Special Report: Consultants to Federal Government See Sales and Staff Expand

By Mike Allen
Senior Staff Writer

While some businesses slash payrolls to reduce expenses during a continued economic slowdown, other San Diego companies are in the midst of a hiring frenzy.

"I think we just hired four more people today. That brings us to 215 people, I think," said Ned Lester, CEO at Maxim Systems Inc., which provided systems engineering and technical services to federal agencies, primarily SPAWAR, the Navy's Space and Naval Warfare Systems Command.

Lester can be excused for not knowing his firm's exact head count. Maxim, founded only four years ago, has seen its workload and revenues rise 345 percent from 1999 to 2001, according to the San Diego Business Journal's list of Fast-Growing Private Companies.

To accommodate the increase in contracts coming mainly from SPAWAR, Maxim has added more than 50 new employees in the past year, primarily engineers and other highly skilled technical workers.

Government's War on Terrorism:

Driving a large part of Maxim's sales is an increased emphasis by the federal government on the war on terrorism. About three quarters of Maxim's sales come from contracts with SPAWAR, which develops and procures new communications systems for the Navy.

It also has contracts with National Reconnaissance Office and the Defense Intelligence Agency.

"Our company has significantly benefited from the move of SPAWAR (headquarters) from Virginia to San Diego about four years ago," Lester said.

Maxim recently picked up a new contract with UC Davis to develop computer systems for six states and software to relay data about bio-terrorism, Lester said.

"The first increment of the contract is worth $380, 000, but in the second year, it could be worth $2 million," he said.

Those types of contracts have boosted Maxim's annual revenues from $7.5 million in its first year to $33 million last year.

"By the end of this year, we're estimating we'll be at $55 million," Lester said.

Maxim isn't resting on its laurels, depending only upon government contracts. It formed a new unit this year to focus on the commercial sector, and already has one contract signed and six in the development stage, Lester said.

IT Benefits From Government Work:

Maxim's success was mirrored by other firms that are in the same sector: defense contractors providing technical consulting services including engineering, managerial and financial support to government programs.

Like Maxim, INDUS Technology Inc.'s largest customer is SPAWAR, but it also does work for the Department of Transportation, the FBI and the National Traffic Safety Board.

"We're growing in the type of work we do, and we're getting better in knowing how to win the work," said INDUS CEO Kathy Sridhar.

Based on its revenue growth of 2, 050 percent from 1999 to 2001, INDUS was ranked No. 1 on the Fast-Growing Private Companies list. Sales went from about $160, 000 in 1999 to $3.4 million last year. This year, revenues should reach $7 million, and could double again in 2003, Sridhar said.

Although INDUS was officially started in 1991, it wasn't until 1998 that it really began in earnest. That's when Sridhar quit her day job as an SDSU professor to devote all her energies to the business.

Thanks to winning some hefty, multiyear contracts with a variety of federal agencies, INDUS has expanded its work force from about 54 people in 2001 to 73 today. Most are highly skilled professionals in the areas of engineering, financial analysis, ship installation, and information technology, Sridhar said.

"I don't know how big our staff will be at year end, maybe between 90 to 100," Sridhar said.

Close Ties To Navy Pays Off:

Epsilon Systems Solutions is yet another example of a local consulting business that has blossomed as the federal government's defense budget has been boosted.

"We're doing work in the three E's: pure engineering, energy and environmental," said Epsilon's CEO, Bryan Min.

Launched in 1998 with only about $20, 000 in capital, Epsilon expects to report about $20 million in revenues this year, up from nearly $12 million last year. For the three-year period from 1999 to 2001, Epsilon's sales gain was 362 percent, putting it in third place on the list.

Last month, Epsilon was part of a winning contract team headed by Lockheed Martin and General Dynamics that was awarded a $40 million, 14-month contract to replace a satellite communication system for SPAWAR.

Min spent about six years as a nuclear submarine officer in the Navy, and another six years in senior management jobs with a defense contractor, learning the ropes on how government contracting business works.

To get Epsilon started, Min took out a home equity loan and maxed out a few credit cards, he said.

"I was born in Korea and came to this country with my parents when I was 8," Min said. "When you don't have that much, taking risks (to start out on his own) wasn't that difficult because you don't have that much to lose."

At its start, Epsilon consisted of Min and two employees. Today, its total work force is 150 people, including 30 staffers in San Diego. The remainder are spread out across the nation at offices close to key Navy installations, where they are serving their customers.

While companies in the services sector dominate among this year's fast-growing list, at least one manufacturer also broke into the top 10, Nextec Applications Inc.

Manufacturer Develops Fabric:

The Vista-based company creates composite fabrics used by sporting apparel makers such as Patagonia, L.L. Bean and Lands End.

Using a patented "encapsulation technology," fabrics created by Nextec take the concept of water resistant outerwear to another level, said CEO Pete Ellman.

The company launched in 1994 with $63 million in venture funding, including GE Capital and JP Morgan. It has developed a fabric called Epic that not only is water resistant, but is light, breathable, and flexible. It's being used by major brand apparel manufacturers.

"We're changing the industry standards," Ellman said. "What we're becoming is like what Porsche and Mercedes are to cars."

Recently, Nextec's Epic fabric was selected as part of a comprehensive redesign of uniforms for the country's special operations forces. The fabric is specifically geared to protecting fighting forces in cold weather regions such as Afghanistan.

From $2.5 million is sales in 1999, Nextec revenues exceeded $10 million last year, and will hit between $12 million and $14 million this year, Ellman said. It has about 90 employees, evenly split between its Vista headquarters and a plant in Singapore.

Thanks to its fabrics being adopted by more ready-to-wear garment makers, and its latest contract with the government, the future looks particularly bright for Nextec.

Depending on whether the military garments are eventually adopted by the Marines, the work could translate to sales that range anywhere between $8 million to $50 million, Ellman said.