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Chief execs upbeat despite downturn

Despite massive unemployment, sluggish sales and bottom-feeding stock prices, executives at tech start-ups are optimistic about the future of their sector.

Despite massive unemployment, sluggish sales and bottom-feeding stock prices, executives at technology start-ups are overwhelmingly optimistic about the future of their sector.

According to a survey of CEOs whose companies were listed on the 2001 Deloitte & Touche Technology Fast 500, an annual ranking of fast-growing tech companies in North America, roughly two out of three CEOs are "very" or "extremely" confident that the niche will return to the healthy status it had in the late 1990s. Most dismiss the downturn as a "healthy shakeout" that will lead to a more robust industry within 12 to 18 months.

Although most will slash administrative and travel expenses, many say they will soon expand employee ranks. Eighty-nine percent of the CEOs say they plan to hire new employees, but most are being conservative. Of those hiring, 49 percent anticipate adding less than 25 new employees; 20 percent plan to add 26-49 new employees; and 12 percent expect to hire 49-100 new employees. Only 6 percent say they plan to add 101-200 new employees, and a paltry 2 percent plan to hire more than 200 employees.

"Despite a radically changed technology marketplace, the majority of CEOs of North America's fastest-growing technology companies are optimistic about the future of their companies and the technology industry," said Mark Evans, managing director of Deloitte & Touche's Technology, Media & Telecommunications group in San Jose, Calif. "They're putting their money where their mouths are by investing in marketing and sales activities, hiring new employees, and looking toward strategies that will help contribute to their continued growth, while shaving travel and administrative costs."

Skeptics might question the executives' unbridled optimism. Sixty-two percent of the CEOs said they were confident that their companies would maintain the high levels of growth they've experienced over the past five years--an average growth rate of 824 to 115,874 percent from 1996 to 2000, according to Deloitte & Touche.

But some executives were bracing for tougher times. Twenty-one percent of CEOs surveyed said they are "somewhat" confident they could maintain their five-year growth rates, while 10 percent indicated that they are "not very confident" or "pessimistic." Eleven percent said they were not hiring new employees or were in the process of downsizing.

CEO optimism by the numbers:
62: percent of CEOs who are "very" or "extremely" confident in tech sector
89: percent of CEOs who report plans to hire new employees
27: percent of CEOs who say they'll slash administrative and travel costs
71: percent of CEOs who say they're resisting the "urge to merge"
62: percent of CEOs who view slowdown as a "healthy shakeout"
24: percent of CEOs who say finding good employees is biggest challenge
34: percent of CEOs who say achieving and sustaining profitability is biggest challenge
And most CEOs are paring expenses. Travel budgets are the easiest target, with 27 percent of the CEOs reporting they are reducing or eliminating discretionary trips.

"Cutting general and administrative costs, like travel, is easy," said Michael LeGoff, CEO of semiconductor company Dynex Power. "The difficult part is to be frugal. That means there has to be intelligence in the cost cutting. Whether the cuts are in general and administrative, R&D, or sales and marketing, there are trade-offs."

CEOs also continue to skimp on benefits. Although the late 1990s saw a boom in recruitment lures such as free cars and signing bonuses, as well as smaller perks such as free massages and discounts on fitness club memberships, the relatively youthful, high-paced tech industry has been notoriously stingy about pension plans and family benefits such as on-site daycare.

Two out of five CEOs polled in the Deloitte & Touche survey said they offered stock option plans for their employees, and 23 percent offer complimentary snacks or meals. But only 1 percent offered on-site daycare, and only 9 percent provided paid family leave.

One of the most striking differences that appeared in the third annual survey was that "finding and hiring employees" was not the top challenge that CEOs listed. It took second place to "developing strong marketing strategies," which was the biggest challenge for 30 percent of the CEOs.

The change likely reflects massive unemployment in the tech sector, which has created an employer's market. Many computer programmers and engineers are waiting out the downturn in blue-collar jobs, while others are underemployed or are still collecting severances or unemployment insurance.

"While today's fast-growth tech company CEOs are challenged with marketing, it's a buyer's market for employees," Evans said. "With the technology shakeout, tech CEOs are now finding they can afford and hire more top-quality people than in the recent past."