Bellwether Firms Warm Up New England’s Job Market : Economy: Flexible entrepreneurs find a hospitable environment. Region may hold lessons for California.
Computer whiz Paul J. Severino has a hard time sitting still. Even in his chair, he’s in motion--hands gesturing, talking fast.
Not surprisingly perhaps, Severino has a long history of creating innovative companies. His latest effort, Wellfleet Communications in suburban Boston, is a computer networking company that is among the fastest growing firms in the nation.
It’s all part of the entrepreneurial culture in New England where, as Severino says, “you came face to face with the concept that (even) engineers (can) go out and start companies.”
Severino, 46, and others like him personify the changing face of the New England economy, which is crawling out of a recession that walloped the region four years ago like a fearsome nor’easter. And because the economy of this region virtually mirrors California’s, its recovery may give us a glimpse of our own future.
Like California, New England had an economy based in large part on defense, computers, real estate and financial services--sectors that benefited from the 1980s high-tech boom and defense buildup.
But when defense budgets were slashed, certain computer markets dried up and real estate markets collapsed, New England--like California--slid into a deep recession. All told, the six New England states have lost about 765,000 jobs from their peak in December, 1988--a drop of 11.4%, according to the Bank of Boston.
Unlike California, though, New England is coming out of its economic winter. The seeds of a new economy are being sown here in the compost of the old. Bellwether firms like Wellfleet are springing up, and defense companies are bending to accommodate the harsh new realities. Its unemployment rate has fallen to 7.5%, compared to 8.6% in California.
New England’s future now lies with the optics company in the old Massachusetts mill town of Sturbridge, the high-tech “breeding ground” for new businesses in New Haven and the biotech firm in Cambridge that began in a former Chinatown garment factory.
They are supplanting the old high-tech firms, exemplified by Wang Laboratories and Digital Equipment Corp., which blossomed in the 1970s and 1980s and fueled the so-called “Massachusetts Miracle,” but faltered when they failed to adapt to changing markets.
New industries find a hospitable environment in New England, with its abundant universities, entrepreneurial tradition and highly skilled work force. They are the kinds of enterprises that could bloom in California, which has many of the same advantages.
There are differences between the two regions of course. California’s economy is larger and much more diverse than New England’s. The real estate boom, and resulting crash, was more volatile in New England than in California. The population of California continues to surge, while New England’s is static--a contributing factor to the real estate collapse.
New England’s progress also remains limited in scope, and many obstacles remain before the region is once again economically vibrant. Optimism is tempered by a reality that good jobs are still hard to find.
Even so, the similarities are striking enough that California may draw some lessons from New England’s experience.
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Wellfleet’s home is a nondescript industrial park in the hills of Billerica (pronounced Bill-RICK-ah), near the high-tech corridor known as Route 128.
The firm produces both the equipment and computer programs to link systems together, focusing on the upper end of the market: corporate and government customers who need to network complex information systems. Its partners include communications firms like AT&T;, Sprint and MCI.
“They network the networks, and it’s a very hot area,” said F. Mark D’Annolfo, an industry analyst with the investment banking firm Adams, Harkness & Hill in Boston. “They have a good market, good products and good management, and the outlook looks very, very solid.”
It was while Severino was working for Digital Equipment back in the late 1960s that he caught the entrepreneurial bug.
He had employee badge number 7,992, but saw employees walking around with badges numbered in the 20s and 30s, indicating that they had been with the company since it began. The idea of such explosive growth fired his imagination, and he went on to help form three companies in the next 20 years.
In 1972, he joined Prime Computer. Four years later, he left to start a data acquisition company with two partners. After that firm became profitable, he left in 1981 to form a networking company with four others, which in turn was sold to a larger computer company.
Striking out on his own again, Severino founded Wellfleet in 1986 with four other former colleagues. “I just like to get things done,” he said in an interview. “And I like the fact that with a start-up, you can really accomplish a lot and look back on a significant achievement.”
Wellfleet has doubled its employees in a year to about 570, said Severino. The company’s sales and profits continue to climb. For Severino, it should be the last stop. He wants to oversee something as it matures.
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With New England’s defense industry continuing to face massive cuts as budgets are slashed, one firm has found a way to adapt.
In the old mill town of Sturbridge, Mass.--now known chiefly for its 1830s-era Old Sturbridge Village theme park--a small defense contractor, Galileo Electro-Optics Corp., underwent a virtually complete transition from defense to commercial business.
The company began taking steps in 1986 to convert from making night-vision scopes--the devices that provided the green-tinted phosphorescent images familiar to TV viewers of the Persian Gulf War.
Until the mid-1980s, Galileo rode the crest of the defense buildup. But sensing that the good times wouldn’t last, the firm hired outside consultants, at a cost of up to $200,000 a year, to help identify commercial markets for its technology: optics for arthroscopic surgery, lenses for office copiers, scientific instruments.
Financing came from defense profits and three public offerings that raised $40 million. But the change wasn’t easy.
“We had to learn to be good manufacturing people: detail oriented, focused on reducing our costs and proactive, to get our yields up and perfect our technologies,” said William T. Hanley, Galileo’s president and chief executive. “If you’re a military company, you don’t have the slightest idea how to compete in a competitive world.”
He gave his staff a choice: change or be changed. As it happens, Hanley says he had to replace over 85% of his salaried managerial work force.
