High-Tech Growth Requires Risks, Edc Told

Cultivating a high-tech business community is not for the financially faint of heart, according to the founder of Packet Engines, Spokane’s newest and highest profile high-tech company.

A comfortable, conservative approach to things like financing and real estate leasing won’t begin to compete with the existing high-tech centers of the world for best and brightest, Bernard Daines told the Spokane Area Economic Development Council’s semi-annual meeting Wednesday.

Community economic development leaders can use the traditional approaches to bring big, established companies here, Daines said. But, of course, those kinds of companies aren’t providing most of the job growth in America or the world anymore.

“But to make high-tech grow here, some people are going to have to take risks,” Daines said.

A successful high-tech company can provide explosive economic growth, Daines pointed out. Two years ago, Packet Engines had three employees. Today, he said, it has 111 employees and a payroll of $600,000 a month. It will employ at least 150 by the end of the year. If the company is ultimately successful in winning the market for which it is competing, those numbers will be dwarfed.

But seasoned investors in the high-tech industry understand that you’ve got to invest in a dozen companies to have any hope of getting a piece of three or four winners. And those few winners will provide a big enough payoff to more than offset the losses incurred by the failures.

“These are small companies that involve high risks,” Daines said. “They are companies without credit ratings, without much financing, without money for bricks and mortar. And your biggest challenge is to be able to do something to help these companies succeed.”

Daines graduated from Central Valley High School in 1964, and headed off to the fertile fields of the Silicon Valley. He became a central architect of the technology that linked personal computers together into networks. And then he became a key figure in development of the technologies that allow those networks to exchange information more and more rapidly.

He was co-founder of a company called Grand Junction Networks in 1992 that became the highest venture capital payoff to that point in Silicon Valley history. Capitalized for $4 million, Grand Junction was sold for $350 million two years later in 1994.

So Daines knows something about the rigors of building a high-technology company.

When he started Packet Engines, he said he wanted to return to Spokane to do it. But he knew the task would be more complicated here than if he’d stayed in the San Francisco Bay area.

“It was quite a truism just a few years ago that the venture capital community would not invest outside of Silicon Valley,” he says.

But they have invested in Packet Engines, to the tune of $23 million.

Spokane’s economic leaders - like those of practically every other city of any size in America - aspire to capitalize on the growth and wealth that being a center of high-technology development would bring. So Daines’ opinion on what Spokane needs to do to achieve that status is often sought.

His message Wednesday was a sobering one.

You can’t just offer a wonderful lifestyle and excellent climate and expect those companies to come, he said.

“We believe there has to be a mind-set shift,” he said.

Economic leaders will have to take some big risks to make those companies want to come. And not only in the areas of helping find capital.

Finding suitable buildings with leases that won’t bind companies with rapid growth potential beyond just a few years is important.

A vigorous effort to overcome bad publicity related to North Idaho’s image as a haven for racists is also important, he said.

Daines pointed out that in an era of extremely low unemployment, the high-technology world has the tightest labor market of almost any industry. Successful recruitment of employees is critical to any high-tech company’s success.

Daines said he’s lost at least one key recruit who was part of a mixed-race marriage because of this area’s image of intolerance.

“Everybody needs to be welcome here,” he said, “or its going to make it difficult for companies to grow because not all the workers we need are going to come from Rathdrum and Rockford.”

, DataTimes