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, Two Bear Capital launched in Whitefish by Michael Goguen, who was a partner for 20 years at Silicon Valley’s Sequoia Capital.
Immediately after we captured this snapshot, the outlook changed overnight as the COVID-19 pandemic became a national emergency. Over the past 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.
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 free fall 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 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.
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.”
Investors have capital available but are pulling back temporarily, taking stock of the new environment. Goguen said that based on past crashes, 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,” said Goguen. “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 believe 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 a new demand for tools like Quiq, which allows one agent to help five or more customers simultaneously 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.”
Missoula outdoor technology company onX maps has seen an uptick in usage for its app that helps hunters and off-roaders find new trails and public land.
“We’re seeing strong business results, so we feel very grateful that our app is enabling people to get out and do something during this,” said onX CEO Laura Orvidas.
OnX is still adding to its team of more than 160 employees in Missoula and Bozeman.
Montana’s biotech sector is growing rapidly and adding jobs as scientists race to fight the pandemic. In April, Inimmune, a biotechnology company in Missoula, received a $2.5 million National Institutes of Health grant with the University of Montana to pursue a COVID-19 vaccine. FYR Diagnostics in Missoula, funded by Two Bear Capital, is developing a better, faster test for COVID-19.
Health care technology companies like Pulsara in Bozeman and PatientOne in Missoula have seen a surge in demand for their telehealth platforms.
“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.
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.”
The main concerns in the first months of the pandemic were communicating effectively and keeping 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.
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.”
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 on-site 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.
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?”