Corrections or additions?

This article by Barbara Fox was prepared for the January 25, 2006

issue of U.S. 1 Newspaper. All rights reserved.

From Adversity Little Firms Grow

Economists are getting pretty glum about New Jersey. By most accounts, lots of high paying jobs left the state last year, replaced by low-paying jobs. Mercer County lost nearly half of its manufacturing jobs in the last nine years, and telecommunications jobs met the same fate. Even the pharmaceutical companies, New Jersey’s mainstays, are moving out of state.

Greater Princeton, on the other hand, is doing much better than the rest of New Jersey. If you look at U.S. 1 Newspaper’s coverage of the region from New Brunswick to Trenton, the number of negative reports (companies that downsized, that left town for another location, or that went out of business) has remained fairly constant. For 2005 the number was 109, for 2004 it was 85, for 2003 it was 102, and so on.

The positive reports are also the same as last year or better: 79 firms moved here, 139 companies expanded, and 52 companies were start-ups.

Our tallies agree with the research of James W. Hughes of Rutgers’ Bloustein School of Planning and Public Policy, who gave the keynote speech at the Princeton Chamber-sponsored Mercer County Economic Summit earlier this month. (Mercer County claims the biggest share of what we call the "Greater Princeton" area, which also includes parts of Middlesex and Somerset counties.)

While employment increased by 2/10 of a percent in New Jersey from 2000 to 2004, total employment in Mercer rose by 6.5 percent, said Hughes. While private sector employment declined by 1.1 percent in New Jersey, Mercer County gained 4.8 percent. Class A office vacancy rates are 13 percent, compared to 21 percent for the rest of the northern and Central New Jersey market. And Mercer County’s per capita income, 32 percent higher than the nation, stayed level. "So Mercer County’s economy is one of New Jersey’s brighter spots," Hughes concluded.

Rita McGrath, an associate professor at Columbia University Graduate School of Business, agrees. For the past decade she has been using U.S. 1 Newspaper’s annual database (the same database that forms the basis of our annual Business Directory) to study the "ecosystem" of the Princeton business community, and she points out that Princeton’s diversity is its strength. In contrast to Silicon Valley, or the Italian textile industry, or the area in Switzerland where watches are made, Princeton is not tied to one industry.

"I’m struck by the variety of businesses here," says McGrath, a West Windsor resident. "However glum people might be about pharmaceuticals, this area is not dominated by pharmaceuticals. I am also surprised by the number of financial services businesses staffed by Wall Street ex-pats and hedge fund jockeys."

Indeed, the finance industry leads the way in the number of companies covered in U.S. 1 each year. We reported on 101 financial-related firms in 2005, compared to 73 for 2004. Many experts attribute the financial cluster to Merrill Lynch’s move to Scudders Mill Road in the 1980s. The big news items for this year were the move-in of American Bank Notes Holographics to 134,000 square feet in Robbinsville and the IPO of Heartland Payment Systems on Nassau Street.

Next on the list, with 71 articles, were the pharmaceutical, biotech R&D, and medical device companies, led by the move-in of Kos Pharmaceuticals, the expansion of Kyowa and Integra Life Sciences, and the going public of Medico. They were followed by information technology firms (65 articles) and the communications companies (52 companies covered last year).

A former retail entrepreneur herself, McGrath is a graduate of Barnard College (Class of 1981) and has a Wharton MBA. Her most recent book, "The Entrepreneurial Mindset," is in its second printing at the Harvard Business School Press. She will speak at the Princeton Chamber’s breakfast meeting on Wednesday, April 19, at 7:30 a.m. about her book and her in-depth research on Princeton.

Overall, Princeton is fairly characteristic of the American economy, says McGrath, because most of the businesses tend to be small, and there are lots of service businesses where the barriers to entry are relatively low. "The difference is that Princeton has a high degree of knowledge intensity, with many companies built around specific skills."

Sarnoff and Lucent may have downsized from their glory days, but their expatriates are staffing new businesses or starting their own. Sirius, Clique Communications, Sensors, Automated Threat Detection, and Princeton Technology Group are some of the companies covered in 2005 that are fueled with Sarnoff ex-patriots.

