Web Lights Candles Way

Chernick reshapes software firm for e-biz

Aubrey Chernick ignores the team of caterers setting up an after-hours buffet on the nearly deserted floor of the Georgia World Congress Center. The founder and chief executive of Candle loves to talk technology, and hes not about to leave his booth in mid-demo.

"I go to different events and just enjoy discussing our vision of where this economy is going," he says later. "I really love focusing in on the connection between technology and business."

At 52, Chernick could be at home in Los Angeles counting his money — Forbes pegs his net worth at $700 million — instead of serving as a serial keynoter at obscure application service provider conferences or being the last one to leave the companys offices at night. But the same passion that helped build Candle into the third-largest private software firm in the world, a mainstay of the mainframe business with some $400 million in revenue and almost 2,000 employees, keeps him on the run.

These days hes working the trade show circuit because hes revved up about new markets like application services and e-business integration, which he believes have the potential to remake his 25-year-old company.

"Were exploring all kinds of new areas that require people to manage complexity, which has always been our business," he says.

Candle has a real need for new markets if it is to keep growing as the mainframe market plateaus, and Chernick isnt about to let his baby miss out on Internet collaboration the way it whiffed on the earlier platform shift to distributed computing.

"Candle has been relegated to the mainframe arena for the last 20 years, and they really missed the last wave," says Dean Davison, an analyst at Meta Group. "Now Aubrey sees a chance for Candle to be positioned early and well in the Web-based environment. He realizes that the software industry is undergoing a fundamental change to a variable pricing model, and that tools are needed to monitor all the interaction. This is a way for them to branch out, and theyre positioned to do it, but branding is holding them back. Thats why hes doing all those demos on the road."

Andy Mullins, named in January as Candles president and chief operating officer, says the push into Web technology is coming straight from the chairman. "There has been a very conscious decision to lead," he says. "Weve taken the risk of being very early to market because we think we can be among the top three providers."

Next quarter, Candle will announce new products for its target markets of financial services and government. "I see these quickly becoming revenue generators," says Mullins of specialties like electronic business assurance. Consulting revenue is also expected to grow in step with software sales.

"Business collaboration that extends a companys internal operations out to customers, trading partners, employees, investors and the general public — to its entire ecosystem — is happening, but that causes a lot of complexity," Chernick says.

Most of the information used for e-business still resides on mainframes, where Candle is the de facto standard in monitoring software, so hes confident the company can extend its core business to the emerging network of networks that will come to define business commerce on the Web.

"Its the gap between systems management and integration thats the problem, and it could be a showstopper. We are well-positioned to see where the bottlenecks are," he says.

Customers and analysts agree.

"Theres a huge vacuum where theyre going in the marketplace," says Stephen Hochman, a vice president in the middleware support group at Merrill Lynch & Co., which uses some of Candles more established offerings. "Financial firms have a challenge in guaranteeing transactions, and all business-to-business needs guaranteed messaging between firms, and they need it managed. Candle has a real opportunity."

Perhaps as important as the shift in markets is Chernicks gradual delegation of authority to his professional managers, an issue that has bedeviled many entrepreneurs.

"We looked back at the companys structure, the way it did strategic and operational planning," Mullins says. "There has been a shift in his personal style."

Delegating Day-to-Day Operations

While one analyst has compared candle executives to those bobbing-head dashboard dolls that always nod "yes," Chernick has come to rely more on his managers to run the day-to-day business while he gets out in front on the vision thing. "He very much delegates it to us, and if were within our operating parameters, he doesnt become engaged," says Mullins, whose predecessor, Bob LaBant, is now vice chairman and working with Chernick on big-picture strategy.

The old joke around the mainframe industry is that Chernicks job is thinking up new ideas, and everybody elses job is talking him out of it. Actually, Mullins says, the hit rate is about 50 percent.

"There are times when he brings in a fully processed idea, when hes done the research, and other times where we pull together a working team, but each idea that comes up goes through an analysis that we provide back to him," he says. "Twice a year we review our strategies and implementation with the entire management team."

Says Davison: "He drives those ideas with a passion. Ive been in several long, half-day meetings where hes totally focused on the technology."

One thing that Chernick insists he wont change is Candles status as a private company, despite what he describes as weekly calls from investment bankers eager to take it public.

"Being private allows for longer-term investment," he says. "Were often working on things for several years, and being self-funded lets us do that."

Its a mentality that goes back to Candles earliest days, when the company was based in Toronto. "Ive never had any venture capital money since the beginning; its always been a bootstrap environment," Chernick says. "I would take what I made and put it back into the company, hire more people."

Chernick grew up in tiny Deloraine, Manitoba, where his parents ran a family grocery store. "Maybe living in that small place gave me more time to think about where things could go in the future," he says.

Today its tough to tell where small-town politeness leaves off and Los Angeles mellow begins, but Chernick is widely regarded as one of the industrys nice guys. Armed with a degree in chemistry from the University of Manitoba, Chernick decided he wanted to be a systems programmer after a brief stint at integrator CSC Canada.

Always a High Priest Wannabe

"The system guys were the rocket scientists, the high priests," he says. HE taught himself the internal workings of the IBM MSP operating system while working a university job in a small mining town in northern Ontario, then landed a position as a systems programmer with the provincial government.

"Then I lucked out — they put together a team to convert data centers to the new MVS operating system from IBM. My boss said they needed a handpicked team but couldnt spare the elite programmers, so they put me on the project. We worked day and night for six months, and it was exhilarating," he says.

At age 26 he quit the government job and started Candle Services. "I wanted to be the Norton Utilities for mainframes, with products that helped identify how to fix their problems."

He quickly sold a prototype of an assembler program to an insurance company that had earlier rejected his job application. By early 1977 he was in Los Angeles, pitching TRW on his MVS performance monitoring product.

"I had never tried the product at another site," he says. It worked, and soon he moved his fledgling operation to California, where it earned customers such as Hughes, McDonnell Douglas, Northrop and Southern California Edison.

As the company grew, Chernick remained a techie at heart — and in practice.

"He never really turned into a businessman. Hes the technician that made good," says Gartner Group analyst Frank DeSalvo.

That orientation, though, hasnt always worked in Candles favor. One reason the company stumbled in distributed computing was that it spent too much time on the technology to bring a user-friendly product to market on time. "We made sure we were ready to scale to the supercomputer level, but didnt engineer in things like ease of use or business performance," Chernick says. Today, he notes, Candle is actually gaining some ground in the midrange market. "We were three or four years ahead of what was needed."

Candle had more success with a move into application integration, which now makes up about 15 percent of total revenue, including a strong consulting practice built around linking legacy applications to the Web.

Merrill Lynchs Hochman uses Candles Command Center product to monitor the big brokerage firms global asynchronous messaging network.

"We are using that network to send large transactions of millions or even hundreds of millions of dollars, so if theres a problem, we want to know," he says. "If we didnt have Command Center, wed be in trouble." Merrill Lynch also uses Candle products and consulting services to integrate other applications into its mainframe operations.

The move to application integration also helped position Candle for its move to the Internet. What was once a mainframe organization now focuses 60 percent of its resources on nonmainframe business.

"We added new skills and capabilities, half by hiring and half by retraining people," Mullins says. "There was some turnover, and a change from selling technology to selling solutions. You can change the back end, but you also have to change the parts that face the customer."

Chernick sees Candle remaking itself on the Web.

"Theres a whole ecosystem of infrastructure and transactions that need to be managed," Chernick says. "For the last 25 years, we have worked on scalable solutions. For the last five to seven years, we added a focus on ease of use. And in the last three to five years, weve focused on the business process. The Internet is where it all comes together."