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Incubation sensations: Graduate companies that will never again be able to say of themselves, "Small is beautiful"

by Jennifer Agoston and Meredith Erlewine

February 2000

Anyone involved in business incubation has about a hundred and one reasons to take a bow. Business incubation has come a long way in 20 years. This worldwide industry creates opportunities for almost any type of entrepreneur, from the poorest towns to the techiest corridors.

Through NBIA's awards programs, writings and media campaigns we exalt the many successes of business incubation, usually focusing on companies that have overcome major obstacles to achieve success. This time, we decided to take an unabashed look at the numbers – revenues, employees, stock values – and highlight some incubator graduates that would stand out in any crowd. These aren't the only whoppers member incubators have produced, but they'd get anyone's attention.

MindSpring Enterprises

www.mindspring.com

Less than five years ago, MindSpring Enterprises was a client of the Advanced Technology Development Center (ATDC) in Atlanta, Ga. Today, it is on its way to becoming one of the largest Internet service providers (ISPs) in the country.

MindSpring provides World Wide Web access, e-mail services, online chat capabilities and newsgroup access to computer users throughout the United States. Subscribers total more than 1 million people from more than 780 locations.

A client of ATDC from 1994 to 1995, MindSpring grew quickly, from three employees and 20 subscribers when it entered to 45 employees and 8,600 subscribers by the time it graduated. In 1996, MindSpring issued an initial public offering (IPO).

"One of the things that helped MindSpring succeed was [its principals'] core values and beliefs. They would open every company meeting by reading those beliefs. It worked so well the incubator developed its own core values and beliefs to read at each meeting," says Dwight Holter, then manager of ATDC.

MindSpring's beginnings were humble. The company started at ATDC when the incubator was almost full; the only space available was 1,000 square feet of storage with a garage door. Not exactly ideal for a computer company. But this wasn't a problem for Mindspring founder and CEO Charles Brewer, who took the space with the notion that it would be great to open the door during the mild Atlanta spring and fall.

"Their optimism is a great asset. They see the world from a 'the glass is half full' point of view," Holter says of Mindspring team members. "They really became the poster children for ATDC."

As MindSpring grew it acquired more space at ATDC. Soon the company's space was so filled with desks, people and ringing telephones that Brewer needed an office. A small, closed-in stairwell at ATDC became Brewer's first private office.

Today, MindSpring employs more than 2,000 people and it registered revenues of more than $114 million in 1998. It has received recognition throughout the industry for its customer service and support. Honors include the No. 1 ranking in overall customer service in the J.D. Power and Associates 1999 Online Residential Customer Satisfaction study, the 1998 MVP Award for Best National ISP by PC Computing magazine and a World Class Award for Best ISP by PC World magazine.

In September 1999, MindSpring and EarthLink Network, another nationwide ISP based in Atlanta, announced plans to merge in a transaction that will create the nation's second-largest ISP. The deal, which will create EarthLink, is expected to close in the first quarter of 2000.

Peapod

www.peapod.com

Today, consumers can purchase everything from college textbooks to prescription drugs online. But that wasn't always the case. One of the nation's first companies to specialize in selling goods online is a graduate of the Technology Innovation Center (TIC) in Evanston, Ill. Peapod Inc. (NASDAQ: PPOD), a two-time NBIA award winner, was a client of TIC from 1989 through 1995.

The company began by offering an online shopping and grocery delivery service to busy families in the Chicago area. Today, just about anyone in the U.S. with Internet access can shop at Peapod's online store. The company provides its services in eight regional metropolitan markets and recently announced that it was making its services available nationwide through its Peapod Packages program. Peapod Packages offers a more narrow selection of items via Peapod.com to customers anywhere in the 48 contiguous states. Orders are fulfilled by a nationwide network of inventory and distribution facilities.

"What is extraordinary about [Peapod's founders] is that they were on the leading edge of founding an industry. When they first thought of [online groceries], it wasn't even an idea. They have been the trial and error that everyone else has followed," says Jim Currie, then manager of the Evanston incubator. "They are constantly adjusting and refocusing. All with a great sense of humor."

