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Saturday, May 28, 2022

TECHNOLOGY—Avoiding the Wreck



L.A. technology companies that shunned rapid growth are faring better than their larger counterparts

It’s impossible to escape the gloom that has settled over the nation’s technology sector. But L.A.’s small to mid-sized technology firms are quietly weathering the slowdown.

Yes, these diverse local companies are feeling the effects of the economic slump, But being relatively small and private has its advantages.

Call it the triumph of the nimble and niche-focused. By staying the course and not giving in to the Internet hype well, not too much anyway a host of smaller L.A. technology companies didn’t over-hire, didn’t over-produce, didn’t over-lease office space and, importantly, financed their modest growth without a public offering.

“One of the great advantages of the L.A. tech sector, which is proving itself now, is that it makes sense for companies to toil in relative obscurity,” said Rohit Shukla, chief executive of the L.A. Regional Technology Alliance. “Private companies can be much more nimble as they navigate through the slowdown.”

It’s not that these smaller, private technology companies in L.A. are immune from problems. A slump is a slump, and there is plenty of bad news to go around. But without the intense quarter-by-quarter scrutiny from Wall Street, many of these companies can go back under the radar and focus on the niche markets that made them strong in the first place.

“In many cases, the smaller size of these L.A. technology companies allows management to react very quickly to downturns and to other changes that affect them directly,” said Gary Dickey, partner in consulting firm Deloitte & Touche’s Technology and Communications Group.

Consider DNA Studios. With its staff of more than 80, DNA can fairly call itself one of L.A.’s largest Web marketing and design firms. It wasn’t even in the top five last year. By focusing on major entertainment clients like Warner Bros. and Walt Disney Co. and by growing conservatively since its founding in 1994, DNA has outrun once-giant competitors like Razorfish Inc. and MarchFirst Inc.

Those bigger firms had large L.A. branches that pursued big name clients and big ticket jobs. They expanded rapidly and broadly to meet what seemed in 1999 to be an endless demand for Web services. When the Internet mania fizzled, most of them fell on hard times.

Throughout the downturn, DNA honed in on studios and networks as clients. Like almost every other Web design shop in L.A., it has had to tighten its belt. But it is moving forward with its staff intact and with a lot fewer competitors on the once-crowded L.A. playing field.

It hasn’t been easy. DNA co-founder and chief executive John Moshay said the company jumped on the Internet bandwagon like everyone else and expanded into some areas that shouldn’t have. “We had to make pullbacks,” he said. “But we never had too much over-capacity. We grew conservatively.”

While DNA felt the impact of the slowdown, other L.A. technology companies, like Cosmi Corp., seem immune. Founded in 1982, the Rancho Dominguez software maker has been growing at a steady rate of 20 to 30 percent annually and has recorded 49 consecutive quarters of profitability, according to Executive Vice President Ray Allen.


The secret?

“Knowing our market and catering to it,” Allen said.

Cosmi specializes in budget software, handling everything from programming to packaging to quality control. Its wide ranging software products are sold at retailers like Walmart, Office Depot and BestBuy for about $15.

By most estimates, it’s going to be a tough fall and winter for the nation’s software sector. But Allen insists, “Our business is as strong as ever.”

Letting opportunities pass

Allen said he and Chief Executive George Johnson have during the past few years turned down countless offers from venture capitalists and investment bankers who were eager to take the company public.

“We are not at all interested in running a publicly held company,” Allen said. “It’s not worth all the aggravation.”

Allen said the company could double its revenues by expanding into foreign language versions of its popular software products. But true to form, the company is in no hurry to expand. “If we need money, we have the lines,” Allen said. “We don’t have to take equity partners.”

Is L.A.’s economy better off with a stable of smaller private technology companies like DNA and Cosmi?

Shukla thinks so. “L.A. is going to do much better than other parts of country that don’t have the kind of diversity we have in the tech space,” he said. “It’s going to insulate us from the vicissitudes of the public markets.”

But on the darker side, it means that L.A. doesn’t have the “treasure trove” of smaller companies that get started when experienced entrepreneurs leave bigger companies to start their own ventures, Shukla said.

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