The region’s tech sector has historically been reliant on advances related to the manufacturing and banking industries – and were often offshoots of old-economy companies. Indeed, technology being leveraged by old-growth companies continues to keep information technology and other suppliers busy.
But some stand-alone high-tech entrepreneurial organizations are poised for significant growth. Guy Mascari, director of development for the Milwaukee County Research Park Technology Innovation Center in Wauwatosa has a front-row seat for the race to bring tech products and services to market.
The Technology Innovation Center is housed in what was once the county tuberculosis sanitarium. The 128,000-square-foot high-technology incubator has attracted more than 20 firms. Incubator tenants have access to conference rooms, an in-house library and the resources of local academic and financial institutions.
"Last year – a recession year – we had our best year ever with getting companies into the building." Mascari said. "One of the reasons these companies are doing so well is that they are so flexible in responding to the market. They really got themselves into old-economy type of structures."
Conversely, according to Mascari, technology companies that did not have old-economy-style business plans are the ones that have fallen by the wayside.
"Some of these companies had been chasing markets that just weren’t there," Mascari said. "In 1999, I talked to a few of these companies whose business plans were nonexistent. One company I talked to said they were going to have a Web site that offered the most extensive information on health available.
"I told them that was interesting – but nowhere in their business plan did it say where they will ever make money. The response to me was ‘We don’t know.’ They chided me: ‘You don’t understand what the paradigm is – what we are trying to do. We want to establish a presence – grab a share of the Web.’ I told them that if they don’t know how to make money, I don’t know how they are going to pay me rent."
The firm was out of business a few months later, Mascari said.
Jeff Rusinow, managing director of the angel investor group Silicon Pastures, cited active technology transfer as a major factor in the continued health of the area’s tech sector.
"First off, the technology coming out of the local universities continues to be exciting," Rusinow said. "I don’t think the pace of activity has changed as a result of the overall economic environment. The new initiative that has started – Techstar – is a real positive for the area for encouraging the research community to commercialize ideas. With a backdrop of a tough economic environment, this is something state-supported that is very pro-entrepreneur."
On the downside, Rusinow said the decline in values of investor stock portfolios has shrunk the supply of available capital.
"The overall economic situation has in fact slowed down the flow of venture capital funding at both the angel and the venture capital stages," Rusinow said. "But there are still many deals getting funded."
Technology
implemented
by old economy
But the real economic impact of new technology comes when it is mature enough to be readily adopted by old-economy companies.
Among traditional companies such as manufacturers and professional services firms, some are using downtimes to implement new technologies while others are holding off on planned technology projects. Much of the work being done involves leveraging existing technologies to deliver better results, according to Les Tarjan, vice president of New Product Development at Kolb+Co. in West Allis, and Bob Carlson, CEO of the newly formed SilverTrain, Inc., in Milwaukee.
"There is a much greater emphasis on integrating the technology they already have in house," Tarjan said. "A lot of things were added in a piece-by-piece fashion. Now they can be brought together through a business intelligence tool that goes through the various databases and mines the data that are needed by management and puts it together in an easy-to-read report."
"We are seeing a lot of work around optimizing existing investments and optimizing purchasing decisions that have been made in the past," Carlson said. "We are cautiously optimistic that things are starting to ramp up."
Manufacturers are looking long and hard at technology improvements, Tarjan said. "They want to see what can be automated before production heats up again," Tarjan said. "If anywhere, that is where the emphasis is – how can we improve the processes. The processes rule the business – not necessarily the technology tools."
Smaller companies in particular have had to tighten belts, according to Tarjan.
"Some companies have pushed off technology projects," Tarjan said. "They have committed to it, but they are waiting to see how much production demand will be coming. Others have accelerated the process. They are saying ‘This is the time to do this. When I have to find new labor, I can find labor that matches the technology I have.’ We do a lot with middle-market companies. They are mostly moving ahead. Smaller companies are being a little more conservative in terms of when they will spend the dollars, but they are in a better position to move quickly once they make the decision."
Carlson agrees with Tarjan that the middle market – companies with $10 million to $250 million in sales – are driving the economic recovery and demand for business technology.
"People are still being cautious relative to technology," Carlson said. "Large-scale decisions need a lot of approval processes, and none of those decisions put in place over the last few years have been undone. You need to go pretty far to get your initiative funded in most cases."
Automation is one trend driving technology investments – but another is regulation, according to Tarjan. The privacy and security requirements of the Health Insurance Portability and Accessibility Act (HIPAA) are driving health-care entities to invest in secure technologies and processes.
But, according to Carlson, while regulatory issues like HIPAA and the Gramm-Leach-Bliley Act, which will foist security and privacy mandates on banks, the constantly changing face of technology will be a more significant factor.
"Security in general is going to be a significant opportunity, and people are going to spend money on that," Carlson said. "The convergence of voice and data will be a great opportunity. The great thing about the technology space is that the march of technology forward will continue."
Heck of a
time to start
In a down economy, Carlson said he is optimistic about the technology sector – at least optimistic enough to launch SilverTrain with Mike Harris, whom he worked with at Alternative Resources Corp. in Lincolnshire, Ill. Carlson left his position as COO of that that firm in 1999, while Harris left his full-time position as CFO in 1995, but remained on the board until 1999. Harris went on to found Jefferson Wells – originally known as Auditforce – while Carlson moved to MSX International in Auburn Hills, Mich.
"The process was one of a relationship between Mike Harris and me – it would have happened in a robust economy as well as a less robust time," Carlson said. "You are either going to call us idiots about starting this type of company in this type of economy or we will both be writing books."
Factors working in the duo’s favor include the size of the business technology field and the ready availability of talented professionals.
"Now that we are in it, there are some great opportunities out there," Carlson said. "For the first time in my memory, there is an ample supply of great people to attract to even a little company like this. There are plenty of clients. The attractiveness of this space is that it is a huge market. Even with little growth, it is a huge segment of the economy. We don’t have to carve out much of it to be successful by our standards. We would eventually like to grow to 25 locations throughout the country.
March 15, 2002 Small Business Times, Milwaukee
