell but the writing on the wall said, "Get out while the getting's good."

In 2001, General Electric was acquiring Honeywell. There were changes afoot based on the assumption that GE was coming; even more when the deal fell through. As businesses - and jobs - were consolidated, Varga and Philipose saw opportunities to license a Honeywell computer integration framework known as SAGE into a standalone business.

"Little did we know we were heading into one of the worst times for starting a new business," Varga says, shaking his head. "We knew we were facing some problems. We knew the recession had started in March 2001. But looking at the history of recessions, by the middle of 2002, we expected to be out of the recession. Creating a business at that time, we thought we'd catch the upswing."

On paper, Varga and Philipose certainly looked the part of successful entrepreneurs. Varga has a master's in electrical engineering from the University of Michigan, rose up through the Honeywell engineering ranks. But he was always on the entrepreneurial side of the business, trying to develop new large-scale operations in the aerospace arena. A stint with restricted, classified business gave him an opportunity to work at a higher level within the organization. Honeywell also sent him to accelerated business courses put on by Harvard Business School and Boston College. Then he was tapped to start a new organization, Commercial Systems, which started as a small group and grew over the years into a small business.

Philipose, 54, who was born in India and became a naturalized U.S. citizen, was the development manager for SAGE at Honeywell. He holds an MS in computer science, an MBA from the University of Tampa and has completed the coursework for a Ph.D in computer science from USF but did not turn in a thesis. He brought experience managing geographically dispersed engineering teams to the venture.

The two friends, each married with two children (Varga is also a grandfather), bowed out together, but didn't go far. Down the hall in fact; Tandel pays rent to Honeywell. In a one-of-a-kind incubator arrangement, its offices are in the same place where Varga and Philipose once collected paychecks

"I'm actually in the building where I had my offices and was head of the operation," Varga says. "All these people who used to work for me are now my customers."

Philipose sees it a little differently.

"You see that people who paid attention to you before do not pay attention to you any more because you do not control their future," he says, laughing. "That is obvious. Also, out of sight, out of mind - that rule applies. In big organizations you grow up thinking you play a wider role. Then you leave and nothing bad happens. You think your role is more important than it is."

"On the other hand," Tandel's president and chief operating officer adds, "we now have our destiny in our own hands. At Honeywell, we had layers ahead of us before we could pursue an idea. Now, if we believe in something we can push it forward."

Philipose created and has worked on SAGE for almost 10 years. When he and Varga discovered that Honeywell wanted to spin it off, they asked themselves, "Why couldn't we do it?"

Beyond test and homeland security markets, Tandel aimed its expertise and tech at embedded and enterprise systems in defense, aerospace, medical imaging, communications and robotics.

Two more partners were added as time went on and the company staffed up. Kim Vogel brought significant commercial product development and defense systems development experience; he became director of test systems. And Raju Dantuluri, the director of enterprise systems, was previously vice president of technical services at IMR Global in Clearwater. Dantuluri, who established IMR's 300-person India operation, set up a smaller business in Cochin for Tandel Systems.

"We added people that could help us," Varga says. "We wanted people with outside experience and experience at business start-ups."

Tandel's original business plan called for exploiting SAGE. (Varga says the original SAGE acronym no longer has any meaning.) SAGE helps with the development and integration of complex computer systems - multiple systems with lots of interconnections and lots of software, all brought to function cooperatively across networks. Tandel would commercialize the technology that was developed within Honeywell with $15 million in government research money and Honeywell internal investment.

"We expected Honeywell to be a primary customer," Varga says. "We also expected to work with Boeing, Lockheed Martin, HP and Alacron Computers, for example. And some have become our customers." Some have not.

The time seemed right for launching Tandel because of the federal government's unprecedented push into tighter homeland security and across-the-board defense systems. The federal money faucets were being turned on full force.

At least that was what Varga and Philipose thought was happening. "We erroneously believed some of that," Varga admits. "What has been disappointing is that for all the proclamations of what we're going to do was how long it takes for the money to come down to the local level. We made some investments and commitments, counting on project dollars being made available. But they've been slow to come. So we've had to pull back and wait. When you're a small company, it's pretty disruptive.

