Survival of the Diversified
by Nicole Colson
The shakeout from the recession in manufacturing left many bodies in its wake, and for those still standing, the recovery has been all about finding new products and new markets. In fact, it’s the key to survival and growth for most manufacturers.
A survey conducted last fall of 86 small and medium-sized NH manufacturing firms between five and 200 employees, the first of its kind by the NH Manufacturing Extension Partnership (NH MEP), found adding new or improved specialty niche products was one of the main factors driving growth in manufacturing, says NH MEP President Zenagui Brahim. And 64 percent of respondents reported they expected to increase profits by developing new markets.
Among them is McClellan Automation Systems in Bedford, which added a Products Group that targets inventors who can’t bring their product to market alone, and Welch Manufacturing in Laconia, which created a tool called Biteharder to sharpen snowmobile runners as a fifth division of the company.
Welch Manufacturing Technologies originally branched out not long after the recession hit in 2008 to stay afloat. “We had to cut back our size to half of what we were just to maintain,” says President Glenn Welch. “Instead of being locked into machining, a competitive industry with only a 6 percent national average profit margin, we broke off into many different areas. Now we’re solid enough that if a recession hits again, we can downsize, still be operable and not have the bank knocking on our door.”
Taking A Bite Out of A New Market
In addition to BiteHarder, Welch Manufacturing also makes machined components for the aerospace and automotive industries. If business in one of his divisions slows down, another picks up, he says.
A snowmobiler, Welch noticed the more he hit the trails, the more the edge on the snowmobile’s steel runners began to dull. That led to sliding on icy and hard-packed snow covered trails.
“I thought you could sharpen the carbide simply by using a cordless drill,” says Welch. His idea led to manufacturing BiteHarder, snowmobile sharpening tools based on the same technology used by his original manufacturing business, which employs diamond-grinding wheels to sharpen carbide inserts that cut steel.
BiteHarder currently represents about 5 to 7 percent of Welch Manufacturing’s total annual sales, having grown 3,000 percent since its introduction in January 2013. Welch says the division continues to experience significant growth for the 2014-2015 snowmobile season, which ends in April. Of Welch Manufacturing’s divisions, which employ 35 people, Biteharder has one full-time and three part-time employees.
Determining market segments in which to diversify isn’t always easy and requires keeping up with trends and experts in your industry, Welch says. The commercial aerospace industry is heating up according to Aviation Week, which reported last year on Boeing’s plans to build another 42 planes per month (a 33 percent increase) with a jump to 47 planes per month by 2017, Welch says. As a result of this projected growth in aerospace, Welch has shifted more of his company’s manufacturing into this area.
At the same time, he’s taken note of falling gas prices and a stronger economy, which have fueled a spike in new car sales. “I know the injection molding machining industry will be busy,” he says, noting one of his divisions, Plasclean Technologies, repairs and refurbishes existing injection mold tooling. Plasclean Technologies has been a key driver of growth during the past year for Welch Manufacturing.
Brahim says using existing technology—in Welch’s case industrial diamonds to sharpen carbide inserts—to cross into a different market is common. “We see this clearly in manufacturing, from medical devices to defense to aerospace,” Brahim says. “Manufacturers look at growth in different ways. They may want to upgrade products and continue serving clients; others offer new product lines or enter new markets; others export products. It’s a combination of all these together that are the ways to grow.”
While some businesses seek out existing markets that are new to them, others are creating opportunities. And nothing can motivate that more than a dramatic drop in revenue. That’s when inspiration struck at McClellan Automation Systems. When the Affordable Care Act was enacted in 2010, carrying a medical device tax, McClellan, which was solely in the medical device manufacturing arena, lost revenue.
“We were forced to diversify to stay alive,” says McClellan’s CEO, Ray Ritter. “We knew consumer products and life sciences were growing market segments.”
The company manufactures the machines that automate the production of medical devices. Due in large part to one large client, the company grew at a three-year average rate of 372 percent between 2010 and 2013, but that contract wrapped up at the end of 2014. In anticipation of the end of that lucrative contract, McClellan expanded to a 50,000-square-foot facility in Merrimack that allows it to make multiple machines for clients in the consumer market. It also added a Products Group that helps inventors bring products to market and takes either an equity stake or licensing rights for manufacturing.
Ritter anticipates that the Products Group will further fuel McClellan’s recent growth by providing an avenue for new technologies to make it to the marketplace quickly and cost effectively. McClellan provides needed technology and sometimes capital to help entrepreneurs make the leap from idea to production. “We have a handful of promising new companies working within our incubator program now,” Ritter says. “We are actively seeking additional startups for the program.”
McClellan is a prime example of using existing strengths to enter a new market. “We make fast, highly-reliable machines,” Ritter says. “We applied those capabilities to assembling a consumer product in addition to a medical device.”
While diversification is good, sometimes it takes a close look to determine the right product for the right time. That was the case for Goss International in Durham, a manufacturer of presses (including automated web offset presses) for publishing and other printing applications, including direct mail and catalogs. The company was formerly Heidelburg Harris, which Goss International acquired in 2004.
In 2008, as a temporary way to increase business, the company began manufacturing components for wind turbines using heavy machining technology it already had. At the time those components were in demand and other business was low. The firm stopped making them last year to focus resources on its traditional core business of printing equipment, particularly new products to print flexible and folded carton packaging.
“We looked at our strengths and developed new technologies within the printing industry,” says John Gallagher, Goss International’s director of product management for newspaper and commercial products. “Unlike our traditional markets of commercial (books, magazines, catalogues) and newspaper printing, packaging is not under threat from digital media. You only need to take a look at the shelves in your grocery store to see that print is everywhere.”
Diversification is one of many vital qualities of successful manufacturers, says Philip Suter, president of the Greater Keene Chamber of Commerce and former director of The Regional Center for Advanced Manufacturing, a collaborative of the chamber, the Keene School District, River Valley Community College and Keene State College to link businesses and educational resources to support the next generation of advanced manufacturing jobs.
“You have to always be looking to diversify your offerings to be nimble in business these days,” he says. “You can’t set up shop and make widgets every day for 25 years; that’s not the nature of business, let alone manufacturing. But we have to look at it in a holistic way when helping manufacturers and high-tech companies succeed and attract others to move here.”
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