Interview with Todd Cutler, CEO Eagleware-Elanix
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Interview with Todd Cutler, CEO Eagleware-Elanix

Biography

Todd Cutler joined Eagleware as President and CEO in November 1998 after a 29 year career at Hewlett-Packard, 12 years of which were spent in the area of high frequency design automation. Mr. Cutler graduated from the Georgia Institute of Technology in 1979 with highest honors, earning a Bachelor of Electrical Engineering degree. He later earned a Master of Science in Electrical Engineering in Statistical Signal Processing from Stanford University. After working for three years on the HP8510 development team, he was a founding member of the HP European Marketing Center, located in Amsterdam, the Netherlands. He returned to the U.S. in 1986 to help start HP' s high frequency design business in which he subsequently held positions in sales, and support and marketing management.

Were you one of the founders or did you join the company later?
I was brought in well after the company had been founded. The company was founded in 1985 truly as a basement organization and it really bootstrapped itself up to a reasonable size and certainly was making money and doing some good things. But the job got beyond what the founder really wanted to be doing. So in 1998 I joined the company. I left Hewlett Packard where I had worked for 20 years before joining here.

HP is obviously much bigger than Eagleware. What was the transition like?
The contrast was pretty remarkable as you can imagine. The big company is really nice because in a large organization there are resources everywhere. If you have some immigration problem, you call the immigration expert. If you want to do something with facilities, the facilities guy comes and does it. But when you come to a small company like Eagleware that's not the case. And certainly Eagleware was a small company when I came here 6 years ago. The really good thing about it is that you can do some things really quickly and some things you have to do yourself. Changing the price of a product at HP when I was there would literally take months to do. Soon after I came here we were looking at some prices and one of them seemed a little bit off. So we talked about it a little bit, went home and came back the next day and by golly we changed the price and it was done. So the good news is you can move so quickly, the bad news is when the light goes out in your office, you would go get the ladder, climb up and change the light bulb yourself. It has changed quite a bit since those days but it was quite a change. Some things were way better and some things were not quite so much fun.

Not only did you transition from a very large company to a small company but you were replacing the founder who had put his stamp on the company.

That was one of my biggest concerns in joining Eagleware at the time, taking over from the founder. Is he really going to let you run the show? Fortunately, Randy Ray was just a great guy and he really did let go of the reins. He was there sort of as a coach on the sidelines but he wasn't calling the plays. He let me call the plays and occasionally he would provide a little help or assistance along the way. He was fortunately at a point in his life, he had set himself up well enough so that he could back out and start enjoying other things in life. He was remarkably quick in turning over control.

One of the things I did look at before I came here was what kind of culture of Eagleware had and how did it compare to the culture at HP. Because at the end of the day (I was talking about this earlier to someone here), the most important thing to me is that the people and the culture match up. Different companies have different cultures and when you have someone that doesn't fit it makes everyone unhappy. I didn't want to be the one coming in here with one set of ideas and the culture I been indoctrinated with at HP and come here and find something completely different. I don't think that would make anybody very happy. So all of that was part of my evaluation in accepting the job in the first place. How well do I fit into what had been built here? And I think it fit pretty well. There are certainly a lot of changes and I think some good ideas that implemented on top of it. It is a culture of openness and egalitarianism and having participation in decisions. It was not a very hierarchical type of organization and certainly that's what I had gotten used to during my time at Hewlett Packard.

What expertise did you bring to Eagleware? Marketing, Sales, general management?
When I first was looking at it, they were looking at my coming in for sort of sales and marketing help, maybe more sales. But I was at a point in my career where that wasn't what I really wanted to be doing. So it ended up being sort of operational. When I joined the company, it was a small company, basically a bunch of developers. The founder did most of the marketing activities. There was no real sales activity at all. There was some marketing: basically good messages, good mail pieces, tradeshow presence but not matching up with the sales activity, not really trying to generate business. So the long way to answer your question is general operation management with an emphasis on sales and marketing. It was amazing that it started with nobody that was selling the product. It was a kind of a mail order business but still managed to sell lots and lots, literally thousands of software licenses because it was a good product. But at the end of the day, that can take you just so far. You can have a better product. The adage says that if you build a better mousetrap, the world will beat a path to your door. That is certainly not the case and that's what we have found. We have developed a more balanced organization. It has marketing, sales, development and enough operational foundation to build upon. The business has done extremely well over that period.

