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
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."
AllMeds
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.
For more information, visit the Technology 2020 Web site.
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