An Internet company seems like an odd fit for a depressed factory town. But since Shore.Net moved to Lynn, Mass., company and city have been riding each other's coattails to glory.
Although its windows are boarded up and its vast sign has faded to little more than a memory of paint, the Goldberg Furniture Co. building dominates downtown Lynn, Mass., as it has for 97 years. The tangled streets surrounding the expired emporium offer little competition: just ragged lots and puny structures in even more advanced stages of decay. The lone exception to the general decrepitude stands directly across the street from the former furniture store: a boxy sandstone building whose two identifying plaques would fit snugly into one of the periods on the Goldberg sign. But if the Goldberg building is a billboard for Lynn's wound-down economy, its unassuming neighbor quietly advertises surprising new possibilities for the city.
The sandstone structure is the home of Shore.Net (#2), a seven-year-old Internet service provider that is one of a dozen high-tech businesses on the Inner City 100 list. At first blush, Lynn and its ilk appear unlikely locations for those enterprises, which specialize in everything from doing systems integration to developing medical devices. Recruiting would seem to present the greatest obstacle: programming talent is tough enough to attract to fountain-fronted corporate centers with safety concerns no more serious than a malfunctioning espresso machine. What's more, high-tech companies like to cluster around one another -- and around venture-capital firms -- to ensure a ready pool of ideas and money.
Lynn doesn't have an embarrassment of software developers or a neighborhood that invites the descriptor "Silicon" -- yet. But that didn't stop Shore.Net from racking up more than 5,000% revenue growth in five years, leading to sales of $7.1 million in 1998. For high-tech companies eager to emulate Shore.Net's success, founder Lowell Gray has three pieces of advice: inner-city location, inner-city location, inner-city location.
Gray, whose company is #2 on Inc.'s list for the second year in a row, believes Shore.Net would have wilted if it hadn't sunk its roots in the soil of a faded city. And if Lynn has helped to build Shore.Net, Shore.Net is helping to rebuild Lynn by giving it a shot at an economically vibrant future. "I didn't plan to have a symbiotic relationship with a city," says Gray. "But that's what happened, and it's turned out to be a very good business model."
Like many ultimately fruitful relationships, the one between Shore.Net and Lynn was not immediately embraced by both parties. To Peter DeVeau, executive director of the Economic Development and Industrial Corp. of Lynn (EDIC/Lynn), one incident epitomizes his early impressions of Shore.Net's founder. DeVeau was driving through Lynn's downtown one day five years ago, when he happened to spy a vaguely familiar figure strolling briskly along the sidewalk. "I saw the stringy hair, the glasses, and the backpack, and I thought to myself, 'Look at that geek," recalls the official. Then, with a start, he recognized the man. It was Lowell Gray, who had been in DeVeau's office the week before, better dressed and seeking a loan.
Then, as now, DeVeau's position required him to meet with a steady stream of entrepreneurs -- mostly owners of machine shops, small retail businesses, and the like. But Gray had stood out: for his intellectual intensity, his professional-looking business plan, and a résumé that kicked off with a Harvard degree. "You could tell right away he wasn't some guy running a variety store," says DeVeau.
In DeVeau's office, Gray had spoken with growing excitement about the coming explosion in E-commerce and his company's ability to meet the escalating demand for dial-up and high-speed Internet access. Then he asked for a $25,000 loan to help buy 10 rack-mounted modems. DeVeau, who nodded thoughtfully throughout the speech, told Gray he'd get back to him. After Shore.Net's founder left, DeVeau walked out of his office and confessed to one of his assistants that he hadn't understood a single word the guy had said.
But as he cruised past Gray the following week, DeVeau mentally replayed their encounter and conceded to himself that the entrepreneur appeared to know what he was talking about. The man might be a geek, but he was a geek with vision. And back then, vision was in short supply in Lynn. "There had been a long period of disinvestment in the city," says DeVeau. "We were searching for our niche." The EDIC approved Gray's microloan.
The loan came not a moment too soon, says Gray. At the time of his meeting with DeVeau, Shore.Net was on its last legs.
Dressed in jeans, flannel shirt, and moccasins, Gray looks back on his company's first financial crisis from the comfort of a walnut-veneered office. One floor below, in a tennis-court-sized corrugated-steel cage capable of neutralizing the electromagnetic pulse from a nuclear explosion, a small forest of Internet servers basks in the aggregate breeze of several dozen internal cooling fans.
