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This article by Barbara Fox was prepared for the January 29, 2003 edition of U.S.
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Recession: Mother of Reinvention
After 30 years in business, a marketing company closed
its doors last August with no notice. One of Sarnoff’s first spinoffs
got sold to another company that went bankrupt in October. A 10-year-old
publicly held hardware company closed last January. A chip design
startup got bought out by a bigger firm last year, but saw its office
closed two weeks ago.
The bad news continues. Throughout the downturn the pharmaceutical
area has remained relatively strong, but even the big companies have
started to announce layoffs. And the smaller biotechs — Orchid
BioSciences, Pharmacopeia, and Nexmed, to name a few — also struggle
when investors get more cautious. One of them, Swiss-based GeneProt,
has paid two years of rent on 60,000 square feet of space in North
Brunswick because it can’t get enough backing to move in.
But some companies have reinvented themselves. In the much maligned
E-commerce field, one of the most visible companies in Princeton,
Just Balls, gave up on the Internet sales model last June, and its
founder, Jim Medalia, moved to a new field. Impower, the Internet-based
spinoff of direct marketer American List Counsel, went into bankruptcy,
recovered, and last year moved to the west coast. At a start-up E-learning
company, Princeton Teaching Associates, the staff had to work without
pay to finish their products, then decided to farm out the marketing
tasks. For this salvation by reinvention story, see page 42.
In the following pages we look at some responses to the plummeting
bar graphs — companies that went out of business, that suffered
a severe downsizing, and that are operating despite the odds.
Some might take a leaf from the book of 69-year-old Vito Verruso,
who runs job fairs. If job fair participants are bellwethers for the
economy, prepare for another year of belt tightening. Verruso says
he used to get 80 to 100 recruiting companies paying $500 per table,
and now he is lucky if he sells 25 tables. He used to get up to 600
job hunters, and now he gets 1,500.
"I hate to paint such a bleak picture," he says, "but
we are not going to see a recovery until sometime next year."
What people and companies need to do, he says, is reinvent themselves.
Personally, he says, he took a leaf from People Express, the no-frills
airline of the 1970s. So now he is staging "no frills" job
fairs. "No donuts. No coffee. No lunch." And the price for
companies to recruit has dropped from $500 to $350. Participants come
Next up for Verruso: his Mega Job Fair on Wednesday, February 19,
at the Edison Clarion (732-821-7048, www.megajobfair.net). Nonprofits
get a $100 discount as a Verruso standard policy. "My father always
said, take care of the nonprofits, because some day they may take
care of you." In Verruso’s new no-frills mode, he has extended
this discount to military and educational recruiters.
"I am very proud that at my age, nearly 70, I can reinvent myself,"
he says. "That’s what the IT people need to do. The IT jobs are
finished. There are no computer jobs. They should start working in
retail. A friend of mine who switched careers is now a regional manager
at Staples. Talent will be recognized."
First in this lineup are the IT and computer companies — Diva
(Sarnoff Real Time), TranSwitch Corporation (Systems on Silicon),
and Ariel Corporation. Many many more computer companies and software
services firms are downsizing quietly, including Broadbeam, Dataram,
and Sarnoff Corporation. Nextira (aka Williams Communications and
Bell Atlantic Meridian) closed a 100-person office on College Road
in November and employees are working from their homes. Some companies
simply decline to answer questions about staff size.
In the early 1990s the Sarnoff Corporation was looking
for new ways to use its expertise in video compression. It had experts
serving on the international standards committees for what is now
MPEG, and it was doing parallel processing with what was known as
the "Princeton Engine."
Working with "video on demand" seemed like a perfect fit.
Films would have to be significantly compressed in order to send them
to individual subscribers. And though parallel processing was too
expensive for small applications, using it for video servers seemed
One of Sarnoff’s early spin-offs, Sarnoff Real Time had the first
Video on Demand system that was low enough in cost to make it look
like a profit maker for cable systems. Sarnoff Real Time moved out
of Sarnoff’s incubator in 1996 and was purchased by a big California-based
firm, Diva, which spent a lot of money when money was easy to come
by. At one point, said an insider, "Diva was raising so much money
that they had to turn it down." It offered seamless integration
of a complete on-demand television solution, including hardware, software,
and a wide range of programming.
