Since December 2007, 8.4 million American jobs have vanished, leaving the country's unemployment rate stuck at an alarming 9.6%. Yet, many U.S. companies -- particularly small ones -- are hiring, to the tune of 723,000 new workers in 2010. While these jobs represent a small fraction of the number needed to get the economy growing again, there's much to be learned from the companies that are doing the hiring.
Let's call them the Job Creators.
Why are they growing? What groups of customers are they targeting? How are they winning customers in a slow-growth economy? What lessons can these companies offer other companies that aren't hiring? And what do the companies that are adding employees now think of government proposals to encourage them to hire?
Drawing from the Red Herring 100 -- the technology site's list of North America's 100 most promising tech companies -- I recently interviewed 17 that employ a total of 979 people. (Since I got through only the beginning of the alphabetical list, I plan to interview more companies in a few months.) Of those 17, I picked 10 that stand out as beacons of hope in the so-called jobless recovery, which sorely needs inspiration.
Have Capital, Need Workers
The Job Creators are all hiring now and plan to boost that hiring substantially -- some, by as much as 100% -- in 2011. The companies profiled here are part of a larger group of venture-capital-backed firms that accounted for 12.1 million jobs in 2009 and were looking to hire 13,314 people in the first quarter of 2010, according to the National Venture Capital Association.
The reason for their hiring is simple: They have the capital they need to pay these people, and they believe that hiring is critical to their growth. And they're growing because they're solving an important problem for customers who are happy to spend hard-earned money for their products.
In many cases, the slow economy is helping the Job Creators. That's because the companies they sell to are interested in reducing their expenses, and many of the Job Creators' products quickly help companies conserve cash, paying back the investment in their products.
One other thing -- with a single exception -- none of the Job Creators I talked with plan to hire people solely because of the tax incentives being discussed in Washington. Since many of them have been losing money during their startup stage, they don't need the tax breaks. And even if they did, they say such incentives wouldn't be an important factor in their decision to create new jobs.
Furthermore, all the talk about banks' failure to lend to small business are irrelevant for these companies because they sell equity to raise capital. Finally, these firms do little in the way of outsourcing because they think research and development is a key part of what keeps them ahead of their competition. So, they don't want to risk spilling their secrets.
Here are quick looks at 10 of the Job Creators from the Red Herring 100, with comments from a key executive at each one:
Adeptol. If you've ever tried to open a document from inside your browser, you can understand why Adeptol saw a need that was unmet. It sells On Premise Server Software, which lets a company's workers open up all kinds of documents directly from their browser without having to open separate software applications. Started in 2008 with two employees and financed by its founder and CEO, Prateek Kathpal, Adeptol now has about 20 consultants and plans to hire more in 2011.
CEO Kathpal explains: "We're highly profitable and have gotten more than 2,000 companies using our products in less than two years. Our product sells itself because it lets users view documents directly in the browser [without downloading] at a speed much faster than traditional technologies. We grow through 'extreme programming,' which lets our R&D team build a prototype quickly and get feedback from customers that we use to adjust what the product does. We plan to expand by moving onto mobile devices and signing up more distribution partnerships. The tax incentives haven't had any effect or change on our hiring plans. Most of them did not even apply to us."
Apptio. While companies will spend $3.1 trillion on information technology in 2010, they're often frustrated because they don't understand the benefits they get from their IT departments' services nor how much those services cost.. Started in 2007, Apptio has offered a service that provides answers to these questions. Financed by $37.5 million raised in three rounds, Apptio now has 90 people and plans to hire 25 more by the end of 2010, with more hiring expected in 2011.
CEO Sunny Gupta explains: "We kicked off the idea for the company by talking to 40 to 45 chief technology officers to identify their pain points. Our goals have evolved each year. We started off with the goal of developing the product's version 1.0 -- identifying customer needs and building a service that between five and seven customers would buy. Now we're focused on showing that customers are getting ongoing value from the service. We wanted to see if we could grow between 300% and 400%. We exceeded that target and grew 900% in year two. The tax incentives don't have an effect on our hiring."
