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Greetings from Silicon Beach

July 20, 1998
Web posted at: 2:15 PM EDT

by Sandra Gittlen


SANTA BARBARA, California -- Karl Lopker needed a way to automate his shoe factory. But he didn't have to go to Silicon Valley for help. He found an answer closer to home.

His wife, Pam, a graduate of the University of California at Santa Barbara (UCSB) in mathematics, created the software he needed.

Her software worked so well, she started a company, QAD, Inc., to sell it. Pam Lopker is one of many Santa Barbara natives helping the region to carve out its niche as Silicon Beach, a rival to Silicon Valley. Santa Barbara wants to crawl out from the hit it took during the 1980s and early '90s after the California recession, and take on Silicon Valley with its newest gold mine, computers. And with more than 200 software and telecommunications companies springing up in the region in the past few years, it is well poised to do just that.

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Santa Barbara is already home to high-tech companies such as QAD, Cisco Systems, Inc.'s StrataCom division, Applied Magnetics Corp., Pulsepoint Communications (formerly Digital Sound), Durand Communications, Inc. and graphics software developer MetaCreations, Inc.

Business leaders in Santa Barbara claim they can offer companies and employees all the infrastructure of Silicon Valley, but with a quality of life that has long since disappeared in northern California.

"People love it here - the beach, the mountains, the sun," says Jim Sterne, president of Target Marketing, a Web site consulting firm. "Therefore, employees stay longer at companies and are happier workers."

But before you pack up your bathing suit and head to the beach to fill the increasing need for network managers in start-ups, consider a few factors that go into making a region a viable alternative to Silicon Valley.

Santa Barbara County is an almost 30-mile stretch of land with the ocean on one side and the mountains on the other. With more than 275 sunny days each year, Santa Barbara, despite the damaging effects of El Nino sees only 18 inches of rainfall a year. More commercially developed parts of the county include the cities of Santa Barbara, Goleta and Carpinteria.

Although it is easy to see why anyone would come to the area to live, it's not quite as obvious how the tiny county, with less than 300,000 residents, could support or tolerate the kind of growth that has made Silicon Valley as famous as it is unbearable.

Out of the ashes

Santa Barbara did not initially set out to compete with San Jose or Rte. 128. Home to some of the largest defense and aerospace research companies in the world, it had become used to money flowing in from defense contractors and the military - both Vandenberg Air Force Base and the Point Mugu research facility are nearby.

But then the Cold War ended.

A recession hit and the many of the region's 20,000 defense jobs disappeared, says Gary Kravetz, a job placement specialist in Santa Barbara. By 1994, large commercial buildings stood vacant, wages were falling and the housing market was collapsing. In this once-wealthy enclave, the only jobs that still seemed open were for selling fast food and trinkets to tourists - at $6 an hour.

And that hit hard an area that used to oppose new commercial development. Community leaders struggled to figure out a way to keep the quality of life that Santa Barbara had become accustomed to. Known worldwide as the playground of the rich and famous, Santa Barbara wanted to keep its upscale lifestyle.

But how to do this without encouraging new development?

Most industries required large factories that polluted the environment. Also, these industries paid workers relatively low wages that would force them to live outside of the county, taking away the perks of having employees work and play in the same community.

"Santa Barbara is fervently not willing to put up with the downside (of most industries)," Sterne says.

What the Chamber of Commerce and others realized was that high-tech companies were environmentally friendly, offered employees large disposable incomes and were willing to contribute to the community.

So business leaders, with partial backing from the Chamber of Commerce, established the Economic Community Project (ECP), a nonprofit organization. The ECP began to make a push for multimedia, software, telecommunications and health care companies to come to the region, says Jim Neuman, executive director of the ECP. Multimedia seemed a logical choice because of all the movie studios in nearby Los Angeles.

The ECP put together a 10-minute video about the greater Santa Barbara region that featured local business leaders and touted the area's great weather and recreation, he says.

But a funny thing happened. Even before the tapes hit the mailbox, new start-ups started popping up.

All those out-of-work defense employees weren't just waiting for the county to find them new jobs. They saw software was hot and began thinking up ways to get into that market by themselves - or with the help of new graduates from UCSB and Santa Barbara City College, Kravetz says.

Venky Narayanamurti, dean of engineering at UCSB, worked with community and business leaders to create opportunities for graduating students. Together, businesses and educational institutionals formed a bond that helped to increase employment in the region from a low of 80,000 in 1993 to more than 90,000 last year. By adding more high-paying jobs to the area, the region could claim an almost $10,000 leap in average wages from 1991.

With high-tech companies flourishing and universities cranking out qualified business leaders, community and business leaders faced a different challenge: recognizing and meeting the demands of the more than 400 high-tech companies already in existence.

