High-tech survivors
Not everybody got voted off the island

by Christopher Key

 

 

For high-tech companies, the 1990s were a decade long episode of reality TV. Many high-flying entrepreneurs crashed and burned. The shakeout was, perhaps, inevitable, given the Darwinian nature of our economic system. A few companies made it through the holocaust and have achieved a certain degree of recognition for survival, if not outright success.

Companies like eBay, Yahoo and Amazon are finally producing some impressive growth in sales figures and have investors wondering if it’s a full-fledged comeback or just another bubble. The dot-com gains stand in stark contrast to the huge losses reported by more traditional companies so far this year.

“The Internet is the only part of the economy that’s really working right now,” said venture capitalist J. William Gurley.

Veteran observers of the high-tech industry point to the mid-1980s when the personal computer boom began to fizzle and doomsayers saw the end approaching. Microsoft, Intel, and Dell were all built on the ruins of that first PC empire.

“We are going through almost exactly the same curve with the Internet,” said Marc Andreessen, co-founder of Netscape.

“People are starting to realize that there are technologies and businesses enabled by the Internet that weren’t possible before,” said Marc Benioff of Salesforce.com.

Some of the survivors of the high-tech meltdown include Whatcom County companies. We decided that some valuable lessons could be learned by finding out who survived and why.

Rob Schripsema started out in applied linguistics and eventually learned software development. He worked for a Bellingham company for a while, then had a chance to go it alone on the strength of a six month contract. He opened an office in Lynden and hired an employee. The company he started in 1992 is called Integra Software and Services. The name is meant to suggest both integration and integrity.

“The employee was more trouble than he was worth,” Schripsema said. “It was more work to supervise someone than it was to just do it myself.”

Schripsema retreated to his home office and has remained a one-person operation ever since.

“I collaborate with other developers as necessary,” Schripsema said. “It’s easiest to just stay small and bring in help as needed.”

The company has survived, in part, because of Schripsema’s fierce devotion to his ideals.

“I’m not selling a tangible product here,” Schripsema said. “Software integration is all about building bridges. Give the client more than he or she expected for a fair price, and they’ll keep coming back, 10, 11, 12 years. They know I won’t leave them in the lurch. Bigger companies often have a high turnover rate with software developers. I’m always here. Customers know they can always come back to me.”

Developing custom software offers some challenges.

“People are used to buying a program that cost $100 million to develop for $300,” Schripsema said. “That’s the difference between custom and mass-produced software. Some people think custom software is expensive, but it can end up saving you a lot of money. It should conform to how you do business rather than you having to conform your business to the software.”

Those who fell by the wayside weren’t necessarily doing something wrong.

“People attracted to this business like innovation and change,” Schripsema said. “That’s fine as long as you’re good at it. Some weren’t. Some liked change so much that they left their existing customers behind. Businesses don’t want new software every six months, but developers want to create it. I have stayed more conservative. You don’t get the rush of the rapids, but I’m still floating while others got dunked.”

Schripsema has some further thoughts about why the high-tech holocaust happened.

“It was the perfect storm,” he said. “You had a lot of young, brash developers learning new technology combined with some gung-ho marketers. They enticed some money people. They had stars in their eyes because it was like magic, what technology could do. They didn’t take people into account and how, or even if, they would use it. It was like the Y2K panic, way overblown. It’s just data, not magic. Investors infatuated with technology didn’t do their homework. They didn’t understand the new paradigm.’

It obviously didn’t work out the way some investors thought it would.

“Most of these high-tech firms were never profitable,” Schripsema said, “because the market was never there to start with.”

Schripsema played it very cool when starting his business.

“I’m not averse to risk,” Schripsema said, “but not ones that will put me out of my house.”

Part of it comes down to a matter of choices.

“I chose a country lifestyle and I want to keep it,” Schripsema said. “I chose not to work on the leading edge at Microsoft or Silicon Valley.”

After 11 years, his choice has proved to be a wise one.

“As long as I still get satisfaction from having happy clients,” Schripsema said, “I’ll keep doing it. I’d eventually like to work more with locals than big international companies. The money is good with those big companies, but I prefer more face-to-face work.”

Integra may one day grow beyond a one-person operation again.

“I want to help local businesses grow and thrive,” Schripsema said. “I’m part of a Lynden high-tech group, which helps me hear about what others are doing. I’ve also been working with the Lynden economic development office on how to entice other high-tech firms to the area. We need to develop opportunities here.”

He admits to a certain level of disappointment that some companies didn’t make it.

“Companies that don’t make it diminish the critical mass,” Schripsema said. “You need that to develop things like high-tech office parks. Companies won’t want to come here unless there’s a pool of qualified workers.”

He has some advice for small business owners in general.

“If local businesses want to stay competitive,” Schripsema said, “they’ll have to stay on top of IT (Information Technology).”

Telecomplus is an Internet Service Provider that got started in 1995. The company is headquartered in Blaine and provides residential dial-up accounts. DSL (Digital Subscriber Lines) are available in GTE service areas, but not in Qwest territory. ISDN (Integrated Services Digital Network) service is available wherever local phone company technology supports it. The company serves the I-5 corridor from the Canadian border to Olympia.

