Industry Market Trends

Conditions Are Ripe for Manufacturing Entrepreneurs

June 18, 2013

Early-stage entrepreneurship is at its highest level in more than a decade. More interestingly, Americans believe there are good opportunities for starting manufacturing businesses.

According to researchers at Babson College and Baruch College, early-stage entrepreneurial activity increased to nearly 13 percent, an all-time high since the Global Entrepreneurship Monitor (GEM) report first began tracking rates in 1999.

While many entrepreneurs endeavored to grow their businesses, they tended to remain homegrown, operating out of a home office, raising money from personal sources, employing relatives, and rarely selling outside the U.S.

The report from Babson and Baruch colleges states that 34 percent of American entrepreneurs have introduced innovative products and services. Financing challenges and fear of failure continue to restrain entrepreneurship, yet 75 percent start businesses to pursue an opportunity rather than out of necessity.

"When times are good people see opportunity," Howard H. Stevenson, a Harvard Business School professor emeritus, told IMT.

There are a number of factors that are contributing to manufacturing entrepreneurship in particular. The U.S. economy is recovering from the recent recession. Labor as a percentage of manufacturing in many industries is going down as automation rises. In some sectors, demand high-quality, high-value items have helped open up opportunities for innovative small businesses.

Automation technology has minimized the advantages of outsourcing manufacturing to low-cost countries like India or China, according to Edward Rogoff, professor of entrepreneurship and chair of the Dept. of Management at Baruch College. This eases the path to entrepreneurial manufacturing in the U.S. for a variety of goods.

In addition, Stevenson believes that logistical innovation and efficiency, such as lean manufacturing, can help American entrepreneurs gain an edge over offshore or domestic competitors that otherwise wield manufacturing cost advantages.

Cathal Kennedy, the owner of Hersco in Long Island City, N.Y., embraced the entrepreneurial spirit to significantly grow a pre-existing business he bought in 1995 that now manufactures custom foot orthotics, ankle orthotics, prosthetics, and custom-molded shoes.

"Everything we do is based on lean manufacturing," he told IMT. "The flow of paperwork in the office, the layout of the facility... to our CAD/CAM 3D scanning technology," he said.

3D printing has been a big game-changer in entrepreneurial manufacturing. Entrepreneurs are embracing 3D printing to manufacture products on smaller and more cost-effective scales. While most 3D printing is being done on prototypes by home-grown small businesses, 3D mass production remains on the horizon as the technology continues to mature.

The Globe and Mail observed earlier this month, "Just as the Internet allowed a swarm of startups to provide innovative products and services at a greatly reduced cost, 3D printing is creating a new breed of manufacturing startup."

In a recent article highlighting 3D printing as a boon for entrepreneurs, the San Francisco Chronicle covered local jewelry maker Summer Powell, "who designs jewelry on a computer screen in 3D, then pays New York printing service Shapeways to make the earrings and pendants out of nylon on a 3D printer. When Powell receives the printed jewelry in the mail, she adds a few finishing touches and sells them on the website Etsy, in boutiques, and through her own website, Summerized.com."

Chris Milnes has a New Jersey home-based business and uses his 3D printer to create The Square Helper, a tiny widget built for a small but significant job: to prevent Square's card reader from spinning in its headphone jack. He has sold over 1,000 units at $8 per piece.

For Hersco's Kennedy, a key to being entrepreneurial, whether in producing a product or providing a service, is to be open to change. "You may set out with a vision, but at the end of the day the marketplace will dictate what you're supposed to be doing," he said.

Kennedy admitted there are two approaches to entrepreneurship. He noted that Steve Jobs never listened to the market, preferring to create products "he claimed people never knew they needed."

Many of "today's entrepreneurs want to blow your mind and bring things to the marketplace you didn't even know existed -- that's one strategy," he said.

But Kennedy sees himself as an innovator more than an inventor. He looks at what's going on in the marketplace and then delivers products that are a little bit better and different than those of competitors. All decisions at Hersco are based on customer satisfaction. Constantly listening to the market and soliciting as much client feedback as he can get is key to his approach.

Stevenson defines entrepreneurship as the pursuit of opportunity beyond the resources one currently controls. "If you have all the resources then you are simply an investor," he observed.