Avigilon. A Canadian entrepreneur bought some security cameras to protect his business and noticed that their quality was terrible. Having expertise in high-quality camera hardware and software, he started a company focused on building much better surveillance systems. Launched in 2005, Avigilon has succeeded admirably. Started with one employee, the company now has over 100 and plans to hire at the rate of one or two a week at least through 2011. It has received $18 million in capital -- $2 million of which is from venture capitalists and the balance from its executives and angel investors.
CEO Alexander Fernandes explains: "We're targeting the $10 billion market for surveillance systems -- half of which is cameras and the other half is video management software. The market is growing between 5% and 15% a year, and we are tapping the fastest-growing upgrade segment. We're now a profitable, growing company, thanks to achieving two key goals in our five-year plan: 1) build a high-quality, easy-to-use, low-priced system, and 2) commercialize that system by opening 15 locations, including six in the U.S., two in Canada, six in Europe and one in Dubai. Our next goal is to become the market share leader. To develop new products, we listen to employees and customers, and use our creative imagination. Since governments change and are slow to act, we never make business decisions based on tax incentives."
Balihoo. Do you run a small business and want to open a new branch? If so, how can you get customers to buy there? Balihoo offers a cost-effective way to attract those customers online. Started in 2005 and financed with $12.5 million worth of venture capital raised in three rounds, Balihoo now has 55 people and plans to employ 80 by the end of 2011.
Shane Vaughn, vice president of marketing, explains: "We're targeting a $130 billion local media market and hope to grow our customer base from 30,000 local marketers [product manufacturers and franchisers] to 100,000 by 2013. We're currently experiencing 30% quarter-over-quarter revenue growth while expanding across the marketing ecosystem and introducing new features such as the ability for local marketers to launch micro-sites (one- to five-page mini-websites) quickly. We adapt by responding to ongoing Net Promoter Scores (NPS), in-application feedback and customer research for product enhancements. Smallish changes in the tax structure do not currently have a significant impact on our business."
BlogHer. Back in 2005, the blogosphere wasn't very hospitable to women -- at least that was the view of Lisa Stone, a Missoula, Mont., native who went to college at Wellesley and co-founded BlogHer. CEO Stone says BlogHer -- which now produces conferences and sells advertising -- financed itself until 2007 when it raised its first round of capital ($3.5 million) from David Siminoff, then a venture capitalist with Venrock. BlogHer has since raised $12 million more. The company now has 48 employees -- up from seven in 2007, and it plans to hire more in 2011 in many functions -- including social media, advertising sales and operations, copywriting and editorial.
CEO Stone explains: "By the end of 2007, we had reached 4.1 million unique users, and we now have 23 million. We started BlogHer by accident as a way to answer the question: 'Where are the women bloggers?' By bootstrapping, we built ourselves up to 180 bloggers, and by 2006, three of our biggest sponsors told us that they'd like BlogHer to be much bigger. Venture capital has helped us build BlogHer, which now features popular blogs like Susan Niebur's Toddler Planet. We use traffic metrics to decide where to invest, and we're always trying to learn and adapt. We will review these proposed tax incentives, if approved, along with our budget process which ends in November."
Cardlytics. Do you like the idea of getting $100 to $200 in discounts every year on stuff you were going to buy anyway? Would it be OK if those offers popped up on your bank statements? If you answered yes to both questions, you'd be a prime customer for Cardlytics. Started in 2008 with two employees and financed with $26.3 million of venture capital, Cardlytics now has 72 people and expects to employ over 100 in 2011.
