By Andy Pedersen

Last year was dominated by the suffering of three giants: Nortel, 360networks and ATI Technologies. But beneath the dour headlines there’s another story: hundreds of Canadian technology ventures are still here and still strong.

Some are bruised, many a little less wildly optimistic, but many of our hightech and telecom entrepreneurs have learned important survival lessons over the past year, lessons they might actually be thankful for in the long run.

“You hear lots more about the flameouts, because they’re such dramatic stories, but I’m out there in the field and I’m telling you there is good, solid growth still happening,” said Garry Foster, Deloitte & Touche’s director of technology, media and telecommunications in Canada. Foster knows, because he’s in the midst of compiling D&T’s annual lists of the fastest growing technology companies in Canada and
around the world.

Called the Fast 50 (for Canadian companies) and the Fast 500 (for companies from all over the world), the two lists provide living proof that there are still plenty of dot-coms out there doing more than working through the bankruptcy process.

Scanning last year’s list Foster said a pattern begins to emerge, that many of these tech success stories share a common trait: focus. their growth is controlled, their ambitions reserved.

“One of the real lessons that has been learned is that if it’s difficult to sell one product, it’s twice as difficult to sell two products,” Foster said. “Canadian companies tend to be leaders in niche markets, which is a great strategy. It’s tough to be the number 50 company in the world and still be successful.”

Moncton’s Whitehill Technologies certainly didn’t get into business to be number 50. Or even number two, for that matter.

“What separates us (from companies that have faltered) is that we’ve never overreached,” said director of marketing Stephen Brooks.

Whitehill creates software which helps companies make better use of databases.

“We concentrate on the basics. While lots of other people were busy inventing software for problems that didn’t exist, we wrote software that focuses on the pains businesses actually suffer every day.”

Whitehill has managed to keep its revenue growing by focusing on just one pain suffered by just one kind of business: law firms’ billing processes. Rather than requiring admin staff to turn internal billing information into presentable bills, Whitehill’s software surfs a firm’s billing database and automatically generates bills. It’s a straightforward idea, and one that has driven the company’s revenues to $7.9 million in the year ending last August from $146,000 in 1997, its first year.

“We’ve secured a tremendous foothold in the legal industry,” Brooks said.“More than half the major law firms in North America are our clients. More than a third of the world’s largest law firms are our clients.We own the legal vertical and that’s been our strategy all
along.We decide which battlefield we’ll play on and then we win it.”

Whitehill has already selected its next battlefield: the insurance industry.

Brooks said his company can already count a handful of major insurance companies as customers, and they’re aggressively looking to expand. But he reiterates Whitehill’s guiding principle: “We’re maintaining profitability in our core market. That’s one of our main
corporate objectives.”

Canada in third place

Whitehill’s strategy landed it at 95th on last year’s world list, and an impressive fifth on the Canadian list. Foster said there
are plenty of other companies like Whitehill that are quietly, doggedly weathering the technology storm. That’s what the Fast 500 and other lists like it are for: recognizing and inspiring the winners.

“We want to help these companies grow further,”Foster said.“One of the ways we can help is to help them get noticed.”

Foster said this list does another thing, too: when it’s broken down geographically, it shows that Canada is holding its technological own. But for firms based in Silicon Valley and New York, the Canadian companies on the list are growing at the quickest pace. Last year, Canada advanced to third place out of the seven largest technology centres in North America, placing 52 companies on the list, an increase from 47 the previous year.

The rising Canadian dollar might make it more difficult for Canada to fare as well this year, but Foster said anybody would be a fool to count our country’s tech sector out just because we’ve lost some of our currency edge.

“There’s no question that the rising dollar will have some negative impact.

The Canadian technology sector is, essentially, an export sector, so losing price advantage will have an impact,” Foster said.“But I think that ultimately, our bigger advantage is the quality of our companies and the products that we’re exporting.

“The weak players have pretty much fallen by the wayside now, which leaves the focus on the many Canadian companies who have something
marketable to sell.”

