COVER STORY

FOR TECHNOLOGY companies, 2001 was a year to forget. Stock valuations tanked, businesses and consumers tightened purse strings, and venture capitalists fled the sector like schoolkids from a bad batch of milk.

But for some well-managed regional tech companies, the year wasn't all bad. Some were able to turn the downturn to their advantage, or, at the very least, to keep their heads well above turbulent waters. Some, despite the dearth of funding, were able to pry a few million from tight-wad venture capitalists. Others who resisted the allure of dot-com riches and kept focused on their core businesses say they've been rewarded. At the same time, another local company found success by pushing into the dot-com sector with a realistic plan that has won support from the giants of technology.

Their cumulative lessons: avoid distractions, stay focused on today's customers, don't be afraid to defy the common wisdom, and it's almost never too late to correct a mistake.

From these hardened survivors, whose names were culled from leaders of the local tech industry, several key lessons emerge that may serve to advise their regional counterparts as 2002 gets under way.

What follows is a look at the strategies and decisions that helped five respected tech companies navigate what clearly was the most turbulent year in the short history of the technology sector.

Sybari Software

Spending Money On the Business

It's the morning after a fierce January windstorm, and the sign that distinguishes the Sybari Software Corp. headquarters from the old East Northport post office, the former tenant, dangles like a loose tooth above the entrance.

Inside, chief executive Bob Wallace has his mind on other things, primary among them running his business. Like the night's windstorm, the economic boom that ripped through the technology sector has had only passing impact on this stable, profitable anti-virus software company. Wallace, a former New York City police officer with credits in the office of former New York City Mayor John Lindsay and, after retirement, with financial research firm Dunn & Bradstreet, clearly is not the sort to be carried away by the promise of sudden riches. His stewardship has served this family-run company well.

"We're not in the real estate business, we're in the software business," says Wallace, explaining the no-frills building. "We do not have what I call the 'marble-top conference rooms.' We spend the money on the business." Wallace and his team, including sons-in-law Patrick FitzMaurice, senior vice president of sales and marketing, and Greg Tetrault, chief technology officer, have plenty to show for that conviction.

Though it doesn't release sales figures, Sybari was recently recognized by accounting firm Deloitte & Touche as Long Island's fastest-growing technology company, with a staggering five-year growth of 10,200 percent. Deloitte's Long Island managing director, Adam Weisman, listed Sybari as one of the few local tech firms he knew to emerge unscathed from the downturn. Wallace knows the company can't sustain hyper growth, but he says a healthy 30 percent to 50 percent annual growth is a cinch. The company, which specializes in higher-level anti-virus protection to companies using Lotus Notes or Microsoft Exchange platforms, has continued hiring while others trim staff. It employs 200 worldwide, is in the process of opening an office in San Jose, Calif., and has a client list that includes Merrill Lynch, American Express and the Pentagon, Wallace said. The company's low profile since launching in 1995 has been intentional. "I don't want 48 venture capitalists knocking on the door," Wallace said, adding that he's resisted going public for the same reasons, though a future IPO isn't out of the question.

Controlled growth and a focus on its core business are the order of the day at Sybari, which funds operations based on current sales. "We didn't try to be all things to all people. We didn't go crazy," he says of the boom years. "That's why we're still making money."

knoa Corp.

Hard Choices Have Paid Off

When it came to navigating her Manhattan software company through a rocky 2001, Yee-Ping Wu, president and chief executive of Manhattan software developer knoa Corp., turned to a vital lesson from her childhood. "My mother used to say to me, 'I'm betting in the long run that you'll love me,'" says Wu, whose company (formerly known as Music Pen, creator of Magic School Bus titles) opened for business in 1987. "We've gone through a very difficult process, but in the long run, it was to everybody's benefit." The pain she refers to was a top-level management change made last year - not because the company was in immediate danger but because it wasn't ready for the level of growth their expertise demanded.

"A company is just like a child," Wu says. "At different stages in its development, its needs are different. The best management team must fit well with a company. Even the best managers can ruin a company." Wu stepped in to prevent that from happening - at the risk of alienating venture capitalists who had backed them. Those who have watched the company evolve point to her story like local legend.

"The founders have a lot of love for the company, a lot of passion, and the staff picks up on that," said Bruce Bernstein, president of the New York Software Industry Association. "They've evolved and survived and are one of the few companies to come out of the downturn looking better than they did two years ago," says Bob Malone, managing director for the New York State Small Business Technology Investment Fund, which this month sank another $1 million in knoa. "They were not making a lot of money to begin with, but they spent money wisely. It's unbelievable what they've developed."

knoa has developed a toolbox of software applications that help guide employees through complicated business software. Wu, who puts in 16-hour days, including weekends, says that even with several high-level investors in the company, she's never been prepared to let things get out of hand. "One of our employees once said to me, 'I know this company is going to be successful. I still see you shutting off the lights every night,'" she says. "I believe nothing should be wasted."

