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Finding a niche for success

Conventional wisdom holds little attraction for Klaus Gueldenpfennig. It is not, for that matter, much admired by his wife or daughter.
Gueldenpfennig, his wife, Brigitte, and their daughter, Dinah, 44, are as tight-knit a unit as three highly individualistic humans can be.
As a family, the Gueldenpfennigs are “one of a kind,” says Albert Simone, retired Rochester Institute of Technology president and a longtime friend of the family.
The three Gueldenpfennigs work closely together at Redcom Laboratories Inc., the Victor-based telecommunications company, which Klaus heads and he and Brigitte founded on a shoestring 31 years ago.
The company, which designs and makes telecommunications equipment and employs some 200, keeps its profile as low as the Gueldenpfennigs can manage.
“If we stay under the radar, our competitors won’t know what we are doing,” says Klaus Gueldenpfennig, 73, chairman and president. “We are a niche provider, and once a niche gets big, every Tom, Dick and Harry moves in.”
Brigitte, who declined to provide her age, and Dinah, 44, whose name is pronounced Deena, as it would be in Germany, the land of the Gueldenpfennigs’ birth, nod in agreement.
Brigitte, who has handled the company’s finances since it was started, is its vice president of finance.
Dinah is vice president in charge of planning and government program administration. A serious auto racer who competes in races such as the Watkins Glen International, Dinah is married to a fellow driver, John Weisberg, whom she met racing and with whom she now competes. In racing, she uses her married name, but she goes by Gueldenpfennig on her Redcom business card.
Redcom’s niche is the design and manufacture of digital telephone systems with much of the emphasis on design. Its headquarters, attractively set in a series of hexagonal pods on landscaped acreage, includes a large assembly area, but staffing increasingly leans toward engineers.
Research and development accounts for a good slice of the company’s budget, the Gueldenpfennigs say. Its main competitors-companies such as Alcatel-Lucent, Siemans A.G. and Cisco Systems Inc.-are multinationals that count their revenues in billions. Private and closely held by the Gueldenpfennigs, Redcom does not publicly state revenues.
Gueldenpfennig readily concedes, however, that the company does not count its revenues in the billions of dollars. Nor, he adds, would it want to. With size would come red tape, bigger debt obligations, more investors to answer to and a host of other complications that would hobble the nimble Redcom.
Redcom’s specialties include voice over Internet protocol systems and the software-driven telephone switching systems known as soft switches.

An innovator

Gueldenpfennig, a holder of more than 40 telecom patents, claims to have designed the first soft switch decades ago, although, he concedes, he did not call it a soft switch. The niche Gueldenpfennig saw when he and Brigitte started the company in 1978 was a market for small, distributed control systems that could work in remote areas, places where governments or companies would need to install communication networks but for reasons of cost and logistics could employ only modest systems.
The niche Gueldenpfennig identified turned out to be a profitable one for Redcom. But finding it and figuring out how to focus the product line as the company grew, he says, took more instinct than market research.
“A lot of gut feel went into it,” says Gueldenpfennig. “In my personal opinion, most market research is wrong.”
The company prides itself on its products’ reliability and what Gueldenpfennig calls interoperability-features that allow users to connect virtually all of Redcom’s products to each other. Also, no Redcom product in the company’s history has been made obsolete. Its first products can be plugged into its newest systems.
The U.S. military and U.S. telecom carriers account for some 70 percent of Redcom’s sales. But a significant slice of its customer base is scattered around the globe. The firm has products in use on every continent, Gueldenpfennig says.
Redcom’s government work picked up substantially with the advent of the Iraq War, says Carol Richardson. Vice dean of RIT’s College of Applied Science and Technology, Richardson previously led the school’s department of electrical, computer and telecommunications engineering technology, which she and Gueldenpfennig helped establish and develop some two decades ago.
Because they are compact, reliable and modular, Redcom’s switches are well-adapted to military uses, Richardson says. The company’s current offerings include seven products and packages tailored for military and government applications.
Redcom’s products are not the cheapest but are more cost-effective, Gueldenpfennig says. Systems Redcom installed in remote tropical locations such as the Cook Islands, Fiji and Tonga 25 years ago are in use today and remain virtually trouble-free, he boasts.
“Klaus is treated like a god in some of those islands,” Simone says. “He went in there when nobody else would and put in phone systems. They are loyal to this day.”
Showing a visitor through the Redcom complex, Gueldenpfennig proudly points out the unique design features he incorporated. A large man with a genial manner, he scoots from doorway to doorway, swiping a security pass as he goes. Although he has long suffered knee problems and is scheduled for joint replacement surgery this summer, he hurries ahead of the small group accompanying him, gesticulating and pointing out features and paying little attention to his slight limp.
Gueldenpfennig notes how the six-sided modules are easily expandable. When the company needs more room, he says, it simply knocks out a section and adds a new module. It plans to add a module soon to create new training space. The hexagonal pods also allow for a multitude of windows, giving the complex an airy, light-infused feeling.
In the large, central below-grade assembly area where there are few window opportunities, Gueldenpfennig had installed a large two-story shaft topped by a skylight. Beneath the skylight is a glass-enclosed conservatory filled with tropical foliage and a fish pond topped by a small, pump-driven waterfall. The plants are watered several times a day by a sprinkler system. Floor drains take care of any spillage. The room serves as a break area for workers, but that is not its only purpose. Fans disperse moisture throughout the assembly area, turning the room into a giant humidifier.
“That keeps the static electricity down in the assembly area,” Gueldenpfennig chuckles, delighted at the cleverness of the two-for-one arrangement.

