Growth paradox: Manufacturers’ search for capital intense in today’s growth economy

Easily the most common feedback I get from readers of CompanyWeek is one of surprise, as in, ‘I had no idea so much stuff was being made here.’ Today’s eclectic mix will inspire similar sentiments. Profiles of a toymaker, sew shop, and precision machinist, along with a contract brewer and printer of advanced sensors should again interest business enthusiasts.

But regardless of industry, most companies we write about share similar challenges. We make a point to ask those we interview about barriers to growth, so every week it’s easy to pick out the issues that bedevil company leaders. The challenge most often cited the past 12 months is workforce, where about four in 10 companies mentioned difficulty in finding qualified labor.

Workforce challenges vary. Industrial manufacturers suffer most. Talk to most any fabricator, and a combination of factors is making it hard for them to find workers needed to support growth and replace retiring employees. The elephant in the room? The retiring generation valued a job in industrial manufacturing when growing up. This generation doesn’t.

Several of Colorado’s other high-profile manufacturing sectors are more appealing though. Boulder County has become a destination for talent for its high-flying natural and organic food industry. Companies are benefitting from a growing labor pool. The state’s reputation as a high-tech leader makes a difference for aerospace and precision manufacturers. And a stream of smart, motivated people is moving here to start maker businesses. (Much to the chagrin of those regions losing talent to the West.)

Managing growth including financing is the challenge we hear second most (not surprising in that we seek out growth companies to write about), and the issue seems to vex companies equally, regardless of industry sector. For manufacturers, it can cut to the core of why a company was launched in the first place. The choices companies have are often shaped by issues that relate to culture (there’s a high number of family-owned businesses in manufacturing) and the substantial capital investments that maker companies often require.

Take Colorado’s craft beer industry, lately its most high-profile manufacturing sector. To this point, brewers have generally avoided working with equity firms to fund growth. The rationale is straightforward: Entrepreneurs want to retain total independence, to be able to make what they want and maintain a culture unfettered by a profit motive. Equity partners expect returns, not seasonal ales.

It’s a motivation shared by manufacturers who’ve self-funded even to high-profile success. Culture is king in manufacturing businesses. It’s a wonderful attribute of the sector.

Of course for many companies, private equity can be a perfect fit. It can provide a scenario where owners can stay involved, even lessen the stress of long hours, while using an outside source of capital to fund growth. And to be fair, the last thing an equity partner wants is to upset the formula that’s delivered results.

But in today’s economy, a growth economy, there are more companies in earlier stages of development than money readily available to fund them. Friends and family only get an idea so far. Institutional lenders want healthy balance sheets (though Colorado’s lucky to have commercial bankers who understand and support manufacturers). Equity partners want more – including a stake.

That’s left many Colorado small- to medium-size companies scrambling. Alternative-funding options are numerous — but manufacturers tend to be focused on making things. And here, in a marketplace that’s busting out in multiple industries, each with its own finance attributes and challenges, the difference between securing a growth round — or not — can turn on the smallest of details.

It’s an issue we can’t hope to cover in a single column or features, so we’ll begin a series on financing manufacturing growth next month, both here and in the print companion of CompanyWeek, MFG magazine. We’re also hosting the first-ever regional manufacturing investor conference this summer in Denver. Here’s more information.

So much is happening in manufacturing — and it’s a sector poised for more growth. Keep it here to stay current on who’s making what and for information that may help your business succeed in an economy that’s ripe for growth.