Survival Of The Fittest

Rules And Regulations

The high cost of modernizing equipment is not the only problem small manufacturers are grappling with. Among other challenges the industry faces, says Chris Braunlich of The National Association of Manufacturers, are product liability and overregulation.

"With product liability, it's not so much the cost of insurance but the cost of frivolous lawsuits and the amounts small manufacturers have to pay lawyers to settle a case," says Braunlich, citing one flag maker who was sued even though he did not produce the flag that had injured an individual. "In a [recent] survey of our members who have fewer than 500 employees, the aggregate cost of legal fees and settlements [over five years] was more than $25,000 per company for 36 percent of the companies," adds Braunlich.

The cost of complying with federal regulations is another demand that has small manufacturers up in arms. Dan Byrne knows exactly how much it costs to meet government regulations--three years, 3,100 man hours and about $80,000.

Byrne, who runs an industrial gas packaging and distribution company in Seattle, found his firm bursting at the seams in 1992. That, plus a fire code rule requiring more space, prompted the founder of Byrne Specialty Gases Inc. to seek a larger location.

After looking at some 75 buildings, Byrne found a site and bought it--contingent on the structure getting a clean bill of health from city and state agencies. He hired an architect, a contractor and an environmental lawyer to help negotiate the seemingly unending process.

"There is the perception that because we are in the business of chemicals and hazardous materials [there is danger], but most of [our chemicals] are nontoxic and nonflammable," says Byrne of the difficulty he had getting permits from the city. In the six months it took him to get permits, he had to deal with land use and construction issues, as well as submit a 40-page document outlining storage, protection and hazardous management plans.

The final hurdle was the State Department of Ecology's environmental site assessment, which found surface soil contamination and the need for ground-water monitoring. "We had to actually remove the soil," recalls Byrne--a process for which it took 10 weeks to get a permit. After all that, state-required ground-water testing found contamination, which effectively killed the sale.

Byrne found himself back at ground zero, $80,000 poorer but determined to find a location--this time to lease, not to buy. It still took a year and a half. What kept him focused was obligation and competition. "If I moved 30 miles away [something he considered], the cost of running trucks daily would be $100,000 a year," he recalls. "The other issue was responsiveness. All our customers are near the city center, and we needed to be [near them]."

Although he lost money, Byrne says he learned a valuable lesson: Get involved in the process. Work with regulatory agencies to create a mutual understanding, Byrne advises other entrepreneurs, and be prepared to negotiate instead of being confrontational. He admits, "I might have had a chip on my shoulder toward regulators at the beginning."

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This article was originally published in the September 1997 print edition of Entrepreneur with the headline: Survival Of The Fittest.

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