Launching Technology Jobs
by Fred D. Baldwin
In most of Appalachia, a lot of manufacturing is branch plants," says Tom Rogers, president and CEO of Technology 2020, a nonprofit, public-private partnership whose goal is to create an information technology cluster in eastern Tennessee.
"They create some jobs, but the profits go elsewhere. The wealth of the companies we support is locally held. This is becoming a major component of our region's economic development plan."
Technology 2020 is currently assisting 24 start-ups and has seen nine of its firms "graduate"—that is, progress to a point where assistance occurs on only an occasional basis. Results so far include 265 new jobs that pay, on average, $45,000 per year.
A Tremendous Pool of Talent
Oak Ridge has always been a unique place. It was created during World War II to build the atomic bomb, and its economy for roughly four decades depended almost totally on work for the U.S. Department of Energy (DOE). In particular, Oak Ridge National Laboratory, one of the nation's premier research and development facilities, attracted a tremendous pool of scientific and engineering talent.
But the DOE began to downsize in the 1990s, costing the region an estimated 6,000 jobs during this decade. One response was the creation, in 1993, of Technology 2020 to capitalize on the intellectual and technological resources represented by Oak Ridge National Laboratory, the University of Tennessee-Knoxville, and other groups. The organization's original service area covered a 15-county region in eastern Tennessee; it's in the process of expanding statewide.
Technology 2020 has focused on three broad goals: building a high-speed communications infrastructure capable of meeting the data-handling needs of almost any conceivable business, developing a pool of information technology professionals, and creating an entrepreneurial environment. Its Web site lists an impressive array of technology-related projects and an even more impressive list of private partners—BellSouth, Lockheed Martin, Oracle, Bechtel Jacobs, and Science Applications International Corporation, to name only a few.
Some of Technology 2020's roles are similar to those of a business incubator. When needed, it can provide office space to promising start-ups. It helps entrepreneurs with business plans and with securing loans—Technology 2020 manages funds from the Small Business Administration MicroLoan Program, a U.S. Department of Agriculture revolving loan fund, a local revolving loan fund known as ET 2000, and several other funds. But there's nothing conventional about its overall approach.
"We are expanding our business incubation model to assist companies which are not within our walls and don't need to be," Rogers says. "One of the most promising aspects of an information-technology—based development strategy is that companies can access our communications infrastructure remotely, allowing us to benefit a much larger number of start-up companies. We are actively engaged with a growing number of companies throughout eastern Tennessee, and are working with several other cities in our region to develop business incubators which can leverage the expertise and funding sources we're building."
Venture Capital for Appalachia
Technology 2020's latest project is TennesSeed Fund I, a venture capital fund for new businesses. Started with the help of a grant from the Appalachian Regional Commission (ARC) Entrepreneurship Initiative, the fund hopes to raise up to $60 million in private and public funds for loans and equity investments in business start-ups.
The key word is "equity." A loan earns interest for the lender and carries a legal obligation of repayment. An investor who takes an equity position in a firm buys a share of that business. If the business grows, the value of the investment grows with it, potentially without limit; if the business fails, the entire investment can be lost. TennesSeed Fund I's ability to take equity positions gives its efforts to attract outside capital credibility.
"Every one of our clients needs money now or will soon," Rogers says, "often a lot of money. But there's very little venture capital in Appalachia. Venture capital is aggregated in a few places—Silicon Valley, Austin, the East Coast. We've been told for ten years that venture capital won't come here until there's a locally managed fund." That's where TennesSeed Fund I comes in. It's established as a Small Business Investment Company—a privately organized and managed investment firm licensed by the Small Business Administration and structured to provide management with the profit motivation and investment flexibility of a for-profit business. The fund is currently seeking private investments of from $10 to $30 million.
"Last year there was $36 billion of venture capital invested in America," says ARC Federal Co-Chairman Jesse L. White Jr., "but almost none of that was in Appalachia. The TennesSeed fund will be a new outpost of venture capital in Appalachia, which will make it much easier and more appealing for venture capitalists across the country to make co-investments in our local companies."
In October 1999, Technology 2020 sponsored the TennesSeed Venture Capital Connection, inviting potential investors to presentations by 13 of its clients. A total of 185 attendees came, representing at least 65 individual or institutional investors.
This October, Technology 2020 will co-host the Great Midwest Venture Capital Conference, which will attract even more investors to look at promising start-ups in this region of Appalachia. "It doesn't get much play in the press when a company opens up with three or four jobs," Rogers says. "But what would an area do to get 265 jobs?"
In fact, that total barely suggests the growth potential of some of the firms assisted by Technology 2020. Here are three examples.
Protomet Corporation is a cross between a machine shop and a consulting firm. Jeff Bohanan and his partner Mike Tuck formed the company in August 1998. They had worked together as manufacturing engineers for Lockheed Martin, working on computer numerical control programming and process development for metalworking equipment—precision mills and lathes.
For the next nine months or so, they rented space from Technology 2020, working essentially as consultants who helped clients squeeze more efficiency from expensive equipment.
"Machining has been a blue-collar profession," Bohanan says. "It's become something between blue-collar and white-collar. A lot of shops have equipment that they don't know how to use to full capability."
