Report: High-Tech Perseveres in the Wake of COVID-19
Montana’s Tech Leaders Anticipate Moderate Growth and a Promising Future
By Christina Quick Henderson
Members mingle during MHTBA's Bozeman Reception event in late February 2020, before COVID-19 swept into Montana.
Montana’s high-tech companies came roaring into 2020, reaching the pinnacle of a six-year boom – growing nine times faster than the overall Montana economy, paying twice the median wage, and earning a record $2.5 billion in revenue in 2019.
Tech companies expected to add 2,800 new jobs and make $133 million in capital expenditures at their Montana facilities in 2020, according to an annual survey conducted by the Bureau of Business and Economic Research at the University of Montana.
In January, Bozeman’s Next Frontier Capital reported that venture capital investment in Montana companies rose to $150 million in 2019, a more than 500 percent increase in five years. At the end of 2019, Michael Goguen, a partner for 20 years at Silicon Valley’s Sequoia Capital, launched Two Bear Capital in Whitefish.
Immediately after we captured this snapshot, the outlook changed overnight as the COVID-19 pandemic became a national emergency. Over the last three months, the Montana High Tech Business Alliance has conducted more than 20 interviews with large employers, high-growth startups, and investors to piece together a new picture of Montana’s tech industry as it navigates COVID-19.
Business Impact
Tech leaders who shepherded companies through previous downturns all said the same thing — this time it was different. Workiva CTO, Jeff Trom, noted that past recessions came on gradually, but this time it was “like you hit a brick wall in the course of a week.”
One of the most difficult aspects of the crisis has been the inability to predict when the virus will subside, and economic freefall will end.
“What drives everybody crazy is the uncertainty and, you know, the truth of the matter is, there isn’t going to be certainty for a while,” said Trom.
Workiva is a software-as-a-service (SaaS) company headquartered in Iowa with more than 1,000 employees. About 100 of them, including Trom, work from Montana offices in Bozeman and Missoula.
Trom said his business is fortunate that its customers, including government agencies and Fortune 500 firms, are stable, though cascading effects from other companies may affect Workiva at some point.
Businesses whose products served an immediate need, such as IT services, or who had large cash reserves or venture capital to rely on, have come through relatively unscathed. In some cases, companies have grown.
Other tech firms suffered heavy losses because their customers were hit hard by the shutdowns – verticals including small businesses, education, retail, restaurants, hospitality and marketing.
Job Losses and Gains
In the early days of the pandemic, a few tech companies that were growing fast at the start of 2020 abruptly lost revenue. To adjust, firms cut nonessential expenses and, in some cases, laid off workers. Job cuts at impacted companies typically included between 15 and 50 percent of employees.
For tech executives, who have repeatedly cited excellent workers as one of the top benefits of doing business in Montana, layoffs were uniformly deemed awful. But even in the dark cloud of tech job losses, there are silver linings.
Managers did not see recent cuts as permanent job losses and planned to start recalling employees when the economy recovers. Additionally, highly skilled tech workers have good prospects of being rehired. Funds available through the federal CARES Act and its Paycheck Protection Program gave many tech leaders the confidence to keep employees on the payroll.
Hiring freezes are ending as firms reopen offices and get more comfortable interviewing, training, and managing new employees remotely.
Workiva welcomed its largest intern class at the beginning of the summer – all remote. According to a company statement, interns will have “virtual access to leaders and mentors, one-on-one coaching, hands-on training, challenge competitions and a variety of professional development and learning opportunities.”
ATG, a Cognizant company recently announced plans to create 68 jobs in Missoula over the next two years. ATG is preparing to launch the fourth cohort of its All-In-Missoula (AIM) program in partnership with the University of Montana. AIM pays trainees from all backgrounds to prepare for high-paying technology careers.
Two Bear Capital founder Michael Goguen said he believes the market for tech jobs in Montana will recover relatively soon as growing companies look for talent.
“I don't think it will be a long time,” said Goguen. “Hopefully you'll see a significant ramp up this year in opportunities.”
New Opportunities
Investors noted that it was hard to foresee which types of businesses would see gains or losses due to COVID.
“If you had told me it was going to be a pandemic, I couldn’t have predicted which companies would be winners,” said Julie Penner, Venture Partner at Next Frontier Capital.
Penner’s portfolio of investments spans multiple industries. COVID-19’s impact on those businesses varied widely and tended to fall into three camps.