That basement full of technology is the natural culmination of the entrepreneur's lifelong fascination with computers. Gray, who grew up in New York City, taught himself programming at the age of 13. He went to Harvard, where he received a degree in chemistry in 1982 and developed a suite of statistical-analysis programs for Harvard Medical School. After graduation, he built telecommunications-network software for a consulting company and then jumped to a major accounting firm, where he managed a software group. In 1989 the newly wedded Gray was transferred to Silicon Valley and was introduced to routine 70-hour workweeks. By 1990 he'd had enough. "If I was going to work that hard," he says, "I thought it should be for myself."
So Gray moved back to Massachusetts, where he started a modestly successful software-consulting business in his home and tried, less successfully, to commercialize the software he had written at Harvard. A year later Gray and his wife bought a house in Swampscott, a tony community in the cluster of mostly affluent suburbs known as Boston's North Shore. Soon the new and noisy presence of a child in his home spurred Gray to look for office space.
Budget limitations and convenience steered him one town over, to a dilapidated, mostly vacant office building that would become his first business base in Lynn. The city's proximity to Swampscott spared Gray a significant commute; its depressed real estate market meant he could get 200 square feet for a few hundred bucks a month, or less than half the cost of comparable space in Boston.
Lowell Gray might be a geek, thought Peter DeVeau, but he was a geek with vision. And vision was in short supply in Lynn. "We were searching for our niche," DeVeau says.
Shortly after settling in his new offices, Gray decided to bet on the growth of the Internet, which in late 1992 was little known outside of government and academia. He founded Shore.Net to provide Internet access over phone lines.
The company was soon attracting a few dozen new customers each month -- mostly early adopters and hobbyists living on the North Shore. But with monthly rates of $9 for each 10 hours online, the business's meager revenues didn't cover the costs of running cables through the company's offices and buying phone lines to connect the modems. By the end of 1994, Gray's savings had been depleted and his personal credit maxed out, just as the Internet was catching on with the general public. In the last few months of that year nearly 200 customers signed on, many of them small businesses, and Gray needed modems and employees to service them. Unable to find a friendly ear at a bank, Gray met with DeVeau. "They were taking a big risk in working with me," Gray says. "I was talking about weird Internet stuff that none of them understood. I sound bright, but I could have been a crazy."
Within a few months of cashing the EDIC's $25,000 check, Shore.Net, buoyed by positive word of mouth and the Internet's growth, signed on its 1,000th customer and doubled its employee roll, to 10. Even better, the company became cash-flow positive. "The loan put me over the top," says Gray. By the end of 1996, Shore.Net was 20 employees heavier, and Gray had taken over the entire fourth floor and half of the second floor of the building. But he was beginning to wonder whether spending tens of thousands of dollars installing communications cables in rented space was a mistake. Buying and wiring a small building made more sense, he concluded. But did he want to make that sort of investment in Lynn?
Lynn is widely, if unfairly, perceived as a blemish on the North Shore's otherwise genteel complexion. The city is not so much war-torn along the lines of a South Bronx -- there is even a thin archipelago of upper-middle-class homes running along Lynn's shoreline -- as it is exhausted. It's been battered by a long economic free fall that began in the middle of the last century, when its once thriving women's shoe factories succumbed to cheap labor overseas. But to Gray's unsentimental eye the city provided a confluence of opportunities. Property was cheap. The local politicos were enthusiastically supportive. Boston and Cambridge were only nine miles away. And in the surrounding towns, an army of smart professionals chafed under long rush-hour commutes to downtown Boston or famed Route 128 to the west.
Gray also astutely recognized that telecommunications infrastructure is immune to urban decay. Lynn still boasts a large telephone-company switching station, installed back when the city's position at the juncture of two major railroad lines made it attractive to businesses. The city also benefits from an overbuilt electric-power grid, established in the days when it bustled with factories. For Shore.Net, that spelled higher reliability and lower connection costs, since phone companies base charges for high-capacity lines on their distance from switching stations. "Most people don't think about what's buried beneath the street when considering a town," says Gray.
Predictably, Lynn's business-development agencies were thrilled to learn of Gray's intent to buy a building and gave him his pick of many that had been abandoned and seized for back taxes. Gray had almost settled on a 9,000-square-foot structure when he heard about a former leather factory a few blocks away. The abandoned factory, which had suffered significant water damage from a badly leaking roof, was more than twice as big as the other building -- meaning it had way more space than Gray figured he needed. But he had learned that in its original incarnation the building had been Lynn's central telephone office. In his mind, that charged the proposition with something akin to destiny.
