Gut check Featured

8:00pm EDT April 24, 2005
Call it a hunch, or maybe a gut instinct, whatever word you use to describe that thing most people ignore. But if Peter Karmanos Jr. had ignored that feeling, he'd likely be dead today.

Karmanos, who turned 62 in March, had the savvy to build Compuware Corp. into one of the world's largest independent software leaders. And along the way, the chairman and CEO had the good sense to save his own life.

He took his mother to Las Vegas in early 2000, just as he does every year. He woke up one morning with a strange feeling, one he couldn't really describe to the golf buddies who would eventually take him to a Nevada hospital at his request -- and those close to him will tell you how strange it was for Karmanos to ask to go to the hospital. But the feeling inside of him was equally strange.

As it turned out, a blood clot was ready to enter his heart. Karmanos easily could have died.

"It took them several hours to figure out what was wrong," Karmanos says. "I passed a treadmill test while I was there, then they decided to do that iodine test. The minute they did that, they wheeled me into the operating room."

After successful double coronary bypass surgery, a surgeon asked him why he had decided to go to the hospital in the first place.

"I really don't know how to describe it," Karmanos responded.

The surgeon told him of another patient who described it as a feeling of imminent doom.

"That's exactly it," Karmanos says, looking back. "Half the people that get that feeling ignore it, and all of those people die."

Five years later, Karmanos laughs about the change -- or lack thereof -- in his lifestyle. But he still listens to his gut.

"I lived healthier for a couple weeks," he says. "Not that it shouldn't have (changed much), but it didn't."

Karmanos has built an impressive history of making just the right move at just the right time. In 1973, he and two friends, Tom Thewes and Al Cutting, each with $3,000 in tax refunds, pooled their money to begin Compuware. Since then, he has expanded the company from a three-person operation into a $1.3 billion IT juggernaut.

Karmanos is also active as a civic leader. He donated more than $26 million to build the Barbara Ann Karmanos Cancer Institute, named after his wife who died in 1989 of breast cancer; the center has been designated by the National Cancer Institute as among the best cancer centers in the United States.

And as an avid hockey fan, he purchased the Hartford Whalers in 1994 and moved the team to Raleigh, N.C., in 1997, renaming it the Carolina Hurricanes. Now, he's entrenched in the bitter NHL labor dispute that threatens the very future of the game he loves.

"I think all sports fans are fed up with the current economics of sports and fed up with the fact small markets cannot keep players," he says. "Can you imagine Ernie Banks not playing for the Cubs or Mickey Mantle not playing for the Yankees?"

Karmanos is part of a stubborn ownership group that is prepared to take back the game, regardless of how long it takes.

"As sports have progressed, it's become more of a business than a sport," he says. "Hopefully in ice hockey, we'll be able to break that trend and go back to running a sport. We have a pretty determined commissioner and a very determined group of owners."

Back to reality

It was Karmanos' determination in the business world that made Compuware what it is today. Now, much like with hockey, Karmanos is trying to break with current trends.

Compuware suffered the same financial hits that bruised other IT companies after the dot-com crash, and saw revenue drop from more than $2 billion before Y2K to about $1.3 billion today. When companies were concerned with the great Y2K conversion, they called Compuware; when the calendar changed and the computers were still running, the calls stopped.

As a result, the Detroit Free Press reported last spring that Karmanos' stake in Compuware was valued at $160.7 million. In December 1999, when the stock was at an all-time high, those stock holdings were valued at $836 million.

"We have an awful lot of people who grew up in what I believe was an artificial environment," Karmanos says. "The anomaly is not the economy we currently live in, the anomaly was 1996 to 2000, when people would call you up and ask you to supply 48 people to help with the conversion."

That change has led Karmanos on a mission to pull people back to reality.

"I keep explaining we have an entire generation of workers who cut their teeth in this business in an artificial environment," he says. "Now we're in the real business environment. Getting the 30-some-year-olds to understand this is the real world is difficult. You have to work harder and smarter than you did before if you want to be successful. It's tough for people to swallow, and I don't blame them. I wish it would've stayed easy, but it's not."

To combat the problems, Karmanos has reinvented Compuware and the way it does business.

"We're more closely aligning professional services with our products, and we're one of the few companies that can help people develop, test and implement major systems," Karmanos says. "We've had to change the way we do business."

When Karmanos founded the company, no one was looking for anything like this. Somewhere between 20 and 25 employees would be just enough to have a successful company without getting too big.

