The setting for SAIC's startup in 1969 was not much different than that of many companies that begin with a few dollars and a good idea. Small, austere offices with rented desks and typewriters that have seen better days. People furiously working days, nights and weekends, hoping to curb the anxiety over the future. For SAIC, it began in offices with a tremendous ocean view (rented for $2.40 per square foot per year) in the sleepy village of La Jolla, California. "We had the added advantage of having as our next-door neighbor, a ballet studio," recalls founder J. Robert Beyster, Ph.D. "On the balcony in front of us, just to keep things light-hearted, the ballerinas would dance by as we did our research."
Beyster admits he had no grandiose plan when he started Science Applications Incorporated (later changed to SAIC) on February 3, 1969, with a couple of consulting contracts, one from Los Alamos and one from Brookhaven National Labs. "It was just supposed to be a good place where I could work and maybe a few people could join me," he says.
While working as a physicist at Los Alamos National Laboratory in the 1950's, Beyster saw many co-workers leave to start companies, but Beyster found entrepreneurship "somewhat distasteful." "I thought they should be working on scientific projects," says Beyster, "why are they worried about starting these crazy little companies?"
"It was just supposed to be a good place where I could work and maybe a few people could join me."
Indeed, Beyster was interested in applied physics, and while at Los Alamos, he performed experiments and co-authored papers with Nobel Laureate Hans Bethe. In 1957, Beyster was hired by General Atomics (G.A.) in San Diego to establish and manage a $5 million, Traveling Wave Linear Accelerator facility. At G.A., Beyster interviewed and hired Dr. Larry Kull.
"At that time we were both physicists, but he was also a manager," recalls Kull. "He came up and interviewed me at Michigan State and we crawled all over a new machine (a cyclotron) that we'd built up there. He was definitely a hands-on working scientist."
For a while, Beyster was very happy at G.A. Then things changed. In 1968, G.A. was sold to Gulf Oil, then one of the largest companies in the world. The new management focused on manufacturing large nuclear reactors, and lost interest in smaller research projects. For advice, Beyster turned to his friend Myron Eichen, who had left G.A. in 1960 to form Sharp Laboratories (and at that point had also founded several other successful companies). Eichen recalls Beyster asking if he "had what it took" to start and build a company.
"I told him, " says Eichen, "that of all the people I knew at General Atomics, he was the best qualified to do that."
After Beyster left G.A., a rumor began to circulate that he was starting his own company. Bill Scott, a former SAIC senior scientist and participation advocate for SAIC's Technical Environment Committee (today called The Employee Forum), was then a physicist at G.A. Scott received some advice from his boss. "Don't ever join Bob Beyster," Scott was advised. "You'll never get rich working for Bob Beyster. The man is just not interested in making money."
In a sense, this was true. Beyster was not interested in attracting those looking to "get rich quick." As the company was first set up, it was decided that the employees would own it, and that the ownership would be based on a person's contribution to the company. As Beyster began interviewing applicants, he made a point of explaining this unique ownership arrangement.
"I would say, 'This company is not for everybody. We're going to try to share the rewards in an equitable manner,' " says Beyster. "Working here would probably be more financially rewarding than working for a large aerospace company. It might not be as good as if you started your own company and were tremendously successful."
During SAIC's first year, Beyster and Myron Eichen spent many hours discussing the problems that arise in the early stages of companies. "Bob had to be the fastest learner of anyone I've ever known," recalls Eichen. "In effect, Bob wanted to have the benefit of my experience. But Bob took that information and formulated his own way of doing things, which was quite different and quite independent of anything I've done or experienced."
Close to the end of SAIC's first year, Dr. Larry Kull left G.A. to join the company. "G.A. was definitely heading downstream to be a reactor manufacturer," he says. "I didn't have nearly as much confidence in the management that took over after Bob left, as I had had in Bob. And then I was intrigued with the idea of this small company. I was trying to figure out how an experimental physicist could live in a small company. But Bob, through his magic, convinced me that that was no problem at all."
As employees joined SAIC during the first year, the ownership of the company went out in small pieces. Beyster's ownership stake went from 100 percent at the beginning to about 10 percent by the end of the first year.
During its first year, SAIC experienced the financial hardships common to many startups. Beyster had invested nearly everything he owned. Liens were placed on his and other employee's homes to secure loans. The company experienced cash flow problems. "We always paid everyone's salary, although mine was deferred for a few months," says Beyster.
SAIC weathered the storm, and after the first year, had brought in $243,000 in revenues.
"I guess a lesson there is if people get ownership, either those within or outside of the company, make sure they earn it."
"After a year, a surprising thing happened," Beyster recalls. "We made a profit. I knew something must be wrong. We had a rather small board, and one of the board members said, 'You know, Bob, you'd better get some help because you don't know what you're doing.' "
So Beyster consulted with a technical business advisor who recommended that the company obtain $200,000 of venture capital financing. Because of SAIC's success, the outside investors ultimately received $2 million for their $200,000 investment, although most had not contributed to the company's performance in any way.
