by Patrick Brethour
The Globe and Mail, Thursday, February 13th, 1997, p. B18.

TORONTO - Stuart Lombard and Osama Arafat were two young high-tech entrepreneurs with several million dollars to play with.

Patrick Bird was a computer veteran who needed a burst of investment to push his company into a new market and onto a path of growth. The result is a high-tech tale with a twist: The younger entrepreneurs are socking money and ideas into a company run by a man 20 years their senior.

Six months ago, Mr. Lombard, 31, and Mr. Arafat, pumped $800,000 into Isolation Systems Ltd., a Toronto company founded and run by Mr. Bird, 53. Now the three men are aiming to tap the hot market for Internet security hardware and software.

That means shaking up an organization that has had a quiet history. "The company had been doing well, but it hadn't been growing," says Mr. Lombard, who along with Mr. Arafat became a vice-president. (The ownership stakes were not disclosed.)

The $800,000 comes from Mr. Lombard and Mr. Arafat's earlier sale of an Internet company they had founded. It is part of $6-million that was injected into Isolation Systems by the venture capital firm J.L. Albright Venture Partners Inc. of Toronto, in which the two men are operating partners.

Before the investment, Isolation Systems was selling network security products - but not Internet products - to large government and corporate clients. It was making bids on a limited number of big contracts. One client, for example, was the U.S. Federal Bureau of Investigation.

That direct sales approach made money, but it left Isolation Systems stuck at about $2-million in annual revenue.

A blueprint drawn up in August by Mr. Lombard and Mr. Arafat calls for sales to rise to $4-million in the fiscal year ending Aug. 31, and to $10-million the following year.
They hope to do that by simplifying the technology and selling it to smaller companies setting up corporate Intranets. It means producing a technology that allows businesses to use the public Internet to inexpensively create private networks without sacrificing security.

But success hinges on how Isolation Systems' Mr. Bird gets on with his two new vice-presidents - especially since the three men vote on key decisions rather than giving the president the final say.

There are clearly differences in style - Mr. Bird wears a comfortable pullover and blue jeans to an interview, while the younger men opt for power suits and bright ties.

But there are no signs of conflict on where the company should be headed. "We don't clash with him, we complement him," Mr. Lombard says.

Mr. Bird says he welcomes the arrival of the two new managers - he was already eyeing the Internet security market and looking for an investor. He was also the only manager in the company and the only salesperson.

"I'm now in a situation where I can sit back and think," he says, leaning back in his office chair.

John Albright, head of the venture capital company, acknowledges that there is "creative tension" within the triumvirate, although Mr. Bird is not necessarily the odd man out in every debate.

To expand into a much bigger market, Mr. Lombard and Mr. Arafat plan to use their Internet savvy, picked up at an Internet service provider called InfoRamp which they founded in 1994. They invested $160,000 in the company, and sold it for $4.3-million in cash and shares to Ottawa-based iStar Internet Inc. in September, 1995.

Their plan calls for Isolation Systems to be taken public by the end of 1998, after the company has grown beyond the $10-million revenue level.

The business has already been hit with a flurry of changes since Mr. Lombard and Mr. Arafat arrived about six months ago. Manufacturing has been contracted out. The number of employees has nearly doubled to 31 from 16, and the company has moved to new quarters, nearly quadrupling its office space.

More importantly, Mr. Lombard and Mr. Arafat are turning the company's way of doing business upside down. The relative importance of big projects will shrink, with all revenue growth slated to come from indirect sales through third parties, such as resellers and systems integration companies.
"That was the big, 180-degree change in direction," says Mr. Arafat, adding that the company will now have to work hard at making sure its resellers clearly understand its very technical products.

For the first time, Isolation Systems will have a marketing department and a vice-president of sales, who has yet to be hired.

The strategy switch means that direct sales, although anticipated to remain constant in dollar terms, are set to decline to 50 per cent of revenue in the fiscal year ending Aug. 31. Next year, the approach that sustained Isolation Systems for close to two decades is projected to make up only about 20 per cent of revenue.

The scale of change makes organizational headaches almost inevitable, something Mr. Arafat readily acknowledges.

"We're still at an early stage," he says. "I think we're going to see the growing pains in the next nine months."