Diva shut down in October, 2002, six months after it had signed a
five-year lease at the Forrestal Center for just over 20,000 square
feet. About 60 employees on College Road lost their jobs.
This was the final step in Diva’s Chapter 11 bankruptcy. Employees
had thought they saw a rescuing angel in Gemstar-TV Guide, which made
some job offers and was planning to purchase Diva’s intellectual property
as part of a $40 million pre-packaged bankruptcy deal. Gemstar planned
to use Diva’s technology to partner with Thomson Multimedia on an
interactive television network.
Just days before settlement, Gemstar got worried about a possible
antitrust suit and backed out. Because it had already told Diva’s
customers that it would not continue to work in the Video-on-Demand
area, Diva had no more VOD customers. Its VOD clients — AT&T Broadband,
Charter Communications, and Insight Communications — had all found
One potential buyer, according to a trade magazine, is Liberty Media
Corp. and its Liberty Broadband Interactive Television subsidiary.
But as of now the intellectual property formerly owned by Sarnoff
is languishing, waiting for a buyer.
"Diva could not dig its way out of the $500 million in debt it
incurred from the early business model assumption combined with the
days when it was too easy for high tech companies to raise money,"
says someone close to the firm. Diva had been a pioneer of VOD, but
as is often the case in big business, first can be last.
Milton Chang had high hopes for his start-up chip design
firm, Systems on Silicon, when he moved it from his house to an office
on Cornwall Road in Monmouth Junction. He sold it to a public company
last year (U.S. 1, April 24, 2002). But on January 16 the parent firm
announced it would close down the office. It’s the second semi-conductor
chip company to close in six months — Philips Semiconductors,
or what used to be VLSI, left in June, 2002.
Chang founded Systems on Silicon Inc. (SOSi) to design chips for the
access networks that connect subscribers with their telecommunication
service providers and allow for easy access to Voice Over Packet,
virtual private networks, and videoconferencing. Yet it was also supposed
to help traditional applications (Www.sosi2000.com). The overall
market for his device was expected to grow to $2.7 billion by 2005.
"The telecom industry has a long way to go to restructure itself,"
is Chang’s only comment about the closing of his division.
He had sold the firm to his former employer, TranSwitch Corporation
(TXCC), a Connecticut-based multi service access solutions company
for the communications semiconductor industry. Transwitch paid $2.4
million, but $1.5 million of that was assumed debt and only $900,000
was in cash. SOSi was to operate at Metroplex on Cornwall Drive as
a wholly owned subsidiary of TranSwitch. After the recent downsizing,
TranSwitch has 250 employees.
Each of Chang’s 12 employees was offered a package with stock options
at the time of last year’s sale.
Milton Chang has a B.S in electrical engineering from Chengkung
University in Taiwan in 1984 and a Ph.D. from Michigan State in 1992.
He spent three years with Siemens in Taiwan as a chip designer, moving
in 1995 to TranSwitch in Connecticut, as manager of Internet VLSI,
and landing in 1999 as engineering director for Intec Systems in Manalapan.
To start his company he used his own money at first, then raised a
seed investment from family and friends. Finally, he closed Series
A financing with TranSwitch in 2001. He had also raised funds from
a venture capital company, Global Technology Venture, based in Boston.
Systems on Silicon’s chip was expected to come out at the end of 2002.
"There wasn’t sufficient customer demand to make it a priority,"
says a TranSwitch spokesperson. "We put it on hold."
1100 Cornwall Drive, Suite 10, Monmouth Junction 08852. Milton Chang.
732-398-0048; fax, 732-398-0552. Home page: www.txc.com
Ariel Corporation was founded in 1982 by two digital
audio engineers, Anthony Agnello and Mark Clayton, to create and offer
development tools to help utilize digital signal processing (DSP)
technology. A Brooklyn native, Agnello is the inventor of the harmonizer,
an effects system for electric and electronic instruments that adds
extra assonant tones to a pitch, even when juxtaposed over dissonant
"What Ariel does is create components for high-end signals," said
Agnello then. "It focuses on applications that require much more
processing power than can be squeezed out of single DSP chip."