The two partners still do consulting, but Protomet now has a product. Bohanan holds up a shiny chunk of steel destined to become part of an automobile seat belt bracket. Small enough to rest on a child's palm and roughly triangular in outline, the piece has two holes, two spindles, and several odd curve—all requiring precision machining. By incorporating new process technologies, Bohanan and Tuck figured out a way to make it at 40 percent below the cost the client—a car manufacturer— had expected to have to pay.
Technology 2020 helped the partners bid on the job, which gave them the credit to buy a lathe and a mill. Each machine cost over $100,000.
Counting the two owner-partners, Protomet now has four full-time and four part-time employees.
"Technology 2020 was very helpful when we were bidding on this job," Bohanan says. "Things have happened quicker than we thought. We're projecting 35 employees in four years."
Several years ago, D. Thomas Upchurch, MD, an otolaryngologist (ear, nose, and throat doctor) decided he didn't like the electronic medical records (EMR) systems on the market. EMR offers major advantages over paper-and-ink records, including legible printouts for pharmacists, the capacity to cross-check medications against patients' allergies, and integration with billing records. But Upchurch knew that busy doctors begrudge the time required for data entry.
This was the idea behind AllMeds, a company founded by Upchurch and a number of physicians and software develop- ers to create a new system for collecting and managing patient data. Their first product—also called AllMeds—was a Web-based package with a familiar Windows(tm) interface. It's interactive, meaning that it walks patients through the kind of questions that a physician asks during an exam. ("Where does it hurt?" "For how long?") Patients can answer the questionnaire on a computer in a clinic waiting room or in their own homes. The software translates the answers into medical terminology for the physician's review and approval (or modification). The physician then documents a diagnosis and treatment plan. Finally, the software generates a billing code for insurance purposes.
Technology 2020 helped by providing access to state-of-the-art telecommunications technology, making introductions to lenders, and, more recently, putting the entrepreneurs in touch with investors.
Bill Rust is CEO of AllMeds. "I think they've been invaluable in helping us get started," he says of Technology 2020. "They've always been there when they're needed. On our venture capital presentations, they coached us and helped us, and they helped us make connections."
Incorporated in 1997, AllMeds already has 25 employees and is growing fast. Its officers expect sales volume this year to exceed $3 million; the five-year projection is $48 million.
Industrial Ceramic Solutions
So far, the two owners of Industrial Ceramic Solutions—Richard D. Nixdorf, president and CEO, and Michael J. Smith, chief operating officer—employ only one other full-time person, senior technician Andrea Powell. The company has not yet begun producing its planned product line. But looking five years out, the new firm's business plan envisions $40 million in sales and a 350-employee payroll.
A pipe dream? You could say that. The product that Industrial Ceramic has in prototype (and expects to bring to market in the near future) is a self-cleaning air filter for diesel exhaust pipes and restaurant chimneys. The filter uses small microwave units that heat up fast and vaporize carbon compounds into harmless carbon dioxide and steam. The DOE and groups representing the automotive industry have invested in product development.
Technology 2020 has helped with presentations to venture capitalists and, in this case, by providing incubator "walls." "If it weren't for the inexpensive office space," Smith says, "we might not have made it. It's an example of how an innovative idea might have died on the vine without just a little bit of help."
Why the optimism? Smith ticks off potential markets: 100,000 fast-food restaurants (a theoretical $500 million in sales), two million diesel engines annually (another potential $600 million), and, if fuel-economy rules lead automotive manufacturers to install diesel engines on light trucks and sport-utility vehicles, another $800 million.
"We're only assuming that we'll capture a few percentage points of these markets," Smith says. But even a few percentage points of markets like these add up to a booming business. Other applications down the line include the removal of toxic organic compounds from other airborne waste streams.
"This is what investors call a platform technology—one that you can build several businesses on," says Stephen F. Heiner, Technology 2020's director of client services. "It could have huge ramifications down the road."
Launching an Entrepreneurial Culture
"Platform" is a pretty good word to describe Technology 2020 itself. Sometimes with facilities and equipment, but always with expertise, it's providing a launching pad for new ventures. In the nature of things, some of these will fail to get off the ground; others will remain small. But some look ready to soar.
"Technology 2020 is developing an entrepreneurial culture in Appalachia," says Tennessee Governor Don Sundquist. "It is helping people around Oak Ridge make the difficult transition from dependence on federal employment and contracts, but what they're doing has more than local importance. They're showing how to connect our people who have innovative ideas with investors who have the resources to bring those ideas to fruition. They're providing a model for developing the entrepreneurial spirit in Appalachia that's been neglected for too long."
The ultimate challenge, as Rogers sees it, isn't just to develop new businesses, but to develop a new way of thinking and a new pool of entrepreneurial talent in eastern Tennessee and across Appalachia. Already, Technology 2020 has partnered with the University of Tennessee-Knoxville to provide internships for 12 students pursuing their master's degrees in business administration and looking for hands-on experience with fast-growing companies.
Rogers is also exploring the possibility of creating a fellowship program in development finance. Nurturing new start-ups is a different skill from luring existing companies to an area. The idea will be to train people to work with projects like Technology 2020.
Fred D. Baldwin is a freelance writer based in Carlisle, Pennsylvania.