by Peter Ellison
by Peter Ellison
Batteries Included started off in 1978 as a retail business in a fashionable, upscale part of Toronto. Now it's exploded into a multi-million-dollar multi facetted corporation, charging its way into the international computer software and accessory market.
The business really began in the summer of 1976 and 1977 when brothers Alan and Robbie Krofchick set up a display at the annual Canadian National Exhibition to sell Commodore calculators and watches. The following year Commodore and the Krofchicks manned the display together and introduced Commodore's first computer, the PET, to the Canadian public. After the show, the brothers and their sister, Marcie Swartz, set up a retail outlet for the micro masses. The hand-held electronic games and calculators they carried always advertised "batteries not included," so they included the batteries, free, and named themselves Batteries Included.
On January 24,1985, I was able to speak with Michael Reichmann, Director of Product Development. It was a very enjoyable and informative interview, and I hope you enjoy this report as much I did the interview itself.
Q. How many people are currently employed in your U.S. office in California?
A. We currently have five people.
Q. Is it primarily marketing?
A. Yes, marketing, sales, and distribution.
Q. How large are your offices in Richmond Hill, Ontario?
A. We have fifty people at the Toronto office; so we have a total staff of sixty people.
Q. Could you break that down into specific areas?
A. It's hard to say. We have a product development group of about five, an advertising, marketing, and promotions group of about five, a general office administration group of about ten, a manufacturing, warehousing, repair group of about fifteen, a product support (answering phones, etc.) group of about three. I may be plus or minus a few in each category, but I think that adds up to about fifty five here in Toronto.
Q. Your very popular program, "Paperclip," how many have been sold in Canada and the U.S.?
A. That's proprietary information, but its sufficient to say its in the hundred thousand range, and as you know, its been on Billboard's best sellers list for about twenty-eight weeks, and the first week in January was number one.
Q. How old are Alan and Robbie Krofchick?
A. They're in their thirties.
Q. How difficult was it to get financing from the beginning of Batteries Included?
A. The company has never had outside financing. It has always been privately owned and totally financed out of its own growth.
Q. Will Batteries Included be supporting the new line of Atari computers?
A. No question about it. We are a certified Atari developer and we will be receiving prototypes of the new machines as soon as they become available. We have also been invited by Digital Research to attend the first GEM developer's seminar in Monteray on February 15, and we will be sending our senior software and hardware engineers to that seminar, and we have major development projects already underway for the Atari ST series.
Q. Will any of your currently available software be converted to it, or will it all be new?
A. I think you could say that we will have a major line for the Atari STs. I can't say much more about this at this time, or give you specifics of what the products are, or what they're going to be called, or what they're going to be priced at, but you can expect to see a major line of software for the Atari STs, and at the June CES, you can probably see the first ST product from us ready to ship.
Q. How many inhouse programmers are working for you at this time?
A. We don't work that way. We have an inhouse engineering and development staff of five people, but on the whole, they do not actually write our programs. All of our programs are written by contract programmers who have on-going relationships with us, but they are not actually on staff.
Q. Do all of your programmers who make conversions work inhouse, or are they contracted out also?
A. No, conversion work is also done outside. Sometimes its done by the programmer or the programming organization who brought us the original project; sometimes its done by other parties. To give you an example, the Homepack Line is done by Russ Wetmore, and Russ actually wrote himself the Atari version, but the Apple, Commodore 64, and IBM PC jr and PC versions are all being done under Russ's direction by other people. The Macintosh version, he's doing himself.
Q. What kind of deal do you offer programmers?
A. That really varies. It depends on whether the person is approaching us with a finished product, a product that is under development, or a product that is just in the conception stage. I can't really give you specifics because that's confidential information, but a programmer can expect to receive advances against future royalties that are sufficient to justify a lengthy development process. They get good competitive royalties.
Allan Krofchick, Faye Zukerman (Billboard Magazine), Robbie Krofchick, at presentation of "Number One" award to Batteries Included for Paperclip at the January 1985 CES.
