Hidden no more

five years ago, I wrote an article for The Boston Globe about home-based, high-tech businesses in my Amherst neighborhood. I had no idea that what seemed to be a minor trend would eventually hold huge significance for the U.S. economy, thanks in part to the Baby Boomer generation.

I called these businesses “hidden tech” for two reasons. First, they are hidden out of sight in homes or small offices. Also, many of them are overlooked by government statisticians because they are not incorporated. Hidden-tech companies, also called virtual companies, are run by one or two principals who develop, market, and distribute a wide array of products and services for the local, regional, and global economies. Randy Ames, for example, is building customized robotic components from a home basement in Montague.

This trend was helped along by the Internet and by the hot housing market, which caused some would-be entrepreneurs to cash out of pricey metropolitan areas and settle in western Massachusetts. One such migrant was Larry Jackson, a former Hollywood producer and director who has been operating Northern Arts Entertainment, an independent film distribution company, out of his Amherst home while connecting to partners in Los Angeles. Another was David Shepherd (known as the father of American improvisational theater), who moved to Belchertown from Long Island several years ago. At age 82, he has been running Group Creativity, an improv training center and video production company, from his home.

They may not occupy much space, but virtual companies have a significant economic impact. A recent report by the U.S. Small Business Administration’s Office of Advocacy concludes that home-based businesses contribute as much as $500 billion annually to the U.S. economy. John H. Friar, a professor at Northeastern University’s College of Business Administration, points out that the self-employed were responsible for 17.6 million businesses in 2002. “This represents 76 percent of all businesses,” he says.

These numbers will undoubtedly grow as the Baby Boomers head to a new form of retirement where many of them continue to work, even for past employers, but as subcontractors. A 2005 MassINC survey (“A Generation in Transition: A Survey of Bay State Boomers”) reported that almost two-thirds of adults aged 40 to 58 expect to keep working after they reach the traditional retirement age of 65, but only 6 percent plan to keep a full-time work schedule. At the same time, corporations are realizing that it can be cost-effective to move their Baby Boomer workers into consultant roles, thus cutting benefits and saving on health care and pension costs.

This phenomenon has spurred western Massachusetts economic officials to look more closely at virtual companies. For example, the Pioneer Valley Planning Commission, based in West Springfield, includes hidden tech as part of the region’s 10-year economic plan. “Hidden tech has been a new face of a New Economy,” says commission executive director Tim Brennan. “It’s untested, but it’s something we want to nurture.”

Nongovernment economic developers, including electric utilities in western New England, are also taking notice. Thanks to small grants from Western Massachusetts Electric Co., based in Springfield, and Northeast Utilities, in Berlin, Conn., we know a lot more today about virtual companies in the region. One grant paid for the development of a database that now includes almost 500 virtual companies, mainly in the Pioneer Valley.

The virtual-company approach to doing business is “a whole different way to interact with the world,” says Douglas Fisher, director of economic development and community relations at Northeast Utilities. “One can envision a day when this army of hidden-tech entrepreneurs is no longer an economic curiosity, but is rightfully recognized as a primary engine of growth in an otherwise slow-growing part of the country.”

FROM TREND TO ENTITY

In western Massachusetts, “hidden tech” has a dual meaning—the trend itself and the organization of the same name, which I founded in 2002. The mission of Hidden-Tech, which now has about 1,500 members, is to help virtual companies thrive in a highly competitive global economy.

Although a stand-alone nonprofit organization, Hidden-Tech has an alliance with the Regional Technology Corp. (RTC) and often works with the Amherst and the Franklin County chambers of commerce. Amherst, for example, is targeting new media, or “digital economy” companies, to fill office space. (The Anzovin animation studio, has already set up shop on Main Street.)

The president of the Franklin County chamber, Ann Hamilton, says that hidden-techies “can stimulate each other and then market their skills more effectively as a group. They are the new entrepreneurs, and their growth potential may be unlimited. We need to understand their strengths and barriers, just as we do [with] retailers, tradespeople and manufacturers.”

Still, those who are trying to leverage new virtual companies face numerous challenges. Consider these:

Integrating with the “Old Economy.” The age-old battle between grow-from-within (endogenous) and attract-from-without (exogenous) economic development strategies continues to play out in western Massachusetts. If properly collected and promoted, the skills data collected about hidden-techies could attract corporations to the region. But Allan Blair, president and CEO of Western Massachusetts Economic Development Council, is not sure about “the extended economic development value” of hidden-techies. “I’m not sure what they want and how they want to engage,” says Blair. “We haven’t figured out what the role is of this population.”

Obtaining National Data on Virtual Companies. Although the Small Business Administration is trying to catch up, government officials point out that SBA data is only as good as what it can obtain from the U.S. Census Bureau and the IRS. But most researchers don’t have access to IRS data, and the Census is based on outdated questions that don’t take into account the operating styles of virtual companies. (Changing the Census questions requires congressional approval.) Some government agencies work with information on home-based companies, but they miss out on the estimated 30 percent of the hidden-tech population that rents small office space. This lack of data makes it hard for both hidden-techies and the researchers who study them to be taken seriously. Not only that, it means that we’re losing track of our skilled workforce.

Funding a New Economy Trade Group. As an all-volunteer organization, Hidden-Tech has always operated on a shoestring. It’s been tough to fund the organization without a dues system that discourages membership. But we are looking at e-commerce as a solution. New Economy proprietors are accustomed to paying for services from Web sites that will help them build their businesses—often spending much more than they would for dues.

Achieving Oversight in a Free Market Model. Hidden-Tech was built as a virtual organization on a free-market model with an all-volunteer board and workforce. To achieve sustainability, however, we will need paid help. And as Hidden-Tech grows, our accountability to our members will become more important. Proposals to address this conundrum range from increasing voter membership to creating a regional oversight committee.

Meet the Author
Despite these obstacles, Hidden-Tech continues to thrive, as does the virtual company trend it reflects. “The real value of the Internet is relationship-building and product education,” says my former co-chairman, Jon Reed, who operates his own publishing business out of an office in Northampton. As long as people need to meet, share ideas, and make business, there will be something like a Hidden-Tech in the world.

Amy Zuckerman is founder of Hidden-Tech (www.hidden-tech.net) and principal of A–Z International Associates, a strategic marketing firm in Amherst. She resigned from the board of Hidden-Tech last fall to allow the organization to evolve.