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Can NH Spur Innovation?

Published Wednesday Feb 25, 2009

Author THOMAS WAILGUM

The high-tech sector plays a critical role in NH's economy, but as the economic turmoil cuts deeper into budgets, some experts fear more companies will cut back on research and development. For a sector that thrives on innovation, it could mean a rockier road to recovery not only for the industry, but the state and national economy as well.

New Hampshire has focused a lot of attention on boosting the sector. Within the past couple of years, the state instituted a research and development tax credit and embarked on developing a campaign to brand NH as a high-tech state. However, a recent report shows there's more work to be done if NH is going to remain competitive and be seen as an innovation leader.

New Hampshire ranks 13th nationally for entrepreneurial practices and innovation, lagging regional competitors Massachusetts (first), Connecticut (sixth) and Rhode Island (11th), according to 2008 research conducted by the Ewing Marion Kauffman Foundation and the Information Technology and Innovation Foundation. The 2008 State New Economy Index report examines 29 factors to determine which states are leading the way in the United States' transformation into a global, entrepreneurial and knowledge- and innovation-based new economy. New Hampshire has slipped since the late '90s: In the 1999 report, NH ranked 7th; in 2002, it ranked 12th.

Though NH scores well in some areas of the report (such as workforce education and percent of population online), there are signs of trouble. For example, NH ranks 25th nationally for economic dynamism. The new economy is about economic dynamism and competition, epitomized by the fast-growing, entrepreneurial companies that are one of its hallmarks, the Kauffman report states. As innovation has become an important determinant of competitive advantage, the ability of state economies to rejuvenate themselves through the formation of new, innovative companies is critical to their economic vitality.

In another critical area-entrepreneurial activity (the number of people starting new businesses)-the report ranks NH 36th. The authors link a state's competitive advantage to innovation and the next-generation of new business models. Entrepreneurial activity is more important to state economic well-being than it was even a decade ago, states the report.

New Hampshire's low ranking worries Mary Ann Kristiansen, founder and executive director of the Hannah Grimes Center in Keene, which helps entrepreneurs in a diverse set of fields get their start. We always think of ourselves as an entrepreneurial state, but according to this, we're not, Kristiansen says. Unless we look a little more carefully at that and why that is, we probably won't have so many people hopping into [starting new companies]. If we want a lot of high tech, we need to look at [the] entrepreneurial rate. If we're going to innovate, we definitely need to keep the technology and entrepreneurial pieces going.

An Economic Force
The high-tech industry in NH is a formidable engine of economic expansion and statewide prosperity. High tech accounts for 9 percent of total private-sector employment (nearly 49,000 jobs) and approximately one-quarter of the state's economic output, according to the High Technology Industry in New Hampshire report prepared for NetworkNH and the NH High Technology Council and released in September. In 2007 alone, the state exported $1.1 billion in high-tech goods, which represented 36 percent of total NH exports, according to the report. The Kauffman Report also shows areas where NH's high-tech sector is growing in strength. The Granite State ranks in the top five states nationally for fastest growth in the percentage of jobs it has in the Information Technology workforce. NH also ranks in the top five states for the average educational attainment of recent migrants from abroad.

The range and diversity of high-tech companies within NH's borders has created a healthy and durable economy of its own. We don't have any one industry that dominates the state. We're not just a car-producing or steel-producing or textile state, says Matthew Pierson, chairman of the NH High Technology Council. High tech spreads across so many areas-biotech, nanotech, software and many different types of manufacturing materials. We are now exposed to lots and lots of areas, and that helps reduce the risk to the overall industry.

While billion-dollar tech giants like Cisco and Dell have operations in the Granite State, small- and medium-sized tech companies make up the lion's share of the industry in NH. Michael Bergeron, a business development manager for the NH Department of Resources and Economic Development (DRED), says that spin-offs from those large high-tech companies as well as the small tech firms and startups are the strength of our economy in New Hampshire. They are a foundational strength in creating [high-tech] intellectual property, and they bring a lot of creativity and diversity to our state that sets us apart.