His company went public in 1994 and in 1996 he moved it from a castle
(literally) in Highland Park to a custom-designed Cranbury site, noted
for its more-than-casual atmosphere (U.S. 1, February 7, 1996).
Along the way the firm repositioned itself to be an Internet software
supplier at the crossroads of the Internet Service Provider (ISP)
and Linux markets, selling to such customers as AT&T, Boeing Aerospace,
Hewlett-Packard,Lockheed Martin, NASA, Rutgers, Texas Instruments,
Jay H. Atlas was appointed CEO in December, 1998. In 1999 Ariel had
65 employees on Route 130 and also had offices in Texas and Maryland.
But it had significant competitors (Cisco Systems and Lucent Technologies)
and a burn rate of $2 million per quarter. In 1999 it had only $6
million in cash but needed to hire staff to fill anticipated orders.
On January 31, 2002, it closed down.
A young Swiss-based company made a very aggressive move
in 2000. It leased the just-built space in a 60,000 square foot addition
to the Technology Center of New Jersey. The NJEDA, developer of that
center, might have divided the space up for smaller tenants, but GeneProt
preempted that with its 10-year contract.
So why didn’t GeneProt open its labs in the United States in 2002
as planned? GeneProt’s fortunes changed, and the space remains empty.
But the rent is being paid. One reason why is because this young bioinformatics
and proteomics company is partnering with two powerful firms, Switzerland-based
Novartis and Compaq. GeneProt analyzes proteome samples for Novartis,
and Novartis has more than $40 million in GeneProt stock. Compaq,
GeneProt’s technology partner, supplies the computers for 51 mass
spectrometers running around the clock.
GeneProt describes itself as an industrial scale proteomics company,
also involved in datamining, that can help shorten the time needed
for drug discovery. But it will depend on other companies for partnerships
and profits, and — perhaps because of the weakened economy —
it has not racked up many deals.
Nevertheless, GeneProt does have the deal with Novartis and it has
just announced a second agreement. Serono, a global biotechnology
company with five products on the United States market, will test
some polypeptides and proteins that GeneProt discovered with its datamining
The NJEDA gives assurances that is not losing money on the GeneProt
deal, though it has restructured the lease. GeneProt signed a prepaid
one-year lease for 60,000 square feet beginning July 1, 2002 and ending
June 30, 2003. "We are still counting on GeneProt to occupy
some space, though not as much as they originally planned," says
Glenn Phillips, spokesperson for the NJEDA. (GeneProt had hoped to
build an additional 40,000 square feet.)
"The lease contains milestones that, if satisfied prior to June
30, 2003, would convert the lease into a nine-year lease. If they
do not hit the milestones, there is a liquidated damages clause that
would require GeneProt to pay the EDA," says Phillips. The building
is now vacant and the company works from its Geneva facilities.
III, North Brunswick 08902. Keith Rose, chief scientific officer.
732-246-8950; fax, 732-246-8948. www.geneprot.com
One optimistic E-marketing company that went bankrupt,
Impower, is now alive and well in San Francisco, and a company that
it bought — Datamark Technologies — has bought itself back
and is operating profitably.
In January 2001 Impower was an 80-person division of American List
Counsel with an E-mail database program and outsourced mail distribution
solution. It did interactive direct marketing for such clients as
American Express, Dell Computer, Time Warner, Barnes&Noble.com,
Impower was sharing quarters with the 20-year-old American List Counsel,
and both companies were cramped. Donn Rappoport put ALCs cozy corporate
home — a converted farmhouse on Orchard Road — up for sale,
and made plans to move to the Dow Jones campus on Route 1 and Ridge
Road. ALC and Impower rented 110,000 square feet, about one-third
of the new building that Dow Jones no longer needed. (Later this building
would house 9/11 refugees).
