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By Rhonda Miller
PBN Staff Writer
By Rhonda Miller
PBN Staff Writer
GoGo Cast Inc. President David Paolo says Rhode Island deserves its national reputation for being unfriendly to business. Unlike some others who felt the same, however, his company has managed to stay and grow in the Ocean State.
As state leaders confront Rhode Island’s “business-unfriendly” reputation, the success and frustrations of small businesses like Cranston’s GoGo Cast – and others who weren’t so fortunate or patient – highlight the stakes in finding the right solutions.
Paolo says his digital-media company came to the state and is succeeding in spite of what he agrees is a negative business climate.
The company has 1,000 high-definition television screens in stores and pharmacies that bring advertising to 25 million viewers per month, Paolo said.
GoGo Cast has a seven-year exclusive North American contract with GTECH Corp. for digital advertising for their lottery locations, Paolo said. “We’re currently in the middle of deploying 150 screens to Houston for the Texas Lottery” and another 150 in Dallas.
“We run local news, weather, sports and traffic reports from live traffic cameras,” Paolo said.
GoGo Cast was a California company that in 2008 lured Paolo, whose resume includes being CEO of Log On America, a now-defunct Internet company that had 300 employees in Rhode Island.
Born in Providence and a resident of Scituate, Paolo said when it came to working out an agreement for GoGo Cast, he stood firm – it had to be moved from Silicon Valley to Rhode Island.
“We moved it here only because I lived here,” Paolo said. “Then we found a beautiful building in Cranston that was available.”
GoGo Cast started with three employees and is now up to 15 people in Rhode Island, as well as a few in California. GoGo Cast recently acquired a Toronto company with a new digital application.
“We just recently launched a brand-new product, GoGo Planet. It’s an events-based and deals-based mobile application that uses geo-targeting,” Paolo said.
CNBC in July 2012 ranked the state last among 50 states in how appealing it is to start or grow a business.
That black eye was on top of an “F” rating Rhode Island earned from the June 2012 Thumbtack.com Small Business Survey, done in partnership with the Kauffman Foundation, on how the 50 states rate in appealing to small companies.
Paolo says his company tried – and failed – to get financial help from the state.
“We had a full product, we had contracts, we had revenue, we had employees,” Paolo said.
The company asked for $250,000 from the R.I. Economic Development Corporation in 2009. Paolo said the terms offered by EDC were not conducive to making the business work, because the interest rate was too high, a lot of fees were required and “there were conditions associated with the growth of the company that made it difficult.”
They renegotiated the terms but, Paolo said, in the end, EDC’s Small Business Loan Fund did not approve the loan.
The EDC in a letter said the loan request was not approved because of “insufficient cash flow to support the debt repayment, insufficient collateral and inadequate guarantor support.” The letter was provided to Providence Business News by EDC spokeswoman Melissa Chambers.
“The initial draft terms and conditions were reflective of the perceived risk in providing a $250,000 loan to a startup,” Chambers said in an email.
GoGo Cast has since raised millions of dollars, “mostly because of the resources we were able to garner outside of Rhode Island, because of my contacts on Wall Street, in the investment community,” said Paolo. He also pointed to other obstacles for small businesses in the state.
“Taxes are higher here, but a lot of our assets are in other states, so it doesn’t affect us as much,” he said.
A report titled, “Moving the Needle,” a joint effort of the state Senate and the Rhode Island Public Expenditure Council released Jan. 15, confronts head-on the negative business ratings.
The report cited a number of factors in the poor ratings, including “an onerous regulatory environment, the condition of the state’s infrastructure and the high cost of doing business.”
Improving Rhode Island’s business climate will require a “sustained, cooperative partnership,” according to state Senate President M. Teresa Paiva Weed.
Gov. Lincoln D. Chafee in his State of the State speech Jan. 16 reiterated his skepticism of the state’s consistently low rankings for its business climate.
“Many [studies] compare apples to oranges,” he said.
He said the state has studied the tax burden on businesses and found R.I. ranks 26th in the burden of state taxes on businesses, in the middle on sales and income taxes and near the bottom, 41st, in terms of local property taxes borne by businesses.
Chafee’s budget for fiscal 2014, however, does propose lowering the state’s corporate tax from 9 percent to 7 percent over three years.
Swipely Inc. CEO and Rhode Island native Angus Davis said out-of-state money, energy and vision are what has allowed his company to succeed in the Ocean State.
Swipley started in Rhode Island in 2009 and provides technology for merchants to accept payments, understand their customers and grow their business, Davis said.
“I think Rhode Island is a very difficult place to start a business, grow a business and join a business as an employee,” said Davis, who went to Silicon Valley when he was 18. His first startup, the voice-recognition technology company TellMe, was acquired by Microsoft for almost $1 billion, Davis said.
“I always wanted to come home to Rhode Island and bring some of the energy of Silicon Valley here,” said Davis. “I could get investors who never invested in a Rhode Island company before, because they knew of my success in Silicon Valley and were willing to back me.”
While Swipely has nearly doubled in the last year and has 40 employees, Davis said his small real estate venture is not moving along at the same pace.
“I have a vacant property in Bristol. It’s a former lumber yard. I’ve been going through government agencies for over a year, with the planning and zoning boards and the town council.” said Davis.
“This state has the second-highest unemployment rate in the country, and I want to employ people and redevelop a property, and these boards only meet once a month,” Davis said. “I’d like to see them just decide if the proposal is in compliance and do it on a fast turnaround.
The “Moving the Needle” report does state that due to revisions in 2012, “businesses looking to begin construction projects in Rhode Island could soon have a new level of predictability in the form of a single building-permitting system that stretches across every city and town in the state.”
Other improvements in the business climate, including an income tax reform package, are pointed out in the report.
Those improvements didn’t come soon enough for Peter Johnstone, formerly of Newport and CEO of Gunboat Co., which manufactures high-performance cruising catamarans. The company had been manufacturing in Cape Town, South Africa, and wanted to bring production to the U.S., Johnstone said.
“I spent four months trying to make it work in Rhode Island, and what it really comes down to is facilities, costs and labor costs,” said Johnstone, who moved his company to Wanchese, N.C.
Gunboat will have about 40 employees at the end of its first year in North Carolina and has revenue of $28 million.
Johnstone said North Carolina has programs that paid for half the cost of renovation for the vacant building and built a catamaran dock at his site, and has an excellent training partnership with community colleges.
EDC’s Chambers in an email said, “In 2011, EDC staff worked with Gunboat Inc. to assist them in possible relocation of their production facilities to Rhode Island.” She said Gunboat was approved for a small-business loan and “EDC staff provided site-location assistance,” before the company left.
“State leaders,” continued Chambers, “are working toward improving the overall business climate to foster company creation and growth.”
One clear bright spot on the state’s economic landscape is the startup community, particularly in Providence, says Melissa Withers, chief of staff for startup-accelerator Betaspring.
“It’s a great buttress to some of the negativity and hopelessness many in our community feel,” she said. “It’s a beacon of hope to get through tough times and not just survive, but thrive.”
Of 57 startups Betaspring has worked with since 2009, about 30 are still active in Rhode Island, Withers said. The founders chose to live in Rhode Island after successful entrepreneurial ventures in other areas and created Betaspring in Providence because of the location between New York and Boston, the sense of community, availability of real estate and lifestyle, said Withers.
“One of the big differences with the startups is how they define their markets,” Withers said. “From the very beginning, they’re looking at the national or global market and the whole Northeast corridor is still a very important place to do business.” •