An impressive array of state and local dignitaries gathered on a snowy December evening to welcome a big company with eight local employees to Madison.
In a renovated warehouse office space, elected officials and high-ranking executives from the University of Wisconsin — from Gov. Jim Doyle to UW-Madison Chancellor Carolyn “Biddy” Martin to Congresswoman Tammy Baldwin — took turns at the podium, touting the importance of having the company here.
What firm could generate such buzz?
Google.
The California-based Internet company that has become part of the everyday vernacular of the Web era is among the latest additions to ranks of Dane County’s growing information technology business sector.
In recent years, other well-known firms have also set up shop here. They include Microsoft Corp., Amazon.com and Sony Corp.
While these companies tend to add a smaller number of jobs to the region, having links to major, name-brand technology firms does something else for the region.
“From a PR standpoint, this helps to validate what we’ve all known: We have great people getting pumped out of our UW system, and attracting those big-time tech companies helps to reinforce that,” said Scott Converse, Director of Technology Programs in Executive Education with the University of Wisconsin-Madison School of Business.
Indeed, most dignitaries attending the invitation-only Google open house (the company had been working on data center applications in Madison for about a year prior) noted the significance of continuing to attract companies that provide jobs to the area’s educated workforce.
What is it that lures major IT firms here and keeps entreprenurs launching innovative Web startups in Dane County?
Two key IT-preneurs
While Microsoft Corp. opened its small Jim Gray Systems Lab in downtown Madison last year to work on database systems, Microsoft first came to Madison earlier. Local entrepreneurs Brian Wiegand and Mark McGuire launched Jellyfish.com in June 2006, a shopping search engine that took on Google’s Web advertising model by offering cash-back rewards to customers. Microsoft bought the (then) 26-person firm in October 2007.
Microsoft quietly announced its purchase in a short blog entry on its Live Search development site; “We think the technology has some interesting potential applications as we continue to invest heavily in shopping and commerce as a key component of Live Search.”
Since the acquisition, Jellyfish.com has become the platform for Microsoft Live Search cashback. Microsoft retained Jellyfish’s founders, withholding a small portion of their firm’s undisclosed buyout sum to be paid out over time if they stayed with the company. Wiegand remained at Jellyfish as general manager of social commerce and McGuire as director of product management. But not for long.
“We made it through the first payment. Being at Microsoft was like being in a zoo,” Wiegand said of the corporate environment that made him feel trapped. “They make it hard to leave but, we wondered if we stayed two years, would we lose our edge?”
In July 2008, Wiegand and McGuire began working on their next big thing: Alice.com. The startup with offices in Middleton grabbed headlines last fall when it landed its first round of financing: $4.3 million from private equity angel funds Kegonsa Capital Partners and DaneVest Tech Fund.
With Alice.com, Wiegand and McGuire aim to alter the consumer packaged goods market by connecting consumers and manufactures of such staples as toothpaste, toilet paper and trash bags online. Wiegand said the site will ship items free and introduce a system allowing shoppers to choose which items they want to buy at a discount. (You can read about the company’s development process on the founders’ blog at flywheelblog.com.)
“I love disrupting major markets,” Wiegand said of the new venture. “It’s easier to get attention and it’s easier to get money.”
A proven track record with Web ventures going back 12 years has also led to success in securing financing, employees and press. Prior to Jellyfish.com, Wiegand began Bizfilings.com in 1996 and sold it to Wolters Kluwer in 2002. He joined with McGuire to form NameProtect.com in 1997, bought by Corporation Services Company in 2007.
“I’ve never, ever not given money back to an investor,” Wiegand said. “Having success has been the easiest and most compelling part of making it (new business ventures) work.”
Madison: The Third Coast
Regional cheerleaders like to call Madison the “third coast” (versus “fly-over”) noting its deep talent pool and numerous creative-class amenities that make it attractive to firms that would otherwise be found only on the East and West Coasts.
“The pattern we see in many cases is great homegrown companies, many of which are started here because the entrepreneurs went to school here or got another introduction to the area and wanted to stay, after being acquired,” said Anne Ross, managing partner of Foley & Lardner’s Madison office. “Microsoft acquired Jellyfish and thought it’s a great company, a great workforce, so there’s no reason to uproot it.”
Companies like Amazon.com and Sony Corp. also bought here and stayed here. Web retailing giant Amazon.com in 2006 acquired Madison-grown Shopbop.com and continues to run it from offices on Badger Road. Sony Creative Services, which purchased the software division of Sonic Foundry, has kept that division here for five years.