Among the owners of Impact were Donn Rappoport, chairman of American
List Counsel, and Harry Brener, of Technology Management & Funding.
Impower ignored the dotcom downturn that started in the spring of
2000. With $42 million in venture capital, Impower grew to 120 employees.
But in May, 2001, Greg Ellis (an Opinion Research alumnus) was brought
in to do a turn-around and in August, 2001, he took the company into
Chapter 11 bankruptcy. Said Ellis at that time: "Like lots of
Internet companies, this one raised quite a bit of capital and built
out an infrastructure in anticipation of a very large business and
grew very rapidly for some time. As with lots of dotcom companies,
lots of our customers vaporized. But we have the core of a healthy
business, just nowhere near as large as anticipated."
When Impower came out of bankruptcy, Greg Ellis left. Now Tom McCarty
is the president of Impower, which relocated to California and works
on projects with American List Counsel. As part of the bankruptcy
settlement, Jack Kaplan and David Berk bought back Datamark Technologies
from the creditors. Datamark had been owned by Datamark for just one
year before the buyback in March 2002.
Datamark remains profitable. "We’re a great little business. We
do electronic gift card and loyalty programs to retail, restaurant,
and hospitality market," says Kaplan. His clients include RJR,
Brooks Brothers, and J. Crew.
CN 5367, Princeton 08543. Jack Kaplan, president. 609-580-3500; fax,
Jim Medalia made a big splash in the E-commerce field
in 1998 when he opened a six-person company to sell sports equipment,
namely balls, over the Internet. Photos of him splashing around in
a bin of brightly colored balls made the covers of every area publication.
He compared his firm with the online bookseller Amazon.com (U.S. 1,
August 12, 1998).
Then came the dotcom decline, and of all the online sporting goods
companies, JustBalls! was the only one to survive. Its business plan,
however, did not. JustBalls’ CEO Jim Klein, brought in by investors
two years ago, has reorganized and renamed the firm Integrated Sports
Marketing Group (ISMG). Medalia and his wife have left and are starting
a new energy-related company NWattUSA (www.nwatt.com).
Ever the ad man, Medalia has a catchy slogan, "Your energy —
you can bank on it." This time, however, his business plan is
grounded in bricks and mortar. "We have aggregated highly energy
efficient products to replace energy consuming appliances with highly
efficient system. We can raise property value significantly as well
as reduce cash flow for the home, and we also finance it," says
Medalia. He has lined up partnerships with appliance firms and mortgage
companies and has lined up statistics to prove that spending money
on energy saving is a lasting investment in the real estate.
So it seems that, once again, Medalia has latched onto The Next Big
Thing. If the Internet was the bandwagon of choice for the ’90s, energy
will be the all-consuming topic of this decade, he predicts: "In
August 2003 the caps will come off the energy prices, and prices will
rise 25 to 200 percent."
A 10-person firm founded in 1970 closed its doors last
August with no notice. "They had been here for 30 years, and they
vanished," said one of the tenants at Princeton Service Center.
The website is still up, the phone has been disconnected with no forwarding
number, and the company’s attorney, John Crayton, failed to return
Research 100 was one of Princeton’s more than 50 market research firms.
In 2001 it expanded to 5,000 square feet and built a focus group room
with one-way mirrors. The firm offered custom market research to manufacturers,
advertising and service organizations and had senior citizens as a
Mark H. Sandler, the president, was a 1981 graduate of Ithaca College
who had gone right into the family business. He has said his earliest
memories of the market research business involved coming to work with
his father, then working at Opinion Research. His father, Michael
H. Sandler founded Research 100 in 1970 with some of his colleagues.
Industry sources say that Mark Sandler has moved to Florida and is
serving his remaining clients from there. The market research business
can operate from anywhere. Sandler had said that most of his qualitative
studies were done in cities close to the client, such as New York,
Chicago, Dallas, Houston, Tampa, Fort Lauderdale, and Atlanta. Qualitative
studies usually involve focus groups, in contrast to quantitative
studies use telephone surveys or in-store research. Focus groups win
out over telephone surveys in a down economy.