"But I realized that if you have a business, you have an obligation," Karmanos says. "Laws of nature say you either grow or get smaller, but it's very hard to remain status quo. As we became more and more successful, it became more and more obvious we either had to grow the business or make it smaller. You can't have a business plan to remain exactly the same."

So Compuware continued to grow. In 1992, it was a private company that employed 700 people and generated revenue of about $250 million. That year, it went public, and profits exploded. Compuware surpassed the $1 billion mark in revenue in 1998, and by 2000, revenue had soared to nearly $2.5 billion and Compuware employed more than 14,000 people.

"When I first started the company and through the early years of growth, there were about 250 to 350 people that had really bet their careers in this business," Karmanos says. "Over the years, in lieu of large cash bonuses, they took what we called fan stock. In a privately held company, it's worthless. We had never promised anybody we were going public. When we did, that stock ... ended up being real stock, and they made some real money on it.

"And most of them kept working. So they hit the lottery several times over, and they kept working. The world should always work that way."

Back to the top

Reality in the business world usually means the celebrations don't last very long. Following Y2K, when the phones stopped ringing, Karmanos was faced with a gut check once again. This time, he was forced to lay off employees for the first and only time in his life.

"That was the hardest thing I ever had to do," he says. "We had outgrown our ability to keep people."

For once, Karmanos was regarded as the villain with an ax, swinging and slicing at will. But in reality, the cuts were necessary to survival.

"It's much easier growing than shrinking," he says. "When it's good, everybody is happy-go-lucky. Then it starts to shrink, and you end up being a shmuck. The company changed, and suddenly I don't care for the company as much. I care just as much, I just can't afford them, so you have to take the proper steps to keep the company healthy."

But with those cuts behind him -- and a bevy of new ideas in the funnel -- Karmanos says Compuware is poised for an explosive return. The company reported fourth quarter 2004 revenue of $330 million, and Karmanos expects the growth to continue.

"We may never see Y2K quarters again because everybody in the world decided they needed our products," he says. "But it's coming. We're very close."

To truly understand Karmanos, you only need look at how he responded to his wife's illness and subsequent passing.

When Barbara Ann was dying from breast cancer in the late 1980s, all the memories of Karmanos' father came flooding back. Peter Karmanos Sr. had heart trouble and was supposed to be released from the hospital. But he never was. Karmanos Sr. died before his son could do and say all the things a son is supposed to tell a dying father.

Things would be different with Barbara, he thought. So he gave $15 million in her name to the Detroit Medical Center in 1995 to create the Barbara Ann Karmanos Cancer Institute. It has since become an internationally recognized research and treatment center for cancer.

"Their goal is to become one of the top centers in the country," Karmanos says. "At the time, there were only 28 or 29 in the country. There's probably 36 or 37 now, but it's still the only one named after a woman."

Karmanos' work in cancer research extends beyond the center. In 2003, he was named to the Adherex board of directors, a pharmaceutical company that specializes in cancer-related drugs. And in 1996, he received a lifetime membership to the Jimmy Fund, which works to prevent, treat and eliminate cancer in children and adults.

With this giving philosophy to keep him grounded, Karmanos views his business life through a unique lens. There's still plenty to keep him busy, though, beyond his civic responsibilities.

Aside from his company and charities, Karmanos owns two minor league hockey teams, in addition to the Hurricanes. He's also sponsored youth hockey in Detroit for more than 30 years.

Moving Compuware's headquarters from Farmington Hills to a $350 million complex in Detroit in 2003 ignited excitement and hope of rebuilding downtown Detroit. Karmanos is fiercely loyal to the city where grew up, and he claims to have never left Detroit for more than a few weeks at a time.

Karmanos is the only member that remains at the company from the original trio. Cutting died of a genetic kidney disease, and Thewes retired, although he still attends board meetings. That leaves Karmanos to lead the company, guided by decades of experience and his trusty gut.

"I have a solid three, four or five years left, at least. Maybe more," he says. "Some days I wish I was retired, but I still have a lot to do. I have 30 years wrapped up in this. I don't want an artificial day to decide to leave. I want to work our way through the current environment most tech companies are in and get back on a solid growth path and implement the things we've been working on the last three or four years. There's still plenty to do, and I want to be here to see it."

How to reach: Compuware, (313) 227-7300 or www.compuware.com