Turner agrees. "If it means sacrificing a little more time here and doing things a little bit differently," he says with a shrug, "then it's just going to have to be done.
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What Are the Payoffs?
In a nutshell: money, protection, and trade. And they're all particularly crucial for National Gyp-Chipper as a start-up. Indeed, Turner and company argue that those payoffs are more important at this stage than they would be later.
First, there's money. Cold cash. The stuff that Texas banks just don't seem to have for anybody, let alone green start-ups. WestBank's Gene Finley says banks are so dry that even a state program specifically designed to help Texas companies making products for international export is of no use: the program guarantees 85% of each loan, but banks still won't spit out the money -- even, he says, when companies will put up cash collateral against the other 15%. "I know 250 bankers in the state of Texas," he says with frustration, "and I can't find one who'll do it. There's no capital, in the traditional sense of the word, available in this state today."
Distributors, then, have provided a kind of poor man's financing for National Gyp-Chipper, in the same way Domtar and WestBank have. Cash down payments in return for exclusive territories have helped fuel production. Faster growth, wherever it comes from -- domestic sales or international sales -- will allow the company to produce in volume and cut its costs. National Gyp-Chipper's controller, Joe Cavness, says the company will be able to slash 40% off the cost of goods sold when it can start ordering parts in lots of 100. Already the margins are hefty: Gyp Chippers cost about $3,000 to make and are sold by the final distributor for $7,800 to $11,000.
Another payoff? The company is being forced to seek more product protection, which might not seem pivotal if it weren't going abroad. Under a U.S. patent, National Gyp-Chipper is protected against U.S. manufacturers making and selling a copy of its machine here. But it's not protected against an Asian company, for instance, making a copy and selling it elsewhere. By getting foreign patents, which are still pending worldwide, the company hopes to forestall some competition.
Turner is concerned primarily with Asian protection; he says he's heard a lot of stories about other manufacturers' products being imitated there. He's also, however, taking his cue from his new Japanese distributor. Kenji Inc. spent $200,000 promoting another U.S. product it carries and insists that the Gyp Chipper must be well protected from imitation before it will spend that kind of money to push the machine. The company offered help with negotiating Japanese patent law, but National Gyp-Chipper chose to use its own stateside lawyers to do the work.
Finally, Turner hopes that foreign exports will open up a product exchange. Already Kenji is loading its models with Japanese-manufactured motors that conform to the country's electrical system. The way Turner figures it, that arrangement has the potential not only to cut his costs further but also to help prevent competition. "The manufacturer," he surmises, "will have his motor on our machine, so it's going to be real dangerous to go and put it on something else. That makes a pretty good marriage pretty quick."
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What's It Really Like
Mostly, it's like business as usual. You meet. You get to know each other. You make deals.
When Kenji sent representatives over from Japan to visit the Pflugerville office and poke around the Cedar Park assembly shop, Turner "felt very comfortable with them," he says. "They're very cordial and very concerned," concurs Jack Mallory. "They looked at the Gyp Chipper as a piece of equipment to meet a need. The meeting was more the mechanics of business. The cultural differences really didn't come into play."
Turner and Mallory say it's not even much of an ego trip to be entertaining foreign guests at their little Texas garage. "Not ego so much as necessity," says Turner. He feels pulled by market demand to expand faster than he had first wanted, he says. The appetite of foreign customers must be fed by somebody. "I see very little ego involved. If I had my druthers, I'd rather wait two years, but we've got the necessity of protecting ourselves today."
Mallory adds: "I got over the ego part a long time ago. There's a big risk involved here. You can lose it all, just making one wrong decision. It's just that we're willing to take the risk. Most people are not.
WHEN YOUR CUSTOMERS GO GLOBAL, FOLLOW THEM
"The companies we're working with are global, and they can't get away with one product for the world," says Tom David, president of one-year-old Polymer Solutions, which aims to work with manufacturers as a kind of outside research lab that designs new products and figures out how to manufacture them. "They need to identify what people need in each marketplace, and we help make the designs for each country. There's a comfort level for them in working with the same firm for all their projects -- that's why we need to be global."
As a joint venture between GE Plastics, a manufacturer of engineered plastics, and Fitch Richardson Smith, an international product-design company, Polymer Solutions pulls teams together from the two companies on a project-by-project basis. The Worthington, Ohio, venture represents what could be the wave of the future for smart start-ups: joining forces with an international company to capitalize on people, offices, equipment, and contacts that are already in place.