Needing money to make the place habitable, Gray applied to a bank and was rewarded with a $400,000 loan. He also turned once more to the city, this time for help securing $500,000 for equipment from the U.S. Department of Housing and Urban Development (HUD). To bolster his case he predicted to EDIC officials that Shore.Net would have 72 employees and triple its revenues within two years. "Pie-in-the-sky promises," he says now, shrugging. "But this was an industrial city without a future, and that made them willing to work with a new business like mine. You don't get that kind of help in the suburbs." The building and the loans were his.
But the rehab proved more costly than anticipated, and by mid-1997 Gray's construction bill was climbing toward $1 million. Although Shore.Net was flying sufficiently high to absorb most of the overrun, the company needed one more infusion to complete the project. When Gray's bank refused to extend his line of credit, the CEO appeared once more before the EDIC. Appraisers had calculated that the finished structure would be worth less than Gray had put into it, but even as friends, advisers, and prospective investors counseled him to bail, Shore.Net's founder stayed resolute. "I didn't care what the building would be worth down the road," he says. "I viewed it as an infrastructure investment, same as the network and the computers." Shore.Net might be an E-business, but its survival had become a question of bricks and mortar.
Property was cheap. Local politicos were supportive. Boston and Cambridge were nearby. And high-tech workers from surrounding towns hated their commutes.
Gray pleaded his case to the EDIC, throwing in a new angle: there were now legions of Internet start-ups looking for inexpensive space. Lynn had legions of vacant offices looking for tenants. "Lowell captured everyone's minds talking about what an urban area like ours can accomplish," says DeVeau. "It was like listening to someone spin a fable. People are hungry for that: most of the businesspeople who come before the board just want to complain about their taxes being too high or how hard it is to get transportation for their employees."
The board kicked in $100,000 to finish construction. "There's a lot we'd do to make sure he stays here," says Stephen Harausz, development director for the city. Indeed, if Gray had harbored any doubts about the city's unconditional love, they were laid to rest a few months later when he was voted Lynn's businessperson of the year.
In 1998, Shore.Net took over its new home, filling every square foot with its 60 employees. With thousands of customers throughout Massachusetts, the ISP was in the black and flush with a line of credit from a new commercial bank, which allowed it to pay off its EDIC loans. "I've had a lot of business owners come in all charged up, and then they end up failing on me," says DeVeau. "Lowell exceeded every promise he ever made to us."
Shore.Net built its impressive consumer and business-customer base despite stiff competition from larger ISPs. Generally eschewing advertising, Gray targeted small and midsize companies that needed more service and support than consumers did but lacked the heft to rate notice by the big guys. Scott Hersey, Shore.Net's vice-president of marketing, estimates that more than 80% of the company's new customers are referred by current customers, which include local consultants, systems integrators, and Web-site designers.
Shore.Net also distinguishes itself by giving a human face -- or voice -- to the highly automated commodity business of slinging bits. Shore.Net's customer-support reps, for example, are trained not to rush customers off the phone after responding to their queries but rather to offer assistance with other service issues. Each rep gets an average of four calls a day requesting him or her by name, and each becomes familiar with a few hundred customers. When the weather gets warmer, so do those relationships: every summer Shore.Net invites all its subscribers to a clambake on Lynn Beach. Some 400 turned out for last year's event.
Clambakes for customers are fine, but what matters to Lynn is jobs. Shore.Net has hired three-quarters of its now 75 employees from the North Shore, and about 15 of them are from Lynn. Some came straight from high school, including 21-year-old Jon Justian, known to his colleagues as "Jonj" because most people in the E-mail-centric company call one another by their user names. Justian was working in a pizza joint until two years ago, when Shore.Net snatched him up to help answer the phones. Justian taught himself programming in his spare time, and today he is leading the development of a major new account-management system. The company has also accepted several interns from Lynn Vocational Technical Institute and is launching an internship program with North Shore Community College's Lynn campus.
Shore.Net is also popular with local working mothers, who like its proximity and supportive culture. Mary Ann Reyes ("Mareyes"), 28, had briefly been on public assistance to support her two children before working her way up to a job in sales support with MCI in a nearby town. When the company moved more than an hour away, it seemed as if her luck had run out. But she soon hooked up with Shore.Net, where she works in the sales-administration department. Tricia "Twisha" Wishart, 35, also a mother of two, had worked in a local bank for 15 years while taking computer-science classes part-time at a community college. Now she helps Shore.Net business customers with their high-speed access.
