Software developers coding strong in recessionary times

While the recession continues to hit hard at the national and state economies, there is a bright spot in Vermont’s job outlook. The state's information technology companies, those producing software, are doing well. Medical technologies along with mobile computing and cell phone growth are pushing software development and expanding the opportunities in this industry. As a result relatively high paying positions are available. The major problem locally is finding enough workers.

According to information supplied by the Vermont Software Developers' Alliance (VTSDA), its 64 member companies created over 300 new, high-paying jobs in 2009. They expect to create an additional 150 new jobs this year. By far the biggest generator of new jobs is Burlington’s Dealer.com, which created nearly 200 jobs last year and will continue to grow this year. John Canning, president of VTSDA's executive committee, says jobs continue to be created in his industry.

Canning can point to impressive figures for his alliance and how its members are helping bolster the state's economic base. The jobs created in the past two years add over $18 million to the state's economy based on payroll figures. The 300 employees will pay over $1 million a year in income taxes and another $1.2 million in property taxes. Also, this industry, with a client base mostly outside the state, brings money into Vermont.

Canning, himself a software entrepreneur, said the alliance represents just 20 percent of the state's software developers (there are 320 total) and just 10 percent of the companies in the creative technology sector of Vermont’s economy. He figures there are 800 companies in the creative technology sector which includes software developers, marketing companies using technology, companies making musical instruments using technologies, and others.

Another plus for this industry are high salaries averaging over $60,000 a year, according to Department of Employment and Training figures.

The US Bureau of Labor Statistics reports that Information Technology (IT) is the fastest growing sector in the economy, with a 68 percent increase in output growth rate projected between 2002 and 2012.

Canning heads Physician Computer Company based at the Champlain Mill in Winooski. The company writes medical software and has been in business 27 years. He began his company at age 20.

“We have more business than we can handle, a good problem,” he said. “We've always prided ourselves on the quality of the service we can provide and word of mouth is catching up with us. Quality with us is number one and we will grow slower than we could to keep quality.”

Software development in Vermont as a business is possible because “it doesn't take a lot of money to start a software company,” says Canning. He points to Tiger Style a Huntington based computer games company owned by Randy Smith. Smith, said Canning, works from his home and uses programmers around the world working out of their homes to create his games.

“Basically you need an education in programming and a computer and good ideas,” to start a software company explains Canning. The companies that prove most successful here have an under-served niche such as his, which works with pediatricians. PCC employs 47 and had annual sales over $5 million last year. It reinvests most of its profits in new products. In the past two years it created six new jobs paying $35,000 to $80,000 annually.

Employee turnover at PCC and in the local industry is low. Here the average employee stays over 12 years.

According to Canning, the Winooski location “is awesome.” He likes the proximity to many services and calls it “a good place to work, with good ambiance, which is great for employees.”

Canning said Vermont's physical environment is inspiring to creative folks in his industry. “Creative people like to go hiking or skiing or snowboarding or sailing.”

While software development is growing as a local industry, problems exist. “It's hard to find good people and we need better education,” said Canning. The industry does rely on local schools and Vermont Technical College and Champlain College produce some of the new hires. Yet, he says, “some area colleges aren't focusing on modern approaches to software development.”

Chris Johnson at the Technical Connection a Burlington technology headhunter firm highlights this hiring problem. “We have 40 unfilled software jobs that I am working on here, we are screaming for people,” he said. These jobs pay $45,000 to $85,000 for prospects with two to 10 years’ experience.

Hurting hiring is the lack of returning Vermonters who want to start families here, after working in major markets like Boston. The weak housing sales in bigger markets means these potential hires can't return because they can't sell their homes in those markets.

Also affecting hiring is that “everybody is hunkered down in the recession. People are reluctant to move they are fearful if it doesn't work out. In flush times a lot of people look to change jobs but we're not seeing that.”

As a result, companies struggle to find the talent. Johnson said today it is difficult finding experienced software engineers and recent college graduates are without experience, and it takes time for them to become productive.

Another difficulty for the software industry here and elsewhere is finding financing. “There is basically nothing for a bank to have for collateral,” said Canning. Also affecting borrowing is federal legislation that “makes it harder for banks to loan based on what qualifies as collateral.”

Broadband access here can also be problematic to a software developer. “The more access we have in rural Vermont the better it is for my industry in particular,” Canning explained. PCC’s 47 employees come from eight counties and when there is a snow day just 75 percent can work from home while the others do not have broadband access. However, the problems Vermont software developers face are not homegrown. Canning points to similar issues across the country from Massachusetts to Silicon Valley.

Tom Jaros is a software developer and owner of Empower Mobility in Essex currently developing iPhone application software.

“Everything is pointing in a positive direction,” he said of his industry. “Despite a down economy software companies and all facets of software technology and bioscience are blossoming.” He points to smart phones and mobile devices as the fuel in this surge.

He sees smart phones as an important aspect of growth and with that software has become integral to most companies today. “Software and technology are creative outlets for people. Bioscience is important and people are paying attention and it is a sustainable industry.”

He's an unabashed booster for his industry and sees it as “the future of Vermont.”

Software development is an industry that will generate tax dollars and pull in money, pay high wages and spend locally says Jaros. The state attracts workers because of the quality of life but, he notes, there is some apprehension with those moving here if their initial job does not work out.

The hub of the industry is in Burlington, and says Jaros, “if you need a city fix you can hop on an airplane. Burlington is a stepping stone to Montreal.”

