Michael Hyatt, BlueCat Networks/Software/Toronto

Michael Hyatt is as snappy with a turn of phrase as he is a snappy dresser. But the BlueCat Networks CEO’s ego is not so big (he prefers to call it “tremendous”) that he would dismiss the recent economic and market turmoil in the capital markets. “If you weren’t scared, you were stupid,” he says. “I was absolutely scared. I did lose sleep.”

So far, BlueCat has escaped relatively unscathed by the downturn, and is perhaps even stronger because of it. Revenue grew by 40% in the fiscal year ended March 31, continuing a winning streak that has seen the 123-employee business expand by more than 500% since 2005. And the company, which Hyatt co-founded in 2001 with his 37-year-old brother Richard, BlueCat’s chief technology officer, is comfortably profitable. (The duo also own Toronto’s Dyadem, founded in 1995. Combined with BlueCat, the two companies will pull in about $50 million in revenue this year).

But Hyatt admits BlueCat’s resilience is partly luck, because it targets a strong niche. Its products — IT gear that automates the management of IP addresses for corporate networks — tie into corporate Internet infrastructures, including cost-saving technologies such as voice-over-IP telephone systems.

BlueCat certainly suffered from some common symptoms of the credit crisis: sales were delayed dramatically as deals required signatures two rungs higher on the corporate ladder; accounts receivable took about three weeks longer to collect; some bad debt surfaced in its extensive European reseller network, where two firms also went bankrupt; and BlueCat stopped negotiations for a strategic investment from a major global IT player after valuations plunged. That deal would have been a first for the Hyatts, who in late 2005 turned down a term sheet from legendary Silicon Valley venture capitalists Kleiner Perkins Caufield & Byers in order to maintain control.

BlueCat also started doing deeper credit checks and limiting partner credit, while improving cash management and preparing for worst-case scenarios that never happened. Still, prospective customers remain skeptical. “My CFO does at least five meetings a month to show BlueCat’s financials to companies,” says Hyatt.

Fortunately, Hyatt positioned BlueCat well for this downturn. Heeding recessionary signals, Hyatt in early 2008 diversified BlueCat’s reliance on American corporate sales and stepped up plans for Europe, moved into Latin America and created a new U.S. division specially accredited to sell to government agencies. A year ago, 80% of BlueCat’s sales came from the U.S. private sector; today they are less than 50%. “Some of the biggest deals we have coming this year are from the U.S. federal government,” says Hyatt,boasting of a US$2.5-million deal with the U.S. Postal Service in December.

Hyatt hasn’t abandoned the U.S. private sector, expanding BlueCat’s offerings to meet cash-strapped customer’s needs. For example, Hyatt in January “virtualized” BlueCat’s product. That is, rather than selling it only as a software-in-a-box dedicated appliance, it was offered as software residing in a data centre and paid for by ongoing licensing fees. Besides cutting hardware costs, the new products fit into an IT department’s operating expenses budget, rather than capital expenditures.

BlueCat did 68 transactions in March, compared to an average month’s 29, and Hyatt says May and June could be the biggest months in company history. He expects that a year from now, about 50% of BlueCat’s revenues will come from virtual products.

So has the downturn taught Hyatt anything? “Evolve or die,” comes his typically snappy reply. - Andrew Wahl

Bernard Herscovich, BelAir Networks/Wireless/Kanata,Ont.

For much of this decade, BelAir Networks has been one of Ottawa’s shining hopes. Founded in 2001 just as the market for telecom equipment was imploding, BelAir has attracted about $83 million in venture financing from nine firms, most recently a $17.5-million round in December 2007 led by Export Development Canada and Toronto venture debt financier Wellington Financial. In another era, the 70-employee company’s three straight years of annual growth of about 70% between 2006 and 2008 would have made it a shoe-in for a big IPO. And the maker of wireless local-area-network equipment, particularly for large-scale public-area Wi-Fi mesh deployments, may yet go public, but CEO Bernard Herscovich has eased up on the accelerator for now.

When the capital markets and the economy went into a tailspin last fall, BelAir moved quickly to manage costs and focused on its existing, stable customers, such as the U.S. Department of Defense, which uses BelAir equipment to quickly set up secure wireless hot spots among other applications, and large American cable companies Cablevision Systems and Comcast (also a BelAir investor), which are rolling out widespread Wi-Fi Internet networks to compete with incumbent telecom service providers.