New Hampshire, the Software State

(This column first appeared in the New Hampshire Business Review during the Fall, 1995)

One day, New Hampshire could truly become the Software State, providing we realize both the importance of software to our state’s economy and how we can capitalize on software industry growth here in New Hampshire.

New Hampshire started its business existence as a manufacturing state, and the mill buildings in Manchester and Nashua provide a constant reminder of this. However, in recent years, traditional manufacturing in New Hampshire has seen a drastic downturn. This could perhaps be attributed to a number of economic factors, including the  recession we’ve all experienced, greater competition from off-shore manufacturing facilities, not to mention the demise of major high technology companies who were too slow to adapt to today’s PC market and post-Cold War era.

Instead of fighting these changes, it’s better to try and use State resources to build new industries and markets which will take New Hampshire successfully into the 21st century.

Why Software?
Simply said, software development has consistently been one of the fastest growing industries. The biggest differentiator from other industries is that software developers are portable. Software developers don’t have major infrastructures, manufacturing overhead, heavy equipment, etc. At the simplest level, a software developer needs just a phone  and a computer. This means that software developers, if given enough incentive, can pack up and move to a better location.

One might ask why it’s important to get software developers to move somewhere else. Software developers, while not necessarily manufacturers themselves, often require sizeable external support structures, which don’t necessarily have to be local, but if they are, the community in which the software developer resides benefits. These support structures include services like diskette sales and duplication, computer stores, legal services (contracts and intellectual property), marketing, printing, utilities (phone, water, electric), office space, take out food, travel, and more. Obviously, the local community also benefits from taxes that software companies pay.

And, if enough software companies are located in a given area, new services, such as conventions, trade shows, and conferences will start appearing there as well, leading to increased community revenues from travel and tourism.

On the flip side, software development requires very little direct community support, other than a decent local educational system (actually a benefit). A software developer’s greatest expense tends to be research and development. Plus, software is perhaps one of the most environmentally friendly industries there is.

Eco-conciousness, along with the fierce independence which allows software developers to survive, seem to be a good fit with what I would call the “New Hampshire way”.

Software Company Incentives
We’re not going to be able to incentivize software organizations to move to the state and operate from here without a number of enhancements to our current business and academic environments, however.

There are several areas where the state needs improvement in order to attract software companies, including education, communications, financing, sales assistance, software services, and networking. But, at the same time, it’s important to strike a balance between government and the private sector in terms of contributions to making New Hampshire attractive for the software industry. After all, we don’t want to add to government bureaucracy and turn out like our neighbor to the south.

Let’s look at each of the major categories of possible enhancement.

The software industry needs people trained and skilled in the use of the same technology that it uses, and such training starts in the classrooms. I’m encouraged when I see the latest course circulars from area colleges and universities, but I think more needs to be done to modernize the whole computer educational process. Many of today’s collegiate course should be taught in grade schools and high schools. Also, these courses should be taught on personal computers and not on antiquated minicomputers and mainframes. PCs have revolutionized the entire world, and are at the point where virtually everyone can afford one (and many families have at least one), but very few people really know how to program them and adapt them to a variety of tasks.

As a start, among the courses I’d like to see offered more broadly are: “C” Programming, Object Oriented Programming (separate from C programming), Database programming, Using CASE and RAD tools, Windows Application programming, Multimedia Development, Graphics Programming, Problem Solving and Debugging, Network Programming, Multi- threaded Software Implementation, Software Design Theory and Practice, Product Development Cycles, and Software Quality Control.

Granted, some of these topics are rather heady, and there are many more detailed course I didn’t list, but we have an opportunity here to bring our computer-related educational offerings into the next century, before the next century.

To achieve this next level of computer education, private industry needs to help out, by contributing both software and hardware to classrooms, and skilled individuals need to share their time to help teach these classes.

Somewhat related to education of our residents is the education of visitors to our State. At this time, New Hampshire has no large convention/conference facility in which we could host events which would attract the attention of national or international attendees. It would be wonderful if we could hold a conference like Software Development here. But, in order to accomplish that, we’d need the necessary facilities and accommodations to deal with 20,000+ visitors. Some may consider an influx of people in this quantity to a single city to be undesirable for the state and our general way of life, and they may be right. However, if it help put New Hampshire on the technological map…

Communications, especially electronic communications, are vital to growth in the software business. At my company, for example, over 70% of on-going customer communication is performed via electronic mail. Bluntly put, we can’t live without e-mail. While New Hampshire’s phone systems generally provide reasonable service in terms of voice and FAX usage, New Hampshire is still behind the times when it comes to electronic communication.

ISDN service (affordable high- speed digital lines) needs to be available throughout the state and not just in some of the cities. Some cities are also bound by unreasonable toll rates to virtually any other neighboring town, preventing affordable use of public data access numbers for nationwide systems like CompuServe. Internet access should be available throughout the state without having to sacrifice live savings (ironically, a small private provider seems to be doing a much better job of this than large companies like NYNEX – the New Hampshire way?).

Here’s where a little governmental pressure on our state’s phone companies to get their technological and pricing acts into line with the requirements of the future.

Financial Considerations
As with any new company, software start-ups need financing. Because software is a low-overhead business, the amount of such financing is not great, but necessary nonetheless.

