Shootout

Shootout

COMPANY STRATEGY by Dave Szymanski | Tampa Bay Editor

After three years of R&D, Tampa-based Stinger Systems is ready to take on Taser in the electronic immobilization device market.

It competes in an industry that has gone global in a fight against crime and terrorists. It has only one competitor. And after three years of R&D, it believes it has a better product.

Then what is stopping Stinger Systems, a Tampa company that makes electronic immobilization devices for law enforcement?

Nothing, if you ask CEO Bob Gruder.

A name and history, if you ask Taser, the industry leader and Stinger's competitor.

The main battleground is police departments across the globe. Both companies are fanning out, testing, talking to and training law enforcement, trying to win them over to earn a holster space on their belt.

The products are similar: They look like guns. But they shoot an electric current 35 to 38 feet instead of bullets. That current, transferred through a metal hook and wires, overrides the central nervous system, disabling a criminal for about five seconds, knocking him down long enough for a police officer to cuff him and take him in alive.

Unlike pepper spray, an electronic shock can't rub off on a police officer and harm him.

And unlike a nightstick or a K9 unit, which may be ineffective when dealing with someone numbed by drugs or alcohol or emotionally disturbed, an electronic immobilizer always takes the suspect down to the ground.

For these reasons, the weapon is a popular product.

"Taser wants to preserve its monopoly," Gruder says. "It doesn't want competition."

Taser says its 14-year history and global sales in 44 countries to consumers and 12,000 police department and military units, including many police forces in Florida, speaks for itself. Miami-Dade police have 1,700 Tasers. Tampa Police have 1,066 units. Orange County officers have 1,300 units.

"We have proven products," says Steve Tuttle, vice president of communication for Taser, which is based in Scottsdale, Ariz. "More than 4,000 law enforcement departments deploy Tasers for every officer. We've won over police, the most skeptical buyers in the world.

"It's amazing," he adds. "If I told people that would happen four years ago, there would be roaring laughter. It turns out, we were one of the officers' missing tools."

Taser is actually a trademarked acronym. TASER stands for Thomas A. Swift's Electric Rifle. Jack Cover, the original inventor, came up with the first Taser in the late 1960s. He named it after Thomas Swift, a character in literature.

But it didn't catch on originally and one company that developed Tasers went out of business. The current Taser company had to convince venture capitalists that the newer generation of the product was sound, Tuttle says.

There's a temptation to call these products stun guns, but the companies do not. That's because a host of knock-off products called stun guns have proved ineffective and the term has developed a schlocky reputation.

"The voltage claims are outrageous," Tuttle says. "They are a joke. They give us a bad name."

Remaking the company

Stinger began in 2000, founded by entrepreneur Dennis Kaufman, now its director of training. Gruder and a business partner bought majority interest in the company in late September 2004.

Prior to joining Stinger, Gruder, 49, a former software executive who grew up in New Jersey, was living in Charlotte, N.C. His business partner, an investment banker, called him about this opportunity to buy Stinger.

They did due diligence. The company was in Cleveland at the time. Taser had a monopoly on the market. They realized a lot of work would be needed. One month after buying the company, they brought it public in October 2004 (It trades Over The Counter at around $1.20 a share.).

In June 2005, they moved the company to Tampa, a city more suited for entrepreneurs than Charlotte, Gruder says.

The company needed more organization. The office staff and the manufacturing staff were not coordinated well. Quality control was lacking.

Gruder also brought a big change. The company would spend about three years focused on manufacturing the gun itself. They opened a corporate office on Rocky Point and rented a warehouse in Largo to build the devices.

From the Largo warehouse, Stinger moved forward with a pledge to have its devices 100% sourced in Florida.

"We realized that Pinellas (County) was a great source of labor," Gruder says. "Our employees we have are spectacular."

Instant duel

The competition between Taser and Stinger has gone from the marketplace to the courts. Taser filed a patent-infringement suit against Stinger.

Gruder calls the Taser technology, "archiac and barbaric." The Stinger technology is less invasive, he says. Gruder is hoping that upcoming side-by-side studies will prove him out.

Taser says it has tested its product repeatedly. It points to its track record in worldwide sales, not only to police, but also to military and civilian consumers. It is also undefeated in court in facing product liability suits.

Because it is a relatively young industry, Gruder wants to see more regulations for the industry.

That's why Stinger only sells to law enforcement, not consumers. After about three years of research and development, it rolled out a new version of its device in October.

Taser has expanded its product line and now features devices that look like small flashlights, in different colors, which are actually shocking devices.

Gruder bristles when talking about the consumer applications.

"It's not a hip and cool thing," he says. "There's a bandit running around in Australia robbing taxis with one. It's not a toy."

But without different shapes, sizes and colors, the electric devices would not appeal to the public, Tuttle says.

When fired, an electronic immobilization device shoots two metal hooks which need to grab onto a person's clothing or skin. A wire attached conveys a current, which runs to the person and disables his muscle control.

The electricity overrides the body's natural electrical signals in your muscles. So you cannot be aggressive.

It may not work as well for consumers though, because by the time you call police, the electric pulse effect may have run its course.