Only now can the company look forward to consistently profitable quarters. But Galileo’s defense business has shrunk from 85% to 8% of total sales. Its staff of 316 people, just half what it was in peak years, is nevertheless about the same as in 1982.
“I don’t know if other companies can replicate” our experience, Hanley says now. For some small firms, he says, “It may be too late.”
Not everyone wants to try. One large defense contractor--the Electric Boat division of General Dynamics Corp.--is choosing to, so to speak, stick to its guns.
EB, the nation’s largest builder of military submarines, is based in Groton, Conn. On the banks of the Thames River, yellow cranes tower over the partly completed hulls of Trident and Seawolf subs.
Though the company has a backlog of 11 subs, EB has been having rough years. Defense cutbacks have cut employment at EB’s submarine yard from a peak of 25,000 in the mid-1980s to about 19,000 now. It faces further layoffs as spending on sub projects dwindles to nearly nothing by 1998.
But rather than attempt to build vessels for refineries or hulls for oil tankers, officials at General Dynamics are betting that there will always be a need for submarines. “Our belief is, that (our) technology . . . is premiere in the world, and somehow we want to maintain that,” says John K. Welch, a division vice president.
“The strategy to bridge the gap is to get small, remain cost-effective and build at some minimum rate of production,” Welch says.
Welch estimates the technology can be kept alive with a schedule of one submarine every two years--at least until 1998, when the Navy is scheduled to begin awarding contracts to build the new Centurion class of attack submarines. For EB, that means scaling back its work force to only 7,500.
Welch acknowledges it’s a gamble. But, he says, EB’s strategy might provide a model for large California defense contractors such as Northrop Corp.
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Down the coast, in New Haven, Conn., a partnership between the state, the city and Yale University has created an “incubator,” or breeding ground, for new high-tech businesses in buildings of the old Winchester rifle factory in the middle of the inner city.
It’s a model that might apply in South-Central Los Angeles, near the University of Southern California.
Though it had a troubled beginning in the early 1980s, the 80-acre Science Park now promises to midwife a new high-tech-based economy in one of the region’s most depressed areas.
It houses about 100 high-tech firms, many making use of research or technology developed at Yale, up the hill. In addition, Science Park provides space, flexible leases, access to business and technological expertise and shared business services. Since 1991, the state has kicked in about $13 million to renovate the aging buildings, some of which date back to World War I.
Still, Science Park President William W. Ginsberg admits it has not been easy. Tension exists with the surrounding community, which is marked by public housing projects and boarded-up buildings.
“The tension (is) between the long-term benefit that comes from building a new economy for the future and the very urgent needs of a community like this in the short term,” he says.
For all of its accomplishments, Science Park has not generated large numbers of new jobs of the kind that might make a difference for area residents.
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Some economists argue that biotechnology--the application of genetic engineering techniques to the development of new drugs and medical products--holds great potential for growth, provided it can overcome investment risks.
New England is fertile ground for such enterprises, with its combination of university research labs and highly trained workers--much like northern San Diego County, where UC San Diego and other research institutions provide a similar base.
Genzyme Corp. in Cambridge, Mass., may be a good example of a New England biotech firm: the company combines “a diversity of products and a good management team and good science,” says Boston-based industry analyst David Stone with the New York investment firm of Cowen & Co.
Started in 1981 by a Tufts University enzymologist--a scientist who works with enzymes--Genzyme was reborn in 1983 when company officials sat down with professors from MIT and Harvard University.
In cramped offices in a former Chinatown garment factory, the group examined current biotech research with an eye toward potential future markets that promised the best returns: chemical diagnostics, “orphan” drugs, genetic testing.
Orphan drugs is a good example. Under federal law, companies that develop orphan drugs for diseases that are so specialized that they have a limited market are given a seven-year monopoly to market them, allowing them to recoup their investment. By specializing in such drugs, Genzyme assures itself exclusive market niches.
Now, the company is investing about $100 million to build a new plant that will employ 200 people to make Ceredase, the company’s principal drug, aimed at a rare genetic ailment.
But the company recognizes that its success depends on diversity and continuing product development, says Henri A. Termeer, chairman and chief executive. Overdependence on one or two products has threatened the stability of other biotech companies, given the amount of time it takes to develop, test and win regulatory approval before a drug can be marketed.
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For many New England residents, however, the promise of the new economy remains unfulfilled. And persistent economic troubles have required them to do what New Englanders have done all the way back to their Puritan ancestors: Endure.
“Everyone knows someone who’s unemployed,” says Gail W. Liebhaber, acting director of the Metro South/West Career Center in Needham, Mass. Liebhaber oversees a program that provides job-search help and some career retraining for displaced high-tech workers, many of whom lost their jobs when the bottom fell out of the minicomputer market.
With 2,000 clients, the publicly funded center sees 25 new clients a week, some unemployed as long as two years. The center is only able to help 12 to 15 get new jobs every week, so it’s still a losing battle.
One of those clients is John Phelan, 48. After working as a computer software programmer and trainer for nearly 20 years, Phelan lost his job in October, 1991. Despite sending out 200 resumes and going on eight interviews, he has failed to land a new job.
His unemployment benefits ran out two months ago, and for the first time, he is considering moving out of state. Maybe to Georgia. Or Texas. But for now, he’ll keep plugging away in his home state.
“It’s very discouraging,” he says. “You just keep getting rejection letters and rejection letters. You make a cold call, and you sometimes get the runaround. But you keep pursuing it.”