Terk Technologies

Showing Them The Money

Last year was anything but a banner year for venture capital funding. So in an environment that saw even the brightest new tech firms left starved for capital, how was it that a 15-year-old stalwart dealing in so passe a sector as antennas managed to make itself one of the few tech firms to receive any substantive funding last year?

In the words of a former president, it's a vision thing.

Neil Terk, the company chairman, has turned stodgy antennas into nothing short of art, and has developed a retail distribution network that promises to be a venue for a range of related products that its investors expect will drive sales from $20 million to $100 million over the next decade or so.

"Neil Terk is very accomplished at taking commodity products, adding technology and packaging and making them stand out," says Steven Roth, who was recruited last year as chief executive after venture capital firm Topspin Partners of Roslyn invested $3.75 million.

For Commack-based Terk, the investment was the crucial boost the company needed to pursue a burgeoning market for satellite radio antennas, in which it already has taken a lead. Taking the investment and charging Roth with operational control was a recognition that the company was ready for a second stage of growth, downturn or no.

"I was emerging from adolescence to adulthood," says Terk, whose casual dress and Gentle-Ben demeanor belie a sharp business acumen.

Roth's resume included 24 years at security company Pittway Corp., where he took its ADI subsidiary to more than $1 billion in sales.

Now, both are setting Terk on the launch pad for similar growth. Going public is not out of the cards, they say.

Roth says TopSpin's research into Terk showed a company with plenty of growth potential. "Once you have the distribution we have and several product categories in place, there are additional product categories you can begin to add," he says. "This company had vitality when we came here. It was a growing business that needed some fuel."

As it pursues those new markets, Terk is one of the few regional tech companies that is aggressively adding staff. It plans to increase headcount to 50 from 41 over the next several months, and beyond that, may need to look for a new headquarters.

"We're trying to maintain ourselves here," says Terk. "That's a challenge because of the growth."

SalesRecruits.com

Sticking to a Plan And Executing It

Last January, when the tech sector began a dramatic zig away from the dot-com business model, Steve Morgan zagged.

He converted his startup tech recruitment firm, PeopleComm Inc., into an unabashed dot-com called SalesRecruits.com that offered software companies a screened pool of software salespeople from which to recruit for a low annual fee.

For Morgan, who had done stints at McAfee Software and ComputerLand, the sudden disaffection with things related to the Internet was cause for only a moment's hesitation.

"Emotionally, I was hesitant to do it. The industry was tanking," he says.

But what kept him on course was a business plan that pointed to an undeniable market if he stuck to it and drove the business.

"Planning and execution," he says. "We knew we'd be successful if we did what we said we were going to do."

Starting from zero, he and his team of 10 have built a client list of 90 software firms, including Computer Associates International Inc. and Oracle Corp. Revenues for 2001, he says, were just shy of $1 million.

Marc Witorsch, corporate recruiter for software giant SAS Institute, in Cary, N.C., says the SalesRecruits' model cut his recruiting costs last year, and skirts the "pestering techniques used by headhunters." He doesn't expect SalesRecruits to replace traditional headhunters, but sees greener pastures ahead as more people turn to the Web to look for jobs. "I'd rank it as one of the best job boards out there," he says.

From a new office overlooking Northport Harbor, Morgan says his intention was never to change the world. There are plenty of online personnel companies out there, catering to massive pools of potential workers. Sticking to his niche of software salespeople required a level of discipline, as did a resistance to dramatically increasing his advertising budget as prices for ads declined.

He's also resisted the allure of venture capital funding, relying instead on revenues from current business to fund growth.

"We're a niche player," he says. "A lot of people who have gone into our sector have gone out...You have to choose one thing and be phenomenally good at it."

Information Builders

Longetivy Has Its Advanges

Gerald Cohen likes to say that his company beat Microsoft to the software market. The company, which has been developing software that helps corporations better use the data they collect, has been in business for 27 years. A devil's advocate might ask, "So where are your billions?"

But Information Builders has established a strong reputation operating in a market once considered a deathbed for a software firm: New York City.

Information Builders, in many respects a godfather of Silicon Alley, stuck with its mission and made it fashionable to develop software in Manhattan.

With 2,000 employees worldwide, including nearly 1,000 in Manhattan, Information Builders has seen its share of cycles through a quarter century in business.

Last year was not without its trials. Cohen, who admits the company made some less-than-strategic investments in the dot-com gold rush, says a level of staff tightening over the past six months has accompanied write-offs of dot-com investments.

But the bulk of its investment and development work has remained in its core software market. "The trick is learning to differentiate a fad from a trend," Cohen says.

"They are one of the solid, stable players in this market," says Bruce Bernstein, president of the New York Software Industry Association.