Back to the Future

This fall's New England technology summit focused on risks and opportunities facing the region's tech sector in 2002. Festivities included some good-natured political sparring and a grimly optimistic forecast from a group of gloomy VCs.

If Women's Wear Daily were covering the recent Future Forward 2001 in Vermont, the headline would likely read, "Vintage Values Back in Style for Techies!"

Those retro Yankee virtues — frugality, maturity, discipline, and a steely grip on reality, even when it's harsh — dominated the summit held in Woodstock late last month.

Future Forum 2001: The New England Techology Summit drew some 160 regional speakers and participants ranging from heavy hitters like John Cullinane to Adams, Harkness & Hill venture capitalists to young entrepreneurs like Gregg Favalora, a 27-year-old whiz kid eager to show off his 3-D imaging system to a group with the pocket change he needs to move from beta to launch. Inventor Dean Kamen, of "Ginger" fame, made a cameo appearance to talk about FIRST — his project to get kids jazzed about careers in science and technology — before a panel of robots and their creators closed the show.

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Gregg Favalora of Actuality Systems demonstrates his 3-D imaging system.

Ben and Jerry, Meet Jed Bartlet

In an interesting political contest, rival governors Howard Dean from Vermont (world headquarters of Cherry Garcia) and Jeanne Shaheen from New Hampshire (fictional home state of The West Wing's favorite son) staged a point-counterpoint for conference attendees.

Fresh from a trip to New York, Dean opened the meeting by telling of a Manhattan transit cop who confided that he had recently begun fantasizing about Vermont. The governor speculated that shell-shocked urbanites may soon begin abandoning their besieged cities for the pastoral Green Mountain State. "Will our trickle of relocating New Yorkers become a stream?" he wondered hopefully. Should they come, he says, Manhattan refugees will find a well-wired state, an educated workforce, and lots of government help. But about those cell phones ... As conferees discovered, in the battle between digital signals and Vermont's granite peaks, the mountains always win.

Shaheen, who stopped just short of announcing a run for Senate, countered Dean's vows by touting her state's impressive record of tech accomplishments. New Hampshire boasts one of the highest concentrations of tech workers in the nation, and it is the only New England state to see an increase in manufacturing jobs over the past decade. But Shaheen did acknowledge that an obdurate legislature, phobic of consumer taxes, was making her life as an industry-friendly governor difficult. State representatives recently voted down her modest proposal for a 2.5% sales tax to fund education by passing the cost on to business once again.

"Businesses must be willing to lobby," she pleaded, "or the legislature will take the path of least resistance."

The summit's liveliest pol in the making was Craig Benson, founder of Cabletron Systems, who is running for New Hampshire governor as a moderate Republican. Benson hopes to jump-start state government by applying top-level management wizardry to the problem. He points to George W. Bush, the first MBA president, as a model.

"Bush has been criticized for being less intellectual than other presidents, but he's done a good job of hiring people smarter than himself," Benson said. "In a big organization, it's hard to know everything that's going on and to get people to own problems. Government now is a top-down organization, and it needs to be bottom up. That's the only way to get things done."

Benson said that terrorists exploited the federal government's siloed agencies and vowed that he would run things differently in his home state. "Because New Hampshire is small, we can do things quickly," he promised.

Don't tell that to Shaheen. "Getting things to move in state government is like turning the Titanic," she said during her fireside chat. "We haven't done well in bringing technology to government," but not for want of trying. Just getting fish and game licensing online, she said, was a major hurdle. Good luck, Craig!

The Vision Thing

In assessing the fallout from September 11, the conference's panel of appointed visionaries — Benson, Cullinet Software founder John Cullinane, Massachusetts State Rep Barry Finegold, corporate futurist Thornton May, and Village Ventures cofounder Bo Peabody — engaged in plenty of hand-wringing but conceded that the new reality offers some appealing opportunities as well.

Peabody was honeymooning on September 11 and says that he returned from Nantucket to a starkly changed economic terrain. "More people were interested in our concept after September 11," he said. "People began saying no one would want to live in big cities anymore. But I felt strange profiteering from this tragedy."