Peapod co-founder Andrew Parkinson is grateful the incubator was there to help the company in the beginning. "The incubator really was invaluable for us," he says. "It gave us access to brain power, resources like a mainframe and just the opportunity to be around people."

With 1998 revenues of $69 million, Peapod is the nation's leading Internet grocer, five times bigger than any other Internet grocer, according to the company. In the fall, Bill Malloy, former executive vice president of wireless operations at AT&T and guru of its Digital One Rate strategy, joined Peapod. Malloy says that "with Peapod's passion for the customer, it now has the opportunity to establish relationships with millions of households in America and ultimately become the leading provider of local interactive shopping services."

Peapod's more than 90,000 customers compute their way to delivered pet supplies and pharmacy items in addition to food. Peapod also markets its service as a unique medium for promotions and advertising for consumer-goods companies. The company employs 475 full-timers and 370 part-timers.

PSW Technologies

www.psw.com

When Ed Taylor moved to Austin, Texas, in 1989, it wasn't the burgeoning live music scene that drew him. It was a business opportunity and an incubator ready to help. At Austin Technology Incubator (ATI), Taylor founded PSW Technologies as a spinoff of Pencom, a New York-based recruiting and contract programming firm with which he was involved.

Pencom had been providing more than 200 software developers to IBM in Austin for about a year and a half, but the non-renewable contract was due to expire. "IBM didn't want to lose the people, Pencom didn't want to lose the revenue and its employees didn't want to leave Austin. So we decided to open our own software company," says Taylor, Pencom executive vice president and PSW board member. The Pencom employees became PSW employees, and IBM (and others) went to PSW for specialized services.

"The day I moved to Austin was the day I opened PSW and moved into the incubator," says Taylor. "I didn't even know how to get to the grocery store. Having the incubator bring us into the Austin society and business community was vastly helpful."

By the time PSW moved out of the incubator less than two years later, the firm employed 70 people. Laura Kilcrease, CEO of ATI at the time PSW was in the incubator, says it's no surprise the company founders have done so well. "They're dynamic, they're passionate about their business and they have great people," she says. "Ed Taylor is a great leader."

Kilcrease points out that the benefit to the Austin-area economy didn't end with the success of PSW. Taylor went on to spin off another company, Collective Technologies. PSW now employs more than 400 people, and Collective Technologies employs nearly 500. "The impact is more profound than just a simple company. It goes on."

Taylor agrees with Kilcrease's assertion. "Were it not for the incubator, I would never have been in Austin. If PSW hadn't grown into a stable company, Collective never would have happened," he says.

Since 1989, PSW has shifted its focus from software to helping companies implement e-commerce solutions, capitalizing on the growing popularity of conducting business over the Internet. According to a company spokesman, helping companies implement e-commerce initiatives now accounts for about 70 percent of PSW's business. It also provides interactive television technologies, including e-mail, enhanced broadcasting and Internet access via television, as well as other TV applications formerly of the computer realm, such as direct purchasing and on-demand video games.

Today PSW is on the NASDAQ ticker (PSWT), and its stock has been on the rise over the last year. In December, the company saw its stock jump more than 50 percent in one day after news of a favorable rating from Wall Street analysts. Experts have predicted accelerated growth for the company in part because of its shift toward Internet consulting work. Revenues for 2000 are expected to reach $70 million.

Peachtree

www.peachtree.com

Peachtree Software knows a thing or two about being – and helping – a small business. A graduate of the Intelligent Systems Shared Resource Technology Center in Norcross, Ga., the company provides accounting software designed especially for small businesses. Its products provide accounting solutions for companies with one to 25 employees.

Peachtree was one of the first companies to offer off-the-shelf accounting software for personal computers in the 1980s. The company quickly found its niche in the small-business market. With a little help from the incubator – including initial financing for a company turnaround, payroll and personnel services, and strategic advice on products and pricing – Peachtree quickly grew from a fledging accounting software company into an industry leader. Although Peachtree's award-winning products are easy to use and affordable enough for small, growing businesses, they're as powerful and effective as similar products used by larger corporations.

