Startup Grows Up

Startup Grows Up

UPDATE by Sean Roth | Real Estate Editor

In early 2002, Rich Swier, Jason Broom, Dan Miller and the rest of Startup Florida Inc. had what a lot of technology innovators didn't following the dotcom crash: They had cash.

They also had a nose for what sells, based on experience from other technology companies they had led and eventually sold. With those two factors, the for-profit technology incubator went about creating an investment club that backed two new technology companies in 2003 and 2004.

Both have yet to make annual profits, with one a little closer than the other. And both companies have learned lessons about how to adapt to the marketplace. Here's an update:

HIGHWALL TECHNOLOGY: Where's the pain?

Highwall Technologies thought it had it all. After finalizing most of the research and development, the company, headed by Swier, had a hardware device that located wireless devices and regulated their use. With the growth of wireless networking, Swier and his staff knew that wireless access could leave company data vulnerable and that the more security conscious would pay to close that loophole.

In March 2004, the company received a boost by signing a relationship with Islandia, N.Y. –based Computer Associates International Inc., the world's largest security management software company. Computer Associates sales staff would pitch Highwall's Sentinel hardware as an option for customers.

But once Swier and the other employees started going into the field, they realized the company had to do an 180-degree turn.

"It took us some time to find where the pain really was," Swier says. "We started talking to our customers. They would say 'That's great, but what can you do about this?' We didn't have anything to handle that, but it got us thinking."

So now, hardware plays a small part of the business plan for the company. Instead, Highwall has actually become a software company. The new concept calls for Highwall to develop and install internal security software on mobile laptops. So instead of protecting one location from attack, Highwall can protect hundreds of individual computers that can be virtually anywhere.

"Companies can spend as much as they want to secure their buildings, but it's all useless when an employee takes his laptops home or logs on to an unsecured Web site at say Starbucks," Swier says.

Swier says Highwall's software isn't just designed to control the networks laptop's access, it can lock down a laptop that is lost or stolen.

"We can also track it," Swier says. "Our product isn't just about protecting the mobile user; it's about making sure it's the right person using it in the right way."

The software can also restrict the user's ability to use removable data devices, such as USB hard drives or CD/DVD writable devices on the laptop.

"Someone could steal thousands of dollars of data with just a little USB hard drive," Swier says. "They could just plug it in and walk away. Just about every company has data that is proprietary."

As for Highway Technology's financial performance, Swier says the company is almost profitable. It should break-even or make a profit this year.

He says the level of recognized risk for individual laptop protection just made a lot more sense to customers. Plus, Swier says, software development also has the advantage of offering the company much higher profit margins.

"We were smart to go into wireless as the key because even now it's still a limited market," he says. "Where we went wrong is in the ratio of pain to money. One of our customers is the FDIC, which [regulates] all the banks in America. What they worried about was what if one of their banking guys - after auditing 20 other banks- gets hungry and just leaves his laptop sitting there in the bank."

Other Highwall customers include schools, Intel, Universal Health Services Inc. and government entities in the United States and Canada.

REAL DIGITAL MEDIA:

'The holy grail'

A month shy of its two-year anniversary under his management, Ken Goldberg says Real Digital Media LLC is improving its performance.

But it's still losing money.

"We are starting to get some traction," says Goldberg, the CEO. "We are in the throws of another round of capital raising. The industry is pretty widely acknowledged now. We have made quite a few new customers, two of which are of very significant size."

Unlike its older brother at Startup Florida, Highwall Technologies, Real Digital Media's business model hasn't changed. Just like its name indicates, the company is based around the growing market of advertising in retail stores. Real Digital Media provides software and hardware for in-store electronic signs, via a TV, LCD screen or other media, that can be updated in real time over the Internet.

The company, which currently employs seven people, is targeting the mid-market niche: less expensive than a closed-circuit media system but with more attributes than just playing a pre-recorded DVD or VHS tape. After a number of pilot programs that included big name retailers such as L.L. Bean, Goldberg has taken the business to the marketplace.

In early February, Real Digital Media announced its largest deal so far: a relationship with VISI Networks to create a digital signage network for Laboratory Corp. of America Holdings.

Real Digital Media handles the software and hardware needs for the system, and VISI Networks takes care of its own content for use on the network. Combined, they're putting a specialized healthcare informational and advertising video network in more than 300 LabCorp. Patient Service Centers. Those 300 locations are expected to translate into 1.5 million patient viewers each month. Goldberg expects that relationship to grow to more than 500 LabCorp. locations by the second quarter and an additional 300 before the end of the year.

Further, Goldberg says the company has another customer that operates 422 drug stores on the West Coast.

"Our model shows that we need to get to about 3,500 players deployed to break even," Goldberg says. "We were at about 1,000 at the end of the year. I'm predicting that we should add another 2,500 by the end of [this] year, so we should be in a neutral position from a cash flow standpoint by then."

Goldberg acknowledged there are a number of variables, and that customer growth is hard to predict. He declined to disclose how much money the company lost this year.

Goldberg says the long-term goal for the company is to reach 10,000 players deployed.

"That's really the holy grail right now," Goldberg says. "That's enough customers to show you are definitely not going away."

The company is marketing itself through trade shows and its Web site.