New Hampshire's tech sector contributes greatly to the state's global reach by helping to drive exports into such markets as China, Russia, India and South America, Pierson says. There is a growing middle class in developing markets who may be customers for our products, he says. We need to continue to adapt. High tech also contributes to NH's standing as one of the most prosperous states in the nation. According to The High Technology Industry in New Hampshire report, high-tech workers earn $75,000 annually on average, which is 75 percent higher than the average NH wage for all industries. High tech has greater growth potential than other industries, says University of NH economist Ross Gittell, a co-author of the report. The industry is critical if New Hampshire wants to continue to be a high per-capita income state, and also if New Hampshire wants to attract highly educated people here-you have to have good jobs here. And if you want to serve global markets, you need high-tech industry.

At the same time, the still-maturing high-tech industry can be an erratic, risky sector prone to irrational exuberance, as former Federal Reserve Alan Greenspan termed the dot.com boom in the late 1990s. As Granite Staters know too well, high-tech busts can decimate businesses, evaporate capital and stifle innovation. In the early part of the new millennium, for instance, NH saw high-tech employment decline at a higher rate than any other state, notes The High Technology Industry in New Hampshire report. Between 2000 and 2003, high-tech employment dropped more than 22 percent in NH, compared with a decrease of just 12 percent in the United States. It remains to be seen how the high-tech industry will fare in 2009. UNH's Gittell and co-author Edinaldo Tebaldi write: Looking forward, the current weak national economy and the nation's financial system distress will make the short term a difficult time for high-tech industries in New Hampshire.

Supporting High Tech in NH
For high-tech companies that already have set up shop and are innovating in the Granite State, government entities as well as private technology groups have launched efforts to promote the success of the high-tech sector and encourage more of the same in the future. In 2007, Gov. Lynch's administration and the NH Business and Industry Association pushed through reinstatement of a research and development tax credit aimed at attracting and keeping innovative jobs inside the state. By encouraging innovation, this credit will help businesses create the products and the jobs of the future right here in New Hampshire, Gov. Lynch said in announcing the credit. The plan provides up to $1 million a year in tax credits to help companies reinvest in their development and growth, and each company can earn up to $50,000 annually in credits.

By September 2008, the state had received more than $2.4 million in tax credit requests from 71 companies. As only $1 million in tax credits is available annually, each of the 71 companies received a pro-rated share, according to the NH Department of Revenue. (The next round of R&D tax credits will be issued in September 2009, with applications due by June).

New Hampshire's low-tax, business-friendly environment is another lure for high-tech businesses to stay or move their operations to NH, says DRED's Bergeron. In 2008, the Granite State had the seventh-best overall business tax climate in the U.S. and was tops among its Northeast competitor states, according to the 2008 State Business Tax Climate Index Rankings, by The Tax Foundation, a research group. The key reason why companies are coming to New Hampshire and innovating here is because of fiscal policies, Bergeron says. The state has been very consistent over many years in lowering the cost of doing business in-state, and you can't ignore that. It also doesn't hurt the state that it's been awarded CQ Press's title of most livable state five years in a row. That's a very cool marketing hook and unique tool, he adds.

Government and private associations are also shining a spotlight on NH's innovative tech companies. The Manchester Young Professional's Network and Southern NH University have partnered to create the NH Start-Up Challenge to encourage and promote new businesses in the Manchester area. The challenge selected 20 business plans from a field of applicants. Those people are taking part in a 10-week Entrepreneurship Institute taught at SNHU to finalize their business plans. Two will be chosen to receive $25,000 in start-up funds, office space and business services.

DRED and Rock 101 WGIR radio station's two-year-old Innovation Rocks program promotes outstanding and innovative achievements by NH tech companies that have had a positive effect on the economy or the population. (Monthly winners receive on-air mentions on Rock 101, their own page on NHEconomy.com, a commendation from the Governor's office and a gift certificate to the Hilton Garden Inn in Manchester.) Recent winners cover a broad swath: DEKA Research & Development Corp., Simply Green Biofuels, General Electric and Stonyfield Farm.

