As Economy Stalled, Firms Revamped To Stay Afloat

On Sept. 10, 2001, International Mobile Communications Inc. in Silver Spring was just one more start-up company trying to sell its product in a tepid economy.

After Sept. 11, the company's business of renting cell phones to those traveling overseas was devastated. It was a business built on travel, and people were not traveling after 9/11. So many customers canceled orders that chief executive S. Blake Swensrud II had to hire temporary employees to take the calls. Venture capitalists who had been interested in investing more money into the firm stopped returning phone calls.

"Many people just refused to go on the road," Swensrud said.

Swensrud feared the company, which had been growing steadily, might become a secondary victim of the terrorists who forced hijacked airliners into the World Trade Center and the Pentagon.

But International Mobile, after some retooling and downsizing, survived as a smaller company that has, for now, adjusted its ambitions.

The same might be said of the Washington region's economy as a whole.

On Sept. 10, 2001, the local economy was on a precipice, at the line between not too bad and a full-fledged downturn. On Sept. 11, the region became unquestionably enmeshed in the latter.

Thousands of hotel and airline workers were laid off. Travel to the Washington area all but stopped for weeks. Reagan National Airport was closed and many people would have been disinclined to visit this potential terrorist target even were not. Dealmaking of all sorts was postponed.

In the year since, the war on terror has not had much of an impact on commerce here. The biggest drags on the local economy have proved to be more prosaic and familiar. Years of overbuilding have left huge amounts of empty office space in Northern Virginia. The technology sector continues to suffer from an oversupply of and lack of demand for its products and services, a rot that was already advanced before Sept. 11. Corporate scandals shooed investors away from stocks, cutting off a vital source of capital for many Washington area companies.

What Sept. 11 did was take those weaknesses and ratchet them up a notch. Before the attacks, employment in the District and Northern Virginia was still growing. After, it fell. In that sense, Washington, while resilient in many ways and still faring better than the rest of the country, has yet to recover economically from the terrorist attacks.

"The cumulative impact of all the things we've had since September wouldn't have been as bad if it had not come after the attacks," said John Silvia, chief economist of Wachovia Securities Inc.

Many of the direct effects of Sept. 11 proved fleeting. For example, Actix Inc., a British company with American headquarters in Reston that sells software for the cell phone industry, had workers all over the country that day, workers who were then stranded after air traffic was shut down.

"The week of the 11th was a wash," said Actix's president, Desmond Owens, who spent the week stranded in Denver. "I think we managed one conference call all week. The following week was mostly a wash, as people were still trying to get their heads together. For two weeks we pretty much lost momentum and activity."

Soon after, he said, work returned pretty much to normal. The company was able to close on contracts for its software in October and November. The biggest challenge in the past year has come not from a downward blip in business activity but from underlying problems among Actix's potential customers -- wireless phone providers that are battling each other with huge amounts of debt and fierce price competition.

Similarly, John B. Levy, a Richmond-based real estate investment banker who does much of his work -- matching those with money to invest with developers -- in the Washington area, saw new deals halt for weeks as both sides of those transactions stopped to sort out what the attacks meant for real estate.

At Graffiti Audio-Video, which has stores in the District, Bethesda and Fairfax, sales essentially stopped after Sept. 11, as it seemed no one wanted to buy television sets or stereos, said Bary Maddox, president of the electronics chain.

"It was like we were shut down for about a week," Maddox said. "We were open, but there was nothing to do. It took about one or two weeks for things to start picking up and returning to normal. Every month, people seem a little more comfortable."

At Sam & Harry's, a steakhouse in the District and Tysons Corner, business slowed sharply after the attacks. While locals, who most often visit the restaurant on weekends, kept showing up, business travelers, who account for much of the restaurants' business on weekdays, were gone for weeks.

"September was gone; October was gone; November had started creeping back; December, we had some holiday parties; by January, business really kicked in," said Larry Work, president of Sam & Harry's.

While the attacks had a temporary effect in many places, they forced many businesses in the region to reconsider fundamentally what they do. Many technology start-ups have emphasized security or government contracting in the past year as billions of federal and corporate dollars seemed poised to pour in to those areas.

Many of these would-be security companies have been unsuccessful, and the talk of huge amounts of federal money spent on a technology war against terrorists is so far just that.

Despite the hype and de-hyping of security-related business, the way many local companies have adjusted their strategies because of Sept. 11 shows the nimbleness that allowed the region's economy to grow so quickly over the past decade in the first place.

"The fourth quarter of last year was utter confusion," said Swensrud, the chief executive of International Mobile. "Leisure travel had just died. Business travel went down to those who absolutely had to travel." It did not help that many of the firm's better customers were soon in deep trouble themselves for reasons unrelated to Sept. 11 -- Enron Corp., Arthur Andersen LLP, Global Crossing Ltd. are among them. International Mobile laid off workers and trimmed every cost it could.

And the company recast itself, Swensrud said, using corporate security consultants as a new sales channel for its phone service, trying to persuade would-be customers that having a wireless phone while traveling abroad was no longer a luxury. Their pitch: If another event like the Sept. 11 attacks occurred, they would need to be connected with the home office.

International Mobile also developed a new product, Becon, that is a satellite-based backup phone system for companies to use in emergencies. Swensrud said he is getting strong interest from potential customers.

"We tightened our belt, went into siege mentality and tried to figure out how to survive with a business that had shrunk," Swensrud said. Now, he said, sales are back on par with those in 2000, having dropped in 2001 because of the disastrous fourth quarter, and the company is slowly hiring again. "In business, you have to be flexible."

© 2002 The Washington Post Company