Re-establishing Business Objectives Aims Company Toward Prosperity

October 1999
By Michael A. Robinson

Information technology leader refines focus, returns to its roots to pursue federal projects.

If anyone can explain the principles behind the flight path of a boomerang, it is Dr. Edward H. Bersoff. Not only is Bersoff president, chief executive officer and founder of BTG Incorporated, a leading information technology company based in Fairfax, Virginia, but he also holds a doctoral degree in mathematics from New York University and is a former U.S. Army officer assigned to the National Aeronautics and Space Administration.

After watching his company veer off course two years ago, Bersoff began plotting the firm’s return flight. In fact, he expects BTG to reach new heights as a major provider of information technology to federal agencies involved in defense, intelligence and civilian endeavors.

Founded in 1982 with just $1,000 in capital, BTG began with just one employee—Bersoff—and today has nearly 1,500 personnel involved in enterprisewide information technology solutions for mission-critical applications, including systems analysis and engineering, solutions development, integration and support.

Along the way, BTG grew over 17 years at an annualized rate of 55 percent, meaning that the company at least doubled in size every 18 months. The high growth reflected the explosive demand by government and industry for new ways to manage information as well as BTG’s prowess in securing large contracts and in diversifying through acquisitions.

“We have positioned ourselves as a growth-oriented company,” Bersoff explains. “Growth is important to us in a lot of ways. We intend to flex our muscle and grow at a rapid pace over the next several years.” Indeed, he is aiming to make BTG one of the elite corporations in America by entering the Fortune 500 within the next decade or so. By current standards, that would represent a roughly eightfold increase from current revenues of approximately $316 million to approximately $2.5 billion.

But quantity alone is not enough for Bersoff, a high-profile executive who serves on a number of boards of directors and is heavily involved in the drive to stimulate education, economic development and the technology infrastructure in his home state of Virginia. Since BTG is a service company, its main assets are people, their ideas and their work ethic, so he also wants the company to become one of the best 100 places to work in America.

Although he acknowledges that these are difficult goals to achieve, Bersoff insists they are attainable. He has long held the view that big, dramatic goals are important for motivating everyone in the organization and keeping the company from becoming complacent, which in today’s competitive technological arena can mean instant obsolescence.

Bersoff, who recommends that business executives read “Zen and the Art of Motorcycle Maintenance” by Robert Persig, laid out his thoughts on the subject of setting aggressive goals several years ago in a speech delivered at the University of Colorado at Colorado Springs. “It’s hard to mobilize your team if the team doesn’t know where you’re going,” Bersoff said. “It can be a great personal risk to divulge the plan, because if you don’t achieve your goals, it gets to be embarrassing. I believe goals are somewhat self-fulfilling. You’ll achieve as much as you set out to achieve, hopefully, but generally no more. So, if you don’t set goals that everybody understands, you’re not going to achieve much of anything. I also believe that if you think you’ve achieved success, you’re done for.”

Bersoff knows a thing or two about success. Consider that in 1996 he was selected to the Fed 100, a listing by Federal Computer Week that honors technology professionals from government and industry, and he also received the Eagle Award for his role in the federal government’s effective use of information technology. That same year, the Federation of Citizens Associations and The Washington Post named him Fairfax County Citizen of the Year. In 1995, he received the Founders Award for outstanding community service from the Northern Virginia Community Foundation. The previous year he was designated as one of only nine business people selected as Washington, D.C., area Entrepreneurs of the Year by Inc. magazine, the accounting firm of Ernst & Young and the brokerage firm of Merrill Lynch.

The accolades underscore how Bersoff has built BTG into a technology powerhouse. His company’s accomplishments include a number of substantial technology milestones. BTG engineers developed a purely software-based encryption system for secure World Wide Web transmission of satellite maps and battlefield information to U.S. forces in the Balkans. The company’s deployable intelligence support system enables allies in the field to assess unfolding battleground situations on their laptop screens in real time.

The multisystem access tool by BTG allows Federal Aviation Administration staff to retrieve any pilot’s entire profile in a single, Web-based query. Using the system, three workers now respond to 4,300 pilot record requests in just two days; formerly, three organizations could barely handle 1,500 requests within the mandatory 30 days.

The company developed and installed a system that tripled student online registration for the Scholastic Aptitude Test. In addition, EdNet, the asynchronous transfer mode backbone developed by BTG for the U.S. Department of Education, helps employees track 10 million student loans a year.

More than 2,000 Securities and Exchange Commission employees nationwide rely on BTG to resolve hardware and software problems, assist with data security, and help assure the success of their technology infrastructure improvement program.