It’s quality of life factors that keep serial entrepreneurs like Wiegand and McGuire opening companies here. That — and ties to area talent — keeps those companies they sold here as well, and helps attract other firms, like Google.
Google came to Madison to work with retired UW-Madison professor Jim Smith, who has research expertise in computer architecture. As the story goes, Smith didn’t want to move to California. Both he and Jim Laudon, who manages Google’s Madison office as technical lead and manager of platforms, persuaded the company to open a small office here.
“We went out to Mountain View (California) and convinced them to come here,” Laudon explained. “Most people here are graduates of UW-Madison.”
Today, the company has a modern office in a renovated International Harvester warehouse on Blount Street with 20 work stations and a kitchen, complete with catered food, and a small locker room where workers can shower after exercising. A massage therapist visits the office weekly.
For Wiegand and McGuire, Wisconsin natives who both attended UW-Madison, being close to family, having access to good schools and a low-stress commute, makes it easy to keep launching ventures here. Other factors that make it possible include available, affordable commercial space and access to a good talent pool from which to hire.
“I view the UW-Madison as being a wonderful asset for the entrepreneurial community,” McGuire said. “It gets a lot of people like Brian and myself into Madison and it keeps us here.”
Still Growing; Not as Fast
Adding these firms to Dane County’s roster of companies will not create a high number of jobs, Converse said.
In its most recent survey on the region’s economic climate, the UW-Madison School of Business and First Business Bank noted that companies reporting themselves as technology businesses expect employment numbers to largely remain the same in 2009.
The First Business Economic Survey of Dane County reports that 60 percent of technology companies expect an increase in employment this year, while 35 percent plan on remaining the same and 5 percent anticipate decreasing employees.
These figures differ from the 2008 survey, where 86 percent of technology firms said they expected to see an increase in employees last year. The actual amount of companies that added employees in 2008 was 33 percent, while 47 percent remained the same and 19 percent decreased.
In analyzing the results, Converse said, “Themes I’m hearing are, what can we do as a company to do more with the same?”
Temper this with long-term projections released in May 2008 by the Wisconsin Division of Workforce Development Office of Economic Advisors, which predicts technology jobs to increase by 246,000 between 2006 and 2016. In South Central Wisconsin, information technology jobs are projected to rise 21 percent, from 10,400 to 21,940, with the top net job gain, 80 positions, in the field of computer software engineers and applications.
Epic Systems Corp., Dane County’s largest technology sector employer at 3,300 employees last year, said it expects to add 200 to 400 employees this year. The private medical software company is currently constructing buildings on its 530-acre Verona campus to house its growing ranks.
Risk Averse
In addition to offering a good quality of life, McGuire said the region has all the elements to start and grow a high tech business, at least to a degree. “You need good people, you need money or access to capital, and you need leadership,” he explained.
When hiring for its Internet startups, McGuire and Wiegand said they rarely have trouble finding people here with technology skills. They do, however, often search out of the area for employees who have Internet marketing experience on their resumes. This is among the disadvantages of running this type of business in the region.
Another, is a distinct lack of risk-takers, according to McGuire, who added, “But how many people are getting laid off now? I view a startup as not any more risky than working at any for-profit business.”
Capital and a transportation infrastructure are two other areas not yet up to speed with the coasts. Experts noted that the lack of direct flights to Madison harms the industry in terms of luring capital, employees and board members.
On the plus side, Wiegand said that the state has “shown a commitment” to help start and grow companies like Alice.com. For the $4 million in venture capital it recently raised, Alice.com qualified for investor tax credits under the state’s angel investor and venture fund tax credit programs. The program, or Act 255, launched in 2005 to provide as much as $11.5 million in tax credits for angel investors and venture capital investors backing high risk, high-tech start-up firms.
Momentum to Grow
No doubt about it, Ross said. The high-tech business sector has been slower to grow than others like biotechnology. But she believes that’s about to change.
“We may have a bit of a pause here after companies regroup from this downturn, but it will be back on a good growth curve,” Ross said.
“We’re very close to reaching that critical, mass — that tipping point where success breeds success and the job of selling people on the area becomes easier.”
In Wiegand’s mind, Madison is “by no means a darling nationally” in the world of high tech.
But, it has potential.
“It’s not an A-plus, but you can be successful starting companies here,” McGuire agreed. “It is a great place to grow a business.”