And here’s an economy tip from Mark Sandler that seems prescient.
"When the economy gets soft," said Sandler, "our qualitative
work increases rather than our quantitative." Telephone surveys
are expensive, so when the accountants are seeing red, they are hard
to justify. "But rather than make a business decision blind, our
clients ask for `a small study,’ which might be a focus group."
"We have been tracking the relationship between our work and the
economy for more than 20 years," he said in July, 2001, "and
our work tends to lead the economy by about six months. When our business
goes up in terms of qualitative, in six months the economy will go
down. Right now, based on the business mix we are seeing, we are suggesting
that the economy will be soft through the end of the year."
Educational software duplicates the one-on-one dynamic
of tutoring, rather than the static dimension of a classroom lecture
from a primary teacher," said Tim Cottrell, founder and president
of Princeton Teaching Associates Software Inc. (U.S. 1, March 4, 1998).
"That’s our core intellectual property."
Cottrell discovered his teaching talent as an assistant instructor
at Princeton University. Raised in western New York, with a B. S.
from Syracuse, Cottrell was working toward a Ph.D. in chemical engineering
when he won several Princeton teaching awards. Tutoring some local
high school students in math and science, word-of-mouth on Cottrell
was so successful that by the time he got his Ph.D in 1994, he was
offered $80,000 by his high schoolers’ parents to set up a professional
He wrote down what he did in a series of steps, a learning algorithm.
"Once you experience yourself learning, you can apply that process
to any subject you want to master."
Point of view is just as important. "A crucial component, especially
with teenagers, is the ability to speak to them from a peer point
of view, instead of setting yourself up as an authority. That’s really
what led me to software. I could put more of what I knew about teaching
into a program and make it available to more people."
His first software was a teachers’ tool for AP Honors Chemistry, like
an online library. He and Patrick Dooley, the other principal at the
firm, did a project with Penguin Electronic Publishing: a CD-ROM complement
to the book, "Acing the New SAT" by Marcia Lawrence. He also
did software for Princeton University’s "I Ching" translation.
Cottrell obtained a $200,000 loan from New Jersey Economic Development
Authority’s Seed Capital Program to develop CD-ROMs for advanced placement
courses. But in 2001 his business slipped out of sight. He moved from
an office in Kingston to a storage space in Ewing and did not answer
"We worked without paychecks to finish the products, and after
we developed our first two products, we had to downsize to two staff
people to make it through the marketing period," says Cottrell.
His competitors included Peterson’s and Kaplan. "In competitive
reviews, our product would come out on top, but we were never able
to get the market penetration that they have."
This PhD chemist with no business experience learned marketing lessons
the way that most people do, by experience. "I thought if you
make great software and win awards, that customers would come through
the door. It takes a while to learn just how important marketing is.
But building a brand name takes time."
Cottrell decided to reinvent his company. "No matter how tough
it is, there is more than one way to skin a cat." He signed a
marketing deal with Films for the Humanities and Science, the four-decade-old
firm on Perrine Road in Monmouth Junction, to distribute the two products
he made with funds from the EDA seed capital loan. The teachers tools
products for AP chemistry and AP calculus have grossed more than $500,000
to date. They are CD-ROM based now and PTAS plans to release Internet-based
versions for the 2003-2004 academic year.
The company is also working on the conversion of its popular CD-ROM-based
SAT preparation product, "Acing the SAT," to an Internet based
As for Cottrell, he has full-time job at Lawrenceville School, where
he is director of information technology services and teaches chemistry
— a job that, like his products, was strategically chosen. "Working
at a school is a more realistic way to develop educational software
for a niche market product," he says. "I can do that here
without having the employee costs for running a business."
Re-invent yourself, says Vito Verruso. Think of another method to
skin a cat, says Cottrell. Turn to the Next Big Thing, says Jim Medalia.
There’s more than one way to survive bad times.
Lexington Avenue, Ewing 08628. Timothy R. Cottrell, president. Home
— by Barbara Fox
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