Promise of 500 jobs might be tough to deliver on

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During last week’s press conference announcing that CodeBaby.com would headquarter its nascent operation in Colorado Springs, Chief Executive Officer Patrick Bultema said the company would grow to as many as 500 employees within five years.

Among the reasons cited for the city’s selection were its reputation as a high-tech friendly community, its many quality of life factors and its ready pool of software development and technical workers that could enable fast – even meteoric – growth.

The news was just what the Colorado Springs Regional Economic Development Corp. and city promoters wanted to hear. The promise of 500 home-grown jobs was a bright spot – almost surreal news – on the heels of six year of high-tech job losses and an otherwise cloudy economic climate.

From 2001 through 2006, 9,700 high-tech jobs disappeared from the Pikes Peak region. Another 1,000 layoffs occurred during 2007 when Intel announced it would shut down – and Hewlett Packard is expected to move its 800-employee technical and support center to New Mexico next year.

But given the current economy, is it reasonable to believe that a company can grow from 12 to 500 employees in five years?

Gary Markle, who was executive director for the Colorado Springs Technology Incubator prior to his current role as EDC vice president for local business retention, has witnessed his share of start-up successes and fizzles.

During the 1990s, he founded two software companies and admits any new venture “should go through a sanity test to see if it’s worth exploring – especially in this economy.”

“Look at Google,” he said. “They reached their goal with (only) $28 million in investment. We’ve had companies in town that have taken in four times that much and didn’t make it.”

And although impressed with Bultema’s progress so far, Markle stops short of predicting the company will add 500 employees in a relatively short time.

“Five-hundred people in five years – that’s ambitious, and I’d have to say I’m a little skeptical,” he said. “My opinion is not etched in stone, however. It’s not unrealistic to become that size of a company, given CodeBaby’s technology, but it might be tough with the current storm clouds in the market.”

His view is shared by University of Colorado, Colorado Springs professor Dr. Gary Klein, who said he could not recall “any company (during the last decade) that showed such rapid growth.”

“Companies that are already established elsewhere and open a new facility (even if for a new product) present this as a good possibility,” he said. “A startup with a product that has already generated a number of orders and active further interest would show this as a possibility. But if we are talking a new organization with an unproven market, then it becomes extremely doubtful. I hope they prove me wrong, this would be huge for Colorado Springs.”

Marilynn Force, Regis University adjunct professor of finance and former director Boulder Chamber of Commerce Small Business Development Center, has worked with several high tech start-ups, including NetLibrary.com, which made headlines during the late 1990s.

“One of our chamber employees went to work in human resources for them. They grew to several hundred employees within two or three years. It was phenomenal,” she said, adding that in today’s tougher market, it’s the value a new company can bring to the market that makes it viable – and attracts venture capital.

“When Google started, it was just a search engine that added value to the Internet,” she said. “Then they added a way to advertise, then to connect with people, to share information. What propels growth is value plus added service.”

One four-time tech start-up veteran has actually lived a dream similar to Bultema’s – and said that while fast employment growth is possible, the venture capital and funding climate has changed tremendously.

“They’ll have their work cut out for them in this economy,” said John Street, CEO of Englewood-based MX Logic, which has topped the Inc. 5000 Index list of fastest-growing Denver businesses and was ranked seventh nationally in the IT Services category.

The company was started in 2002 and employs 200 people. Its revenue is the real story, however, growing by more than 2,000 percent since inception.

Based on his experience with prior companies like Telephone Express and USA.Net, Street estimated that it would take $30 million to $50 million in revenues to be able to profitably employ 500 people. Most high-value start-ups, he said, garner $10 million to $15 million during the first round funding, but must ramp up and show market acceptance before second round funding of $50 to $100 million can be secured.

“With USA.Net, we actually did grow from 12 people to north of 500 within two-and-a-half years,” he said. “It was crazy – and hard to find enough good people fast enough. Actually the timing for starting a business – with the right concept – is great right now, if you have the money behind you.”