“Vermont is a great place to live, raise a family, and there is big change in infrastructure coming despite Burlington Telecom's and Fairpoint's problems. Wireless will improve, he predicts, “as all this goes in the right direction I don't see why it won't get better.”

Jaros creates IPhone Apps and is currently building a game. “You can make a serious living in mobile computing and people do it every day,” he noted. Mobility has been around for 20 years but with the recent push of smart phones, social media and content these devices will be expanding. “The mobile computing software space is full of opportunities why not do it in Vermont.”

Paul Dandurand at PIEmatrix Inc. in Burlington calls his industry “vibrant”. He said companies here need to look at the nation and world as a market. However, “raising money is difficult because there are not a lot of rich people.”

Dandurand financed his company with proceeds from the sale a California based business he owned as well as from financial lenders in Vermont and New Hampshire and institutional funding from VEDA and CEDO in Burlington.

PIEmatrix writes software for “cloud computing”. He calls is “a platform for managing, executing and governing best practices. It’s like a project management tool but much more extensive.”

The company has ten employees and clients include the State of Vermont, St. Michaels College, The University of Vermont, several local banks and NASA.

Dandurand acknowledged the difficulty his industry faces finding highly skilled people but said he hired former VTC students, which now comprise half his 10 employees. “At the entry level local talent has worked out well. With more senior talent we have to look outside the state.”

The future looks good for this entrepreneur and his industry. He said the economy is starting to turn around and “technology turns around faster than other industries and will help Vermont.” He sees technology as “a driving force for early change in the economy. There is always demand for improvements in computers and technological firms.”

Another successful software company is Vermont Systems in Essex Junction. “We're doing fine,” says president Giles Willey. The company’s strong presence in the niche software domain of parks and recreation software means the company doesn’t “see dips and spikes with municipal and military contracts.” 2009 was the company’s best year with annual sales $18.5 million and sales this year will be similar.

“There are always pockets where the dollars are still available and somebody always has some money,” says Willey. “We get deals where people lost jobs and there was automation and we got the contracts.”

Vermont Systems has 85 employees and average total compensation is in the $55,000 to $60,000 range. In 2008 the company hired 20 people, to fill an army contract and Willey said it was very difficult finding these new employees. Most came from Vermont, and, again VTC and Champlain College, were the primary sources of new hires. .

Willey said the software industry responds well to a fast changing economy and can react much more quickly. “It doesn't need retooling. It takes hours not years to get a new feature up and running. You don't have capital tied up in hardware. Our biggest expense is labor.”

Financing does present problems for the industry although not for Vermont Systems which hasn’t refinanced in five years. “There is no collateral with software, you are light on your feet but there is a disadvantage if you need money,” says Willey. “I wouldn't want to be a start up software company today,” he offered.

Vermont Systems provides software for the military to use at their bases to help schedule recreational activities like golfing. According to Willey, a military base is like a small town and recreation is a necessary part of running a base.

Vermont Systems also sells its software to municipalities like Burlington, Essex, So. Burlington, and Montpelier. The software helps with registrations, memberships, facility reservations, and league scheduling.

He calls his “a stable niche business.” In business for 20 years every year sees about the same number of sales with its 1000 client municipalities.

If Willey has any complaints about the future it is with state tax policy, which he categorized as “…awful, you can't compete.” He wants lower corporate taxes and a simplified permitting process as well.

Green Mountain Software in Colchester is a two-person company. Ann Pettyjohn calls her company “primarily a consulting company. We do custom software for other companies.” GMS writes applications for food safety inspection for Ecolab in St. Paul a Fortune 500 company and for other companies.

Pettyjohn and partner Lou Kreig are also writing software for mobile devices, which are “definitely exploding with the IPhone and iPad.” With Apple giving developers a more generous cut of the profits than in the past, which can amount to 70 percent, this can be a lucrative venture.

Recently GMS started a division called Jazz that will develop its own products. These will consist of productivity applications, to help professionals organize their work life. Jazz Notes will be the first product and, says Pettyjohn, “it will make note taking easier on an IPhone and IPad. Developing a product can take several months to get to a release version. The challenge is getting the word out as there are over 100,000 applications available for these devices and 70 percent or more are news applications or games. Productivity applications, she said, are far fewer and there is still quite a bit of opportunity in that area.

The biggest challenge Kreig and Pettyjohn face currently is raising capital. “Because we’re dealing with intellectual property, it’s very difficult to do business financing,” Kreig explains. He would like to see some sort of quasi-governmental authority created to help software entrepreneurs access financing to grow.”

“You have to do a lot of bootstrapping,” says Pettyjohn. “We are using funds from our consulting company for our own products. There are angels but we haven't dipped into that. Bank loans are not feasible,” she explains, because “many banks don't get it. It’s easier to get funding to buy a building. Funding for us is really for job creation to do the work.”

The future here looks good. “There is a tremendous opportunities if we do the right things and capitalize on that and for our consulting company. I see the demand getting greater and greater,” says Pettyjohn.

She is upbeat about software development in Vermont, calling it “vibrant and growing.” According to her, “Vermonters should know this is an industry that will allow them to stay here and it's a green industry.”

John Canning summarized his industry this way. “There is a lot of opportunity and the sky's the limit.” He says the model Vermont should follow is Switzerland, which maintains agriculture and tourism and a strong technology sector. “High tech represents 75 percent of Vermont's exports, agriculture is the rest. I think the state should put a lot more interest in this industry.”