Start-up businesses see opportunities on North Shore

By DAVID JOYNER
Essex County Newspapers

Chris Jaeger and Nancy Perry's start-up story is like so many others that have captured imaginations. It all began in a living room.

It was 1996 and Jaeger had left his post at a large financial firm. He and Perry were dating and approaching the stage that found them thumbing through wedding magazines.

"The Internet was just starting to happen," Jaeger says. And while Perry says some give her credit for the brainstorm, it was Jaeger who had the vision for an on-line variety of the glossy tomes.

Before he knew it, Jaeger was writing stories about getting married and posting them on the Internet. The couple tied the knot themselves in July 1997, and it wasn't long before Perry left her job, also in the financial sector, to help run the operation.

"All we had when we started was a wedding magazine, not even 20 articles when we launched the site," Perry says.

Jaeger Interactive Inc. and its www.USABride.com web site have since expanded to include about 500 on-line pages and a store in which would-be brides and grooms order accessories.

Sales have tripled in three years' time, and the company now routes a weekly newsletter to about 30,000 people every Friday and offers a wedding-specific Internet search engine.

Last fall the couple was crafting a business plan and beginning to think about venture financing. As their business grew, they set ground rules: They didn't want to become too large, and in an age where e-entrepreneurs can work from any corner of the world, they were sticking to their Gloucester offices.

In that respect, they are a bit unique. While Massachusetts has a host of stories about start-up companies seeking financing or a golden public offering, few seem to come from the North Shore.

The main reason is geographic. Hot new technology firms at the center of the so-called new economy tend to root near Cambridge's intellectual capital. Those that expand generally move west and along a Route 128 corridor that, for the most part, never reaches Salem or Beverly.

But like Jaeger Interactive, some budding companies are fiercely loyal to the North Shore. And those who monitor the pulse of the area's economy note that it is flush with such successes.

In the state and New England as a whole, there is little question about the influence of entrepreneurs, especially ones tied to computer software and the Internet.

Patrick Gray, a partner in PricewaterhouseCooper's global technology group in Boston, audits public technology companies and helps them execute business plans. His division also tracks the flow of venture funding through New England.

Like everything else, the market runs in cycles, Gray says. And as with the economy as a whole, venture capital has experienced a dramatic upswing during the past five years.

In 1995, New England companies scored about $575 million in venture funding, a figure Gray says "is nothing to sneeze about." But in 1999, that number had grown to more than $2.5 billion _ a more than fourfold increase.

Chet Marcus, a certified financial planner at Raymond James Financial Services in Beverly, says ideas like the one nurtured by Jaeger and Perry are at the heart of the surge.

Start-ups and emerging companies may have good concepts but little money, and need venture financing to get off the ground. After several infusions and several years of solid growth, they may then contemplate selling stock to the public.

Such successful stock offerings have made millionaires and billionaires, and the state has its share, especially in high-tech industries.

Massachusetts is one of the most important technology regions in the country, with crown jewels in Cambridge and along the Route 128 corridor. But as that eight-lane highway narrows to two lanes, it would seem that momentum is lost.

Gray, of PricewaterhouseCooper, says deciding factors are Harvard University and the Massachusetts Institute of Technology, which have created an environment that feeds upon itself. Graduates and the companies they launch tend to stay within arm's reach of the universities.

"The North Shore and South Shore are never going to get as lucky as the west did," he says.

Barney Corning, of Corning Technology Ventures in Boston, says numbers are also a factor. The area west of the city is more densely populated. "And people are willing to commute only so far, especially on 128," says Corning, who lives in Beverly.

But Corning quickly notes that start-up activity is everywhere. And as areas like Cambridge are sapped for office space, companies are overflowing.

"There's more of it up on the North Shore than there used to be," he says. "That's a good sign."

Such companies also seem to land in pockets. An example is the factory once owned by United Shoe Machinery Corp. on Route 62 in Beverly, which was renovated into a 1.5 million-square-foot campus by Woburn developer Cummings Properties.

The Cummings Center is home to more than 300 businesses, including many that have tapped pools of venture money, says Gerry McSweeney, the center's general manager. His clients include e-commerce companies and those focused on biotechnology.

But unlike people who say geography and population keep the North Shore hungry for the fruits of a fast-paced economy, McSweeney says location has been key to the center's success.

"A lot of the entrepreneurs and talent that start these companies live on Cape Ann," he says of people who tend to build businesses near their homes.

