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More Than Meets the Eye
State's software/IT ‘cluster' may lack for visibility — but not for growth
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Business New Haven
5/1/2000
By: Fiona Phelan
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High-tech stocks across the country have received more than their fair share of publicity lately with the ups and downs of the stock market. But software companies at home here in Connecticut would like to become even more visible.
Visibility, say company executives, would attract both venture capital and qualified employees. Each of those requirements would lead to greater profitability and economic benefits to the state's economy, they add.
Following a year of success, for the most part, Connecticut's growing base of software companies - estimates are put at around 1,500 businesses, and growing - are trying to spread the message that Connecticut is a good place for information technology firms and employees.
To that end, over the past six months, the Connecticut Technology Council (CTC) has created the state's second economic development “cluster.” eBizCT - the name given to the software/information technology sector - was launched last fall in an effort to promote the industry and to find ways for the numerous software/IT businesses in the state to work together for their own benefit.
“Connecticut's software companies don't have enough visibility,” says Helen Charov, who was recently appointed managing director of eBizCT. The cluster is housed and managed at the Connecticut Technology Council headquarters in East Hartford. CTC is a business association of Connecticut providers and users of technology.
“Connecticut is actually a logical place for software and information technology companies to be,” says Charov. “We're ideally located between two major metropolitan areas. These companies have access to both Manhattan and Boston financial, health-care, brokerage and insurance markets.
“The kind of technology companies that you see in Connecticut are application-driven,” she says. “Many of the companies here in Connecticut are developing software for the individual needs of specific types of businesses. That is our strength and the strength our companies can lend to existing businesses as they adopt e-commerce as part of their business.”
According to Charov, there are three primary areas the state's software companies need to focus on: increasing visibility, developing a qualified workforce, and networking among one another.
Increased visibility, says Charov, goes hand-in-hand with developing a qualified workforce. Once potential employees recognize Connecticut as a place with strong software/IT companies and as a state with high life/work benefits, the industry will flourish, she predicts.
“We have a demand for people at our companies,” says Charov. “Many of these positions require specialized training, and we want to be able to attract the best and the brightest. In order to do that we have to get people to recognize the quality of life, education, housing and other benefits that the state has to offer. We have to stress our proximity to New York and Boston and even to Europe where there is a lot of software development.
“We're really a stepping stone to so much more,” Charov notes.
Despite the perceived lack of visibility, Connecticut ranked fifth last year in a national survey by the Progressive Policy Institute that assessed state-by-state performance in the “new economy.” The survey used economic indicators such as the number of dot.com addresses registered in each state to the share of high-tech employees in the workforce.
Similarly, of the companies recognized by Deloitte & Touche, LLP in its Fast 50 program, fully half were software/IT companies. The Connecticut Technology Fast 50 recognizes rapidly growing technology companies headquartered in the state. The report, co-managed by both Deloitte & Touche and the CTC, focuses specifically and objectively on revenue growth.
The 1999 report (nominations for the 2000 Fast 50 are due by May 15 and can be made online at www.ddtus.com) noted that the five-year average revenue growth for the Fast 50 was 262 percent. The top ten companies had an average rate of growth of 2,202 percent - gaudy numbers for an industry lacking “visibility.”
The software/IT sector experienced growth of more than $30 million - outpaced only by the advanced materials sector. However, in terms of average percentage revenue growth over the past five years, the software/IT industry experienced growth of more than 1,500 percent - exceeded only by the bioscience industry.
“So far, Connecticut has not been recognized as 'the place to be' for software companies,” says Les Trachtman, president and chief executive officer of the Shelton-based Corporate Management Solutions. CMS was recognized as being one the state's Fast 50 and also ranked No. 399 in Software Magazine's annual list of the top 500 software companies in the country.
CMS develops equity-compensation and corporate records-management software. The company developed the world's first stock-option administration software.
“We have a lot of small companies here and a lot of highly educated people, but we've lacked access to capital and those people,” says Trachtman.
However, that is slowly starting to change, he adds. Although the state has several venture-capital firms located here they have not, until recently, been interested in investing in Connecticut, says Trachtman. Also, he adds, recent changes in philosophy by the state's universities and colleges have led to more technology spin-offs from educational institutions.
“There are a lot of qualified people at our schools,” Trachtman says, “but until recently our colleges and universities have not been interested in promoting the commercial side of education. Places like Stanford University and MIT have recognized that concept for a long time and that's why there are so many technology companies in those areas.
“Now that that idea is in vogue in Connecticut the industry might really have a chance to grow,” Trachtman adds. “The software industry is typically one that attracts a lot of young people. It's our challenge to promote Connecticut as an ideal place to live and work for these people.”
To that end, the CTC has been pushing a series of legislation aimed at improving the state's place in the new economy. Bills under consideration include ones to: more effectively market the state's technology strengths; provide incentives for Connecticut students to seek higher education in Connecticut and work in the state following graduation; eliminate anti-competitive taxes on personnel training services, computer data processing services and broadband telecommunications equipment; and to wire the state's schools in the next few years.
The software cluster also aims to promote the industry through events such as the upcoming ITEC comprehensive technology program on June 6 at the Connecticut Expo Center. This program will have an educational focus as well as provide hands-on exposure to the latest in emerging technologies from national and regional companies.
In addition, on May 8 the CTC will present its Technology Council Awards for Excellence at the group's sixth annual meeting. The meeting will also feature exhibits of CTC member companies.
According to Charov, eBizCT is also working to attract other conferences, trade shows and networking opportunities. In addition, the eBizCT board plans to educate the trade and mainstream media - local, regional and national - about the booming software industry in Connecticut.
PRT Group Inc., based in Windsor, is a company that has come to believe in the benefits of Connecticut. Formerly headquartered in Manhattan, Chairman, CEO and President Dan Woodward moved the company to Connecticut last year.
Although the Manhattan office is still maintained as a sales office, the facility in Windsor employs about 200. Despite layoffs early this year of approximately one-third of its workforce, PRT expects to expand its workforce between 30 and 40 percent this year.
“We made a very conscious decision to move here,” says Woodward. “We were headquartered on Madison Avenue and had a large development center here in Windsor that was underutilized. I was in the New York-New Jersey area for a number of years and that area still continues to feel the pressure of the demand and shortage of resources. Companies in the city are financially challenged to get people to come into the area.
“I felt that if PRT was going to be able to grow, then you have to be in a place where you could find and attract people. You have to be in a place where people want to come to work. People with families don't necessarily want to live or commute to New York,” says Woodward. “Businesses are moving the work to where the people are.”
One of the reasons for the recent layoffs at PRT, says Woodward, was that the company was overstaffed with the wrong type of worker. The employees on hand were not trained to do the type of work currently being undertaken by the firm, he says.
PRT Group was one software group to benefit recently from an equity capital investment of up to $10 million. Under the deal, the investors would buy between 7.5 million and ten million shares of PRT's stock. The recent layoffs and venture capital investment are expected to help the company cut costs and minimize negative cash flow.
“There really hasn't been enough done to promote the number and diversity of software-related companies in Connecticut to make it attractive to the venture capitalists or the workforce that's out there,” says Woodward, who is also a member of the eBizCT board of directors. “The establishment of the software/IT cluster will help the industry promote Connecticut and promote the industry in a non-competitive environment.
“It is to the benefit of all the businesses to work together in promoting the industry. In order promote ourselves we need a broad base of commitment and support from the companies that are here and the communities where they are located,” he adds. “I think we can do more together to help ourselves than we can divided.
“We have to create alliances with each other.”
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