January Newsletter
VOLUME 28 NO. 1
Just before Christmas, Gem Equipment completed its 40th year in business. This may be a good time to reflect on Gem’s first year of business. This company was started by two partners with very little capital, a small line of credit secured by receivables and a borrowed office. Two metalworking shops were willing to handle Gem’s manufacturing requirements. What this start-up company lacked in financial depth was more than made up for by help from very supportive suppliers. One of the shops offered payment terms of net 60 days or in his words even up to 90 days. While the company never had to take advantage of this offer, having it was very comforting. The office was borrowed from a customer. An office supply business financed new furniture for a very small monthly payment. The banker furnished a line of credit with much better terms and conditions than would normally be available to a start-up company.
In the words of one 70 year old colleague, who had spent most of his adult life in the food processing equipment business, “1969 is the worst year for food processing equipment business that I’ve ever seen.” Business conditions led to renting part of a small shop equipped for fabrication and available for very low rent. This allowed Gem to do its own manufacturing. Having its own production facility would give the company access to profits for manufacturing, reducing the amount of business required to break even. Two or three of the salaried employees could even perform some of the low skilled production work. Setting up manufacturing turned out to be the right move. However, the thinking that precipitated this move was not correct. Shortly after moving into its own production facility, the company started receiving orders from one of the Northwest french fry potato processing plants. Gem’s production department made it possible to complete these orders on time. The idea of salaried employees working in the shop did not get very far. In fact, the only time any salaried employee worked in production was one Saturday spent welding floor plates onto stub legs for a large shaker. The company was short of help, not business.
The business from the french fry potato plant would lead to a solution to the most critical situation facing the young company. At that time, October, November and December were months with low business volume for Pacific Northwest manufacturers of fruit and vegetable processing equipment. Shortly after the middle of October, the potato processor gave Gem Equipment an order that was large enough keep the company busy through that critical first winter, allow the company to rent the whole shop and even provide money for the purchase of welding machines and a cut-off saw. By the end of its first year, this company occupied a 60 by 100 foot shop; had several well qualified fabricators; a small, but very capable engineering group and a qualified support staff. Fairly early in the first year Gem became strong enough financially to be able to pay rent on the borrowed office. The fact that the office and shop were 10 miles apart, while not convenient, was not a major problem. The partner who handled sales, coupled with some very good customers, had provided enough business to put the company on its feet.