The NH High Technology Council (NHHTC) offers two prestigious awards annually: the Entrepreneur of the Year Award, given each May to an individual who has made significant contributions to the advancement of technology in their business or in NH. (The 2008 winners were the founders of EqualLogic, now Dell.) The NHHTC also names a Product of the Year in November. The 2008 winner was Insight Tech-Gear, which is a maker of tactical lights, viewing equipment and lasers for U.S. special operations forces and first responders. (The other finalists included Dell Inc., Ensconce Data Technology, Eleme Medical Inc. and Bradford Networks. See sidebars for profiles.) At the November awards event, each company presented their product to the audience, and the products were judged (by the audience and a panel of judges) on their innovation, performance, functionality, value and uniqueness.
Not only is publicly rewarding high-tech innovators important, says NHHTC chairman Pierson, but NH should partner with other states' efforts, to think more from a regional perspective, he says. We face a lot of the same issues. So we'd like to team with other organizations in New England and have more people pulling the oars in the same direction around economic development-instead of like competitors. One example of that kind of partnership is the Defense Technology Initiative, Pierson says. It started out as a Massachusetts High Technology Council program to, among other things, enhance the image of the Massachusetts' defense technology companies and create new business opportunities. The program has since been expanded to all six New England states. New Hampshire is a significant player, he adds, and we're focused on bringing jobs in the Department of Defense to New England, and looking beyond just the border issues.

There's plenty more being done in-state: The Tech Village in Conway houses numerous high-tech companies; the Mount Washington Valley Economic Council's Technology Village Business Center incubates high-tech startups and aims to have 600 people working there within 10 years; the city of Nashua is exploring the feasibility of establishing a technology park; DRED developed an innovation campaign that includes a monthly publication and Web site focused high-tech innovation in NH; as well as many other high-tech gatherings and summits that aim to strengthen the industry.

The Tech Message
Today's harsh economic realities and future financial uncertainties are proving challenging on many levels for high-tech firms and the state. For NH recruiters, like DRED's Bergeron, who are trying to lure innovative high-tech companies to set up shop in the Granite State, it has become more difficult. The down economy's effect is that it has slowed down the process of [businesses] making a decision to relocate to New Hampshire, he says. The challenge is how to provide them as much information and service as possible to shorten that lead time to make that decision.

In addition to finding the cheapest and most highway-accessible piece of real estate for their offices, high-tech companies are keenly interested in knowing about the makeup of the labor force and where the skilled, highly qualified workers are located, Bergeron says. One well-known difficulty for NH has been retaining its college grads. Estimates show that roughly half of college graduates leave the state after receiving their diplomas. New Hampshire's new 55 Percent Initiative aims to keep 55 percent of graduates here after graduation. High-tech is one industry that relies on young people-programmers and computer engineers-to not only fill the work force but bring innovative ideas and products to market.

New Hampshire, it appears, also suffers from an image problem. The challenge with the grads is that they or their parents may not realize how much high-tech there is in New Hampshire, says Dave Todaro, chairman and treasurer of the Software Association of NH (SwANH) and a VP at Portsmouth-based Bid2Win, a provider of construction-management software. They might wrongly assume that they have to look outside the state to get a real job' in high-tech. There's just a ton of folks who don't realize just how much high-tech goes on in this state. Both in my involvement in the Software Association as well as participating on the judging committee for the New Hampshire High Technology Council Product of the Year award, I'm constantly amazed at how much software and high-tech innovation is here.

High-tech's awareness problem, as Todaro calls it, has come to the attention of many leaders in the state, including Gov. John Lynch and NH High Technology Council President Fred Kocher. New Hampshire is a technology state, but many people don't realize that fact, Kocher says. He points out that in 2008, The Milken Institute named NH as one of the top 10 states (9th) at achieving high-quality economic growth through its technology and science assets.