Links to RIT

The three Gueldenpfennigs have earned five degrees at RIT among them. Klaus, who earned a bachelor of science degree in telecommunications and electrical engineering at Technische Fachhochschule Gauss in Germany in 1961 before coming to the United States, has a master of science degree in electrical engineering from RIT, earned in 1974. Three years later, he received an MBA from RIT. Brigitte also has an MBA from the school, as does their daughter, whose undergraduate degree in computer science was earned at RIT as well.
The tuition alone that the family paid to earn five degrees would have been enough to endear the Gueldenpfennigs to him, but the couple’s generosity as donors to the university clinched it, Simone says. Few years have gone by when the couple has not donated at least $30,000 to the school, and in some years the donations have been as high as $250,000.
Like much of what Gueldenpfennig does, the couple’s and the company’s support of the school serves a dual purpose. It arguably benefits Redcom with a steady supply of engineers for research and design staff as much as Redcom benefits RIT.
Richardson says RIT’s telecom program got started partly because Gueldenpfennig lobbied the school’s administration to establish one.
“He would say, ‘They have telecommunications degrees in Europe; they should have them here, too,'” she recalls.
The RIT program became the first to be certified by the organization formerly known as the Accreditation Board for Engineering Technology, now ABET. RIT’s accreditation excited the envy of Texas A&M, which had developed a telecom program earlier, Richardson says.
As an inaugural gift, Redcom gave two $100,000 switches to the RIT program. Gueldenpfennig announced the donation at the program’s dedication, surprising assembled dignitaries, who had not expected so generous a kickoff.
“Klaus sometimes enjoys making a show of things,” Richardson says.
A third or more of Redcom’s work force is made up of RIT telecom graduates, she estimates.
A tendency to see possibilities where others do not-and make them work-and a penchant for modularity are hallmarks of the Gueldenpfennig method, Richardson says. Just as Redcom’s generosity to RIT helps the company find workers and its headquarters is designed to be expandable, its switches are designed to be easily added to and modified. Similarly, its employees are cross-trained and capable of doing double duty.
“You don’t just work in the office at Redcom; you also have to know how to do assembly,” says Richardson, who some years ago did a six-month stint as a Redcom employee to gain real-world telecom experience.
Gueldenpfennig spends at least half of his year traveling, flying to see customers in remote South Sea islands, Asia, Europe and India. Souvenirs of his travels-Chinese art, Persian miniatures, sculptures and tapestries-dot the walls of Redcom’s elegant reception area and offices. Some artworks are gifts from grateful customers. Others are items that caught his eye. Before a rising middle and upper class emerged in China, Gueldenpfennig says, one could pick up very high-quality pieces for a song.
“Here are three people with engineering backgrounds, very technically oriented, yet Redcom looks like a museum,” Si-mone says. “I marvel.”