From Left to Right
From Left to Right
Q. What process takes place in the development of a new program, from the drawing board on up?
A. Lets take an example of Homepack. Russ Wetmore approached us in the spring of 1984 and said, "I have a concept for this product, and are you interested in it?" We said, "Yes we're definitely interested." At that point he did some further work and did up some sample screens to show how the program would look, and prepared a detailed product specification to describe what the programs were going to do and how they were going to look. We then also entered into discussions on how it should be packaged and priced, and on the time table. At that point we signed a contract for the first two versions which were going to be the Atari and Commodore 64 versions, and then Russ went off to develop those programs, and during that process it became clear that it was more than likely going to be a success. So we also signed a contract for Apple and PC ir versions. Throughout the process, what happens is that the author is working on a project on a regular basis that varies from once every couple of weeks, or at least, once a month, sending us examples of the work in progress for our comments and evaluation. During that process we get the advertising and packaging design people involved and start developing a marketing concept and a packaging look. We then get someone to write the documentation. They become familiar with the program and start talking to the author, and we then again work up a style for this program, depending upon whether it is aimed at beginners or at sophisticated users, and what the documentation should be like. Its a very intensive ongoing process, and frankly, I think most consumers don't have really any idea of how much detail work goes into bringing a product to market.
Q. When your developing a program is there research done within the company? Do you research a program and then give it to a programmer to write?
A. Yes, that happens as well. Then again, the answer to that isn't clear-cut, situations vary. For example, we are just doing a version of "Paperclip" for the Atari and Apple II, and both of these will be completed and be shipped in about thirty days. They were both started at about the same time but by very different programmers, and the criteria we used was also very different. On the Apple version the people that we hired to do the conversion wanted to do a version that was as close as possible to the Commodore original. That was agreed upon, and it was taken in that direction. On the Atari version, the programmers which we hired had some very clear thoughts in their own minds of what the program should be like, and we entered into a dialogue on that. We all agreed that the editor that is contained in the ACTION! cartridge is one of the best editors we'd ever seen. So we got in touch with Clinton Parker (author of ACTION!), and we asked him if he would like to work with us in terms of making that editor available as the core to a full-blown word processor. He said yes, and got very enthusiastic about that, and so, with the Atari "Paperclip," the only resemblance to the 64 version is that for each machine it is the most powerful full-feature word processor on the market. We've taken a lot of the features that were available in the Commodore 64 version but they are done in a very Atari specific environment. What I'm trying to indicate is that every program, every process is a different story. To give you another example, in the case of "B/Graph," it already existed. It became available, and we said "fine" and basically wrote a new manual, made a new box, made some minor enhancements to the program, and there it is. In the case of "Paperclip," it was a fresh start, using an existing editor. For example, we have a new beginners spreadsheet program called "Calkit" for the 64, and, then again, this was a product that another company had developed on their own but then discovered that they couldn't market it. Also, it had a different name. They sold a few hundred but discovered that they didn't have the marketing ability and so approached us. We said, "Okay we're interested, but it needs a lot of changes." So the version we're now publishing is an offshoot of that original program that never made it to market on its own. So, what I'm trying to indicate is that there are no hard and fast rules, every product is a separate product. Another example is, we have a typing tutor on the Commodore 64 called, "Keys to Typing." This was developed by a private school. We saw it one day about six months ago and said "wow!" that is a fantastic typing tutor; we're interested in publishing it. They said, "Oh, we never thought of that. We just developed it for our own inhouse use to teach kids in our school how to type." So it's a very different process. Say, in regard to the Atari's STs or Commodore's Amega, we have our own development team that is inhouse and is drawing up the specification for a complete product line, but the development for each individual program is going to be done by contract programmers, and these people are located all over North America. Now we have about twenty programmers working for us under contract, and only two of them are in Toronto.
Q. The Commodore seems to be the central machine around which development of BI's products for other machines revolve. Is that true?
A. No, that isn't true. The company started off in software publishing by publishing two main products for the Commodore 64-"Paperclip" and the "Consultant." Currently, we are publishing products for all of the major systems, and if you sit down and count up the machines and the products, you will see that we have more products for non-Commodore machines than we do for Commodore machines, even though our Commodore products are still the cornerstone in terms of sales for the company. That was a very deliberate move on our part. It started in the spring of last year, just about a year ago. We had grown up riding the crest of the wave on the Commodore 64, and then we said, "This is a very good and healthy market for us." However, products for machines from other manufacturers needed attention, so we made a very specific commitment. I would say, with regard to Atari, that we started by looking at publishing programs for the Atari last spring and summer, which was at a time when it looked like Atari was going to go down the tube. That was a very brave move because the indications during that period were that Atari, under Warner, was going to be a loser. So we took a chance and now find ourselves on the market with "B/Graph," "Homepack," and, very shortly, with "Paperclip," at a time when virtually all other publishers had abandoned the Atari market. We are now, along with everyone else, rushing to do Atari products, and we are in the happy situation of having new high-quality Atari productivity software at a time when very few other people do.
