AnalysisSmall companies need more than good products to make money in homeland security
A lot of money courses through the veins of the homeland security sector, but the usual suspects — the big hitters — receive most of it; small and mid-size companies have a tougher slog, and they have to become smarter and nimbler if they want a bigger slice of the pie
As we reported a few weeks ago [HSDW 12.6.05] the Golden, Colorado-based homeland security company Isonics is working with Lucent Technologies and Bell Labs to develop better and cheaper night-vision surveillance technology for the public and private sectors. Innovative products do not guarantee profits. Isonics reported a loss of $5.2 million on total revenue of $5.8 million in the third quarter which ended 31 October 2005. Since 31 January 2005 the company has reported a net loss of $21.1 million on total revenue of $15.5 million. As is the case with many small companies, Isonics (NASDAQ: ISON), which employs 457 people worldwide, is struggling financially in a market where bigger corporate players, such as Lockheed Martin and Raytheon have been cashing in on their historical ties to Washington, D.C.
“Unless the small niche players team up with bigger organizations, they’re not getting much of the business,” said Alan Webber, a Washington, D.C.-based senior analyst for Cambridge, Massachusetts-based Forrester Research. Webber said small businesses have a disadvantage in the homeland security industry. “It’s a hard road to hoe for a small business, and if you’re not looking to get bought out, it’s even harder,” he said.
Jim Alexander, founder and CEO of Isonics, points to the private sector as an untapped market for homeland security products, and says his company’s products have applications in the public and private sector. For example, the company’s surveillance technology could be used in home security systems while its explosives-detection devices might find a market in corporate mailrooms or venues where large numbers of people gather. “If we can sell this stuff to the military then take a version and sell it to millions of [non-government] customers, it will be a real win,” Alexander said.
So far, the private sector, which owns and maintains 85 percent of the country’s infrastructure, has not taken the idea of homeland security as seriously as the government. “The vulnerabilities are in the private sector,” F&S’s Webber said. “A lot of corporations will tell you they understand the need to protect their executives and their information, but they need to protect their employees and customers too.” Unfortunately, it may take another terrorist attack on the scale of 9/11 or larger before the private sector invests more of its money into homeland security, Webber said. He added venture capitalists are putting money into homeland security companies because they see a long-term return — though it may be five to seven years later.
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