“About a third of them have had these huge windfalls, about a third a flat rate — they haven't been down, but they haven't been up — and then a third of them are just devastated, they touch travel or something in-person,” Penner said.
Goguen said that based on past downturns, the first reaction of venture capitalists is to freeze investments. But after the initial adjustment period, many venture capital firms are open to pitches.
“It's actually a really good time to invest,” Goguen said. “There is a bit of a Darwinian filter, I used to call it, that swept across the ecosystem…it's kind of like only the strong survive. And there were only the best entrepreneurs, the grittiest, the best ideas, in some sense, even having the guts to try to get funding. The rest of them just packed up and went home.”
Business leaders said that while the new economic reality takes shape, serving customers well was the first step of their post-COVID strategy.
“If you don’t know the environment you’re going to be operating in, how do you plan?” said Andrew Field, Founder and CEO of PFL.com, a marketing technology company in Livingston with more than 300 employees. “We are prioritizing keeping our existing customers happy and their needs met.”
PFL was deemed a critical service by the Department of Homeland Security and has continued to provide printing, mailing, and fulfillment throughout COVID-19, while strictly following CDC recommendations.
Several companies found that COVID-19 caused drops in some lines of business, but boosted others. PFL lost revenue in verticals, such as printing restaurant menus, but was called on to warehouse and deliver medical supplies and health communications for medical device companies and health insurance providers.
As the coronavirus reshapes business, tech firms are also meeting emerging needs. Quiq is a Bozeman company with about 45 employees whose platform connects customers and companies via text messaging. Quiq’s clients in the retail sector such as Pier 1 and Men’s Wearhouse have been severely impacted by shutdowns.
At the same time, customer service call centers in India and the Philippines closed due to COVID-related shutdowns. The situation created new demand for digital tools like Quiq, which allows one agent to help five or more customers simultaneously with text messaging versus just one agent helping one customer at a time on the phone.
“Adoption of digital engagement tools has been accelerated by years in just a few months,” said Mike Myer, Quiq founder and CEO. “Quiq actually doubled the amount of traffic in the platform in six weeks from the beginning of April through early May.”
Outdoor Technology
Businesses connected to the outdoors have experienced ups and downs related to COVID-19.
After the crisis hit, Kampgrounds of America (KOA) in Billings initially saw significant cancellations for March through May at its 525 parks across the country, according to KOA CEO Toby O’Rourke. At corporate headquarters, roughly 80 team members shifted to remote work and leaders leveraged technology to track data and to navigate the complex landscape of state and local ordinances impacting franchises across the country.
KOA worked to keep campgrounds open for essential travel — full time RVers, traveling nurses and medical workers, or long-haul truckers — and to implement enhanced cleaning and safety procedures. By June most campgrounds were opened fully for recreational travel, and O’Rourke is hopeful the company will have a healthy summer season.
Interest in camping was rising even before the pandemic. According to KOA’s 2019 North American Camping Report, the U.S. added an estimated 7 million camper households between 2014 and 2018.
Now as states reopen and travel restrictions are lifted, RV rentals and campground reservations are rebounding as families seek a socially distanced escape to the outdoors.
Montana outdoor technology company onX has seen an uptick in usage for its apps that help hunters and off-roaders find new trails and public land.
“We're seeing strong business results, and we feel very grateful that our app is enabling people to get out and enjoy the outdoors during this crisis,” said onX CEO, Laura Orvidas.
CEOs often said they aimed for a nimble response to market shifts. onX, for example, put plans for expanded partnerships with retail stores on pause while pivoting more to online. “We’re adjusting to where we see consumers going,” Orvidas said.
OnX is still adding to its team of more than 160 employees in Missoula and Bozeman.
Biotech Boom
Montana’s biotech sector is growing rapidly and adding jobs as scientists race to fight the pandemic. In April, the University of Montana received a $2.5 million National Institutes of Health (NIH) grant to pursue a COVID-19 vaccine using adjuvants from Inimmune, a Missoula-based biotechnology company. Inimmune also announced receiving a $2 million Small Business Innovation Research grant to advance vaccine technologies on June 22.
Photo via Inimmune.
“Navigating the COVID-19 pandemic and keeping employees safe has been challenging, but can also be good for some biotech companies,” said Inimmune CEO Jay Evans, Ph.D. “When you're a vaccine company, pandemics and outbreaks of new viruses bring new funding and product development opportunities. Inimmune focuses on vaccines and immunotherapy so we have seen an up-tick in business activity since the pandemic.”