Q. From your point of view, what looms out there as the biggest probable danger? Are you afraid of growing too fast?
A. Fast growth is always a problem, and we face it. We're definitely in a hyper-growth business, and we have managed to double our sales every year for the past five years. As you can imagine, that type of exponential growth very quickly becomes a problem. We have just moved into a new building. Previous to the move last week, we were in three buildings around the city. We had one warehouse/manufacturing area, a software/hardware development lab, and we had a retail store in our general offices. We have now closed the retail store so that we could concentrate on our publishing and manufacturing activities, and we have now moved into one new building that consolidates all of our facilities. So that's one step forward in handling our growth. The second was that a year ago we opened our California marketing and distribution office, and again, that was a recognition that 80% of our business is in the U.S., and so we needed to have an actual warehouse facility and marketing presence within the U.S. market. The third step with which we are trying to handle growth is that we just made a major trip to Europe this past fall, and we now have solid distribution and licensing agreements in Spain, England, France, Belgium and Germany. Our products were being sold in Europe, but we now have much more mature, solid distribution arrangements in those countries, and so Europe in 1985 and 1986 is going to be very important to us. In terms of managing growth, it's a challenge, but I think the other thing that needs to be said in that area is that a lot of companies who are in the software business have been financed by venture capital. So what happens is, you have a small to medium company that all of a sudden gets an infusion of five to fifteen million in cash, and very frequently ends up squandering that money. They squander it on product development or advertising and promotion. What we have done, as indicated earlier, is complete internal financing out of the growth of the company, and what that has meant is that our growth, instead of being fueled artificially by large infusions of cash, has been more organic and progressive and logical. So we do the things we can afford to do, and try to do them as efficiently and cost effectively as we possibly can. Whereas we're still growing at an incredible rate, the growth is somewhat under control.
Q. Will Batteries Included ever be releasing any entertainment software?
A. That's a question with which we wrestle on a daily basis, and on which we haven't come to a firm decision. The entertainment software market, from my perspective, is past its peak. The days of the mega-hit games, and the huge game market are long gone. They've been gone for eight months to a year, and my perspective is that a lot of other publishers just haven't been able to face that reality. We found ourselves in the fortunate situation in which our specialty was, always has been, and probably always will be productivity software, and so the big shake out of 1984 didn't really affect us at all. I mean, what it meant was, instead of our sales being three or four times those of the year previous, they were only double, but those companies that specialized in the games market suffered dramatically because the games market essentially died. So, my feeling now is that the games and entertainment segment of the software market is now just another niche, a small specialty within the broad spectrum of the software market; whereas we currently have no games products we are looking at. Frankly, if we do bring a line of game products out, it will be with a very clear-cut marketing plan. We're looking at what some companies are doing for $9.95 in the area of games. You bring them out, they sell for a month, and that's the end of it. Then you bring out some more. That's what we would do if we got into it, but we've made no clear-cut decision to do that.
Q. Who distributes your products in Canada, and how difficult is it to get them into retail stores?
A. The key in this industry now is distribution. If you don't have distribution you can have the finest product in the world and the best advertising; you can literally spend megabucks on advertising and promotion for a super product, and it will never get sold because the industry is essentially controlled by the distribution channels. In Canada we have two distributors-Aviva Software, and General Publishing. Aviva specializes in the retail outlets, so they handle everything through outlets ranging from the small local Mom and Pop computer store through to Canadian Tire. General Publishing handles the book trade in places like "WHSMITH," and "CLASSICS," who are now retailing software.