CEO Scott Grimes explains: "We sell to good-sized banks. We've reached 10 million households and are targeting a market of 75 million households. The product benefits all our stakeholders: Consumers with average card usage save $100 to $200 a year – with no cap to what they can save, banks get a free program that drives more visits to their website and retailers only pay for ads when consumers use offers. We can adapt much more quickly to market opportunities than large competitors. Our secret sauce is making the system work for the conservative banking industry while it also appeals to cutting-edge advertisers. We've expanded into mobile devices through the banks and are looking to social networks next and into global markets in 2011. Tax credits never enter my mind when it comes to hiring."
Cirtas. With the endless volumes of new data being created every day, companies need to store data somewhere safely. Thanks to so-called cloud storage, companies can now have data stored and managed by someone else. And they also need cloud storage controller technology from companies like Cirtas to make it perform well, work the same as on-site storage and be cost-effective. Started in 2008, Cirtas has so far raised $10 million from investors such as Amazon (AMZN). Cirtas now has 30 people and plans to hire 30 more in 2011.
CEO Dan Decasper explains: "After conducting 25 customer interviews to validate the market and make sure it needed our features, we next built a beta version of the service, developed a pricing and marketing strategy and signed up our first customer [staffing firm Robert Half International]. We compete by hiring the best engineers we can, innovating as fast as we can and forming partnerships with cloud providers and channel partners. As we grow, we'll hire people in R&D and field sales. Since we're unprofitable, tax credits do not enter into our thinking about hiring."
Cotendo. If you consume content on the Web, you know Cotendo's market -- content delivery networks (CDNs) for the websites that want to deliver that content to you. But Cotendo has nerve -- it's targeting an industry dominated by a gorilla, Akamai Technologies (AKAM), which controls 65% of the CDN market. Started in 2008 with three employees and financed with $22 million in venture capital raised in three rounds, Cotendo now has over 70 employees and plans to double that in 2011.
CEO Ronni Zehavi explains: "After 150 customer interviews, we identified frustration that customers could not deploy CDN services fast or get real-time performance reports. We got our first beta customer in 10 months and signed our first purchase order in December 2008. We now have 200 paying customers. We call customers once a month and tell them how they can save money using our service. The tax credits do not influence our hiring decisions."
CyberShift. As the economy sputters, businesses need to control their labor costs and get the most from their workers. CyberShift has developed an attractive offering, an online service that helps companies with at least 2,500 employees maximize their workers' productivity. Started in 1996, acquired in 2001 and financed with $30 million in venture capital, CyberShift now has 170 people and plans to hire 20 more in 2011.
CEO Bob Farina explains: "Controlling the cost of people is critical in a recession. We took a systematic approach to growth. We did market research to identify a segment with opportunity [midsize and large-scale global companies with complex needs]; we hired R&D staff with "software as a service" (SaaS) skills to build products while tapping domain expertise; we built out the functionality to include contingent labor management; and we plan to expand our offering to address the requirements of between 40 and 50 countries. Since New Jersey is a high-cost state, those tax incentives are worth a look."
Data Robotics. Small companies and individuals realize that their critical electronic data need to be backed up. And while plenty of vendors sell external storage systems, most are too difficult to use. Started in 2004, Data Robotics is aiming to solve this problem. It currently has 90 employees and plans to hire as many as 30 more by the end of 2011. It has received $53 million raised in five venture capital rounds.
CEO Tom Buiocchi explains: "We're targeting the $50 billion storage market of small and medium-sized businesses and individuals, in the $500 to $1,000 price range. To do that profitably, we need a cost-effective marketing strategy that focuses on influential social media bloggers and sells through many channels -- including wholesalers [Ingram Micro], online and traditional retailers and resellers. To develop new products, we regularly survey our 60,000 registered users and targeted nonusers to ask them what they'd like to see in future products. The tax incentives for small-business hiring are not big enough to matter."
These U.S. Job Creators aren't whining about taxes or foreign competition. They're working with customers to solve their problems. Since their founders have successful track records, venture capital firms are eager to invest once they're persuaded that these companies' products and services have growth potential. And the companies are hiring people to turn that growth vision into reality.
America needs more of that.