Evans said funding is flowing into the biotech sector through grants and contracts from entities like the NIH, Department of Defense, private foundations, congressional appropriations, and venture capital firms.
Challenges posed by the coronavirus are driving companies toward innovation. FYR Diagnostics in Missoula, funded by Two Bear Capital, is developing a better, faster test for COVID-19.
“We've had to innovate,” said Sarj Patel, Ph.D, Cofounder and President of FYR Diagnostics. “[The Pandemic has] showed us how we can actually perform at a really high level under difficult circumstances, and when things are limited, to get creative.”
Healthcare technology companies like Pulsara in Bozeman and PatientOne in Missoula have seen a surge in demand for their telehealth platforms.
“We’ve onboarded literally hundreds of clients anywhere from rural communities in Alaska, all the way to major metropolitan areas,” said James Woodson, MD, FACEP, Founder and CEO of Pulsara.
Executives believe changes in healthcare delivery prompted by the Coronavirus are likely here to stay.
“The COVID pandemic and crisis created almost an overnight understanding of the clinical and public health benefits of remotely monitoring at-risk patients in their home,” said PatientOne CEO Jeff Fee. “My prediction is, I don't think that genie’s going back in the bottle.”
Workplace Transformation
One sentiment was near universal among tech companies —the transition to working from home was easier than expected. Fears of reduced productivity that kept employers from implementing remote work broadly before the pandemic never materialized; in fact, many managers saw that work output increased.
“There’s always the kind of pointy haired boss perception of like, well, people are home, they’re not going to be working as hard,” said Quiq CEO Mike Myer. “That hasn’t really happened. The team’s productivity has been great.”
Leaders’ main concerns in the first months of the pandemic were communicating effectively and keeping their teams mentally and physically healthy. As everyone shifted to working from home, managers organized virtual happy hours, cooking contests, group yoga over Zoom, or shipped free cookies by mail.
A few tech CEOs still have young children at home and have been balancing childcare and homeschooling with running their companies.
In states like Montana where case counts have been low, employees are more likely to return to the office as stay-at-home orders are lifted, but tech businesses are not in a rush to come back. Many leaders said they would allow or encourage remote work through the summer or indefinitely.
“I would say in the future, we’ll probably have a lot more people that work from home, or from home more regularly,” said Myer. “We’ll have an office that will probably get used more for collaboration and meeting and maybe less for getting work done individually.”
Other workplace changes forced by the pandemic such as virtual meetings will also likely stick when it’s over. “I think there’s more efficient ways to have meetings than always in person running from meeting to meeting,” said Inimmune CEO Jay Evans. “When this thing is over, we'll find better ways to operate as a company.”
Returning employees are encountering workplaces with elaborate new routines and reconfigured spaces designed to keep them healthy. Applied Materials (AMAT) is a global corporation with around 30,000 worldwide employees that supplies equipment for the manufacture of semiconductor chips. AMAT employs about 450 people at its facilities in Kalispell, according to General Manager Brian Aegerter.
AMAT has implemented several policies as part of a phased site response plan, including travel restrictions, paid self-quarantine, limiting in-person meetings and on-site visitors, and remote work when possible. For the 300 employees who have continued to work onsite during the pandemic, new practices have been instituted, including alternating schedules, social distancing, enhanced cleaning, physical dividers, and personal protective equipment, such as masks and gloves. Employees are also protected by strict health screening procedures upon building entry.
Montana Advantages
For the sixth year, tech leaders reported that Montana’s quality of life provides them a significant advantage in business. This benefit has been amplified by COVID-19, as Montana residents have abundant opportunities to safely enjoy nature.
Montana businesses also avoid health concerns in dense urban areas, such as elevators in 70-story high rises. CDC recommendations to limit the use of public transportation are irrelevant to employees who bike or drive their own cars to work.
And Montana’s low case counts could make the state even more appealing to knowledge workers as remote work becomes more commonplace. Some tech insiders saw worker dissatisfaction with urban centers prior to the pandemic.
“If you just watched the direction that places like Silicon Valley were going, it was heading for a bubble to burst in that traffic, wages, rents, everything were just getting to that breaking point,” said Goguen. “I think it was true in other highly dense urban areas – New York and Boston. Already there was a sort of force that said, gosh you know, why does it have to be Silicon Valley?”
Christina Quick Henderson is founding executive director of the Montana High Tech Business Alliance and an instructor in the College of Business at the University of Montana.