In the U.S. we have something like thirty major distributors, and those are essentially it. Every major distributor in the U.S. carries our product. This includes people like Softsell, Triangle, Warehouse One, Federal Electronics, Eastern Software, CSI Distributing, and so on. They are the ones that deal primarily with the retail outlets. Our products are also handled by some large key accounts such as Toys-RUs and also through two rack jobbers. The two main rack jobbers are "Handlemans," and "Leberman," and both of them rack Woolworth, Woolco, and Sears outlets. Essentially, our products are available through every major distribution channel, and something approaching 9,000 retail outlets in the U.S..
Q. I know that with magazines, they shread the copies they can't sell, what do they do with your software?
A. We have a very realistic return policy for distributors. Fortunately, to this date, all of our products sell extremely well, and returns have not been a major problem for us. Then again, there is a difference between the game/entertainment side and the productivity side of the industry. Once a game has passed its peak and is no longer "Hot," and has been extensively pirated, whatever inventory is left on the shelves is pretty well dead; whereas a program like a word processor, or a database manager, or a business graphics package doesn't sell in the huge numbers that a new game might have sold, it still sells in an ongoing steady basis. As long as any given product is a quality product to begin with and competitive in the marketplace in terms of price, functions, and features, that product is going to continue to sell.
Q. At the very beginning of Batteries Included were all of the programs written inhouse or were they from outside submissions?
A. Well, the way the company started was as a retail computer store. Steve Douglas, who is the author of the Commodore 64 version of "Paperclip," was involved in the company and had a relationship with the owners-Alan and Robbie-and he had started to write a word processor. Then the company gave him some encouragement, and he worked on Paperclip as a sideline while the product grew out of that, and then he went freelance. We have essentially never had programmers on staff in that they were paid a salary and did commercial program development. We have programmers on staff, but the programmers that we have working for us are essentially in the area of product development co-ordination. They work with the programmers in terms of testing and designing product specifications. So, the five people we have working in our product development area are all programmers persay, but none of them are actually sitting down and writing commercial programs. They're working in the area of product development with our contract programmers.
BI's head office in Toronto.
Q. What does Batteries Included have planned for the future?
A. That's tough because as we're talking now, it being the end of January, the WCES is just a few weeks behind us, and basically, we announced our products for the next six months at that time. Specifically for the Atari, we are shipping "Homepack," "B/Graph," and, in another thirty days, "Paperclip." We have been talking about an eighty column card for the Atari but the development of that product is in a bit of a holding pattern at the moment until we clarify what Atari is going to be doing with regard to the XE's and the parallel bus. Just to explain this in a little more detail for your readers-when we started the development for the eighty column card for the Atari's, which was back around July of '84-what we did was decide that it would plug into the back of the parallel bus of the XLs. It was clear that Atari was not going to bring out the 1090 expansion chassis, so we decided it would go into the parallel bus. This was because the 1090 and the 80-column card that was going be manufactured by Atari for the 1090 had been canned and it looked like a good opportunity. During the initial three to four months, the development of the product was fairly straight-forward and it was going to work that way. Then, what happened in the late fall was that we heard that the parallel bus was going to be removed from the new Atari 8-bit machines. I went to Atari in the fall and had a very good meeting with them, and at that time they indicated that the bus was going to be removed. Then, what we saw at the show was a slight change in position, and they said "Yes, we're removing the parallel bus, but we're going to expand the cartridge slot and put some additional address lines out of it." Basically, the 80-column card that is on the parallel bus is completed, and it works. The problem is, if we market that product, we're marketing it to a closed environment-those people with 800XLs, because the earlier Ataris didn't have the PBI, and the newer XE Ataris don't have the PBI. So, as we speak right now, the fellow who is developing the 80-column card for us and our own hardware engineers are both trying to see if we can make our 80-column card work through the standard cartridge slot on all Ataris. If that can be technically accomplished and manufactured at a marketable price it is going to mean that we'll be able to bring out an 80-column card that will work on all the Ataris ever built. We're very excited about that, and, if it can be done at a marketable price, I think we will have an excellent product. We should know in another two to three weeks whether this is technically feasible, and then we'll proceed. In the meantime, we're down-playing the 80-column card until we have a better feel for it. That is the fourth Atari product. Other than that, you won't see any Atari products from us until the June CES, and we have a couple of exciting products planned for it, but I can't tell you what they are. However, you can count on at least one Atari ST product from us at the June CES in Chicago.
Thank you very much for the interview, Michael, and I hope we can have a talk like this again.