Do you sell direct or through third parties?
We sell direct at least domestically, internationally we have local representation and distribution. Because we have such a pervasive presence in the market, just about anyone who is designing a communication system has some of our software somewhere in their facility. We don't really need to be making penetration into accounts as a typical startup does. Most of our activity is developing our accounts and trying to spread it and trying to make sure that the technology we offer is well understood by all, by enough of the people in the company so that they can take full value of it. So going direct even though we are very small has been very effective program for us.

What is the total number of customers?
2,000 different companies and about 5,000 different licenses have been sold. Actually, it's a little bit more now that we have acquired Elanix. So it is probably more like 6,000 licenses. We haven't quite sorted out where the overlap is but its sort of everywhere you want to be. It is all over the world. We do about two thirds of our business in the US and one third internationally. As we have been making more investment in our channel it has gone up a bit more than that in the US. We are stating to invest international and trying to get back up to where we hope it will eventually be 50/50.

How is the third international business split?
Two thirds in Europe, one third in Asia. Our hardest trouble is in Japan because they prefer to do business with a large, strong company that has been there a long time. It creates a hurdle for us to get over. So it has been less a major area of emphasis for us.

What I think I heard is that you have 2,000 customers and anybody who needs you product already has it, although perhaps not in sufficient quantity. Where would growth come from?
We make a full range of products that go anywhere from a few thousand dollars to tools that cost more than $50,000. So we have a presence, a foundation; a lot of it would be entry level tools where people started. Moreover, if we look at our customer base, we are pretty sure that there is somewhere between 60,000 and 80,000 people actively doing the type of designs that we help them with. We have 5,000 licenses, so that still just one for every 10 designers that are out there. There is just a lot of designs going on in the high frequency domain that we operate in. So I think it's a long way from being a saturated market. There are a lot of reasons for that. I think that one of the main ones is technology and the evolution of technology. Is it ready? Has it been ready long enough for people to make the kind of investments to take full advantage?

What percent of the 60,000 to 80,000 TAM (total addressable market) does your 2,000 companies represent? When you say that you have sold to a company like Motorola, Nortel or Intel, you can sell and be really dominant in one location but then in another location there is almost no penetration. So if you look at it from a company standpoint and ask where are we? If you pick a company like Raytheon, at one location we may be really strong player and at 30 other locations we may have minimal presence. If we look at TAM at a company level, at the highest level, and ask what percent penetration do we have. It would be very high. I would guess 70% to 80%. That's sort of the tip of the iceberg because there are so many unaddressed facilities and operations within many of these multinational companies. So there is a great opportunity.

I understand that the company is employee owned?
If I could backup and talk operationally about what makes us different from other EDA companies that you cover. The first one is the company was bootstrapped, internally funded; there is no outside money in it at all. We make a lot of money. We just bought Elanix from our profits. Consciously, part of the culture which I like is that you grow gradually and make money along the way. It allows us to weather storms like a couple of years ago without salary cuts and without laying off people. In fact being in a position to make investments, to bring people on board in anticipation of the recovery of the market. So making money, growing the company moderately at say 30% (not a small number) but not trying to grow 100% or 500% every year.

The other thing is that we are owned and controlled by the employees through an ESOP. Fifty-one percent of the company is owned by a trust that represents the interest of the employees. ESOPS are something the government set up to encourage employee ownership of companies. In particular they make it attractive from a tax standpoint for the founders of companies to basically sell the company to the employees. It's a retirement plan. We are talking about ERISA (Employee Retirement Income Security Act), Department of Labor regulated plan that allows employees to gain significant ownership of the company.

It is interesting. With 51% it means that any decisions that are made at a structural or corporate level have to be in the interest of the employees. In many cases, for example if the company were to be sold, each employee would vote his ownership shares as to whether that is what he wanted to do or not. The idea behind this was one of the big changes in the company.