“We started as a reseller for Brigadoon.com,” said Mary Davis-Rawlings, one of the company’s owners. “They, however, were not good at paying commissions. It was a steep learning curve for me and we went independent in 1997.”

She attributes the company’s success to customer service.

“We’ll bend over backward and even help people with problems that are not related to our service,” Davis-Rawlings said. “As a result, we’ve regularly been voted one of the best ISPs in the area.”

The company has four employees, including Davis-Rawlings and her partner.

“Our technician has been with us since day one,” she said. “We can’t pay that much, so we earn loyalty by treating our people right. We all work at home and have never had a walk-in location. That helps keep our overhead down along with e-mail billing. The money we save gets put back into the business so we can avoid rate increases. Our customers get spam blocking software free.”

State of the art equipment is vital to their concept of customer service.

“We have excellent connectivity and low down-time,” Davis-Rawlings said. “We’ve always been more of a nuts-and-bolts company rather than having flashy ad campaigns and brochures. Word of mouth has supported us and that’s a very powerful tool. We also do introduction to Internet seminars at local computer stores.”

She agrees that investors didn’t do their homework during the boom times.

“Those free ISPs didn’t live long,” Davis-Rawlings said. “They were just a flash in the pan. We lost a lot of customers to cable when it first came out, but many of them have come back.”

Bob Pritchett was working at Microsoft in 1991 and writing Bible software on the side. The sideline was successful enough that he incorporated Logos Research Systems in 1992 with some help from his father. Originally, the company had offices in Kirkland and New Jersey, where dad lives.

“We eventually consolidated the operation in Oak Harbor because that was the only place we could all agree on,” Pritchett said. “We were there for nine years and grew a lot.”

Last year, the whole operation moved to Bellingham.

“We needed a larger community with good transportation, a big labor pool and, of course, the university,” Pritchett said. “It’s been a wonderful year. We’ve been very well received in the community and hired some great people.”

Pritchett claims the company is driven by the search for a better mousetrap rather than marketing.

“We focus on a quality product and customer service,” he said. “We do things the right way, investing more in technology and putting more resources into development. When we started, we were way down the list. Gradually we worked ourselves up until now we’re the industry leader.”

Their unifying principle is to create software that helps people study the Bible and it has become an indispensable research tool for many clergy.

“The majority of our customers is Protestant and lean toward the evangelical,” Pritchett said. “That’s where our market is. But we sell to mainstream denominations, as well. There are liberal and conservative commentaries, but our main goal is to encourage people to study.”

Pritchett believes one of the reasons high-tech companies failed is because their promoters thought the basic laws of business had changed.

“They were wrong,” he said. “The bottom line is still, buy low, sell high. We made some terrible mistakes before the boom. We couldn’t afford to make mistakes during the boom because we were still trying to heal ourselves. We couldn’t buy any overpriced domain names. It was partly a matter of timing. Everybody else went stupid while we were licking our wounds. We learned to focus on the real needs of our customers and to not buy stuff that didn’t apply to the bottom line.”

Bible study is a relatively recession proof business, since many people do not see it as a discretionary item.

“The heart of our market is the pastors,” Pritchett said, “and they’re not going anywhere. Some of the older ones are a bit resistant and will never stop using the old ways. But every year there are new seminary graduates and almost all of them use computers. The market is coming our way. E-mail and the Internet introduced people who said they would never use computers.”

Part of Logos’ secret of success lies in how they approach their product.

“We don’t develop content,” Pritchett said, “we lease resources. We just build the tools and license 112 resources from across the spectrum. We’re also successful because we offer a larger library than anyone else. We now reference 3,000 electronic books.”

The company employs 65 people in Bellingham and five at a branch office in Johannesburg, South Africa.

“I’m amazed at the people we found in Bellingham,” Pritchett said. “We have some unusual needs, like people who are fluent in Greek and Hebrew. We found most of them right here. Our employees have a strong identification with what we are doing, perhaps more so than in most companies. We are a family operation in every sense of the word. We have five husband-wife pairs working here along with some other people who are related.”

DIS (Dealer Information Systems) is also a family-oriented operation. The company is an outgrowth of Lynden’s Brim Tractor Company. In 1980, Bob Brim developed a software package to automate the dealership. Within a month, Ford Motor Company asked if the product could be adapted for their dealerships across the country. It could, and DIS was off to the races.

“We didn’t realize how big the project was,” Brim said. “There were only three and a half of us, but we said we could do it. We were naïve enough to think we could handle it.”

The original program did all back office accounting and inventory control.

“Dealers heard about it and asked if we would sell it,” Brim said. “We weren’t really excited about it at the time. A mailing to all Ford and New Holland dealers brought in a 60 percent response. This was when almost everyone was buying computers.”

It soon became larger than the family equipment business and took on a life of its own.

