New growth from 'creative destruction'

The recession, economists say, ended over two years ago. But since the so-called recovery began, Massachusetts has lost more than 79,000 jobs.

Despite the seemingly endless stream of gloomy economic reports, new jobs are being created -- often by the people who lost their old ones.

Laid-off workers, out of desire or desperation, are starting new businesses and in doing so are playing a key role in a process known as "creative destruction." Coined by Harvard economist Joseph Schumpeter, the term describes a churning economy that is sowing the seeds of new jobs, businesses, and industries even as it destroys old ones.

Economists say it is this process that propels the economy forward, making room for better technologies, products, and jobs by getting rid of obsolete ones, much as buggy makers were replaced by automobile manufacturers. The process, however, is not a neat one.

"It is never painless," said Nariman Behravesh, chief economist at Global Insight, the Waltham economic consulting firm. "The good news is we in the US have always managed to bounce back, embrace new technology, and come out better." Indeed, Federal Reserve chairman Alan Greenspan has invoked a similar argument recently to quiet concerns about technology jobs moving offshore to countries such as India.

Now there's evidence that, after much destruction, the creative part of the equation may be kicking in. Incorporations in Delaware, considered a proxy for business formation in the United States, are up 6 percent since bottoming in 2001, while self-employment is up 10 percent since its 2001 bottom, according to Economy.com, a West Chester, Pa., consulting firm. In Massachusetts, federally guaranteed loans to small businesses grew 17 percent in 2003, following a 23 percent jump in 2002, according to the Small Business Administration.

While not many of these start-ups will become significant employers -- the SBA says only half survive more than four years -- some undoubtedly will. Here are four entrepreneurs, caught in economic destruction, hoping to end up on the creative side.

Dick Steinhoff
ValuTrack Corp.

ValuTrack Corp., a Medway computer systems engineering firm, built a solid business selling custom software and data-collection systems to manufacturers. When manufacturing crashed in the recent recession, so did ValuTrack, forcing Dick Steinhoff, the company's founder and president, to cut his entire staff of five.

Now, after keeping the company afloat servicing existing customers, Steinhoff is hoping to rebuild his company with a new software product aimed at diversifying the customer base beyond manufacturing. The new product automates the selling process from the sales call to order processing and, Steinhoff hopes, will win the company new customers in less volatile retail and wholesale sectors.

The software was developed for Allison Reed Group of East Providence, R.I., a jewelry manufacturer that wants to limit the samples carried by its sales force to cut the cost of producing sample lines and reduce the risk to sales people carrying tens of thousands of dollars in jewelry. ValuTrack's solution: a digital catalog loaded onto a laptop computer that allows customers to see the products, and sales people to create orders, by clicking on pictures of products.

The software has been well received by Allison Reed, and Steinhoff believes it could benefit other sales businesses. He concedes that it was only the severe manufacturing downturn that drove him to seek a new product for new markets. And, ultimately, he hopes that new product will again put people behind the desks that sit empty in his sprawling office.

Carol Skelly
Iatek LLC

Carol Skelly was a victim of the dot-com bust. When the e-commerce company for which she worked went bust in the fall of 2000, Skelly, five months pregnant, went home, had her first child, and started writing software. About a year later, she completed a code generation tool, which automates the process of writing computer code. And to prove it worked, she used the tool to produce software for creating Web and intranet sites.

But as she marketed her code generator, she found that customers were more interested in the Web applications. Soon, she was selling the Web software as an off-the-shelf product to designers, who, instead of building a site from scratch, easily could customize Skelly's software for their clients, as well as to small businesses, which for about $800, installed, could launch a website that is easy to maintain, update, and change.

Business is so good that Skelly has outgrown her home office in Portsmouth, R.I., and next month will move her company, Iatek LLC, to a 500-square-foot office at the University of Massachusetts at Dartmouth's Advanced Technology and Manufacturing Center, a business incubator in Fall River. She's hired two UMass-Dartmouth students to work part time with customer service and technical support, and plans, in about six months, to add a full-time programmer, as well as a salesperson.

After living through the rapid rise and crash of the dot-coms, Skelly wants to grow gradually, fueling expansion with revenues instead of speculation. Still, she says, the transformation from self-employed to employer is nerve wracking. "The nerves are definitely there," she said, "but it's exciting to be growing a business."

Tim Looney
Atrox Technologies Corp.

As Massachusetts biotechnology companies move products from laboratories to manufacturing lines, Tim Looney, an automation specialist laid off after a corporate takeover, is hoping to profit from the industry's evolution.

Looney, 32, last year started up Atrox Technologies Corp., a Lowell firm that designs automated manufacturing systems. His idea: build a niche among biotechs, as well as other emerging companies, making the transition from research to production.

So far, so good. He's landed contracts with two biotech firms, plus two other contracts from industrial companies. He's set up an office at the University of Massachusetts at Lowell's business incubator. And he's hired his first employees, two UMass-Lowell students who together work about 20 hours a week.

Looney, too, said he dreamed of starting a business, but was waiting for the right time. Getting laid off, with a mortgage to pay and a young daughter at home, was hardly ideal, but after a frustrating job search, Looney decided the time was right enough. "You have to make your own opportunities," he said.

Not that it's been easy. Looney puts in 10 hours a day at his office, breaks for dinner with his family, works at home until midnight, and is back in the office by 8 the next morning. Still, he's thinking of expansion. A mechanical engineer, he's designing a medical device that he hopes someday to manufacture himself.

Terry Landers

CMIT Solutions

An engineer with extensive management credentials, Landers got laid off by three telecommunications companies, and was expecting to go down for a fourth time when she decided it was time to take her working life into her own hands. After investigating franchise possibilities, including a mobile dog-washing service, she dipped into savings and bought a territory in Boston's western suburbs from Computer Moms, now CMIT Solutions of Austin, Texas, which provides computer technical and training services to homes and small businesses.

Less than a year after she took out $1,800 in ads in a widely distributed shopper, Landers, of Acton, has more than 150 clients, one full-time and six part-time employees, and a monthly payroll of about $7,000. Revenue has grown steadily; last month Landers crossed the break-even point, two months ahead of plan.

Like many other entrepreneurs, Landers said she always kept the idea of striking out on her own in the back of her mind, with the telecom crash providing the impetus to do it. And her confidence is growing. She's considering buying another territory from CMIT Solutions and moving operations from her Acton home into an office.

" I'm planning on getting big," she said. "I want to be a $1 million company -- at least."

Robert Gavin can be reached at rgavin@globe.com.