A start in Germany

Gueldenpfennig and Brigitte grew up in wartime Germany and met as teenagers in post-World War II Berlin. His parents were physical therapists. Her father had died during the war, leaving Brigitte to be raised by a single parent. Their first encounter involved one of them bumping the other in a subway. Some disagreement remains as to whose fault the collision might have been. Any resolution of the dispute seems unlikely.
Brigitte, a petite dark-haired woman not inclined to hide her feelings, recalls her first words to him as “You idiot! Why don’t you watch where you’re going?”
A smiling Gueldenpfennig, recalling his own version of the event, replies: “You came from the right. You were on the train.”
Both let the matter drop, at least until the next time a retelling of the meeting is called for.
In Germany, Gueldenpfennig worked first for the telephone equipment company Deutsche Telephonwerke A.G. & Co. and later for the radio and television company AEG Telefunken.
Immediately before coming to the United States, he was stationed in a small town near Stuttgart several hours from Berlin, where Brigitte, who was finishing college, and the infant Dinah remained.
Unbeknownst to Gueldenpfennig, a college friend working for Telefunken USA in New York was called back to Germany and recommended Gueldenpfennig as a replacement. He was dubious about relocating to a foreign country, but Brigitte was adamant.
She confirms the account.
“I wasn’t going to live where there were chickens walking in the street,” she says.
He took the job; the family took an apartment in Queens and settled in after a fashion.
“I didn’t like the job,” Gueldenpfennig says, recalling the daily subway commute to Manhattan as particularly distasteful.
Brigitte was not keen on moving back to Germany. Dinah, now a statuesque blond of Valkyrie-like height, was a year and a half old when she first came to the United States. She says she also wanted to stay in the United States and made her wishes clear.
With no doubt left as to his wife’s or daughter’s preference, Gueldenpfennig says, he started looking for other U.S. jobs. He landed one with General Dynamics’ Stromberg-Carlson division in Rochester.
Faced with the choice of moving to Florida or figuring out something else to do when the company shut down the Rochester unit, the couple decided to stay in Rochester. They started Redcom with few resources except some marketing studies, money Brigitte was bringing in by working for a bank and what Gueldenpfennig could earn from an occasional consulting job.
From a modest start, they built the company gradually, first locating in a suburban shopping center with a few employees and no products, later moving to larger quarters in Fairport and finally to Redcom’s current location in Victor in 1986.
In general the company has stuck to its niche, trying as much as possible to stay out of the limelight. But at the turn of the new millennium, Gueldenpfennig embarked on what he now says was a onetime direct challenge to industry giant Cisco.
In 2000, Redcom sued Cisco for alleged infringement on several switching system patents. The claim centered on a product used in satellite and cell phone communications called virtual central office switches.
In its court complaint, Redcom claimed three Cisco switches had infringed on Redcom patents. The switches were part of a product line Cisco had acquired two years earlier when it bought a New Hampshire company, Summa Four.
The patents had expired by the time Redcom sued. Still, the Redcom complaint, which maintained infringement had occurred while the patents were in force, portrayed the $22 billion Cisco as a bully that wantonly used technology without bothering to determine in advance whether it infringed on a patent. Cisco at the time declined to comment.
The case dragged on for six years without going to trial. In September 2005, U.S. Magistrate Judge Jonathan Feldman handed down a decision on pretrial summary judgment motions made by both sides. Though the ruling favors Redcom on virtually every point, an April 2006 court filing shows that the companies agreed months later to drop further claims in a confidential settlement calling for each to bear its own legal costs.
Despite the favorable 2005 ruling, Gueldenpfennig calls the case’s ultimate outcome a disappointment and says he would be unlikely to try anything like it again.
Harris Beach partner Paul Yesawich III, one of several lawyers who litigated the claim for Redcom, sees the outcome as something of a success for Redcom, but concedes that Redcom’s victory was Pyrrhic.
“I guess I agree with Klaus,” Yesawich says. “When David takes on Goliath, the one near-certainty is that it will become a war of attrition (as) this did. I think Klaus did well to stay the course as long as he did and to achieve an acceptable result.”

