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Freshened brand may help Permac to 25 percent growth goal

By: Sarah Brouillard

While others in her industry run for the hills, Darlene Miller, CEO of Burnsville-based precision machine-parts manufacturer Permac Industries, has looked the accelerating globalization of manufacturing squarely in the eye.

She accepts that reality and has embraced it, going so far as to attend trade missions to China and India, and counsel customers that have expressed desire to take their business overseas.

"I can say, 'I've been there. I've seen the manufacturing plants, I have connections, let me help you do that, and let me be your go-between,' " says Miller. "Sometimes they just back down because they've never been there."

But others still do go offshore, and she's retooling — literally and figuratively — to deal with that trend. While she can't compete dollar for dollar, in countries where companies pay employees as little as 6 cents per hour, she can compete, she says, in quality, on-time delivery and the management of customers' systems.

She knows the odds are stacked against any company aiming for continued growth in the manufacturing sector. "It seems we have to run harder constantly to stay in place," she says.

Permac markets to original equipment manufacturers in hydraulics, road repair, avionics and cooling equipment. One of her customers comprises 50 percent of her business, which would be more of a liability if the customer didn't have such a diverse set of industries to work in.

In the recent past, the company had met its previous 15 percent revenue goal for several years running, and had been profitable. Miller, however, has an even more aggressive goal in mind: 25 percent revenue growth per year. Annual revenue at Permac tops $6 million.

She projects about 15 percent will come from old customers — many who've been with the company since she purchased it 14 years ago, when annual revenue was $700,000 — and 10 percent from new customers. She's also cut back overtime, which has reduced her costs.

Her lofty financial goal has come hand in hand with a physical expansion of Permac's space. In 2007, the company found it was close to maximum capacity in its shop. Lead times had been dropping slightly because customers and jobs were booked out so far. The company, therefore, made the decision to double the space of the building to 34,000 square feet, and purchase seven new pieces of equipment.

"It was either stay as we are or go with the growth," she says.
Miller also recently hired a new sales manager, who will be aggressively pursuing the medical device niche. She's already made inroads into that sector: in fall 2006 she co-founded the Minnesota Valley Medical Manufacturers Network, an organization that draws together all entities — including manufacturing companies, banks, employment agencies and technical writers — interested in building relationships with such companies.

Miller's own goal is to find medical device companies that her company can make parts for. The strategy has worked: She has a contract for one, and another was visiting in March.

"You can't just knock on their door to get in. They're not going to see you," she says.

Still, most of her customers are extremely price sensitive.

"They're looking to cut costs any way they can," she says. This realization has led the company to reposition over the last couple of years from doing simple commodity jobs, to working with tougher materials, and using more exotic metals. She's been working to change the perception of the company, since many of the old companies don't realize Permac has new capabilities.

When it comes to finding new customers and educating old ones, a Web site can do much to catch their attention and showcase the company's products and services, says Kirby Stortz, managing partner and COO with Clientek and the Upsize Growth Challenge technology expert.

He suggests a significant upgrade to Permac's Web site. Right now it's static, says Stortz. It needs to be more visual. One simple idea is to add photos that show off the job shop's cleanliness, on which the company prides itself. A strong Web site can also be a motivational tool; employees will use a good-looking Web site to demonstrate what they do to others, such as friends and family.

Elin Raymond, president of The Sage Group and the Upsize Growth Challenge marketing and communications expert, says the company's brand also needs to be updated.

"You mentioned many of your customers don't perceive you as being on the tech edge," she says. The Web site in its current form, she believes, doesn't support that image.

"When you go to the Web site, I looked at the brand and thought, 1960s," she says. A survey can help her find out about customers' perception of the brand, and help her bring the brand up-to-date.

Since customer satisfaction is such a key selling point for the company, she suggests adding case studies and testimonials that describe how Permac best served a past customer.

Also, play up organizations, such as Minnesota Valley Medical Manufacturers Network, that are so important to the vitality of the business, says Raymond. Doing so will enhance the search-engine rankings.

Also needing attention is the company's noncompete agreements, says Mark Gleeman, an attorney with Winthrop & Weinstine and the Upsize Growth Challenge legal expert. He says it's crucial to get her noncompete agreements in place for sales positions and executives.

It's ideal to get them to sign along with an offer of employment, but they can be offered after the fact. "It has to be supported by 'consideration,' which could be money, could be a promotion. For a new employee, the consideration is the job." Otherwise, it's not enforceable, he says.

Bryan Ross, partner with accounting firm EideBailly and the Upsize Growth Challenge operations and finance expert, suggests pursuing the research and development (R&D) tax credit/incentive program, part of a federal tax law that rewards credits for companies' research and development activities.

Created in the early 1980s, the credit had only been applicable to hard-sciences companies, such as manufacturers, that demonstrated truly inventive, leading-edge research and development.

That bar was lowered in December 2003, allowing more routine, run-of-the-mill R&D at these companies to qualify for the tax credits. As a result, companies merely trying to improve a product or internal process — even if those efforts are ultimately unsuccessful — can get money back for wages they paid, and materials and supplies they expended toward those ends.

"Companies such as yours are prime candidates that qualify for that," he says.
Miller says her facility was purchased with an interest-only loan with her bank. She has until the end of May to lock into an interest rate, and she's waiting for the "right one" before she pulls the trigger. But Rick Wall, CEO of Highland Bank and the Upsize Growth Challenge banking and finance expert, says don't wait too long.

"It would seem to me that to the extent you have an interest rate that's available to you that meets your needs, it would be in your best interests to lock it in right now," he says. "All I know is, I don't know what's going to happen. If it works for you today, you should take advantage of it," especially if your income isn't affected and your window is short.

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