In January 1981, the people who run Sigma Data Computing Corp. were faced with a critical decision--how to grow.
"We were going to need, for the first time, new capital," said Jerome D. Scheer, president of the computer software firm. "And we were going to need to be something other than a local company," he said.
The firm, founded in 1968 in the Washington suburbs and operated for the first few years by fewer than a half dozen people, had grown rapidly in the 1970s. Now, to seize the opportunities ahead, the firm was debating whether to link up with a venture capital firm, whether to go public or whether to join with a larger firm.
The first impulse was to take the company public, but then Sigma officials began talking to representatives of M/A-Com Inc., an awkwardly named but successful and growing telecommunications company. "We began conversations in May. By September we had joined with M/A-Com," said Scheer.
The marriage was consummated with an exchange of 550,000 M/A-Com shares for Sigma, a trade that, including some stock bonuses offered employes, made the cost of the acquisition approximately $20 million.
What made Sigma worth that much was a combination of its record of growth in the 1970s and the potential in the software industry. With the cost of hardware--the machines themselves--coming down, with the proliferation of uses and the growing numbers of people and businesses that own them, the growing market is for the programs to make the machines run.
The story of Sigma is a good-luck story of a small company run by people with technical expertise whose inexperience in marketing and financial management may have been overcome in part by what Scheer calls "the historical accident of being in Washington" where the market was strong.
"When we started the business it was with the thought that proprietary software would be the major item in the future," said Scheer. The idea was to get in the door of firms that needed software, then to develop a contractual relationship under which Sigma would provide custom software for the firms.
"We were very naive about marketing software products. We had a lot of technical expertise, but were very naive about how to sell it, especially nationally," Scheer said. Business came slowly and with great difficulty in the early years, but enough materialized to keep the firm alive when other bright young firms were biting the dust.
"In the early 1970s, when about three-fourths of the software companies that had been formed [in the late 1960s] had disappeared, we were still around," Scheer said. In 1973, the company began providing software for both the government's large mainframe computers and minicomputers, markets that proved successful, according to Scheer.
The company was around, but not astonishing. For the first eight years, revenues stayed under $1 million a year. In 1977, the company began major growth when it acquired a division from General Telephone and Electronics. That year revenues reached $3.2 million.
"The thing we needed around 1977 was size," Scheer said. "We had started as a two-person operation and had grown to approximately 70 persons. We had constant success and a good reputation, but we weren't able to attract large jobs even from the government because we were too small. The real thing GT&E gave us was 285 additional people overnight," he said. "It just thrust us into this larger market."
Revenues in 1978 were almost $10 million. For the last fiscal year, they were $20 million. In combining with M/A-Com, the company kept its separate structure and identity but became part of what is a growing presence in the Washington metropolitan area, where M/A-Com has two other subsidiaries. In addition to the 425 employes at Sigma, there are approximately 700 at Digital Communications Corp. and another approximately 100 at Alanthus, another subsidiary.
"Sigma is still the same old Sigma with its products and services," said Scheer. "We're now also part of the best vertically integrated telecommunications companies in the world."