It really got set up coincident when I joined the company. Some people believe in employee ownership and some people don't. The people who do think it's a good deal, start thinking this is my company and how are we spending the money. The real gain for me is not necessarily what my raise is this year but how much is this company worth. The advantage we have over the traditional way where people get options is as we all know options can go under water and be worth nothing. People may be left with nothing. The way this works, people have ownership in the company, so it is always worth something. You have x% ownership until the company goes out of business. They really have ownership and I think that they believe in it.

You have just had an acquisition. Lots of people were involved on both sides. How did that go?
It is a little bit awkward because as you go through this, you don't want to tell the world that you are in the middle of negotiating to buy another company. So the negotiations were done with board approval and negotiators came to a letter of intent. Once that was signed, we began working through it. We more or less informed the employees. Since we were not issuing any shares (it was an all cash deal) and since we weren't changing the capital structure of the company, then just as you would do at any company there was not a requirement for a shareholder vote just a board of director decision that you want to make this capital investment. We bought the assets of the other company. It turns out that there was no requirement to pass through any sort of vote but what we did do was to make sure the employees were informed and had a chance to comment that that was crazy or whatever before final papers were signed. So in that case it was not a pass through vote but I would say that employees knew what it was about and were supportive of it. And I think everybody was pretty pumped up about the better position we are in the market.

Bought the assets. Are the former employees of Elanix now employees of the combined company?
Yes, absolutely. There are two ways to buy a company; buy all of its stock or buy the assets. The reason that you buy the assets, which is what we did, is any residual liability. Some ex-employee of the company comes and sues. They have to sue the old company. They can not sue us. The reason is to give yourself some protection against liability that you may not know about. Not that any of that is perfect. Basically, all the employees, all the intellectual property,.. have joined over. And we are glad to have them part of the larger familiy

What is the company headcount?
Elanix is about 25% of the headcount. We are about 3 to 4 times larger than Elanix was. The addition in terms of headcount was significant but manageable.

We are about 40 people, not quite there but we hope to be there by the end of the year. The most important thing to me is the people. You hear that all the time and I believe it. It's a tight job market right now to find the kinds of people we need. Maybe there part of the secret of growing at a regular rate. You don't have to make hiring decisions that you later regret.

When you hire somebody, do they participate in the ownership of the company?
Is there some vesting period?

Yes. They immediately from day one start getting contributions in the ownership, to their ESOP account but there is a vesting period. It takes 6 years to vest fully. Each ESOP plan may be different but basically after two years you are vested 20% and after six years it goes to 100%. That's a long term plan which is what we want. It's pretty serious money put away for these guys. When they leave the company, there is a little bit of a waiting period, and then they get paid out in cash. We promise to buy all of the stock back from them. So it is not a funny money kind of thing. It is real money.

Beyond the ESOP, what else do you do to recruit and retain people, talent?
Retaining the right people is making sure that you hire the right people in the first place; people that sort of culturally fit. Retaining is making sure that they are in a role that they feel comfortable with and where they can make a contribution that stretches them some but not too much and creating an environment where people like each other and want to come to work. I think that liking each other has a lot to do with participating in decisions together, doing some things together both at work and maybe a little bit outside work. But ultimately I think it is to make sure people are in jobs that they really like doing. People change over time and their interests change. The key is to make sure they have opportunity to pursue what they want to do.

Attracting the right people. The best way is finding them and letting them meet and talk with the people that are here and make sure it's a good fit for them. Recruiting is all about fit, fit for what we need from a contribution viewpoint, fit in what they have to offer and of course back to the cultural thing. Is this the type of place you want to show up everyday and are these the people you want to hang out with everyday is a key part. Recruiting is the single biggest challenge that I deal with. Making sure the management team deal with this and that we get a good pool of candidates and find the right ones. Once we find the right ones, selling them on what a great place this is to work has been easy to do.

