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April 2008 — Vol. 86, No. 3
COVER STORY
Message to legislators:
Help — don’t hurt — the heart
of Connecticut’s economy
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“Our employees and their families, our suppliers, our customers, and our community are all depending on us,” says Joe Vrabely, co-founder and president of Atlantic Steel & Processing in Waterbury. “That’s why state legislators should ask themselves, before voting on a bill affecting business: ‘Will it help a company like ours grow? Or make it more difficult for us to survive?’”
Vrabely makes those comments in CBIA’s latest radio and television ad campaign.
Why should the state help companies like Atlantic Steel, or for that matter, any of the thousands of other small businesses in Connecticut?
Because together, these companies — ranging from entrepreneurial start-ups to multigenerational family firms — form the very heart of Connecticut’s economy. For the most part, these companies are “born” here, grow here and stay here — assuming they can survive the many obstacles they face. Cumulatively, they provide more than half of the private-sector jobs in Connecticut. They support community causes, give business to local companies, and pay taxes to the state and local governments. As Vrabely notes, “It’s the people who want to live here, educate their kids here, go to theaters here … they’re the ones who grow the state’s economy.”
Tough times
Vrabely is the quintessential entrepreneur — someone who sees, and seizes, an opportunity to create a potentially profitable new business, product or process, investing personal resources to overcome risks and obstacles to success.
“Eight years ago, Scott Williams and I put our life savings into starting this manufacturing business. With hard work and a bit of luck, we’ve grown from two to 21 employees,” Vrabely says.
His company slits steel coil products to the exact sizes that metal-stamping manufacturers need — and need ASAP. Atlantic Steel & Processing’s name, in fact, was chosen to fit that acronym and highlight the company’s speed-to-market cycle time, or turnaround.
There’s plenty of demand for ASAP’s products. “Most people don’t realize the vastness of the stamping industry [here]. The Naugatuck Valley is literally peppered with small and midsize stamping companies. We [in the valley] have the four or five key components of that industry: design the item, tool it, obtain the raw materials for it, stamp it, and often, plate it.”
ASAP now sells to manufacturers throughout New England, New York, New Jersey and Pennsylvania.
When the company opened shop in 2000, however, “Most people thought we were crazy to start a manufacturing company in a recession,” Vrabely says. “But we’re still gaining market share, in a pretty crummy economy. Right now, it’s tough out there. Raw materials commodities are skyrocketing ... because of global economics,” he notes.
Companies like his, he adds, face additional challenges that our state government could be doing more to address. He ticks them off: “Health care. Taxes. Skilled workforce — that is the No. 1 issue. The workforce is what made this state great. But our youth are moving out,” he says, adding yet another problem: “Connecticut is the fifth-highest-business-cost state; we have the highest electricity rates, the highest gas costs.”
Committed to Connecticut
Atlantic Steel is not the only small Connecticut company grappling with those issues.
The cost of doing business, health care and taxes as well as the attractiveness of Connecticut to younger people affect PMP Corp. in Avon, according to the company’s president, Tom McGee.
Originally known as the Petroleum Meter & Pump Co., PMP was created in 1950 to provide remanufactured components for service station pumps. It now also offers printers, cash drawers, meters, computers and other products that are sold in the United States, Canada, Mexico and overseas.
“Connecticut has its problems — the biggest detriment to us is what it costs for health benefits,” says McGee.
The company’s 70 or so workers include “a lot of long-time employees; one just retired with 56 years [of service],” he says. “Our employees have been with us an average of 14 or 15 years. So, they’ve accrued a lot of vacation time and benefits. That gives us a lot of overhead.”
McGee, who bought the company years ago from someone who was retiring, now plans to retire soon himself. “If you stay around too long, you become a conservator of the company. After 30 to 40 years, you don’t have the drive anymore to seek new products, new ways of doing things.”
He hoped to keep the business in the family, but until recently, didn’t think his son was interested. “I didn’t think he’d ever want to come back to ‘Simsboring’ — but after the places he’s been in the military for eight years, I guess ‘Simsboring’ looks pretty good”!
Connecticut should care about keeping his business in the state, he says. As an exporter, his company brings money into our economy. PMP provides work not only for its employees but also for other Connecticut companies whose services it uses. And, of course, the company benefits Connecticut by paying taxes.
Despite the challenges of doing business in Connecticut, McGee says, “We want to stay here. Connecticut is a nice place to live.”
Family ties
With his son now working with him, PMP has become a family business — a plus for the state. The commitment to keeping a business in Connecticut is particularly strong among family businesses because of the family ties, notes Peter Gioia, CBIA vice president and economist.
Those same ties tend to result in stable management at family firms. “In a family business, it might be harder to walk away from the business because it might feel like you’re walking away from your family,” says Priscilla Cale, director of the UConn Family Business Program, an initiative of the university’s Connecticut Center for Entrepreneurship & Innovation. “The family legacy means these businesses have something more tying them together” than other businesses do, she says.
There are other reasons for state legislators to pass laws that help family firms prosper.
For one thing, “Family businesses are really the backbone of Connecticut’s economy. They’re a huge employer of our workforce,” says Cale. A precise figure for Connecti-cut is unavailable, but according to the Family Firm Institute, family businesses account for 62% of the U.S. workforce and 64% of U.S. gross domestic product (GDP).