"Peachtree Software was really our first incubator company in the late 1980s," says Bonnie Herron, director of the for-profit Intelligent Systems Shared Resource Technology Center. "In fact, because the concept worked so well with Peachtree, we decided to expand into a full-fledged incubator program."

Intelligent Systems' pilot incubator client remained there for two years – then began to grow so rapidly that it moved to its own facility. Today, Peachtree has sold more than a million software packages. Approximate 1998 revenues were $50 million, and the company employs about 350 people.

Early in 1999, The Sage Group, an England-based leading provider of personal computer accounting software for small and medium-sized businesses, acquired Peachtree. The reasons were many. "Peachtree Software has a strong brand, established channel, focused product range and a very substantial customer base that provides us new opportunities in the United States," says Paul Walker, CEO of The Sage Group.

MapInfo

www.mapinfo.com

MapInfo Corp., a business mapping software company with clients like Microsoft, Domino's Pizza and the London, England, Metropolitan Police Department, started as a project in an entrepreneurship class at Rensselaer Polytechnic Institute (RPI) in Troy, N.Y. Help from RPI's Incubator Program helped MapInfo grow from a student project into the giant it is today, employing more than 420 people and posting revenues of $60.6 million for fiscal year 1998.

MapInfo's spatial intelligence helps clients discover unseen patterns and trends in data. The company's software helps law enforcement clients track crime patterns, wireless telephone carriers to see where their customers are losing connections and sales departments to see customer account histories imposed over maps shaded to indicate where the best sales prospects are.

But MapInfo's focus hasn't always been what it is today. When the company started, the plan was to develop an in-car navigation system. Willingness to make quick, smart business decisions marked the company's path to success from the start, according to Michael Marvin, chairman of MapInfo's board and a principal since the beginning. "Car navigation became desktop mapping within three months. I wouldn't be here today if we hadn't quickly made that change," Marvin told attendees during his keynote address at NBIA's national conference in Scottsdale, Ariz., in 1995.

During that address, Marvin told the story of the four determined young students who were willing to do whatever it took to get the company off the ground: They lived together in a cheap apartment and drove to all meetings, no matter how far, sometimes pitching tents to save on hotel bills. "They worked in shifts around the clock because we could only afford two computers," Marvin said.

According to Marvin, help from RPI and its Incubator Program was key. "There were two trustees of RPI that served on the founding board. RPI helped locate local funding and advice from RPI alums from the software industry," he said at the speech. "To say that RPI's imprint has been pervasive would be an understatement."

Goals to take MapInfo to the next level include expanding potential company-wide uses of its spatial solutions and solving business needs in targeted markets, including utilities and service industries such as retail and real estate.

Computer Aid

www.compaid.com

On time, on budget, and for a fixed price – not the usual mantra of most providers of customized information technology systems. But that is Computer Aid's innovative approach to providing products and services, and it undoubtedly stems from its beginnings in the Ben Franklin Business Incubator Center at Lehigh University in Bethlehem, Pa., where its principals were surrounded by a community of innovators. The Center is part of the Ben Franklin Technology Partners of Northeastern Pennsylvania.

Computer Aid provides specialized information technology services, including application development, maintenance and support, with an emphasis on delivering software on time and on budget. The company offers products with a heavy orientation toward fixed price, not the norm for the software industry. "It has helped us to get a lot of work and build relationships with companies, who appreciate our clear commitment to their projects," says Tony Salvaggio, Computer Aid president and cofounder.

When Computer Aid entered the incubator in 1983, it had two experienced employees and a business plan. Although the company was off to a good start, the incubator played a critical role in the firm's early growth, Salvaggio says. The incubator offered Computer Aid a credible business location for clients and employee recruits, which Salvaggio says is important "when you're a new company and your name means nothing." The Center also offered Computer Aid the flexibility to grow quickly to accommodate the addition of employees precisely when the firm needed to, something that wouldn't have been so easy to do with a traditional lease.

