A construction crane breaks the horizon on SAS Institute's 300-acre headquarters campus, a sign of the homegrown software giant's success in a downturn.
Chief executive and co-founder Jim Goodnight, an N.C. native, anticipates the private company's profits could be down double digits this year. Still, he's building a 280,000-square-foot building that includes 690 offices and extensive customer meeting facilities. Late last year, the company finished a five-acre solar farm, where grazing sheep will trim the grass. And on March 19, SAS announced a $70 million headquarters complex that will allow customers to access hardware and services via the Web rather than buying their own.
Goodnight, who says SAS carries no debt, also has ramped up research and development, already a significant part of spending.
“We've made it very clear we will not have layoffs even if our profit is cut a few percentage points,” Goodnight said during an interview this month at the company he started in 1976. “In the meantime, we're going to be working on R&D projects that are going to be ready so when the recession is over, we'll be really flying high.”
Goodnight, formerly a statistics professor at N.C. State University, started the software development firm with fellow grad student John Sall. First year sales were $138,000 and have grown every year since, reaching $2.26 billion last year even as the economy tanked. Employment grew to more than 11,000 worldwide, about 4,200 of those in Cary. The private company's success propelled Goodnight to No. 75 on this year's Forbes list of billionaires. He and Sall, at 196, are the only Carolinians on the list.
The company's analytic software and services help companies operate more profitably and efficiently by mining data, such as consumer spending habits. That's become even more useful in a weak economy. SAS has customers in 114 countries and claims nearly all the world's biggest companies as customers.
Goodnight, 66, talked with MoneyWise about what's driving growth in a downturn, the benefits of being a private company, succession planning and his philosophy for competing. Questions and answers are edited for brevity and clarity.
Q: What's driving growth?
More and more companies are turning to analytics, to analyze the huge amounts of data that they own. Every device, everything we buy, every time we make a phone call, all that data is recorded, every Web transaction. There is just so much data generated. Not to use it is throwing away a very valuable resource.
Q: How has the recession changed what customers want from SAS?
Things like warranty analysis, this is big in manufacturing right now because people are holding onto their vehicles longer, for example. Companies are concerned about making sure they have adequate spare parts on hand for this stretched-out use of vehicles and parts. Refrigerator parts, washing machine parts, all these part things are going to suddenly come into play now because people are holding on to their manufactured goods longer. If we can make sure that the spare parts are on hand when they're needed, and that you don't have a dozen of a (part) that's never going to be needed, then we can save the companies money.
Q: Financial services accounted for about 40 percent of your business. The crippling economic crisis has claimed such big customers as investment firms Bear Stearns and Lehman Brothers and thrift Washington Mutual. How are the banks' problems affecting SAS?
We've taken a few hits on the companies that went under that were our customers. We are actively engaged in trying to provide software to prevent fraud. This is a very, very popular topic now. It applies in the financial services area for things like check fraud or credit card fraud. The same basic software can be used in (detecting) welfare fraud, health care fraud, revenue fraud. We're working with several different states on detecting which tax returns should be audited, the ones that are going to pay off the biggest based on past experience. With the states trying to find money under rocks, this is a wonderful piece of software.
Q: Why the growing interest in fraud prevention?
It's the next area that banks need to tighten down on. They've had huge losses on the credit side, issuing credit to people they shouldn't have. As that slowly winds down, they're realizing how much fraud was actually going on. And, in hard times, desperate people will turn more and more to fraud. It's time to raise the barriers to help prevent it.
Q: Talk more about changes you're seeing in customer demand.
Rather than just mailing out credit card applications to everybody, they're handling it much more selectively. We analyze all the data to help determine which ones are the best ones to send the application to. We helped create a new credit score to help banks determine how much they can loan to individuals. Marketing optimization helps determine whether you should spend your money on a meal campaign, telephone, e-mail or print campaign. It's all outreach to customers.
Q: What about SAS and retailers?
They're all clamoring to get pricing optimization, size optimization. We study the past purchasing history of the stores as far as size is concerned and then make recommendations for different sizes for different stores. The goal is not only to help make the companies be more profitable by not having all this merchandise (leftover) at the end of the year, but also to make it a better shopping experience for the customer. When you go there, your size is most likely going to be there.
Q: SAS has an unbroken record of annual sales increases. What do you see for this year?
We're going to be fairly flat, I'm afraid, in '09. One of the main reasons is the strength of the dollar. All our sales have always been priced in the local currencies of other countries (where we do business). That's going to translate into smaller amounts of dollars coming back. We're having very good growth right now in Europe, on the continent, not England, Scotland, Ireland. All of those were affected very similarly to the U.S. They had this huge housing bubble. Now they don't have any money either.
Q: What about other areas of the world?
We've seen a little slowdown the first of the year in Asia-Pacific. These are all economies very dependent on exporting their manufactured goods. The U.S. is not importing as much as we used to so all the Asian countries have slowed down. Both Brazil and Mexico are still very strong this year. Canada is strong. Any oil exporting nation is very strong.
Q: Despite the downturn, you have a few large construction projects under way.
Now is the time to do these capital projects because prices are way down, people need the work. We saw just about everything is coming in 15 percent less than we thought. By the time they're built, the economy will be back.
Q: How would you describe your management style?
It's the opposite of being a micromanager. I like to hire good people and let them run with it. Every once in a while, I'll stick my head in and make a little suggestion. I like to have empowered people.
Q. What do you think about being on the Forbes billionaire list?
I don't ever read those. I don't want to sell the company so therefore it doesn't mean anything. It is the value of some pieces of paper that are locked away in a safe. My lifestyle is still pretty modest.
Q: What's modest about it?
I take out my own trash, recycle my own papers and bottles, that sort of thing.
Q: Any desire to cash in by taking the company public?
No. In our latest survey of our employees, when asked the question, do you want SAS to be a public company, 85 percent said no. Public companies have to do some really strange things in times like this. They have to say, well our profits are shrinking therefore we have to lay off some employees. We looked at our estimated profits for this year. They'll be down maybe 10 to 15 percent from last year. We said OK, fine, it's OK with us.
Q: What's the succession plan for SAS leadership?
If you nailed your succession plans on the wall, everybody that was not listed as being part would start looking for another job. We don't have a mandatory retirement age. I like what I do.
Q: When you drive through campus, do you think about what you've built?
I just see defects, things that need to be fixed.
Q: So you don't get a rush when you take stock of how far you've come?
No, I never do. We've got so far to go. My philosophy is not really to ever look back, just to look forward, talk about where we're going, make sure we're staying ahead of the competition. If we're not, let's make sure we catch up.