Family businesses also “provide a great diversity of products, which helps to buffer the state economy against economic downturns,” says Carol Wallace, president and CEO of Cooper-Atkins Corp. In 1994 she took over the business (then called Cooper Instrument Corp.) from her father, who had bought it in 1960. The company, founded in 1885, manufactures time, temperature and humidity instruments.
Wallace notes another benefit of having thriving family businesses in the state: “Traditionally, family businesses have been very focused on the local economy, buying products locally. Most aren’t large enough to have full-blown supply-chain management” to procure materials globally.
Her own company now has become large enough to have a global focus, with exports and plants overseas, while keeping the heart and soul of its operation here in Connecticut.
Wallace cites a familiar litany of obstacles that family firms like hers confront here: “Health care is a huge issue. Sixteen percent of U.S. GDP is health care, and it’s expected to get even bigger. Our health care costs keep going up double-digit, and we have to keep passing along the cost increases to our employees,” she says.
“Certainly, [transportation] infrastructure is an issue — so we can get our products to ports in a timely fashion. Business taxes are important. [So is] encouraging businesses to invest in R&D to stay on the cutting edge of technology — for example, with R&D tax credits.”
Entrepreneurial ‘engines’
The state’s R&D tax-credit exchange program, in particular, has been critical in the growth of one of our most promising up-and-coming industries: bioscience.
Long before they can bring in revenue from product sales, start-up bioscience companies have to make very large investments upfront — for things like lab space, high-tech equipment and hiring highly paid scientists. Companies with limited revenue are unable to take advantage of tax credits. The credit exchange program was designed to allow these firms to exchange their unused credits with the state for 65% of their value.
“In our industry, the lead time before we can bring a product to market can be quite significant,” says David Keiser, president and CEO of Cheshire-based Alexion Pharmaceuticals. “Yet, enormous amounts of capital are needed to do what we do.”
Alexion is developing drug therapies to treat serious and often life-threatening medical conditions. The company brought its first product to market last year — 15 years after it was founded, in 1992, by a group of scientists from Yale and other research universities and the pharmaceutical industry.
Besides the financial hurdle, finding lab space and scientists has presented other challenges for start-up bioscience firms.
“There were very few small bioscience companies here when we started,” Keiser says. Consequently, there wasn’t a large pool of industry employees from which they could recruit researchers. As a start-up, they couldn’t compete for talent with Connecticut’s three or four big pharmaceutical companies.
Bioscience companies find it hard to hire enough scientists and other highly educated people in Connecticut’s labor market. (CBIA recently completed a grant-funded program to help bioscience, biotech and pharmaceutical companies meet their workforce needs.)
From its small beginnings, Alexion now employs about 400 people, approximately 250 of whom work at its Cheshire headquarters and the rest at facilities in Rhode Island and Paris, France. “We have employees who are well educated and high-salaried. That translates into positive economic news” for Connecticut, says Keiser.
Putting in place government policies that encourage bioscience and other entrepreneurial firms to start and grow here will help not just those businesses but the state as a whole. Entrepreneurs “are like the spark in an engine, igniting new ideas and discoveries that move the economy forward. ... They are willing to take risks to make things better,” notes the Federal Reserve Bank of Dallas on its Web site (in “Everyday Economics”). “Entrepreneurs are vital to economic growth and, consequently, to higher living standards.”
Doing well, but could do better
The obstacles cited by Vrabely, McGee, Wallace and Keiser are hardly unique to their businesses.
According to the CBIA/UConn Family Business Survey report, released last fall, “An overwhelming majority of respondents [said that] state policies discourage new family business formations and that reducing the cost of doing business through tax and regulatory reform, incentives for business investment, and improvements to the transportation infrastructure would greatly encourage family businesses to stay in the state.”
Despite the challenges they face, however, most of the survey respondents said they expected their company’s sales and profits to rise over the next 12 months.
Similarly, Connecticut’s small businesses overall were doing well when polled last year for the CBIA/Blum Shapiro 2007 Survey of Connecticut Businesses (86% of which had fewer than 100 employees). Sixty-nine percent of the respondents had realized a net profit in 2006, and 70% expected to be profitable in 2007.
Once again, however, these companies said they struggled with the high cost of doing business here, especially for health care benefits, payroll, taxes, energy and workers’ compensation.
Fixing these problems should be a priority for state legislators, CBIA believes.
Family businesses and other small firms “usually don’t have facilities out-of-state, so if the business climate here becomes worse, they can’t easily shift work or leave. In that sense, they’re more vulnerable to legislators’ decisions” than large companies are, says CBIA President and CEO John Rathgeber.
That’s why the association’s radio ad, featuring Atlantic Steel’s Joe Vrabely, stresses: “Our lawmakers should ... reject bills that would drive up costs and add new mandates on businesses, making it more difficult for companies like Joe’s to succeed and create well-paying jobs.”
At this point, Vrabely says, “We’re doing well. But it’s extremely difficult.”
Considering the shaky economy, it’s not likely to get easier soon — unless legislators heed the ad’s message.
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