Then there's Doc PC, a bushy-bearded, kinetic 58-year-old who is the company's self-proclaimed "token biker." Doc PC -- he swears he hasn't used his given name in years -- was a consultant at a company in a nearby town. He became such an ardent and productive recommender of Shore.Net to his clients that Gray started paying him a commission and eventually hired him. The good doctor ultimately worked himself up to the position of network-operations team leader. Along the way he found Shore.Net's growing relationship with Lynn so resonant that he moved there and is fixing up a house just blocks away from the company. "Lynn was going the way of a lot of industrial towns -- it was a place to stay out of," he says. "I wanted to be part of the turnaround."
But Gray wasn't going to dispel Lynn's economic funk purely by providing jobs. Intent on proving that what was good for Shore.Net was good for Lynn, Gray three years ago started pressing the town's economic-development honchos and other businesspeople to pave the way for a cyberdistrict smack in the center of town. His argument was simple: Internet companies like to be located close together so that they can save money on access, use one another's services, and swap ideas. Bring a few of those companies to Lynn and more would follow. Gray was happy to play rainmaker among his fellow Internet entrepreneurs; some of them were his customers, and city officials referred others. "They're techies," says DeVeau. "They like to talk to one another. It's social as much as economic. Lowell was the big attraction."
But there was a catch-22: no one wanted to develop Lynn business properties that didn't have renters, and potential renters didn't want to commit to a city without developed properties. Meeting with landlords and city officials, Gray urged them to break the standoff by pulling together attractive office space laced with high-speed Internet access. Deals have now been signed for private development of a three-square-block downtown area bolstered by an initial $1.5 million of HUD money.
To help promote its fledgling cyberdistrict, the city created an annual business-plan competition and a "cybercouncil" that gives entrepreneurs an opportunity to meet regularly with city officials. The effort appears to be paying off. Some 15 Internet-related companies have moved into town over the past three years or signaled their intention to do so. Last year intense wooing by Lynn officials won the city its starriest prize: Vancouver-based Worldwide Fiber, headed by former Microsoft chief financial officer Greg Maffei, announced that it would make Lynn the $15-million U.S. terminus of its transatlantic fiber-optic cable. Worldwide's presence should attract a number of companies seeking direct access to overseas traffic, DeVeau predicts, and could position Lynn as a 21st-century telecommunications switching hub. In Worldwide's wake another telecom company has already signed a letter of intent to set up a local facility, and a third is considering doing the same. "It all seems to be fitting together nicely," says DeVeau. "We finally feel like we're involved in a growth industry."
Meanwhile, Shore.Net is outgrowing its current building, and Gray, who was recently named Small Business Person of the Year for 2000 by the Massachusetts office of the U.S. Small Business Administration, is hunting for a replacement in Lynn. Might he be preparing to hit up the city for more help? It's not a prospect that worries DeVeau. "We'll continue to bet on him," he says.
David H. Freedman is a contributor to Inc. and the author of Corps Business: The 30 Management Principles of the U.S. Marines (HarperBusiness, 2000).
How Green Is Your Silicon Valley?
Lynn's nascent cyberdistrict may be lifting that city's fortunes on a digital tide, but not every depressed area has an equal shot at becoming a technology center. One problem is that everyone is trying to get in on the game, according to Donald F. Smith Jr., director of the Center for Economic Development at Carnegie Mellon University, in Pittsburgh.
What determines which neighborhoods succeed? Access to high-tech academic and research centers and the talent they produce is factor #1, according to Smith. "Lynn has a real advantage because it's close to Boston, which is the leading university center in the country," he says. Pittsburgh, he notes, has undertaken a "Digital Greenhouse" initiative to feed off the pool of researchers at Carnegie Mellon, the University of Pittsburgh, and Pennsylvania State University.
A local business environment conducive to high-tech companies is also critical. "In the manufacturing era what mattered was cheap land, cheap inputs, and cheap people," Smith explains. "Now what's required is a flexible and accommodating regime. The cost climate has to be competitive, but that doesn't necessarily mean cheap. Quality is important in this industry." Other magnets that Smith cites include technology parks integrated with retail and recreational facilities, big bandwidth, and proximity to desirable residential communities with good school systems.
And once those desirable companies start trickling in, cities need to get the word out. "Good PR is very important," Smith says. "You want articles in the media to pervade the awareness of colleges and the business community so that talent and companies start thinking of you as a player." Ideally, a successful company like Shore.Net will provide the business equivalent of a celebrity endorsement. "It's one thing for the chamber of commerce to send out brochures, but it's another for a leading company to announce to the world that it has a phenomenally successful relationship with the place," says Smith. "People like to follow the smart money."
For a detailed list of Inner City 100 companies, please see The Inner City 100: America's Urban Superstars.
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