Market research, management consulting, HR consulting, and clinical research are other areas in which Princeton is strong, McGrath notes, and these skills have spawned companies like Opinion Research, Kepner Tregoe, Caliper, and Covance. "In most places, these businesses stay small, but in Princeton, some of them have gotten big enough to be really interesting," says McGrath.

She marvels at the turnover. Nearly half of the businesses that were listed in the U.S. 1 Business Directory for nine years ago are not listed today. Yet the overall population has stayed stable because of start-up firms, companies moving in ("New in Town"), companies that expand, and companies that change locations within the Princeton area ("Crosstown Moves").

A look at 49 articles on start-up companies reveals that more than one-fourth of them are home-based businesses, such as International Baby and Meredith Realty Partners. Another fourth of the companies, 16 of them, have left their basements to work in an incubator or inexpensive space conducive to start-ups. They are equally divided between the Technology Center of New Jersey (the Economic Development Authority’s project in North Brunswick, Deer Park Drive (Harold Kent’s technology office park in South Brunswick), Route 206 (Research Park and Tamarack Circle), and Lawrence Commons (near the Mercer Mall).

Expansion reports were dominated by IT companies, which had more than their share of the 139 reports for 2005. One-third (21 of the 65 articles) on IT companies were expansions, compared with 14 expansions in the financial area and 12 in the pharmaceutical area. Software firm Infragistics doubled in size, growing to 85 workers at Windsor Corporate Park, and Epam Systems grew by more than 700 percent, including its offshore branches.

"New in town" stories seemed to be dominated by the warehousing and manufacturing sector in the area of Exit 8A. One warehouse after another opened up last year. Mercedes Benz, Newegg, and Sabry Lee led the pack, and Shiseido broke ground on an expansion.

Telecommunications companies are nowhere near close to regaining their former glory, but two "new in town" companies help swell the ranks. InfiniRoute moved into Route 1 South to offer Internet phone services, and Dianet, a small company just in from Manhattan, has a good chance to win the bid on New York’s cellular phone system for subways.

As for the "Leaving Town" stories, an exit from Princeton did not necessarily mean the demise of the business. In McGrath’s study, 75 percent of businesses who left the U.S. 1 roster in a given year moved or expanded to other areas, to another spot in New Jersey or to another state.

Last year a biotech, Photon Technology, doubled its space with a move to South Jersey, and Wow Entertainment, an event-planning firm, tripled its space with a move to Somerset. The sales office for King Pharmaceuticals, featured last year for its sleep drug, has outgrown its Roszel Road space and will move this year to Bridgewater.

McGrath points out that when successful companies get bought, they often move away. The most recent example is Lenox, which has just announced it will leave Lenox Drive for Bristol, Pennsylvania. Though these events may be bad for Princeton’s business ecology, they can be good for the owners and workers.

For instance, a medical billing service founded by Joseph and Gloria Coyne went through several buyouts and is now owned by WebMD, which moved the Alexander Road office to Parsippany. Also last year Bohlin Instruments moved to Massachusetts with its new owners, and Vanda Pharmaceuticals went to Maryland. The former manager of Vanda continues to work in the same Palmer Square building as before, but for a different firm.

Branches of larger firms move out of town due to a parent company’s decision. Celgro, for instance, had a 20-person laboratory at the Technology Center of New Jersey. It moved to Summit when its parent firm, Celgene, established a headquarters there.

Princeton doesn’t really have that many big companies, and perhaps that is just as well. McGrath warns that everyone is trying to think of ways to make Einstein’s Alley (the popular term for the Princeton’s technology corridor) as successful as Silicon Valley, but that we should contemplate Ma Bell and RCA, the predecessor to Sarnoff. One reason why a Silicon Valley didn’t grow here, she suggests, is that those institutions were so strong. Says McGrath: "This economy was so vibrant for so long that the entrepreneurial itch never needed to be expressed for people to have good lives." Adversity at the corporate level can feed the entrepreneurial spirit.

my, says McGrath, because most of the businesses tend to be small, and there are lots of service businesses where the barriers to entry are relatively low. "The difference is that Princeton has a high degree of knowledge intensity, with many companies built around specific skills."