"We've run across a few people that were wise enough to say, 'Don't do anything until there is money available.' I wish I were that wise," Varga says.

Without revealing exact revenues for 2003, Varga says that his enterprise of roughly 30 employees (including 15 in Clearwater, two shared salespeople in Phoenix and one in Atlanta) will do "a couple" million dollars in business. Approximately 65 percent of its income comes from Honeywell.

Tandel Systems' business is based on complex computer systems. "We capture the knowledge of the hardware systems so our clients can mix and match components," Varga says. "We also capture the communication links, and the library of software of interest. We allow them to build a system, graphically. It helps with where to place software components. It builds the glue code that binds the software to the hardware architecture. The beauty is that we can rebuild that hardware architecture in minutes, making changes quickly and on different platforms."

A great potential use of SAGE is in defense and homeland security, and places there is a command, control and information structure, computers and surveillance systems. All that must be tied together in a responsive network - the kind of network Tandel creates and supports.

"That still remains our mission, to address those problems," Varga says. "And we're finally seeing the upswing of defense spending and emphasis on homeland security. We've seen people that we thought would be our customers go away. And as the economy has gotten better, they're coming back to life. We targeted Motorola as a major customer. They went through a terrible time; they went away. But since June, we've had renewed conversations with them. We know we're part of their business strategy going forward.

"But like any other business," he adds, "we have to do other things. As we evolve our strategy, we expect to begin selling to state and local governments. We also are developing work through alliance partners so we'll have access into their channels.

HP came to Tandel via its Web site (www.tandelsys.com) and asked for a quote on licensing technology for rocket engineering tests and sensing at White Sands Missile Range. They're trying to avoid having a team of software experts recondition their existing network system every time they set up for a new mission.

"It's a huge productivity advantage for them and a neat feature they can offer to their customers," Varga says.

Tandel formed an alliance in July with Clearwater-based Global Digital Systems (www.globaldigitalservices.com). "They have a very interesting talent set," says Global Vice President and General Manager Bill Volmuth, "including Honeywell engineers, the operation in India and a few guys from IMR Global. I liked that mix. They had an interesting business model when they were looking at SAGE as a business model. And they still have an interesting business model. We have a couple quotes out there we've done together. I imagine that by the end of the year we'll have some business together."

Canada is another potential market that Tandel hopes to enter soon in a joint proposal with a Canadian company, UMA. Together they will propose using SAGE technology in addressing power management and transmission. "We have engaged a former Canadian defense minister, the Honorable Bill McKnight, to help us open doors," Varga says. "Our business intent is the development of a relationship with UMA where we work with them in their construction and development projects. We'll also be looking at emergency operations in Canadian cities. There seems to be less bureaucracy; we're making progress there more rapidly."

Philipose expects Tandel will eventually outgrow its Honeywell digs and take its next big step into off-campus quarters. But he hopes to maintain a presence at the conglomerate as long as possible.

"They see us walking the hallways so they always think of us," he says. "And we can respond to opportunities very quickly here. Even if we are wildly successful, we will continue to have a presence here as long as Honeywell allows us."

Entrepreneurship has been both trying and rewarding for Varga, Philipose and their partners. "You have to do so much yourself - as opposed to counting on experts," Varga says. "In some ways it's been fun. The first six months, you have to figure out everyday something you never dealt with before. Intellect plays a role. But persistence and drive - those are the things that matter most. And you have to be willing to tackle the next challenge every day."

The other important element he discovered is the necessity of being surrounded by people bold enough to tell him "No."

"You need creative people who challenge you every day," Varga says. "They ask, 'Where are you going?' 'Why?' and 'Is that the best use of our resources?' It's not always easy."

Still, he's encouraged at this point. Varga firmly believes that companies will not go back to their early 2001 staffing levels. "They're going to outsource and use productivity tools to augment their current workforces rather than go back to staffing levels prior to the downturn."

That, Varga says, will play into Tandel's revised business model.

"It's been difficult at times. But it's been a great experience. And I really believe it's going to pay off. Having survived, we're well-positioned."