'Techno Dweebs' No More: OTG Makes Deals for Growth

By Bob Starzynski, Staff WriterOTG Software will take two significant steps within the next three months to ensure continued growth in both its commercial and government markets.First, a vice president of government sales will join the privately held company, which is based in Bethesda, Md. The five-year-old software company also will add new Internet capabilities to its software early next year, according to company officials. With a bolstered effort in the government arena, the noncommercial piece of OTG's business should grow between 100 percent and 200 percent per year for the next several years, said Richard Kay, the company's founder and chief executive."Our government business is strong, but it's not where I want it," Kay said. Government sales account for less than 10 percent of OTG's overall revenue, which is slated for more than $20 million this year.As part of its software enhancement push, OTG will team with several Internet service providers to promote the new capabilities, according to Kay. He believes the company will be the first to market with such enhancements.OTG, which stands for Optical Technology Group, creates software for Windows NT servers. The software allows companies and government agencies to manage their documents and store their data. The new Internet capabilities will allow a user to find a document on the Internet and click on an icon to save a copy on his or her computer server.The document management and data storage market is highly fragmented, according to Douglas Schmidt, managing director for Baltimore investment bank Legg Mason. Two of the most prominent players in the market are Cheyenne, owned by Computer Associates, and Seagate.OTG has been successful in its tough market partially by luck, Schmidt said. "They decided to focus solely on the NT platform, which is where many businesses are turning," he said. "They've enjoyed the rising tide."The company's list of customers runs the gamut. Government clients include the departments of Defense and Energy, the Federal Aviation Administration and NASA. On the commercial side are companies from Marathon Oil to Gillette. To continue making headway with potential clients, OTG has been growing its infrastructure like a weed. One year ago, the company had 70 employees. Currently, the count is at 140. Kay expects to have as many as 200 people in three months.During this growth spurt, Kay turned to outside investors for the first time. Up until June, when he obtained $3 million in venture capital, Kay had financed the company entirely by himself.Although OTG has been profitable and has been able to fund itself through profits, Kay brought in two venture capital firms to plug more than $10 million into the company and to increase credibility in the financial world. The firms, ABS Ventures in Baltimore and Greylock in Boston, supplied OTG with enough money to beef up research and development and increase the direct sales staff.Direct sales at OTG have been negligible to date, as the company has relied on integrators, resellers and manufacturers like Storagetek and Hewlett-Packard for most of its sales. Sales have been growing at a rate of 60 percent per year and should continue on that path, Kay said.Further boosting credibility with potential investors, OTG hired Ronald Kaiser as chief financial officer in August. Regarded by Schmidt as extremely well-respected among investment bankers, Kaiser helped take public both e-spire Communications (then known as American Communications Services) and Trusted Information Systems. Earlier this year, he took part in orchestrating the sale of Trusted to Network Associates for $350 million.Kay has not turned over any of his 100 percent ownership of OTG to anyone yet, even to his venture capitalists. When the company goes public, Kay will turn over 21 percent to Greylock and ABS and another few percent to other OTG employees, he said. In the meantime, Kay said he has stopped entertaining offers from other companies wanting to buy his business. Several years ago, when OTG was generating about $5 million in annual sales, an unnamed company offered Kay $25 million for his business. He declined the offer, seeing too much potential in front of him."Then, we were seen as 'techno dweebs' with no marketing," he said. "We've come a long way since then."