SMALL BUSINESS PROFILE: Keeping it Simple
Enterpreneur George Johnson and his Cosmi Corp. find a niche in making and marketing budget software for users who don’t need anything fancy.
By AMANDA BRONSTAD
Staff Reporter
George Johnson has discovered that the best way to build a business is fast, cheap and under control.
Johnson has managed to compete with the Microsofts and Intuits of the world by creating off-price software products and moving them out quickly.
“We don’t attempt to make hit titles,” Johnson said. “We do casino, card, board games, crossword puzzles, pinball games. We’re not into trying to make the next ‘Tomb Raider.'”
The 20-year-old company has thrived in recent years as kids and late adapters, skittish about plunking down more than $100 for software with more features that they need or understand, turn to lower-priced alternatives.
Cosmi’s software packages sell for between $10 and $15 at many of the major electronics stores, and Johnson is working on a deal in the next 60 days to distribute in drug and grocery stores. “We sell at impulse price points,” Johnson said. “We take a task and simplify it.”
With generic names like “Desktop Publisher” and “PDA Travel Companion,” Cosmi’s titles teach users how to make greeting cards, labels or design a resume software with limited functionality and without the bells and whistles (or the lengthy manuals) of many Microsoft products.
Its catalogue of 125 titles generated revenues of $25 million in 2001, up from $20 million the year before, with 12 to 15 percent of the line accounting for 80 percent of revenues.
Close to home
Cosmi offers less expensive alternatives, Johnson said, not only by cutting out excess programming but by producing its product in-house. And while its larger competitors farm out parts of the manufacturing process, Cosmi quickly processes orders for customers within its own warehouse.
“We sell an awful lot of units, and we are more efficient,” Johnson said. “We don’t have a whole bunch of inventory of something that doesn’t sell anymore, and we don’t have to guess what people are going to buy.”
Victor Hwang, chief operating officer of LARTA, a Los Angeles think tank for technology businesses, said most software developers outsource functions like packaging and shipping because they do not have expertise in those fields and, generally, outsourcing is cheaper.
“In software, as it is in a lot of industries, it becomes an issue of executing keeping costs down and selling better and effectively,” he said. “It’s a tough industry to be successful in.”
In the category of “personal productivity,” Cosmi has almost no competitors, said Bob McKenzie, director of merchandising at Grapevine, Texas-based GameStop Inc., owner of Babbage’s and Software Etc. retailers.
“George knows how to run a company,” said McKenzie. “He hasn’t tried to expand or to be more than what he can be. He specializes in value product offerings and stays focused. That’s the No. 1 thing keeping Cosmi around.”
Late adapters and those looking for off-price product get what they pay for.
In reviewing “Las Vegas Super Casino & 3-D Pinball Express Twin Pack” on Amazon.com, one user wrote, “I would recommend this package to gamers who are starting out in the gaming world and need a primer to work with.”
But in an Amazon review of “Street Maps & Vacation Planner,” one user said, “In fairness to the product, it tries to be a trip planner more than a map. In that role, it’s not quite as bad. Okay, it’s cheap. I don’t expect full features.”
Finding his niche
Cosmi has proven to be a long-running operation for Johnson, who was something of a serial entrepreneur.
A Wisconsin native who grew up in L.A., Johnson started his first company, a pager business, in 1957. The company never took off (he said he realized pocket paging systems were ahead of their time) and in the early 1960s he started Audio Magnetics Corp., which manufactured magnetic tape.
He sold that business to Mattel Inc. for $60 million in 1970, and shortly thereafter, formed Intermagnetics Inc., which built the machines that made magnetic recording tape. He sold Intermagnetics in 1980 to John Swire & Sons Ltd. (part of London-based Swire Group) for an undisclosed amount.
In the early 1980s, Johnson was having lunch with a former Pomona College fraternity brother, Frank Wells, when he first got the idea for Cosmi. Wells, then-president of Warner Bros., had just purchased Atari and was touting the future of the video game industry.
But the market wasn’t there yet. Johnson he realized from the start that computer hardware had to be standardized and lower in cost in order to reach the mass market. He thought that transition would take five years. It took much longer.
When the PC boom took root in the early ’90s, so too did Cosmi.
A few years ago an investment banker came to him with a plan to rename the company Cosmi.com, take it public and build a market cap of $1 billion. He turned it down. “Experience is a great teacher,” Johnson said. “Money has killed more businesses than it has saved.”
PROFILE: Cosmi Corp.
Year Founded: 1982
Core Business: Budget-priced software
Revenues in 2000: $20 million
Revenues in 2001: $25 million
Employees in 2000: 100
Employees in 2001: 125
Goal: To maintain the 25 percent compounded growth rate achieved over the last five years.
Driving Force: The creativity of the people who work at the company.
