- The Washington Times - Monday, January 29, 2001

Region's tech firms trim work force to stay afloat

More than 30 local technology companies have cut or said they plan to get rid of an estimated 3,350 workers in the four months since the fourth quarter began Oct. 1.
The dot-com shakeout hasn't ended.
At least six local tech companies have trimmed their work forces this month.
A seventh the newly created AOL Time Warner made the inevitable post-merger announcement of layoffs last Tuesday. The new company's America Online division, based in Sterling, Va., fired 725 workers.
"A lot of layoffs have occurred, and more will occur," says Paul Villella, president and chief executive of HireStrategy.com, a Reston-based placement firm that finds workers for telecommunications and financial companies.
Despite layoffs that seem to happen almost weekly, the cuts come at a time when the job market remains tight and some techies, especially highly skilled programmers, are finding work at new employers as soon as cash-poor companies let them go.
In fact, analysts believe tech firms hired more workers last year than they fired.

Less capital, more layoffs

Less abundant venture capital and decisions by executives to slow spending by slowing their expansion are two reasons behind job cuts.
Tech companies have been scrambling to ensure they don't become the dot-bombs of the digital economy since the Nasdaq stock market crashed in April and sent valuations of tech companies plummeting. The Nasdaq dropped 39 percent last year.
"If you aren't cutting your burn rate (the rate money is spent), it's malfeasance," says Jim Fox, co-founder and chief executive at Sterling-based Equalfooting.com, a business-to-business Web site that helps small companies purchase goods and services on line and one of the region's tech firms that has cut its work force.
And cutting the burn rate often means slashing the work force.
Mr. Fox and his colleagues decided to change their marketing approach. Instead of using the company's own employees to get the word out about its Web-based services, Equalfooting.com will rely on partnerships with utilities and financial-services firms that already market services to companies.
Because of that new marketing approach, Equalfooting.com cut 35 workers in November, a move that will help the company save $1 million a month, Mr. Fox says.
Other dot-coms have cut back marketing efforts to concentrate on the business they already have, especially as investors urged cash-strapped tech companies to place more emphasis on turning a profit than on expanding operations.
For example, Silver Spring-based USLaw.com laid off 16 persons from its work force of 98 in November.
"When you start out, you want to get from zero to 60 [miles per hour] really fast, and it takes a lot of people to get there. But once you're there, it's easier to get from 60 to 70," says Peter Jaffe, president of USLaw.com, a Web-based provider of legal information to consumers and small businesses.
"We built the business. Now we're focusing on getting to profitability," he says.
USLaw.com, Equalfooting.com, Discovery.com, Advertising.com, Sandbox.com, Kinkos.com, PlanetGov.com and Capital.com are among the region's dot-coms that have laid off workers since Oct. 1. Musicmaker.com, a Reston company, shut down Jan. 4 because it couldn't compete with free services like Napster that also distribute music on line.
"A lot of dot-coms misunderstood their business model and got into a market that wasn't as strong as they thought," says Jeffrey Fialko, senior manager at Ernst & Young's McLean technology practice.
PSINet Inc. didn't scale back to concentrate on current business. It forged ahead and then watched demand for its services soften, and that led to layoffs at the Ashburn, Va.-based Internet service provider.
PSINet suffered from a mistimed entry into the market for Internet services and Internet consulting, chief executive William Schrader said following the company's decision in December to cut another 300 workers worldwide. In July, the company said it would trim 1,000 employees from the work force through layoffs and attrition.
Only about 64 of the PSINet workers who lost their jobs worked in Northern Virginia.
Mergers also are forcing companies to eliminate duplicate positions. While AOL Time Warner provides the most immediate example of that, Vienna-based Etensity's purchase Jan. 10 of OneSoft Corp., a McLean company that makes software for electronic commerce, led to the layoffs of about 30 workers at Etensity and 100 at OneSoft.