Since the attacks, people have fundamentally changed the way they think about life, work, and family, and Peabody said that he's poised to fund businesses in places they might want to be: Hanover, Middlebury, Boise, Tucson, Burlington. Peabody said that over the past 18 months, he raised $300 million in 13 such cities.

Other panelists saw opportunities in corporate data and security systems, infrastructure, and information gathering. In light of the anthrax scare, some discussed eliminating all paper mail. But Finegold noted that electronic communication may aggravate the digital divide because many low-income residents do not have Web access. In addition, the move toward email would wipe out the direct-mail business, which is valued at about $530 billion per year — twice the size of the domestic advertising business.

But hard times can spur innovation, and there's money available for any business that can identify and mend a customer pain point within a short time span, Peabody said. In fact, Benson said that more startups are launching today than during the new-economy heyday. "When things aren't as comfortable, entrepreneurs try new things," he said.

Bring in 'Da Noise

The biggest problem facing technology customers today is figuring out what to buy and when. Combating a constant bombardment of information was the theme of a session on technology strategies featuring Blaise Heltai, managing director of Internet strategy for FleetBoston Financial; Michael Prince, CIO of Burlington Coat Factory; Steve Randich, CTO of the Nasdaq; Elisabeth Robert, CEO of the Vermont Teddy Bear Co.; and Alva Taylor, from the Tuck School of Business at Dartmouth.

"Good things don't filter through because you can't get beyond the noise," Prince said.

All panelists said they listen to vendors recommended by friends and to proposals that address mission-critical problems. And they all tune out when vendors start babbling about "scalable enterprise-software solutions." "To me, those sound like 12 random words strung together," said Heltai.

Randich said that 60% of corporate expenditures at the Nasdaq are for technology, and despite the market's losses, the amount of daily trading this year is higher than last, with 2.2 billion shares traded daily.

Panelists agreed with his assessment: "Any investment in a noncritical area that doesn't have ROI in less than a year gets very careful scrutiny."

Excess technology inventory is still a problem, Heltai said. "We're continuing to invest, but at a much slower pace," he said. "We bought so much that now we're trying to figure out how to digest it, how to use it."

No Exit (Strategy)

Future Forward's gloomiest session featured four venture capitalists who were "Forecasting the Financial Markets."

"How are VC firms operating now?" began moderator Michael Horvath.

"Very poorly," shot back John Landry, of angel-investment firm Lead Dog Ventures.

One of his funds, Common Angels, made its first 2001 investment this week, Landry said. His other firm, Walnut Ventures, has made none. The problem? Angels need to hand off their investments to later-stage investors who aren't taking on new businesses until the IPO market rebounds. "We've got to get the rat through the snake," said Village Ventures' Matt Harris, charmingly summing up the problem.

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"Forecasting the Financial Markets" — a panel of venture capitalists at Future Forward 2001.

Todd Dagres, from Battery Ventures, said that his firm is investing one-third of its normal amount because it will likely have to support the firms in its portfolios for a long time. "We're supporting F rounds [a sixth round of financing instead of the customary three or four] now. That used to be a dirty word," he said.

Many VCs are now waiting for the "perfect deal," said Tim McMahon of Adams, Harkness & Hill. "There's no rush. They have a huge fear of making mistakes. And they think prices will be even better in six months."

Most of the panel said that the market is headed "back to the future" circa 1994. "You won't see 1999 again," Harris said. "History will show that the best time to get funded — and the worst time to make money — was 1999" because of the high costs of rent, legal, talent, advertising, and payroll, he said.

To look forward, we must look back to a time before everything got out of whack. For example, entrepreneurs are starting to talk about their 5- to 10-year visions for their companies — an unheard-of timeline for the past few years.

The panel concluded on a grimly upbeat note: "The best thing I can say about the current environment is that it's lousy," McMahon said. "Despair is the first sign of a market bottom. So take heart in the fact that we all feel so bad."

Linda Tischler (ltischler@fastcompany.com) is the Fast Company managing editor of new media.

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