Geographically, how close are Eagleware and Elanix?
We are here in Atlanta and Elanix is in Westlake Village (northwest of Los Angles). We actually have the same phone system. One of the things we did was make a pretty significant investment in infrastructure. We've got VoIP phones, high bandwidth interconnection between the sites and so forth. For example, I was in Westlake last week, I hit the magic button on my key and the phone that normally rings on my desk in Atlanta was ringing at my desk in Westlake Village. You can send voice mail to people within the system. Our sales guy in Silicon Valley is on the same system. Same email system, servers, VPN … Infrastructurally there is not a whole lot of difference from being across town except that there is a three hour time difference which does factor into how we communicate internally but actually helps externally because we are able to provide better hours of coverage to our customers for the support they need.

Is there a division of labor between the two groups?
We're still sorting out our way through that but generally no. There are specific product knowledge and expertise, some in Atlanta and some in Westlake Village but we do have cross reporting. There is development activity that goes on in Westlake and development activity that goes on in Atlanta. There are also marketing and support operations in Westlake and marketing and support here. We did consolidate operational things such as shipping and back office sorts of things. Our intent is to keep both offices going.

In large part one of the reasons we were interested in Elanix was that it gave us a good recruiting base. There is a lot of talented people that live in southern California or somewhere in California that we fell we could attract and be interested in our business. Geography is a big deal when you are trying to get good people.

The sense I have is that Elanix is an umbrella, while Eagleware has more core technology.
Umbrella from a technology standpoint or maybe just upstream. More at the very beginning of design where people are making some architectural partitioning decisions as to how much of the stuff is to be in FPGAs and DSPs and how much in analog and RF hardware. From that standpoint, the technology that is offered to analyze at the highest architectural level is the place where we were looking for contribution and that's where we think Elinix offers it to us.

At this level it is overall architecture. It also gives us a good path for the signal processing end of technology because to date our competition is focused on the RF end of things, the high frequency analog design. We see an awful lot of opportunity to do a better job of both doing signal processing and RF together. Concentrate on the process of going between those two. There are lots of tradeoffs made there and no one has cracked that just yet. We think we can.

Are designs coming together so that digital designers need to worry about analog and vice versa?
What happens if you are the digital or DSP guy, is that you draw out a block diagram and you have lots of blocks for each of the different parts of your design and you have one part that says RF, the blackbox where you send some signal and it comes out the other end. Where, if you turn to the RF end of the world, you have all kinds of mixers, muxs signals that are analog and then you have DSP which is one box on the other end. If you are doing the detail design in one technology area, you can be pretty successful by more or less treating the other area as a black box. But it is when you are architecting how each of these overall boxes and where the dividing line is, I think that's where the tradeoffs are made and that's where you want to make those right the first time around. Although that's not to say you don't go back sometimes. We are not going to have RF at all. We are going to digitize the signal right off the antenna but to do that is going to take a megawatt of power, $10K of DSP processors, … Maybe we should make another decision. So there is some iteration going on back and forth. But I think its more up to the overall system level and back down to the detailed level rather than across. When you look across the technology, the other side can be largely treated as a black box from the detailed design standpoint.

Who do you see as competition?
If you look at this sort of merged space that has signal processing and RF architecture design, we are probably one of the few people trying to attack both of those and look at it in an overall way. The traditional competitor we had on the DSP side was of course MathLab. They are a big player in general mathematical analysis. They are reaching a little further into hardware at this point, sort of where Elanix has been. On the Eagleware side competition is probably Agilent ADS, although lately they have been emphasizing more on silicon IC design. This is not the area we are in. We are in the system and board level design rather than IC design. They are probably the guys we compete with on a day-to-day basis.

We are trying to create new value instead of fighting over the same objective over and over. We are trying to find new ways to make a contribution to help people. So one of the recent system technology things we had in the RF space is architecture tool and its main competition was Excel. They had $100k in high end EDA software and use Excel spreadsheets to do these calculations.