“We operate on three principles,” Brim said. “Provide a quality product to our customers, set an industry standard that other competitors have to meet, and provide a rewarding experience for our staff. I preach the principles continually and they are part of our Articles of Incorporation. Our staff travels a lot and I support them 100 percent as long as their decisions are based on the principles.”

DIS has also managed to stay focused on what they do best – software for tractor and equipment dealers.

“We are now the major player in the market, with about 55 percent of the business,” Brim said. “John Deere has their own system and the rest is split among several small companies.”

DIS now employs 112 people and maintains close ties with local educational institutions to maintain a pool of qualified workers.

“The high-tech meltdown had a lot to do with the Y2K aftermath,” Brim said. “That event forced upgrade decisions into a two to three year period. After 1/1/2000, nobody wanted to talk to us. Everybody had upgraded to avoid the bug. We saw it coming, however, and in 1997 started a new version of our software to be released in the fall of 2000. We also made some tough staffing decisions and cut the workforce from 190 to 86 after Y2K. Those tough decisions helped us survive. You have to be prepared to roll with the shocks. Those who didn’t plan well went out of business.”

The ups and downs can often arrive from different directions.

“You have to gauge the effect of the economy not only on technology, but on your particular field,” Brim said. “They’re not always on the same curve. I worked a lot in finance and that taught me the best way to protect against things you can’t control is to have a good, solid plan in place. It has to be a dynamic model that can change as things happen. I’ve gotten pretty good at it over the years and can usually predict results within $1,000.”

Brim claims that things have picked up faster than he expected.

“This is really a vertical software service, rather than a product,” Brim said. “Support is 90 percent of what we do. We’re really more like an accounting service, billing for our time. Our customers pay by the month so that 60 to 70 percent of our revenue is a predictable income stream.”

CSS Communications got its start in 1988 as a consulting and network integration service. They assisted business in deploying technology and helped lots of area businesses make the transition to computers. CSS became a LAN (Local Area Network) and WAN (Wide Area Network) specialist and established a business Internet division in 1996.

“We were one of the first in the nation to deploy point-to-point fixed wireless service,” said chief technology officer Ray Poorman.

Next on the agenda is municipal networking. CSS recently entered into a licensing agreement with Whatcom County Public Utility District #1 to extend their services over the PUD’s fiber optic infrastructure. CSS already has such agreements with the Port of Bellingham and the City of Mount Vernon and plans to combine these assets into a regional communications network.

“Municipal networks support schools and improve public and private services,” Poorman said. “Traffic control, public works, police, fire, emergency management all become more efficient. In the private sector, increased availability and reduced cost for high performance communications create economic development.”

The CSS network provides Gigabit connectivity to businesses and allows branch offices to connect at LAN speeds. Telecommuters will have direct access to corporate offices from anywhere in the area.

“We like the small-town approach,” Poorman said. “Personalized service works best for us. Ethics are a huge piece of the way we do business and that helped pull us through the meltdown.”

The eight employees at CSS make a concerted effort to understand what it is that customers do, and that, according to Poorman, is unusual in a computer firm. CSS, like DIS, saw the Y2K disaster coming and prepared for it.

“Locally, there were lots of dot-coms with seemingly endless money,” Poorman said. “Unfortunately, they had no real product, just low prices in an attempt to blow others away. We knew they wouldn’t be able to pull it off. Most of them didn’t have the ability to interact with customers and understand their needs.”

That piece is what guides CSS when hiring employees.

“There’s a huge volume of people in the employment pool,” Poorman said, “but not many are good at what we do. Plenty of them can bluff with techie talk, but we try to get behind the jargon. We work with the colleges to train people and helped start a program at Bellingham Technical College.”

Too many tech entrepreneurs didn’t understand the three-year power curve to establish a business, according to Poorman.

“The sheer volume of them is unbelievable,” he said. “Some of the operators have a part-time gig just to make some cash. When they get tired of it and dump their customers, we’re still here. It’s like the Field of Dreams: if we build it they will come. How did they manage to fool investors? The investors didn’t do their homework. There were all sorts of unethical business practices and no one was ever held accountable.”

The dot-com boom put intense pressure on reputable businesses.

“Many customers of the fly-by-nighters are now distrustful,” Poorman said. “But we’ve been here a long time. We have great references and great products. We’ve worked hard to be number one in the community.”

One of the things that gives Poorman ulcers is the necessity to educate customers.

“They have to be more savvy,” he said. “Yeah, technology produces some great new things, but they have to meet your business needs, not just have a lot of whiz-bang. It’s tough to raise awareness. There’s a difference between business grade products and consumer grade products. Wireless is more than just your cell phone.”

That’s not to say that technology hasn’t pulled a few rabbits out of hats.

“The Internet is an amazing tool,” Poorman said, “if you look at the big picture. Virtual private networks will link offices and enable telecommuting. The quality produced from working at home is so much better.”

Since I write most of these articles from my home, I find that a compelling argument. Perhaps if high-tech firms will follow the example of these five and address the real needs of the business community, we can avoid a repetition of the high-tech holocaust.