Made in Detroit
Peter Karmanos Jr. has tapped his blue-collar work ethic and a knack for discovering the next big thing to build Compuware Corp. into a global information-technology power- house — but his latest move could be an industry game-changer.
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Peter Karmanos Jr., the impatient, foot-tapping chairman and CEO of Compuware Corp., wasn’t about to sit around waiting for an economic recovery. The IT company he co-founded had pulled off a 52-percent increase in net income, despite a miserable economy that sent Compuware’s revenue tumbling from $269 million in the year-earlier second quarter to $217 million by the end of September.
In October, he’d snagged Gomez Inc. — a leading company in troubleshooting and fixing Web-based applications — in an all-cash deal for $295 million, filling in a big hole in the company that’s been known for fixing mainframe computing problems for more than 30 years. Analysts such as Jean-Pierre Garbani, from computer-research firm Forrester, called the acquisition “potentially game-changing” for Compuware.
The gain in income — $28 million versus $21 million the year earlier — and the Gomez acquisition showed that Karmanos’ plans were coming together for putting the company back on a sustainable course for growth after several difficult years. That meant Karmanos, 66, could think about retiring or at least stepping back from day-to-day operations in the next year or two to spend more time with his twin sons and his wife, Danialle, and to manage his hockey teams (he owns three, including the Carolina Hurricanes) so “they don’t keep losing nine games in a row,” he says.
Successfully managing the cycles of business, and life, are perhaps what best defines Karmanos. Before he ever laid the foundation in 1973 for a professional services company serving the burgeoning computer industry, he showed a knack for confronting problems and devising solutions.
American Motors,” he recalls. “The plan was for me to finish school and then start a family. The family came long before we thought. American Motors fired her when she got pregnant. Her health insurance ended, as well. Flat in Dearborn, baby on the way, neither of us had a job.”
Continuing with a full load at Wayne State — he was pursuing a mathematics degree, with the end goal of teaching — Karmanos quickly found that by servicing and installing mainframes, he could make three times what a math instructor could. So he dropped out of school and went to work full-time.
Karmanos’ deep ties to Detroit — the hometown he alternately loves and is frustrated by — have never left him. “I’m angry alright, but resolved. I think Detroit will end up being just fine. There are a bunch of things, decisions made years ago, that created the situation we’re in,” he says, seated in a leather armchair looking over downtown toward the Detroit River. “It’s still a remarkable place,” he says.
In fact, it’s hard to disconnect Karmanos from Detroit.
He is one of its business icons — a hometown boy who made it big, but stayed and thrived in Michigan. Karmanos believes the blue-collar, roll-up-your sleeves Midwestern work ethic at Compuware comes directly from its local roots. He says he learned his business skills working the counter at his parents’ diner on Detroit’s west side, and that the company has benefited from serving the technology needs of the city’s biggest companies: the American automakers that made Detroit into the world’s center for manufacturing.
Moreover, in the almost four decades since he founded Compuware with two friends in 1973, Karmanos has invested his time, money, and energy in the various turnarounds the city has tried. One of the biggest investments came when Compuware moved into a $400-million, 15-story glass tower in the center of Detroit at Campus Martius Plaza in 2003. The plans for the move started under Mayor Dennis Archer and came to fruition under Mayor Kwame Kilpatrick, which brought the young, vibrant politico in contact with Karmanos, one of the city’s leading businessmen.
Karmanos remains a supporter of the former mayor, whose scandalous second term was cut short in September of 2008. Following Kilpatrick’s incarceration last February, Karmanos offered him a job at a Dallas subsidiary, as well as a $60,000 loan.
Karmanos’ generosity also extends to the world of philanthropy. In addition to donating money to numerous causes, he has provided gifts totaling more than $50 million to establish the Barbara Ann Karmanos Cancer Institute in Detroit, one of the nation’s finest.
To many, it seemed that Karmanos was being charitable when he moved Compuware from the northern suburbs to downtown Detroit. But Karmanos balks at that perception. “We moved here because this is the best business location,” he says. “I didn’t do it out of any feeling of giving back to Detroit. It’s in the center of where everybody lives, and some of our biggest customers are right next door. I wasn’t being altruistic; I’m rarely altruistic about anything.”
That statement speaks volumes about Karmanos. Others have cast him as a city booster, a philanthropist, or a lucky entrepreneur who started a tech company in 1973 with Tom Thewes and Al Cutting (both now deceased) — with $9,000 pooled from their collective income-tax refunds.
But Karmanos tells a different story, harking to the 1960s when, as a young computer technician, he came upon the idea for a business. He was in his early 20s and working for the architectural engineering firm Giffels & Rossetti. The architectural firm had survived a major financial scandal in which its bookkeeper had embezzled hundreds of thousands of dollars from the firm.
“They were late in putting together any computer usage because they were careful with their accounting,” Karmanos says. He had the job of installing a computer system and remembers a day when two executives were arguing over who was going to use the computer. “The head of engineering turned to me and said, ‘Do you know how much we’ll have to design to pay for this computer room for just one year?’” Karmanos re-members. The number was in the tens of millions, Karmanos says, and it was then that he decided that if he was ever going to start a business, it would be in computers — a full decade before he conceived the name “Compuware” with co-founder Thewes at a Northland Shopping Center restaurant.
“Tom and I sat there throwing around names,” he recalls. “Computers and software … Compuware. … Being two technical geeks, that was about the best we could do.”