Gov. Lynch has asked DRED, the High Technology Council and members of the university system to develop a new branding and marketing campaign to get the word out about high-tech companies thriving in the state as well as the business incentives and high-tech workforce available to prospective companies. To industry players like Todaro, the awareness and branding campaign is crucial. It's for the companies looking for somewhere to locate, and they may not be thinking about New Hampshire. The perception of New Hampshire is: It's a country state, so why would I want to locate a tech company there?' And that's just wrong, Todaro says. It's almost like it's the best-kept secret, all the high-tech in the state.

Only time will tell if these various initiatives will succeed in spurring innovation and attracting more high-tech companies to NH. The next couple of years will be challenging ones for firms in the high-tech industry, write economists Gittell and Tebaldi in their report. But in high technology, with challenges come opportunities to innovate, to develop new products and services, and to serve and create new markets, and these opportunities are all available for high-technology companies in New Hampshire.

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NH High Technology Council's Product of the Year Award Winner
INSIGHT TECHNOLOGY

Insight Tech-Gear's MTMv2-LCD, which took home the top award at the NH High Technology Council's Product of the Year awards, offers users the ability to see crisp, clear, live images in total darkness, through fog, smoke or thick brush, all from an 11-ounce device that sits in the palm of a user's hand. The Londonderry-based company, which started in 1988 in a workshop of a family's basement, has come a long way. Today, it offers a broad range of cameras, thermal-imaging devices and other equipment to help military and first responders carry out search-and-rescue operations. The success of those products led to a 50,000 square-foot expansion of the facility with plans to add 200 workers.
(www.insighttechgear.com)

NH High Technology Council's Product of the Year Award Finalist
BRADFORD NETWORKS

This Concord-based company was a finalist for the NH High Tech Council's Product of the Year for its NAC Director Guest/Contractor Services (GCS) product, a network-access control device that manages guests and contractors (a.k.a. transient users) who want to log on to an organization's protected network. In today's security-conscious world, the product is critical to ensuring that those guests who have an organization's permission to access certain parts of their networks can do it in a safe, controlled and transparent way-whether it's via a wired or wireless connection. (www.bradfordnetworks.com)

NH High Technology Council's Product of the Year Award Finalist
DELL INC.
Dell acquired Nashua-based EqualLogic and its nominated PS5500E product in 2008 for $1.4 billion. The company was formed in 2001 in an attic, and the goal was to tap into the rapidly growing, still low-tech storage industry and change how it was viewed, how it was used, and how it was bought, according to the three founders. Seven years and many notable products later, the PS5500E is, essentially, software and hardware that allows companies to store data in a highly scalable and accessible way, with fewer administrative headaches and at reduced costs compared with traditional storage methods, using what's called virtualization computing technology. (www.dell.com)

NH High Technology Council's Product of the Year Award Finalist
ELEME MEDICAL INC.
Eleme's SmoothShapes System, which includes its SmoothShapes product, uses a proprietary technology called Photomology that combines laser and light energy with mechanical massage and vacuum. The Merrimack-based company's product is used for the treatment of cellulite, stimulating restoration of healthy cell activity by focusing on both the physical manifestations of cellulite and its underlying causes. (www.smoothshapes.com)

NH High Technology Council's Product of the Year Award Finalist
ENSCONCE DATA
TECHNOLOGY
The Portsmouth-based company's Digital Shredder is a portable device that sanitizes hard drives, eradicating the drive's data beyond forensic reconstruction. The need for a device that can purge hard drives with the ability to reuse is critical: PCs and laptops are everywhere and their hard drives usually contain highly sensitive corporate information. Financial loss, irreparable damage to a company's reputation, as well as civil and criminal liability for directors and officers can result from data that is accessed from hard drives that were not thoroughly sanitized, notes the company's product information. (www.deadondemand.com)

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