On the marketing side, would you say that people who need your tool know how to find you or is it more of a missionary sale?
With any new technology and these are new technologies, I think you have to do missionary work. I have always been a believer in trying to understand what customers' problems are and give them what they need to solve those problems, which is usually not what they are asking for. They are asking for something which may address their problem but there are often better ways to solve their problems than what the customer knows because they do not put as much time and energy into it as we do to address it. So in the case of this RF architecture tool, its new enough - nobody likes using spreadsheets to get it done - but you still have to explain to someone what it is and how it is different for them to make the decision to buy it. But the thing we like about it, where it is not missionary is when you find people who buy one license of software and come back soon enough later to buy 2 or 3 more and the next thing you know, everyone is struggling to get their hands on the licenses. That is the type of thing that we are seeing with this RF architecture tool right now. At the next highest level to do this partitioning and where you may have the flexibility to get up and down, we are still hammering out the process where that's going to work. There is interest in solving the problem but until we have the solution in hand and pulled together, it's going to be some missionary work.

Do you see China as an opportunity?
We figure that there must be a pretty good market over there because there are enough hacked versions of our software that we know are being done in China. If the question “Is there a market for this software in China?” The answer is yes. Are people going to spend money to buy it? I don't know. The government laws and rules about copyright protection are pretty low. One of the bigger problems we have is people using software they haven't bought it. It's a problem for us, pretty huge for the EDA industry in general and an enormous problem for Microsoft and others in the software business. If you cast that aside, some of its just going to be bled, then is there anything left? The answer is yes.

In fact we have localized versions of our software in Chinese. You get menu picks, error messages etc in Chinese instead of English. The problem we deal with is getting the right representation in the area, the right connections that can represent what we have to offer because some of our stuff is new technology to Western engineers and a lot of people in China are just not as far in experience level in using the tool. So we are trying to get it to them is more of a challenge for us.

Do you have any strategic alliances or partnerships?
We do a little bit. We have two or three partnerships; some oem and some joint marketing. My general philosophy is if you are doing joint marketing that's OK with an oem, if its product is an ancillary product that plugs in and solves something more specific than what you offer. The kind of high level joint oem marketing where you have two equal products that try to come together to provide a third one, I don't think that works very well. It's too hard to manage, too much conflict. They don't last very long. There are very activity lasts very long. They (the partners) have conflicting business goals.

What about the major EDA players: Cadence, Mentor and Synopsys?
We have the standard interface. I wouldn't say we were very deep with any of the big three, although there might be an opportunity in the future especially with Elanix.

What has been occurring in EDA?
What had been the cry for a long time in EDA, although it has died down somewhat but a problem that has not gone away is interoperability between platforms. If you look at Cadence there is a flow and different tools that you can plug into the flow. They are trying to deal with interoperability from the Virtuoso IC design world.

The same issue of interoperability exists between system and board levels. Right now if you go to the high frequency end of our business, it is the Holy Grail: an engineer designing with a set of tools and very easily making sure that the design can be integrated into a larger team design, e.g. PCB design. Most of the time that type of activity is going on between digital designers and low frequency designers. But most of the time high frequency designers are of in a corner and doing their designs completely different. When they want to take a corner of your cell phone and lay it out with the RF stuff, the RF engineer will sit down next to the layout designer and have him act as a voice operated mouse; where to place parts, where to lay down traces. It is all so critical to the design. And that is still an unmastered problem. As we look at the whole system starting from this architecture partition and go down to the full implementation at the board, that's a critical part of the flow. It is our vision to try for a communication system to be able to take people from these top level architecture algorithms to the art work; ultimately to make sure you get the right transfer and transformation to the manufacturing environment. That would usually be through Mentor or Cadence or other sorts of broadband tools. As we integrate this together we get this top level algorithm, right on its heel is to make sure people smoothly transition from board level design into manufacturing.

Thanks to Todd Cutler for his participation.

Eagleware Corporation provides high-frequency design software that leads in providing power, speed, and accuracy to developers of communications, radio frequency (RF) and microwave products. The company's fully integrated suite of solutions includes system simulation, linear and nonlinear circuit simulation, electromagnetic (EM) simulation, synthesis and libraries of simulation models. Engineers worldwide rely on Eagleware tools in the design of cellular telephones, radar systems, cable TV systems, satellite communications systems, mobile base-station equipment, RFID devices, and wireless networking products.



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