SPIN CYCLE Here's a surefire way to make cash off tech: start a PR shop By Matthew McClearn  Canadian Business Magazine Sept. 18, 2000  John Ruggieri's blue Yamaha YZF-R6 motorcycle is designed to turn heads. Its engine spins 15,500 times a minute, propelling the sleek, two-wheeled missile at up to 267 kilometres per hour. "He can take off the mark about three times as quickly as I can," concedes business partner Michael Corcoran, who rides a more conservative Honda cruiser. "But we'll see who's still going after 12 hours." It's more than just friendly one-upmanship, of course-spinning fast and noisily is critical to Ruggieri and Corcoran's new firm, Toronto-based CanadaStartups.com Inc. The idea of the Web-based business is to connect Internet hopefuls with funding, talent, real estate and PR-whatever they need to go from vague conception to real revenue. In return, the bike-riding partners hope to earn 5% of the value of the deals they arrange. To attract potential clients, however, they need good press. That's why they hired publicist High Road Communications Inc. before they launched in May-PR now accounts for a third of the fledgling company's spending-and that's why the two are riding across Canada, meeting with other start-ups.  The motorcycle trip is, simply put, a publicity stunt, a particular species of salesmanship that has been around for years. These days, however, public relations has been kicked into high gear-thanks largely to the high-tech boom. Dot-coms, fibre optics, wireless and biotechs are pouring big bucks into spin, and that has made PR one of the fastest-growing sectors on both sides of the border. The reason is simple: even revenueless tech start-ups need to attract investors, customers and new talent. So they have to get noticed. In the US, technology PR revenue rose an average of 47% last year, outpacing the industry average of 30%, according to the Council of Public Relations Firms in New York. (Similar stats are not kept in Canada.) "It pays, these days, to work in the PR business," one PR executive noted recently in a Web publication for industry insiders. "Very well."  That kind of enthusiasm wasn't heard in the early '90s, when PR budgets were shrinking. "You'd take anything," recalls Julie Rusciolelli, founder of Maverick Public Relations Inc., a Toronto-based firm that specializes in tech start-ups. "You'd take pink fibreglass and plastic food wrap. And it was very cutthroat. People were stealing other people's clients." These days, Rusciolelli turns away five would-be clients a month. Others routinely dump clients that aren't up to snuff. "We've let clients go because we worked with them for four months and they didn't produce the products they said they'd produce," says Debbie Hynes, an account rep at Toronto-based Pydea Inc.  If you're a tech investor who's dumped a crummy start-up stock, you know the feeling. But up and down the PR food chain, the players have been seeing tech as the sector's salvation. Following the lead of really big firms, such as New York-based global giant Hill and Knowlton Inc., National Public Relations Inc. of Toronto has beefed up its technology practice to serve major tech accounts. But the real story is in specialty boutiques, which are booming. Rick Doyon and Mia Wedgbury were among the boutique pioneers, founding tech specialist High Road in Toronto in 1996. Others have followed. David Terry established ITPR Inc., also in Toronto, in May 1999 with funds from two venture capital firms-Pine Tree Capital and KBL Capital-which were seeking a publicist for companies in their portfolios. He now has 12 staff. Rusciolelli started Maverick PR in her basement in May 1999; she now employs 14. This year, Canada NewsWire Ltd., a national gateway for PR bulletins, added 30 PR boutiques to its roster.  With scant overhead beyond phone, fax, an Internet-connected computer and an office, PR shops are easy to set up and, running at capacity, have very healthy margins. But in the world of tech start-ups, they can be important players. The days of short-term ad hoc work are out the window, and many PR boutiques now work on monthly retainers that start at $10,000. Spending really heats up around an IPO. Bruce Toner, a partner at accounting firm KPMG LLP, says that just before and after a public offering, start-ups spend up to US$85,000 a month on PR. And cash-poor clients can trade a piece of their firm: many PR shops now accept stock options as partial payment.  