In Utah, a tale of revival on the dotcom trail

Tim Gibson could have simply left. Like his brother, he could have surveyed the wreckage of his failed Utah experiment and packed his bags.

There was no denying his start-up was broke - no one was coming to rescue a company that sold chemistry sets and remote-control cars over the Internet. Such dotcom hobby shops had been tried elsewhere, in places where money flowed more freely. They had failed, spectacularly.

Yet Mr. Gibson did not leave, and the success story that has unfolded since is a parable of persistence and promise for places like Utah. While Boston and Silicon Valley were the hardest hit by the dotcom implosion, smaller tech centers from Carolina to Colorado faced the challenge of mere survival amid layoffs and corporate relocations.

Now, as some are beginning to come through the other side, Utah is providing one case study of how locales can weather the industry's harsh economic cycles.

Not that Utah is a Silicon Valley facsimile laid over the relief of the Wasatch Mountains. It has its own advantages and challenges - its own eclectic mix of multilingual Mormon missionaries and millionaires too circumspect to flaunt their wealth.

But in crucial ways, Utah has been able to recreate the Silicon Valley machine, with its flows of fresh-faced computer geeks, its constellation of start-ups, and its entrepreneurial spirit.

"That's what tech hubs like Silicon Valley and Boston have been so adept at - they've created a critical mass," says Rob Koepp, a researcher at the Milken Institute in Santa Monica, Calif. "The key is not to recreate the dream of the New Economy but to find a way to get through [the tough times]."

The past few years have been as tough as any the Utah tech industry has ever seen. Month by month, the bad times have accumulated like an unfinished epitaph simply waiting for the final flourish.

In quick succession, Utah's flagship companies disappeared. Iomega moved to San Diego. WordPerfect dissolved into insignificance. Novell was ground under the boot of Microsoft and eventually moved its headquarters to the Boston area.

Dusting off after tech bust

"It hurt our status in terms of being a national player," says Jeff Thredgold of Thredgold Economic Associates here.

And that was before the downturn. When the correction came, Gibson saw it sweep out from Silicon Valley and across Salt Lake City like a mountain zephyr, smashing Internet business ideas into kindling. It was a consuming fear that every dotcom was built on shaky economics. "The money dried up," Gibson says, and his company "cratered."

He considered following his brother out of state. He had job offers. But instead, he bought up all the company's stock and started afresh, maxing out his credit cards and taking donations from relatives to save what is now HobbyTron.com.

Three years later, HobbyTron.com does a healthy $8 million in business a year - and growing - and Gibson stands as a symbol of Utah resilience.

No one is quite sure where it comes from, this Utah entrepreneurship. Some suggest that it is rooted in the state's frontier spirit, where lives were so often risked for the prospect of great gain. Others point to a strong business tradition that has emerged in the culture surrounding the Church of Jesus Christ of Latter-day Saints. Yet no one denies its presence.

"It's at the heart of the community," says Patrick Byrne, head of Overstock.com, an online store based in Salt Lake City. "A lot of kids here grew up wanting to be entrepreneurs."

World-class talent

There are other reasons Mr. Byrne chose Salt Lake more than a decade ago when he was looking for the country's best business environment. Mormons returning from their missions bring a range of language skills perhaps unequaled in the rest of America. The University of Utah and Brigham Young provide a world-class source of technological and business talent. What's more, these workers come relatively cheap, and they are loyal.

"The ethics here are somewhat 1950s," says Byrne. "It looks square to the rest of the world, but there is still a good relationship between workers and companies."

Strong start-up culture

Taken together, these factors have created a sort of centripetal force that has held Utah's tech community together. It can be seen in Igor Best-Devereux, who left one of Salt Lake's biggest tech employers, 3Com, and started his own Web-based insurance company. It is this phoenix-like cycle of rebirth that has fueled Silicon Valley for decades: downturns and departures free workers to pursue their own ideas.

"We've been able to rely on software engineers taken from Novell and WordPerfect ... without the high cost," says the founder of eReinsure.

The result has been one of the strongest start-up cultures in the United States. That helped Utah remain unchanged at No. 9 in a recent Milken Institute survey of the top tech states, while Texas, for instance slipped from No. 14 to No. 23.

Where Utah fails, however, is in keeping these start-ups in-state.

There is very little venture capital in Utah, meaning that when many businesses reach a certain size, they have to go elsewhere for money or - more often - get bought by out-of-state companies. In turn, executives with experience in billion-dollar companies are scarce. And in a culture that frowns on ostentation, those that do live here often are pressured to play by different rules.

"There's hesitancy at times to show wealth," says Brad Walters, president of Maxstream, a Utah firm that develops wireless systems. "You don't want to be perceived as too successful."

Hope for the future

Those cultural peculiarities themselves can be a hindrance. Will West has lived here since he was 10, but the chief executive officer of tech-automation firm Control4 still senses a stigma.

"People [outside the state] still ask, 'Can you get a drink?' and 'What's it like to live with all those Mormons?'" he says.

As with Utah's other challenges, though, Mr. West sees improvement. And while few will predict who the next Novell or WordPerfect might be, most feel certain that it is coming.

"We need to grow a company into the billion-dollar range to take the state to that next level," says West. And now, "there are a lot more seeds that could grow into that size company."

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