"[The incubator offered] a friendly community to operate in as opposed to operating alone and trying to do everything yourself. It's a positive environment with other people who are trying to do things like you are," says Frank Gillespie, general manager of new business development at Computer Aid.

Computer Aid graduated from the incubator in 1986 and now employs about 1,650 people. The privately held company reported well over $100 million in revenues for fiscal years 1998 and 1999. Goals for Computer Aid include adding new customers and continuing to provide new services, such as e-commerce, to existing customers. The company also plans to expand to a wider range of customers. "Today we're focused on the Fortune 1,000 and we're looking to serve more medium-size businesses," Gillespie says.

Computer Aid has not forgotten the help received at the Center. Gillespie serves on an advisory committee for the incubator and regularly participates in activities there. "We believe in the incubation concept and are supportive of that from a company standpoint," he says.

More Mega Successes

Albany Molecular Research, Inc.

Location: Albany, N.Y.

Incubator: Rensselaer Polytechnic Institute Incubator, Troy, N.Y.

Niche Market: Chemical research and development services for the pharmaceutical, biotechnology, and agricultural biotechnology industries

Earnings: $42 million in revenues for FY 1999

Employees: 122

Entered incubator: 1991

Graduated: December 1992

NASDAQ: AMRI

Website: www.albmolecular.com

Centocor

Location: Malvern, Pa.

Incubator: University City Science Center, Philadelphia

Niche Market: Biopharmaceuticals

Earnings: Net income of $192.3 million for FY 1998

Employees: About 1,600 worldwide

Entered incubator: 1979

Graduated: NA

NASDAQ: CNTO

Website: www.centocor.com

Centocor, headquartered in Malvern, Pa., develops therapeutic products that diagnose tumors, improve blood flow in heart attack patients and aid in the post-operative treatment of colorectal cancer. Centocor is a graduate of the University City Science Center in Philadelphia, Pa.

Hospitality Solutions International

Location: Boca Raton, Fla.

Incubator: Enterprise Development Corp. of South Florida, Palm Beach Gardens, Fla.

Niche Market: Computer systems for the hospitality community

Earnings: $50 million in revenues for FY 1999

Employees: 450

Entered incubator: 1995

Graduated: 1996

Website: www.hsi-pos.com

Curative Health Services

Location: Long Island, N.Y.

Incubator: Long Island High Technology Incubator, Stony Brook, N.Y.

Niche Market: Wound management programs

Earnings: $76.8 million in revenues for first three quarters of fiscal year 1999

Employees: 200, plus 160 hospital network members in 34 states

Entered incubator: February 1988

Graduated: February 1989

NASDAQ: CURE

Website: www.curative.com

Metrowerks

Location: Austin, Texas

Incubator: Austin Technology Incubator, Austin, Texas

Niche Market: Development and support of software development tools

Earnings: 1998 revenues around $19 million; recently sold to Motorola for $95 million

Employees: 500

Entered incubator: 1994

Graduated: 1996

Website: www.metrowerks.com

Peapod Inc., a graduate of the Technology Innovation Center in Evanston, Ill., provides everything from pharmaceutical items to pet supplies for online shoppers. The company began by offering online shopping and grocery delivery to Chicago-area families. Recently, Peapod announced that it was making its services available nationwide.

A computer map produced with MapInfo's ReportZone software. Shaded areas provide geographic and demographic information, in this case of the Albany, N.Y., area, where MapInfo is located. MapInfo is a graduate of Rensselaer Polytechnic Institute's Incubator Program.

Computer Aid employees moved into the firm's new corporate headquarters in Allentown, Pa., about a year ago. Frank Gillespie, general manager of new business development at Computer Aid, says the 50,000-square-foot building, with its three-story atrium, presents an image of success. Potential clients and employee recruits "know they're dealing with a successful company," he says. Computer Aid is a graduate of the Ben Franklin Business Incubator Center in Bethlehem, Pa.

Keywords: advocacy, impact of incubation, marketing and promotion, stakeholder relationship management, technology incubator

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