PR firms typically meet to review a new client's brand and message, then distill it to a "15-second elevator pitch" (a nutshell explanation of what the company does and why people should give a damn). They coach CEOs and key staff on how to deliver it, craft presentation materials, brochures and Web sites, write speeches, arrange celebrity endorsements and stage glitzy launches, junkets, lunches and other pseudo-events. But winning headlines is PR's chief function. Flacks pitch the firm to journalists via e-mail, faxes, letters and phone calls and to equity analysts, who are often quoted. "The goal is good press, good analyst coverage, good investor commitment," says ITPR's Terry. "One very positive article in Report on Business, Canadian Business or The Wall Street Journal can have an immense, immediate effect on a company's share price," says 25-year PR veteran George McNeillie.  Research In Motion Ltd., QLT Inc. and Wi-LAN Inc. stand out among Canadian firms whose rapid appreciation was spurred, at least in part, by publicity. Tech upstarts are eager to replicate the model, but to be noticed they now need to rumble like poorly muffled Harleys. Four-fifths of dot-com plays wind up in the e-morgue-but if some are barely noticed, it's seldom for want of trying. Melanie Kurzuk, director of corporate communications at Canada NewsWire, says Canadian high-tech companies posted more than 10,000 press releases last year, up 44% from '98-and are on track to beat that this year. The flip side of the PR frenzy is that much of the product will hit the trash bins unread. Andy Riga, a Montreal-based business reporter who has written about technology at The Gazette for four years, says publicists are producing far more than he and his colleagues can digest, and good stories are buried in the avalanche. "It has definitely gotten worse over the past year," Riga laments. "I'm not reading most of it now, actually. I'm just drowning in this stuff."  With a glut of work to go around, some firms take on more than they can handle or hire inexperienced PR workers-known somewhat derisively as "flacks." The upshot? Start-ups spend more on PR to be heard above the cacophony, but get less press. In Silicon Valley, where the PR demand crunch is acute, dissatisfied clients change firms every four months. (There's even a Web game at www.whackaflack.com that allows people to take out their frustrations.) Canada's PR scene is healthy by comparison, but Rusciolelli is blunt: "I think the industry needs an enema."  Nor is it just a dot-com problem, says George Mahmourides, a biotech analyst at GroomeCapital.com Inc. Many biotech companies churn out press releases when they have nothing legitimate to announce. "In order to be heard above the noise, you have to up the ante, and that's dangerous," he says. "A flurry of PR is initially very beneficial, but sooner or later, someone is going to ask, 'What are you actually doing?'" If you can't answer, the gas will run out. "Stunts, like motorcycling across the country, will get you noticed, will create a buzz, and maybe get somebody to write about you," says Jack Bergen, president of the Council of Public Relations Firms. "But you need solid, sustaining, credible, strategic PR, not just stunt PR."  The fact is, public relations consumes time, money and effort that could otherwise be used to build a business. But, Corcoran says that for him the money spent on the cross-Canada PR stunt is a bargain. To get a similar response, "on the direct marketing side, we would have to send 23 million direct mails or e-mails out," he says with a dab of hyperbole. "On the advertising side, it would amount to a $1.5-million to $3-million advertising budget." An extra PR challenge will be to differentiate the play from conventional incubators-a group whose investor chic has plummeted from Harley-Davidson to moped level. But so far, so good. The PR cash-and rubber-were worth laying down, says Corcoran. "Heading east from Toronto, we've been on the radio and TV or meeting with press from every city we've met clients in: Belleville, Kingston, Ottawa, Montreal. It's terrific. People like the story."  On the other hand, that story could amount to just a flash in the oil pan. And the inflated expectations PR creates can simply burst. Remember Paul Alofs? Last October, the former executive at US music site MP3.com Inc. hired Strategic Objectives, a Toronto-based PR firm, to publicize his "bold new plan" to return to Canada and establish an incubator for Canadian Internet firms. Never mind that other incubators had been operating already, sometimes for years-the PR coup that was Alofs's return to Canada led to a rash of positive news articles. Alofs received thousands of business plans from would-be clients, and he was quoted as saying, "The opportunities out there are more significant than I thought." Then again, maybe not. A few months later Alofs scrapped the plan, saying dot-com fever was over, but was unapologetic about his use of publicity: "You have to be willing to go to the nearest rooftop and scream." < Return to Mandrake in the News