The technical difference between the Taser and Stinger is how the current is dispersed. The Taser starts with a higher dispersement of current, over 70 to 80 microseconds. Stinger's is about half as high, so it's spread out and degrades slower. The majority of products disperse in 180 to 200 microseconds.

Gruder compares it to sustained Lenox Lewis punching versus a big Mike Tyson uppercut. Why does this potentially make Stinger better? The company believes it is safer because it doesn't send impulses to the organ level. But it still needs conclusive evidence. So it is working with consultants at the University of Missouri to do tests, which it hopes to finish in the coming weeks.

New team, new features

Stinger realizes it needs to rally to catch Taser. It is launching a new Web site in the next two weeks and hoping it can improve on the original technology.

"If you look back, historically, the second mover becomes the champ," Gruder says.

Stinger hired a gun manufacturer to redesign its product. He gave the consultant a list of features law enforcement officers said they wanted. It also bought a machine shop in Largo to build the electronic device.

Stinger then hired world-class engineers that understood electronics. It redesigned the gun. Priority one was size. Police wanted something smaller, more compact. It took time to keep honing a design. It increased the trigger-guard area so officers wearing gloves could get their trigger finger into the trigger area.

It added a cartridge-eject button to help law enforcement reload more quickly.

It hired a former NYPD detective and security company entrepreneur to help market its products.

It welcomed another decorated NYPD officer, former New York City detective, Richard "Bo" Dietl, as a member of Stinger Systems' board of directors.

Dietl made more than 1,500 arrests and became one of the most highly decorated detectives in the history of the NYPD. A major motion picture, "One Tough Cop," based on Dietl's autobiographical novel, was released in 1998.

Dietl is chairman and CEO of Beau Dietl Associates, a security and investigative firm he founded in 1985. The firm has a client list that includes Sony Columbia Pictures, Coca-Cola, Grey Advertising, PaineWebber, Lehman Brothers, Bear Sterns, NCR and the Saudi royal family.

Stinger plans to hire more production workers in Largo to increase manufacturing.

"The only thing Taser had on us was brand," Gruder says.

But that brand carries value. Taser has its name copyrighted and its products patented.

While Taser works on consumer, law enforcement and military markets, Stinger is focusing solely on law enforcement.

That's because Taser has only cracked the surface, Gruder says. And the international law enforcement market is estimated to be 11 times larger than the United States.

Besides the electronic handgun, Stinger has a remotely activated device called a Bandit which can be used to restrain prisoners.

The company had no distribution network originally. It has applied for more than 22 licenses for overseas export as well as patents. Unlike the years-long journey of many patents, Gruder hopes to get his granted more quickly, accelerated because they are tied to Homeland Security.

Another Stinger device helps officers with crowd control. It has been selling those since 2000 and has sold more than 10,000 without injury or lawsuit.

"It doesn't do police any good if an injury occurs," Gruder says. "We've spent millions developing the technology. We didn't rush the market. It is a very long and difficult road."

Still a startup

Stinger is not profitable because it still sees itself in startup mode. It did R&D for three years and just hired a sales department in October. It started rolling out its new device late last year. It has made presentations to the NYPD and the LAPD.

Gruder's vision is that in five years, it will supplant Taser as the dominant company in the EID market. But then, it wants to go beyond that into other products and possibly acquiring other companies go grow more quickly.

"Our goal is not just to be a one-trick pony, but to do multiple products for law enforcement," he says.

If it gains market share, its stock price should rise, Gruder says. It can then use the capital to make other products.

SEC launches probe of Stinger

A Securities and Exchange Commission civil lawsuit filed in U.S. District Court in Atlanta claims Tampa-based Stinger Systems Inc., a manufacturer of electronic immobilization devices for police and the military, issued false statements to boost its stock price around the time it went public in November 2004.

Specifically, the SEC suit states Stinger misled investors when it claimed that its device was certified by the Bureau of Alcohol, Tobacco and Firearms. Stinger also claimed the company's shares were traded on the Nasdaq Stock Market, the SEC said. The suit alleges the company told investors the gun was in production and ready to be sold and distributed when manufacturing hadn't begun.

The stock, which trades on the over-the-counter market, rose to $48.55 a share within two months from its IPO price of $1.25. On Tuesday, the stock closed at 59 cents per share.

In a statement, Stinger said it is optimistic that it will prevail in court. CEO Robert Gruder denied any wrongdoing.

"I do not believe I committed securities fraud," Gruder says. "In fact, I have invested approximately $1.5 million of my own money to keep Stinger Systems going through tough times, which I believe demonstrates my faith in the company and its products."

The SEC wants Gruder fined and a court injunction banning the company from making the claims. The agency is also asking the court to consider prohibiting Gruder from serving as an executive or director of a publicly traded company. Stinger reported a loss of $6.3 million in 2006, according to the SEC.

The Gulf Coast Business Review could not reach Gruder Wednesday for a live comment. There was no information on the SEC investigation on the company Web site.

Stinger makes its electro-stun weapons for police and military at a plant in Largo.

REVIEW SUMMARY

Company: Stinger Systems Inc., Tampa

Industry: Electronic Immobilization Device manufacturing

Key: When your competitor's name becomes a verb - "Don't taze me, bro" - you have a branding challenge.