My kingdom for your land

The company landscape change from desperation to prosperity came almost overnight. But it created its own set of problems - city and county officials were unprepared to deal with growth issues, such as inadequate housing, not enough buildings and little infrastructure and experience in helping high-tech start-ups.

The first big problem Santa Barbara faced was a dearth of land that could be developed. Only a third of the way into 1998, Santa Barbara has already handed out all the building permits it had slated for the year, says Steve Cushman, executive director of the Santa Barbara Chamber of Commerce. That means, only buildings that are replacing other buildings can be constructed, Cushman says.

Reaching critical mass

What Silicon Valley has going for it is the critical mass of companies from which to pool talent. If a company needs a new IS manager, it only needs to go across the street to the cafeteria of a competing company and have lunch with that company's IS manager.

Santa Barbara, however, hasn't reached that point - and some worry that could also stifle future growth.

Take, for example, Frank Casanova, a recent immigrant from Silicon Valley. As director of Apple Computer, Inc.'s Advanced Systems Group, Casanova was lunching with everyone who was anyone in Silicon Valley. But when Apple cut back its research spending, he knew he wanted to leave the Bay area and accepted a job as vice president of product management and design with MetaCreations.

"My biggest concern about moving here was losing touch with the (computer) industry and everything in it," Casanova says. "In the Valley, there was an instant perpetual network."

But Casanova quickly realized he was still linked to his network of colleagues - thanks to e-mail and the phone. "I have no regrets for moving down here," Casanova says. But he adds that he will probably have to move back to the valley at the end of his stint at MetaCreations in order to find his next-level job. "There just aren't enough high-level jobs in this market around here," he says.

Sallie Olmstead says MetaCreations is drawing people from Los Angeles and around the world. The company moves them to the area. Although recruitment and moving expenses can be exorbinant, it's worth it to get the best employees, Olmstead says. The beautiful surroundings and recreational opportunities are the chief lure for the developers that work all night and then surf or swim during the day. In fact, MetaCreations sports a great surfing spot just down the slope from its building.

And if it is to keep growing, Santa Barbara will have to attract more outsiders, again because it lacks that critical mass of homegrown talent seen in the Valley.

"We need to have companies that are incubating young folks," says Tony Papa, president of Internet service provider Avtel, Inc.

"If you lose your systems administrator here, it could be a serious loss," says Mark Sylvester, founder of animation software company Alias/Wavefront.

"A few years ago, (if you were in high-tech) you didn't want to lose your job," Guilbault says. "Now, you can find another one right away. This has become a risk-taking place."

"The market for network managers is awesome here," says Michael Ditmore, founder of the Systems and Software Consortium, an Internet service provider in Santa Barbara. ''We could use everyone we could get our hands on.''

The cost of doing business

One drawback company recruiters point to is the high cost of living. For someone not used to the prices in Los Angeles or Silicon Valley, they can be heart-stopping - $1-million homes are not unusual while the average house prices is $350,000. The rental market is very tight, with only 1% of apartments open at any one time, Kravetz says.

Avtel's Papa says rents have increased by more than 30% over the past few years.

But add a slow-growth policy embedded in town building and zoning codes and the result is that companies have nowhere to put all the workers they are bringing in.

"The county is trying to avoid the excesses of putting too many people in too small a space," Kravetz says. "We're lucky enough to be able to avoid the mistakes of Silicon Valley." Kravetz says the actual cost of living is "considerably cheaper than the Bay area and Los Angeles." With the types of jobs the county is trying to fill, the salaries are on par with the costs, he adds.

Getting connected

Another increasingly critical issue for Santa Barbara is building up its networking and telecommunications infrastructure.

Olmstead says when MetaCreations moved in from Santa Monica, she was stunned at how unprepared the phone company was to deal with the company's needs, including remote access and high-speed lines. MetaCreations has been working with the phone company to educate it, but it also is jumping onboard a new network that is springing up in Santa Barbara, the Systems and Software Consortium.

Home sweet home

Finally, what most people point to as the biggest draw to coming to Santa Barbara is the quality of life. Between the beaches and the mountains and the excellent schools, companies say they can offer employees peace of mind and a more relaxed atmosphere that focuses on the importance of family.

Walking around the streets of Santa Barbara during the day is not uncommon for workers since they are so close to the downtown. They also don't lose much time en route to and from work, business leaders claim. While driving to work in the valley can be close to a two-hour ordeal for a 20-mile drive, in Santa Barbara, the longest commute is about 10 minutes door-to-door.

The final word

Santa Barbara has a few obstacles left to overcome - some insurmountable, some easy. Between housing shortages and high prices, ''no-growth'' proponents and rigorous permit processes, some would say forget it. But then just taking a look around - no smog, no traffic and low crime - makes the region seem worth a try. After all, in a world where everyone will eventually be connected by the Internet, does it really matter where you are? In the game of becoming a true competitor to Silicon Valley, Santa Barbara has a better shot than most.
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