And then the bad news

Despite Foster’s optimism, there’s no doubt 2002 was a difficult year for many in the tech business, especially for emerging firms. But as with Whitehill Technologies and others on the Fast 500, the fledgling companies that survived were those with a narrow focus.

Take Ottawa’s Meriton Networks, a company which saw nothing but promise at the beginning of 2002. Meriton developed optical switching technology that, in theory,would boost the capacity of certain large-scale networks. And CEO Mike Gassewitz wasn’t the only one who saw
the potential; the year before, he’d raised US$38 million from venture capitalists who believed his product could be their ticket into the red-hot telecom sector.

But then it came time to raise the second round of venture capital.

Gassewitz flew to California to make his pitch in Silicon Valley. He figured he could land at least as much as he’d raised in the first round. The lab tests were looking good, after all.

And then, disaster. “The whole WorldCom thing happened when I was out there,” Gassewitz said. “It made things very difficult,much more difficult than I was expecting. It seemed like most [venture capitalists] just decided to close their doors on technology.”

It didn’t matter that Gassewitz’s product was developing beautifully or that his market research showed plenty of demand for it.Technology had become a dirty word. The easy money was gone.

By the end of 2002, technology companies accounted for just five per cent of trading on the Toronto Stock Exchange; it had been as high as 55 per cent a year earlier.

Things had become so dire that some tech entrepreneurs like the bosses at WorldCom were driven to fraud in a last desperate attempt to survive.

But this is where Gassewitz’s focus paid off. Unlike many of the year’s highprofile flameouts, Meriton had one main product. The product seemed to work and there was real demand for it. So Gassewitz picked himself up, brushed himself off and kept making his pitch. In
December his company announced that it had, indeed, raised the US$26.5 million it needed to continue.

Six months later, Meriton’s switches are being tested by two phone carriers in the U.S., one in Britain and one here in Canada. “The trials are going very well,” said Meriton communications manager Gwen Avery. “Are we revenue-generating yet? No, but we’re very close. We’re absolutely expecting [revenue] this year.”

If it doesn’t kill you There’s little doubt Gassewitz and countless others like him were happy to leave 2002 behind. But there are some
financial analysts who argue that as difficult as the year was it has actually made the technology industry stronger.

“Really, this has been a very healthy development for the industry,” said Ross Healy, president of Toronto-based consulting firm Strategic Analysis. “The more tom-fool ideas that were floating around, the more distracted everybody was from the real, viable products that will come along.”

During the boom Healy was one of the few Canadian analysts who openly expressed doubts about technology’s seemingly unlimited potential.

He now has reason to feel vindicated yet he argues that everybody from investors to entrepreneurs to the general public will ultimately be better off because the tech bubble has burst. It forces a focus on reality instead of dreams.

But he said tech entrepreneurs have to accept that it is now much harder to find investors. “I’m not incredibly optimistic.

What’s happening in the IT sector is very similar to what happened to the gold index and gold stocks after 1981 and 1982 when we had the great gold boom and then the great gold bust.

“Then, gold just kind of faded from the radar screens of many people. I think hightech stocks will go through the same thing.”

A quick survey of Canadian investment advisors and mutual-fund administrators reveals differing opinions.“We believe that the information technology sector’s fundamentals, as well as its stock prices, have bottomed.However,we expect that the group will remain mired in a trading range until demand improves,” read a précis on AIM Fund’s Canadian Web site in June.

But also in June, Caldwell Securities Ltd. president Brendan Caldwell was quoted saying,“Most folks wouldn’t be able to tell you that the tech sector is up in excess of 30 per cent over the last six or eight months. Most folks are still locked in the mindset that the market keeps going down.Well actually it’s been recovering since the lows of October.”

Healy cautions that tech entrepreneurs shouldn’t give up hope, they should just focus it. “If you come along with a wing and a prayer and say, ‘Hey, I’ve got a great idea and all I need is some investment,’ you can forget about it,” he said.

“You’ll have to do what people have done from time immemorial: do your market research, prove to me there’s demand, develop your prototype, prove to me it works and then prove people will actually buy it.

“Basically, you’ll have to make an actual case for your idea. If you can’t, goodbye. If you can, you’re in business.”