And as rental costs tend to be lower on the North Shore, McSweeney subscribes to a theory that the area is benefiting from Boston's spillover. "MIT and Cambridge tend to be the wellspring," he says. "I think we're just the logical extension of that."

Location is one reason Sensitech Inc., founded in Beverly in 1991, has stayed in the area.

One of the Cummings Center's tenants, the company markets a system that monitors perishables such as lettuce, ice cream and vaccines in cold storage. The system checks for spikes in temperature and humidity and pours data into software that tracks delivery routes and warehouses.

Given a general concern about food and vaccine safety, Sensitech Chief Executive Eric Schultz says the company is "riding some terrific waves."

Its most recent five-year growth was 679 percent. And for three consecutive years, Sensitech was named to Deloitte and Touche's Fast 50 list of growing companies.

"There are only eight companies that did that, and we were one of them," Schultz says.

As the company has expanded, it has hired between 10 and 20 people each year. "The advantage to being here is that we can attract quality software and technology people who, for various reasons, don't want to travel down into that 128 heartland," says Schultz, who joined the company as chief operating officer in 1995 and became its chief executive three years later.

But he concedes that if the company were growing faster, the region's labor pool may be a factor. "I suppose that if we were trying to hire 500 people a year, then some of these macro forces might come into play," he says.

In listing the North Shore's success stories, some also mention the not-as-obvious Varian Semiconductor Equipment Associates Inc.

Albeit not a start-up or even an emerging business, the Gloucester-based company was spun off last April from its California parent, Varian Associates Inc., in a process some have likened to an initial public offering.

The semiconductor division's business had slumped during the past decade, as Asian economies collapsed and hurt orders for its machines used to make computer chips.

But Varian Semiconductor has since rebounded, this time with its own NASDAQ stock.

The issue price in April was about $11 3/4, says Ernest Godshalk, the company's chief financial officer, and by the end of November the price had peaked at $27 3/4 and closed at $23 1/2.

Godshalk, who helped coordinate an IPO in the early 1980s, says Varian Semiconductor went through many of the same motions but was blessed with a track record. "A lot of times we say this has the excitement of a start-up with 28 years of experience," he says.

Most start-up stories are told on a much smaller scale, however, and most don't turn into blockbusters.

"They're rare, rare on the North Shore and in general," says Fred Young, director of the Massachusetts Small Business Development Center Network's Northeast Region at Salem State College.

Baby businesses of all shapes face slim odds of survival, Young says. The development center sees about 1,000 businesses each year through counseling sessions and a series of workshops. About 400 are start-ups, and about half of those never visit the center again.

But Young also notes that of those that succeed, only about 15 percent are Internet related. He and others point out that while the North Shore may not host a high-tech bonanza on the order of Cambridge, the region has more than its share of others.

And some believe the diversity is a benefit.

Salem State College emphasized the point when it opened a business incubator, called the Enterprise Center, last year.

While such facilities have sprouted across the country to help develop technology, tenants in the Salem center's renovated 53,000-square-foot building on the campus of the former Sylvania light-bulb plant are more diverse. There are makers of promotional products, handbags, granola, ceramics and vegetarian soups.

"We've seen a trend in Massachusetts where one industry is employing the whole town," says Betsy Down, the center's executive director. "By having a mixed use, if a couple of businesses fail, you haven't lost the one employer for a whole area."

The center touts lower rental costs for new businesses because services such as a copier, fax machine and mail room are shared. It also has common facilities such as board rooms and lunch areas.

The center encourages tenants to connect with the college, from offering services to students to opening their doors to internships and projects. The labor pool of students, in turn, helps the companies.

Although it has been home to some for more than a year, the Enterprise Center officially opened in October. By Thanksgiving, it still smelled of fresh carpet and paint, and was about 85 percent occupied. That translates into about 20 businesses and about 70 people working under the common roof.

Wayne Burton, dean of Salem State's business school, calls the center "the blue-collar equivalent of an MIT incubator," because it draws upon executives, students and workers with "lunch pails, briefcases and bookbags going in the same gate."

The center's concept, as with any incubator, is that of an economic engine _ to develop budding businesses, send them into the community and take on new ones. For that reason, Burton says it is critical to make sure its progeny are diverse.

The North Shore has suffered enough from large factories that were tied to single industries and closed their doors.

"I didn't want another one-trick pony," he says. "To me, the more diversified an economic base there is, the more well-prepared we are for the next millennium."