Lessons from the diary of a high-tech firm.

For the last year-plus, the market has been abuzz with all manner of high-tech companies brazenly taking their companies public in the hopes that the market would greet them warmly and rocket their $10 shares to opening day superstardom - profits or no profits - as happened with such IPO wonders as Yahoo! and Earthweb. But the technology IPO market can be a fickle one, Here's how one company was able to parlay a near-misstep into new opportunity.

Even with the most negative of things, there is always something that can be learned; in our case, what we learned from a painful experience proved invaluable. In 1996, Computer Technology Associates was a growing and thriving company With more man $175 million in revenues and nearly 1,300 employees. With a dual focus on IT services and telecommunications satellites, CTA's business model could be described as a forerunner in the convergence of computer and communications technologies. It seemed the prime time to make the jump into the public sector, so CTA filed a statement with the Securities and Exchange Commission (SEC) to take the company public in September of 1996.

The problem? The market was apparently not ready for us.

While we thought the diversity would be beneficial to helping CTA reach the next level, it was poorly received by financial analysts. For instance, the analysts who covered the space and telecommunications market didn't cover the IT industry and vice versa. This meant CTA wasn't considered a "pure play" and therefore could create confusion in the marketplace. Rather than risking a failed IPO, we withdrew the filing.

We had just learned an important lesson - one that could actually prove helpful to our overall corporate strategy - the hard way: The market reacts better when a company is in a single, focused, and clearly understood segment.

We kept this in mind as the company began taking a serious look at how to reposition itself for a successful IPO in the future. Since the space and telecommunications business was extremely capital intensive and we would be competing against billion dollar companies like Hughes, Lockheed Martin, and Loral, CTA decided in July 1997 to sell the satellite division to Orbital Sciences Corp. for approximately $43 million. Cash from that sale was then used to expand the company's IT service capabilities and launch an aggressive sales program.

By focusing all of the company's resources on its IT services business, we quickly realized that an IPO would not be feasible in the near future if we didn't expand our client base beyond the federal government arena. By capitalizing on the IT experience gained in the federal market, we knew that knowledge could be applied to other markets as well.

For instance, in 1993, the Veterans Administration asked our company to help them with their Y2K problem. This meant that CTA received one of the first Y2K contracts awarded and was one of the first integrators to develop a track record of performance and recognized methodology in Y2K. By 1995, other agencies were sending out RFPs for Y2K business, and because of our track record, we were very competitive and won a large percentage of the business we sought.

The Y2K issue created a unique opportunity for us, because it allowed the company to study the market, develop post-Y2K competencies, and strategically select where the best opportunities lie for the company. Y2K business also proved to be especially fruitful, because it brought us into new commercial and state/local government markets which would have been nearly impossible to target without Y2K.

In just 18 months, CTA won a myriad of Y2K contracts with commercial clients, such as Cessna Aircraft and Dannon, and local government clients, including Kansas, Michigan, New York Port Authority, and Los Angeles Airport. And we were competing with companies like EDS, Keane, CSC, and other commercial IT players. This instantly brought us credibility as a major IT services company that was capable of playing with the commercial "Big Boys."

That said, we know we cannot base an IPO on our being a company that relies on a significant portion of its work being Y2K projects. It is here that the company has learned the true power of relationships when it comes to business. The established Y2K customers are now being leveraged to help CTA win post-Y2K IT projects, including e-commerce systems, ERP implementations and integration, and legacy system modernization.

It is by using these projects and CTA's 20-year experience in embedded software engineering systems as a basis to begin developing core practice areas that we will positively position the company with financial analysts.

Today, 50 percent of CTA's IT services business is federal, 20 percent is state/local, and 30 percent is commercial - and more than 50 percent of CTA's profit comes from commercial business. CTA once again tops $115 million in sales and has more than 800 employees. But more importantly, we, as a company, have been able to regroup from 1996 and are effectively positioning CTA to explore an IPO once again.

Tom Velez is chief executive of Bethesda, MA-based Computer Technology Associates, an employee-owned IT services provider with more than 750 full-time employees nationwide and estimated 1998 revenues of $116 million.