Ramsey-based security firm finds success, not riches

Article by: STEVE ALEXANDER , Star Tribune
Updated: June 5, 2011 - 9:43 PM

The tiny Ramsey-based Barrier Group puts a protective wall around customers' computers, but it remains little-known.

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Jim Libersky, left, sales vice president, and Robert Demopoulos, chief technology officer, with the Barrier Group’s Barrier1 security product.

Photo: David Brewster, Star Tribune

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In American business lore, the company that invents a better product gets rich.

In the real world, an idea-oriented company like the Barrier Group may fly under the radar for years.

When it was founded in 2003, the Ramsey-based computer security firm developed an "Internet security appliance," which combined several types of "open source" or freely available security software with Barrier's own "predictive math" program to identify new malicious Internet security threats, even though they'd never been seen before.

By 2004, the 15-employee privately held firm had $500,000 in annual revenue, and was projecting $7 million for the following year.

Fast-forward seven years. Barrier is still a small private company, with six full-time and four part-time employees. Revenue is about $1 million a year.

But, far from falling flat, the company appears to have succeeded with its product. It has about 100 customers in 14 states. The company offers comparison statistics they say prove its product is the best on the market.

So why is Barrier still flying under the radar in a computer industry that's based on new ideas?

Barrier executives say it's a combination of things. Despite the founders' high expectations, Barrier never landed any venture capital money in Minnesota -- and it didn't move to California where venture money was more plentiful at the time.

Robert Demopoulos, the chief technology officer, said the $7 million revenue projection for 2005 was based on expected investments to fund marketing and sales, and a planned marketing agreement with telecommunications company Nortel. When both fell through, "we had to fund the company based on sales," he said. "Marketing and development had to be scaled back."

Venture capital isn't any more plentiful today. Last year was the worst on record for venture capital funding in Minnesota, which has about 1 percent of the nation's total venture capital investments.

In addition to its fizzled fundraising, Barrier's competition has steadily grown stronger.

"We were two generations ahead of everybody else on Day One," said James Libersky, the sales vice president, who along with Demopoulos runs the company. (Barrier hasn't had a chief executive officer since CEO Steve Sahl left about three years ago.) "But it wasn't a known product category then, and we had to educate customers. Other companies that were bigger had larger promotion budgets."

Today the Barrier Group has 46 competitors in the security market called unified threat management, including Cisco Systems, which many corporations consider the gold standard for network security.

Targeting small companies

As a result, Barrier has to push hard to sell, at relatively low prices, to small and midsize companies and government agencies -- a group with limited technical expertise and tight technology budgets that are inclined to buy a highly automated security product like Barrier's. Customers include schools, county governments, health care companies, small banks and public utilities. The company's current marketing strategy is to attend smaller industry trade shows aimed at information technology managers for schools or small companies.

Prices of the company's product, called Barrier1, vary depending on how many software modules a customer adds. Individual modules provide a firewall, antivirus and antispam software, intrusion prevention and "anomaly detection," website filtering and oversight of "virtual private networks" used to connect workers in the field with the main office. A single sale may bring in only a few thousand dollars, plus a few thousand more in annual software license fees.

As a small technology company, it's hard for Barrier to get noticed. In October, leading computer industry analysis firm Gartner issued a report on the growing "unified threat management" product category, but excluded all companies that, like Barrier, had not yet achieved $5 million in annual product sales.

In addition, Barrier has not yet passed one of the milestones for any company basing its appeal on technological prowess: It doesn't have any patents. While Barrier filed for its first patent in 2005, the patent still hasn't been approved by U.S. Patent and Trademark Office, an agency of the U.S. Department of Commerce.

Gary Speier, a patent attorney at Schwegman, Lundberg & Woessner in Minneapolis, said it's common for a company to wait five years to receive a technology patent. But if the delay drags out longer than five years, it's questionable whether the patent will be granted, he said. Still, technology companies that have made patent applications are considered to have "intellectual property" that makes them more valuable than companies without it, he said.

Customer testimonials

Despite Barrier's low profile, its security-conscious customers appear pleased.

"The Barrier device does quite a good job of blocking things that appear abnormal," said Mjyke Nelson, chairman of the Minnesota County Information Technology Leadership Association. "And they can spot things for which there is no known 'signature' or pattern. That takes looking for abnormalities to another level."

Nelson also likes the price -- cheaper than one from the better-known Cisco. "They're affordable, we like their product and we want them to find enough business that they stay around," Nelson said.

Other customers concur.

"I picked them because they're in Minnesota, and they offered the technical support we needed," said Andrew Rosenau, information technology manager at Granite Falls Municipal Hospital and Manor in Granite Falls, Minn. He paid about $15,000 for the Barrier device and spends about $10,000 a year in software license fees. "In addition, they include in the price a once-a-year complete network vulnerability scan, and that's a big cost savings for us."

Still, it's an uphill battle for a company that is, unwillingly, flying under the computer industry's radar.

"We'll continue to grow the company based on sales revenue, while looking for partnerships and new investors," Demopoulos said. "We need to get known. But we'll move our way up."

Steve Alexander • 612-673-4553

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