BTG employees integrated the computer servers that support 300 federal courts in 50 states, enabling migration of existing legacy data from a closed proprietary system to a relational database built on commercial products and open standards.

Archaeologists studying more than 900 prehistoric sites at Vandenberg Air Force Base, California, can search through thousands of years’ records in just minutes by using BTG’s integrated solution, which combines site data, digitized maps and global positioning system points.

Meanwhile, true to his word, Bersoff is hardly standing still. In fact, he is in the midst of a restructuring that he says is already paying dividends. After a string of earnings and revenue gains, BTG suffered a net loss in fiscal year 1998 of about $35 million. That year, revenue stood at $586 million. BTG finished fiscal year 1999 on March 31 with revenues of $316 million, down 46 percent from the previous fiscal year. More importantly, Bersoff says, profitability has returned and margins are improving. In fiscal year 1999, BTG earned $2 million, or 23 cents a share with gross margins at 21 percent, compared with only 14 percent in 1998 and 20 percent in 1997.

The company’s debt is disappearing. BTG entered fiscal year 2000 with only $20 million in debt, down from a high of $115 million in 1998. In fiscal year 2000’s first quarter, net income reached $965,000, up more than tenfold from the similar period in fiscal year 1999. Correspondingly, net interest costs fell from $1.7 million in the first quarter of fiscal year 1999 to $429,000 in fiscal year 2000’s first quarter as diluted earnings per share for the quarter rose to 11 cents from just 1 cent in the similar period in the previous fiscal year.

Now, says Bersoff, the company not only has a much cleaner balance sheet but also has a clearer focus and a renewed commitment to core business operations. This is the result of his decision last year to sell off the operations related to reselling computer hardware and software products that were add-ons to its information technology contracts with the federal government.

The decline in revenues last fiscal year can be viewed as a sign of health: the lost revenue resulted from the sale of operations that had begun to cause a major culture clash. As federal procurement changed from specialty items in the late 1980s to commercial off-the-shelf systems, the opportunity arose not only to provide information technology services to federal agencies, but also to sell them necessary hardware and software they would need to manage and maintain databases and other applications. Thus in 1992, BTG engaged in a merger of equals with a product resale firm in a stock transaction. Sales doubled overnight. Then they doubled again to more than $100 million.

“The combination of the two businesses just blew everyone away,” Bersoff recalls. “The plan worked. We got all sorts of business, and by the way, margins were pretty darn good.”

But then the market changed again, and BTG found itself in a product procurement world that had become increasingly transaction oriented. Federal buyers, who make up 90 percent of the firm’s customer base, were no longer willing to pay a premium for a comprehensive package of hardware, software and systems engineering, Bersoff believes.

Bersoff became concerned about the two very different worlds in which BTG was trying to operate. The company’s entire history had been one of engineering, catering to the needs of engineers who have very long timelines. Software engineers expect top-level amenities and benefits and a certain freedom to operate as needed to meet customer expectations, which are often high.

A transaction culture is dramatically different. Every penny matters, and 24 hours is long-range planning. Close one sale; move onto the next one, he explains.

“These two cultures don’t co-exist,” Bersoff says. “You have to separate them. For a systems integrator, that can be awfully difficult and may not be worth the effort.

“We had to make a choice. We could try to be number one [in the reseller market] and dominate, to be the last man standing as it were, or we could exit that business and go back to our roots. It didn’t take long to decide which way to go.”

Bersoff is once again talking about possible acquisitions, but this time they will be strictly in the company’s core businesses of engineering services and solutions. These include battlefield situation awareness, information and network security, year 2000 solutions, Web-based solutions and data visualization.

For example, on January 26, 1999, BTG completed the acquisition of STAC Incorporated, an employee-owned analysis and software development company also based in Fairfax, Virginia, for $5.1 million in cash. Bersoff says the acquisition will help expand his company’s ability to offer high-level information operations services to the defense and intelligence sectors.

In fact, being so roots oriented, Bersoff says he is in no hurry to expand into commercial markets. The 10 percent of the firm’s business that is not related to federal spending is spread among state and local government and corporate customers. This group is expected to continue growing along with BTG’s overall expansion.

But unlike many other chief executive officers in the information technology market, Bersoff sees no reason to move heavily into the commercial arena. Selling engineering services to federal agencies is still good business, he argues, and will remain so for the foreseeable future.

“When we get bigger, we are going to have to get into other markets, but it is not mandatory for us at this time,” he adds. “Our work outside the federal market is opportunistic. The commercial world, in my view, is a far riskier world. I don’t know that you get a better payoff except maybe people think you are a snazzy stock and that raises your market cap.”

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