"I guess a lesson there is if people get ownership, either those within or outside of the company, make sure they earn it," says Beyster.
There was no question that the staff at the company's new Washington, D.C. office had earned their ownership. Bill Layson (then senior vice president and chairman of SAIC's Employee Ethics Committee, now retired) opened the Washington office in 1970 under a special agreement with Beyster. If Layson and the Washington staff could develop $1 million worth of revenues within 18 months, they would receive stock and become employee owners. At that time, SAIC itself was 18 months old and approaching its first million in revenues. "In retrospect," says Layson, "it was natural to give us the same goal in the same time period." "But we had a big advantage," he says. "We did not have to rely on just our own talents, we had Bob Beyster behind us." According to Layson, Beyster foresaw the kind of business the office could develop and helped in recruiting and marketing. When the office reached its $1 million goal in 18 months, "we shared the reward (shares of SAIC stock) among the people who had developed the business," says Layson. These included Joe McGahan, John McRary, John Shannon, Matt Tobriner, and others.
At that time, it was a very different environment for contract research than it is today.
"In the early days, there was very little of the competitive environment you see now where there are a lot of things to bid on,"says Kull. "In those days people used to say, "If you see it in the CBD (Commerce Business Daily), its too late -- because by the time you see it there somebody's already had the idea and sold it to the customer. This is just a notice that somebody's writing a proposal and it's going to get funded.' "
To win those early contracts, SAIC scientists wore many hats. They were the marketing people who sold the ideas to the government to win the contracts. They were the scientists and engineers who performed the work. They were the company liaisons that briefed the customers as contracts progressed.
At G.A., says Scott, "I would do the work but never see the customer. I never got to know any of the contract monitors. Somebody else would take my work back to DNA (Defense Nuclear Agency) and brief them. At SAIC, within three months of doing the first little bit of work, I was stepping off airplanes to give briefings."
In the early 1970s, the country was in the midst of a recession. Consequently, a number of large aerospace firms were paring down in size to increase efficiency and profitability. Many of these companies were willing to sacrifice their research entities. SAIC was able to go around and recruit good people and they were happy to join a little startup company.
However, as with many small companies, one of the biggest challenges SAIC faced was establishing credibility with its customers. "The first question people would ask when you walked in their office," recalls Kull, "was 'What's SAI? I've never heard of that.' You would have to go through your story about your little company, what it's doing and how it's coming up. Credibility is very important--you fail a lot of the time. People were more comfortable giving work to bigger companies."
As the number of contracts grew, SAIC's performance spoke for itself. More contracts began coming in and SAIC's revenues went from $243,000 the first year to $1.2 million at the end of the second year. SAIC held a planning meeting to discuss the future.
"Most of the people in the company got together and talked about possibly reaching $10 million in sales," says Kull. "At that time that seemed like a ridiculous figure."
Two years later, at the end of fiscal year 1973, the company achieved $10.3 million in sales. "For the longest time we said 'We want to grow to $10-million and then we'll level off and concentrate on good technical work,' "says Scott. "But before somebody could blink we went flying by that. I don't think I ever really thought through where it would end up."
By its 10th year, SAIC passed the $100-million mark. "We had trouble believing that we had grown a $100-million company," says Kull. "That just seemed like an incredible amount of money."
Growth in one part of the company benefited other parts as well. For example, when Dave Heebner's group won a large program to develop a command, control, and communications system for the navy of an important U.S. ally, the group generated extra profits, which it gave to Bob Beyster. "Beyster used the profits to bring in smart new staff, to strengthen corporate marketing, and to get us into areas of activity that we hadn't been in," says Heebner.
That program also demonstrated the attitudes of SAIC's employee owners. According to Heebner (then a group manager and later an executive vice president and board member), the staff who worked on the program were, "forward looking, very responsive to the customer, and very considerate of the customer's strengths and weaknesses."
During the first few years of rapid growth, SAIC really had no choice but to continue. The company was recruiting some of the most noted experts in their fields, whose work was sought after by government customers. As scientists, they wanted to work on important programs. As owners, they wanted to bring in more and larger contracts. Growth within the company provided advancement opportunity for the ambitious who wanted to rise through the management ranks.
In some ways, SAIC had become a company of entrepreneurs. "Not just one or two at the top," says Beyster. "A company in which those who are motivated and capable can organize, manage, and assume the risk of different aspects of the company. In return they received not only salary, but ownership of the company."
SAIC incorporates values that have remained the same throughout the years. Today, SAIC has $11.1 billion in annual revenues for its fiscal year ended January 31, 2010. Walt Havenstein became chief executive officer September 21, 2009. Chairman of the Board Ken Dahlberg reflects, "I am pleased with our performance; the professionalism and high caliber work that our men and women perform on a daily basis is measurably contributing to the security and defense of our nation, to cancer research, to innovative commercial IT solutions, and in countless other ways."