Normally, businesses get funding from their founders (it’s what second mortgages are for, right?), the Small Business Administration (SBA), bank loans, private placements, or even venture capital. For SBA and bank loans, normal companies can leverage inventory and hard assets. A software company’s inventory consists of diskettes and manuals, and hard assets might include PCs. Neither are considered valid collateral by the SBA or banks, putting software businesses at a serious disadvantage, even though they have something potentially more valuable, namely intellectual property.

Intellectual property (IP) includes ideas, software, trademarks, patents, and more, and none of it is worth diddly to a lending institution because these institutions have no expertise or policy to deal with IP valuation. This is not necessarily something we can fix only at the state level – it’s a nationwide malady, but we can raise awareness of this lack of support for the industry of the future.

Other ways we can help out is by publishing lists of local venture capital firms and “angels”, or if that’s too much of an invasion, at least setting up regional “funding clubs” to review business plans and provide funding assistance.

On the positive side of financial considerations, New Hampshire does offer an almost taxless existence. I would add, though, that for New Hampshire based software corporations, a state R&D credit would be a useful tax incentive.

Sales Assistance
There’s perhaps only one area that the State itself might need to commit actual financial resources, and that’s in the area of sales assistance. Software companies, especially small ones who don’t have deep pockets, are always in need of help when it comes to selling their product, even more so when it comes to having an international presence.  Currently, the state a few establishes trade missions to other states and countries, but the cost of entry for these missions is still quite high from the perspective of a small company. One way to reduce costs is to leverage volume, in this case the large number of New Hampshire software developers.

Suggested venues would include New Hampshire booths or pavilions at various domestic and international tradeshows pertinent to software developers, including Software Development, PC Expo, COMDEX, and CeBIT. Both of these latter shows currently offer regional pavilions, where a company can get a smaller, less expensive booth space, partially subsidized by the region representing them. California and Maryland are among the states I’ve seen do this at CeBIT in Germany, while Hawaii has a booth block at COMDEX in Las Vegas every year. These regional booth blocks help promote the state as well as the companies located in the state, which in turn may be a way to attract more companies to do business here. Costs can be reduced for this sort of effort by negotiating preferred air fares and hotel rates for attending companies. Remember, volume reduces costs.

This concept could be extended to actually having a business development office in Europe, where New Hampshire companies could build their European sales channels from. Another thing that would be enormously helpful would be better access to our country’s biggest customer, and New Hampshire neighbor, Canada. There’s a certain irony in the  fact that while we abut Canada, you can’t get a commercial flight to Montreal or Toronto from our largest airport. Finally, we need to make the world aware of New Hampshire’s natural software resources. Every software package developed in New Hampshire should carry some sort of state-developed “Made in New Hampshire” logo. We shouldn’t even limit the logo to just software either. Put the logo on all New Hampshire goods. Maybe this will get the rest of the U.S. population to stop asking “What state is New Hampshire in?”. And, to add to the promotional benefit of a state logo, we could publish a “Made in New Hampshire” catalog (possibly broken up by various categories of product: Software, hardware, tools, etc.).

Software Services
Just as I think we should have a “Made in New Hampshire” campaign, I believe we need a “Buy in New Hampshire” effort. Software companies shouldn’t have to go out of state to buy components they need, like diskettes, development tools, and hardware, or find services like color printing, diskette and CD-ROM duplication, advertising layout,  production, software fulfillment, legal services, testing and quality assurance, etc. Sometimes the necessary products and services are just not available here, and sometimes they are, but are too expensive.

There’s no reason this should be the case. Again, I think that volume is the answer. By leveraging the volume of software development and publishing this state is capable of, we should be able to use a software consortium to buy the necessary goods and services we need at a reasonable price, while paying New Hampshire companies instead of out of state organizations.

We could even go a step further and offer tax incentives to New Hampshire companies which help out other New Hampshire companies. For example, Peterborough hosts a wide range of international computer publications. What about an advertising discount through these companies?

In any event, reducing the cost of doing business for New Hampshire companies while increasing revenues to local support businesses makes our entire State more competitive. The possibilities here are wide open, and depend primarily on cooperation. Perhaps this could be an area where the newly formed Software Association of New Hampshire could provide a valuable service.

Most businesses are built on relationships. In the ’90s we’ve termed the establishing of relationships to be “networking”. The software industry is no different. Networking is one area where we’ve done very well, with organizations such as the Greater Nashua Software Entrepreneur’s Group (GNSEG), the New Hampshire High Technology Council (NHHTC), the new Software Association of New Hampshire (SwANH). All three of these organizations, as well as a few other smaller regional groups, provide a forum for meeting peers, as well as learning from them. I’ve been involved with all three organizations in the last couple of years, and have discovered many new people and approaches to running my software company.

At the same time, working with these various groups has brought to my attention how much more New Hampshire could possibly offer to the software industry, and in turn, how much the future of New Hampshire could be affected if it ignores the potential of growing a local software industry.

New Hampshire has a lot to offer in terms of scenery and environment, ranging from numerous ski areas, ocean front activities, a general lack of taxes, a well run State government, and friendly natives. Proximity to Boston is a benefit as well, especially for those who occasionally need to visit a large city in order to realize how great a State we live in.

New Hampshire has the potential of being the premiere State for Software Developers, but if it wants to accomplish that goal in order to secure its financial future, a lot has to be done. Other states, including Hawaii and Alaska are in the process of implementing programs to attract high technology companies to their states, which adds pressure to have New Hampshire move quickly to solidify its offerings to software companies.