Telecoms hit hard

Dot-coms aren't the only tech companies cutting workers loose. Telecommunications firms have been responsible for some of the largest layoffs since the wave of job cuts began.
Teligent, the Vienna telecommunications company marketing local and long-distance calling service and data service to businesses, had massive cuts last year after deciding to stop its entry into new markets and focus on the 43 markets it's already in.
Teligent said Nov. 8 it would cut 700 workers from its sales and operational staff.
Bankrupt Nettel Communications Inc., a D.C.-based company that planned to market local and long-distance service, announced Oct. 3 it would lay off an estimated 250 workers. That followed the layoff of 300 workers in September.
Net2000 Communications Inc., a Herndon-based business marketing voice, video and data services, said Jan. 19 it will lay off 87 workers. The company will delay its expansion into Midwestern and Western markets. That means it will cut its sales and engineering work force that would have helped with the planned expansion.
Telecommunications companies are slowing plans for growth in large part because they don't have enough money to continue buying expensive equipment needed to get into new markets, and venture capitalists are making fewer investments in the businesses.
"The capital markets tightening is part of the equation, no question," Teligent senior vice president of marketing and communications Mike Kraft says.
Net2000's decision not to storm into new markets will save the company an estimated $80 million the cost of extending service to new cities.
While the shortage of venture capital is forcing some companies to scale back services or put expansion plans on hold, it's having a potentially beneficial effect.
"To a certain extent, the shakeout is good because it will force people to be better managers. Anybody who takes [venture capital] now has to think what their options are if the next round of funding isn't there," says John Clements, a partner at accounting firm PriceWaterhouseCoopers.
Others already are thinking ahead to the day they run out of money.
Teligent, left with 2,700 workers following layoffs, has enough funding to last it through 2001. But it is aggressively seeking funding for next year, Mr. Kraft says.

It's not all bleak

Despite the wave of layoffs that continues this year, persistent demand for skilled workers is tempering the effect job cuts have on the economy. In fact, analysts say the number of new jobs last year likely exceeded the number of layoffs locally, though few began tracking job losses until midyear.
"There is a net gain because the healthy companies are growing. The survivors are strong," says Stephen Fuller, George Mason University professor of public policy.
In addition, the region has avoided any one colossal job cut, like last Wednesday's decision by telecommunications equipment maker Lucent Technologies to trim up to 16,000 workers from its 123,000-member work force.
The region's tech firms hired an estimated 12,700 workers in 2000, Mr. Fuller says, a bit fewer than the 15,100 workers hired by local tech firms in 1999.
The Northern Virginia Technology Council estimates Northern Virginia tech companies would hire 23,000 more workers if they were available.
When Lisa Samuels, 31, lost her job at Strategy.com, a Microstrategy Inc. subsidiary, she went to a "Pink Slip party" for laid-off techies at a Herndon bar Dec. 18. She accepted another job just 10 days later as the director of product management at Audiopoint, a Fairfax start-up that delivers information over the Web using speech-recognition technology.
Ms. Samuels was one of about 300 people cast aside by tech firms who attended the first-ever Pink Slip party, organized by Netpreneur.org, a nonprofit group that produces a weekly tech newsletter and promotes tech events.
Instead of drowning their sorrows, job seekers marketed themselves and handed over business cards to prospective employers. Tech recruiters checked out the talent. Ms. Samuels got two interviews as a result of the Pink Slip party.
"The jobs are out there," Ms. Samuels says.
Because many jilted techies are finding new jobs quickly, layoffs have had little effect on the Washington region's economy.
"If you think about the unprofitable companies and what they contributed to the economy not much it's no great loss that a bad company fails, not as long as there is a shortage of tech workers because they can go on to good companies," Mr. Fuller says.

Who's still at risk?

Looking ahead, analysts predict technology start-ups are still vulnerable and will remain on unstable ground as long as venture capital isn't flowing freely.
In addition, softening demand for services has put Web page designers, Internet consultants and Internet service providers at risk.
While more layoffs at tech companies are likely, most predict the pace of layoffs to slow. Even the 725 AOL Time Warner employees who lost their jobs Jan. 23 are expected to be absorbed by shorthanded firms.
"I think we're coming out of it," Mr. Villella says.

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