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Michael Jones started in business in 1998 as an importer-exporter, buying household goods from low-cost producing countries and bringing them to the U.S., where big-box retailers moved them. Jones then began designing products and having them manufactured in Asia for sale to mass merchandisers. His next move was starting his own manufacturing operation, a seemingly natural step on a logical continuum--except, rather than basing it in the low-cost overseas locations he knew so well, he opted to build his factory in the U.S.
"It happened naturally," says Jones, 37. "We wanted to have a little more control over our destiny." But anyone who has watched the long-continuing drop in U.S. manufacturing employment has to wonder whether he's crazy. He isn't. This year, Jones' 55-person company, Hartmann & Forbes, will do between $8 million and $9 million in sales of custom window coverings, manufactured in three factories in Tualatin, Oregon.
Despite the real and significant decline in American manufacturing jobs, the number of U.S. entrepreneurs who are starting up manufacturing companies is rising--and has been pretty steadily for years. That's the message of a 2006 report from the Kauffman Foundation, which found the growth of an index of entrepreneurial activity for manufacturing was higher than the same figure for services and trade from 1996 to 2005.
Specifically, the index of entrepreneurship in manufacturing rose from 0.07 percent in 1996 to 0.10 percent in 2005. Meanwhile, the index for the seemingly red-hot services sector fell from 0.44 percent to 0.38 percent, and trade declined from 0.41 percent to 0.28 percent.
Is manufacturing coming back in the U.S.? The answer at best is "perhaps." Almost certainly, manufacturing won't return to the same level of prominence or look the same as it did in the past. To understand more, it's necessary to know what Kauffman's index is made up of. Economist Robert Fairlie of the University of California, Santa Cruz, explains that the index measures the number of people starting businesses in a given industry compared to the number of people employed in that industry. An index could rise if more entrepreneurs started businesses or the number of people employed in manufacturing fell during the period.
Fairlie found that both factors came into play. "Employment in manufacturing has gone down, but entrepreneurship is up," he says. "There are more entrepreneurs in manufacturing over that decade, and fewer people working in firms for that decade."
Entrepreneurs who start stateside face both obstacles and opportunities, according to Jones. "Hiring and training [employees] and managing manufacturing in the U.S. today is kind of a tough business," he says. "But because it's tough, there's not a lot of competition." Competitors that manufacture overseas can't match his turnaround, his ability to customize or the speed with which he can introduce new designs, Jones says. Those advantages allow him to serve demanding top-tier designers who don't balk at paying higher prices.
As a domestic manufacturer, he faces less direct competition overall. "It erects a tremendous barrier to entry, because most people don't want to do this kind of business," Jones says. "Business schools are cranking out students who are more service-oriented."
Part of what makes it hard to be a U.S. manufacturing entrepreneur these days is that the business is much different from the conventional view of the smoke-belching, metal-bending industry. Hartmann & Forbes, for instance, is something of a hybrid, importing raw and semi-finished materials before assembling them in Oregon into finished custom shades. Jones leaves the low-cost market to competitors, as well as the high-volume giant customers. He sells to more than 3,000 mostly small businesses.
And while smokestacks and lunch buckets may have characterized 20th century American manufacturing, in Jones' view, marketing savvy plays a much bigger role in 21st century manufacturing. "In the past, you could just make great products and do well manufacturing here," he says. "Today, you have to have a decent marketing team and be able to communicate what you are all about and what your value proposition is."
See the index of entrepreneurial activity by industry. (The index of entrepreneurial activity is the percentage of individuals ages 20 to 64 who do not own a business in the first survey month and who start a business in the following month with 15 or more hours worked per week.)