Sarnoff and Lucent may have downsized from their glory days, but their expatriates are staffing new businesses or starting their own. Sirius, Clique Communications, Sensors, Automated Threat Detection, and Princeton Technology Group are some of the companies covered in 2005 that are fueled with Sarnoff expatriates.

Market research, management consulting, HR consulting, and clinical research are other areas in which Princeton is strong, McGrath notes, and these skills have spawned companies like Opinion Research, Kepner Tregoe, Caliper, and Covance. "In most places, these businesses stay small, but in Princeton, some of them have gotten big enough to be really interesting," says McGrath.

She marvels at the turnover. Nearly half of the businesses that were listed in the U.S. 1 Business Directory for nine years ago are not listed today. Yet the overall population has stayed stable because of start-up firms, companies moving in ("New in Town"), companies that expand, and companies that change locations within the Princeton area ("Crosstown Moves").

A look at 49 articles on start-up companies reveals that more than one-fourth of them are home-based businesses, such as International Baby and Meredith Realty Partners. Another fourth of the companies, 16 of them, have left their basements to work in an incubator or inexpensive space conducive to start-ups. They are equally divided between the Technology Center of New Jersey (the Economic Development Authority’s project in North Brunswick, Deer Park Drive (Harold Kent’s technology office park in South Brunswick), Route 206 (Research Park and Tamarack Circle), and Lawrence Commons (near the Mercer Mall).

Expansion reports were dominated by IT companies, which had more than their share of the 139 reports for 2005. One-third (21 of the 65 articles) on IT companies were expansions, compared with 14 expansions in the financial area and 12 in the pharmaceutical area. Software firm Infragistics doubled in size, growing to 85 workers at Windsor Corporate Park, and Epam Systems grew by more than 700 percent, including its offshore branches.

"New in town" stories seemed to be dominated by the warehousing and manufacturing sector in the area of Exit 8A. One warehouse after another opened up last year. Mercedes Benz, Newegg, and Sabry Lee led the pack, and Shiseido broke ground on an expansion.

Telecommunications companies are nowhere near close to regaining their former glory, but two "new in town" companies help swell the ranks. InfiniRoute moved into Route 1 South to offer Internet phone services, and Dianet, a small company just in from Manhattan, has a good chance to win the bid on New York’s cellular phone system for subways.

As for the "Leaving Town" stories, an exit from Princeton did not necessarily mean the demise of the business. In McGrath’s study, 75 percent of businesses who left the U.S. 1 roster in a given year moved or expanded to other areas, to another spot in New Jersey or to another state.

Last year a biotech, Photon Technology, doubled its space with a move to South Jersey, and Wow Entertainment, an event-planning firm, tripled its space with a move to Somerset. McGrath points out that when successful companies get bought, they often move away. The most recent example is Lenox, which has just announced it will move to Pennsylvania. Though these events may be bad for Princeton’s business ecology, they can be good for the owners and workers.

For instance, a medical billing service founded by Joseph and Gloria Coyne went through several buyouts and is now owned by WebMD, which moved the Alexander Road office to Parsippany. Also last year Bohlin Instruments moved to Massachusetts with its new owners, and Vanda Pharmaceuticals went to Maryland. The former manager of Vanda continues to work in Palmer Square, but for a different firm.

Branches of larger firms move out of town due to a parent company’s decision. Celgro, for instance, had a 20-person laboratory at the Technology Center of New Jersey. It moved to Summit when its parent firm, Celgene, established a headquarters there.

Princeton doesn’t really have that many big companies, and perhaps that is just as well. McGrath warns that everyone is trying to think of ways to make Einstein’s Alley (the popular term for the Princeton’s technology corridor) as successful as Silicon Valley, but that we should contemplate Ma Bell and RCA, the predecessor to Sarnoff. One reason why a Silicon Valley didn’t grow here, she suggests, is that those institutions were so strong. Says McGrath: "This economy was so vibrant for so long that the entrepreneurial itch never needed to be expressed for people to have good lives." Adversity at the corporate level can feed the entrepreneurial spirit.


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