On the water

A longtime boating enthusiast and owner of a 39-foot Seaway, Gueldenpfennig some years ago developed an interest in building a boat. The idea was sparked by what he saw as the shortcomings of existing luxury yachts as venues for entertaining business prospects. Guest suites on such boats, for example, are smaller than master bedrooms, a disparity he feels some prospects would take as a sleight.
“I started looking around for boats,” he says. “I went around to boat shows for years to see if somewhere there isn’t a boat with two equal staterooms, plus you need an office. What I was looking for would have to be a size you could drive yourself. The limit would be 70 feet, but in the 60s would also be fine.”
After years of showing boatbuilders a silhouette he had constructed of the model he envisioned, and finding no match and none willing to build the boat he wanted, Gueldenpfennig connected with a Turkish boatyard willing to take on the task.
The boatyard, Vicem, is located conveniently just south of Istanbul, Gueldenpfennig states in an ad for KG Marine LLC, the company he formed to carry through on the boatbuilding plan, headquartered in the couple’s Penfield home.
“It’s not a hobby. You can’t do forever the same thing,” Gueldenpfennig says, underscoring the seriousness of KG Marine as a business venture that is for him no less of an enterprise than Redcom.
The first model Vicem turned out for KG Marine is a 62-foot yacht built on a conventional frame with a hull made of a composite. The boat company advertises it as stronger and lighter than the fiberglass traditionally used in such vessels. It took 2 1/2 years to build and is for sale for $2 million. The boat unfortunately hit the market just as the recession was knocking the bottom out of the luxury yacht market, Gueldenpfennig says. KG Marine took delivery of a second, 66-foot model with similar features last month. Built on the same basic design, its sticker price is $3.25 million. Gueldenpfennig expects neither to sell soon. The prospect seems not to worry him.
In 2008, Gueldenpfennig decided to mark Redcom’s 30th anniversary with a gala. Fond of the grand gesture, he did not think small. Dubbed “The Time Bridge Adventure,” the June event was organized as a full-blown Renaissance fair. It was staged on the Redcom acreage in Victor.
He hired a troupe of actors and musicians to stroll the grounds and put on shows. He had a moat dug around the Redcom building. A bridge over the moat leading into the building was meant to highlight the time-bridge theme, but most of the festivities took place outdoors in a huge tent and on the grassy sward of the company’s park-like grounds.
Entertainment included jousters on horseback and knights in armor battling in a swordplay tourney. Resplendent in crimson robes, Gueldenpfennig presided at a ceremony marking the company’s third decade. Introduced by an actor as King Klaus of the Country of Redcom in the County of Redcom and the Shire of Redcom, he introduced company officials, who were similarly attired.
Sporting faux white shoulder-length tresses and a long white beard, the vice president of engineering was dubbed Merlin. Brigitte was Queen Brigitte, VP of finance and collector of coins, probably yours. Dinah Gueldenpfennig was Dinah Gueldenpfennig, VP of planning and government programs, who kissed a frog and turned into Mrs. Weisberg.
Guests included a contingent from Solomon Telekom Co. in the Solomon Islands as well as customers from around the world. Redcom corporate counsel Jeffrey Baker, after commenting wryly on his purple velvet costume and cap, sang a tuneless song while a wizened ersatz peasant danced behind him.
“I do these things for Klaus to pay for my big house. I want you all to have a lot of fun,” Baker crooned to a laughing crowd.
While the event was not cheap to stage, Gueldenpfennig says it was no mere extravagance. A professional production company filmed the festivities and produced a DVD in which shots of Gueldenpfennig and other company officials alternate with scenes of the crowd and entertainments. The piece contains heartfelt endorsements of Redcom products from customers. It works as well as a promotional video as it does as a commemoration of the lavish affair.
Gueldenpfennig also keeps a supply of Time Bridge commemorative books.
The party was not just a party, Gueldenpfennig says. It was also “good marketing. People see this and they know we can organize things.”
rbj@rbj.net / 585-546-8303

Klaus Gueldenpfennig
Title: President and chairman, Redcom Laboratories Inc.; managing director, KG Marine LLC
Age: 73
Education: B.S. in telecommunications and electrical engineering, Technische Fachhochschule Gauss, Germany 1961; M.S in electrical engineering, Rochester Institute of Technology 1974; MBA, RIT, 1977
Family: Wife, Brigitte, Redcom vice president of finance; daughter, Dinah, 44, Redcom vice president of planning and government programs
Residence: Penfield
Quote: “If we stay under the radar, our competitors won’t know what we are doing. We are a niche provider, and once a niche gets big, every Tom, Dick and Harry moves in.”

06/26/2009 (C) Rochester Business Journal


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