San Francisco Business Times
Made in the Bay Area: Secrets of Manufacturing Innovators (FULL TRANSCRIPT)
On September 9, 2015, the San Francisco Business Times sat down to talk about the future of manufacturing in the Bay Area with a group of CEO’s of locally based manufacturing companies and expert advisors. The conversation was hosted by accounting firm Sensiba San Filippo LLP, and moderated by San Francisco Business Times reporter Annie Sciacca.
PDF of the Made in the Bay Manufacturing Innovators Booklet from the San Francisco Business Times October 23, 2015 Issue
Panelists (in order above)
Mike Phillips – VP Operations, AlterG, Inc.
Michael Mendes – CEO, Just Desserts
Pamela Wisecarver-Kan – President, Bishop-Wisecarver Group
Tony Meneghetti – CFO, Timbuk2
Rich Stump – Principal & Co-Founder, Fathom
Annie Sciacca – Reporter, San Francisco Business Times
Karen Burns – Partner, Sensiba San Filippo and President & Co-Founder of East Bay Manufacturing Group
JIM GARDNER (SFBT): Welcome to San Francisco Business Manufacturer’s Innovators Forum. I’m Jim Gardner, managing editor of the San Francisco Business Times. We are pleased to be the host for this morning along with our co-sponsor, Sensiba San Filippo and our partners California Bank and Commerce and Wendell Rosen. I want to thank Sensiba for partnering with us on this event, and particularly partner Karen Burns for lending her expertise. You will hear some opening remarks from her in a few moments.
We have a fascinating program for this morning. As many of you know, the Bay Area is going through something of a manufacturing renaissance right now and we have accepted a purpose to represent that resurgence. We have the opportunity to speak with them appearing for this program, and what struck me is that as different as these five companies are, there are many common concerns between them; one thing is that they have all chosen to manufacture right here in the Bay Area. And that means that they will be able to come across concerns of many parts of the country and the world along with some concerns specific to our region. So some of the things we’ll explore today are why they manufacture here, what are the pros and cons of doing that. We’ll get their views on what it takes to succeed as a manufacturer in this region. We hope to hear them explain how they are innovating and growing and what they need from the state and their communities to keep growing here.
Before we begin our program, let me thank our partner sponsors for making this event possible. I’m going to ask each of them to stand for a moment and briefly tell you how. So please welcome Steve Tessler of California Bank and Commerce. Steve?
STEVE TESSLER (CBC): Good morning. Well, good morning. Welcome, everyone. I am Steve Tessler, Executive Vice President of California Bank and Commerce here in Oakland.
My name is Steve Tessler. I’m an Executive Vice President of California Bank and Commerce in Oakland. We are pleased to be a returning sponsor to the manufacturing innovators forum, and if I can take a word from a recent Southwest airlines flight, I was on, we know you have choice of which events you select to be at and we are glad you are here on a beautiful sunny morning.
California Bank and Commerce was launched approximately eight years ago to serve exclusively to closely held businesses located primarily in Northern California. The bank has grown in its eight years, and many of us have experienced well beyond those eight years. It has led us to an uncertain affinity for manufacturing. And that’s — we think seeing stuff is pretty cool, and it’s — manufacturing is unique in that there are few places where you can walk into a facility and see raw materials and ingredients and they are converted into a finished product which, a tangible finished product. And it’s different than going to Google when you walk into Just Deserts when you see flour and sugar and vanilla and butter and you see a mix in a machine and it comes out into a cake. That’s a pretty cool process. And over the years we’ve grown, we’ve created a great appreciation for that process and we understand that manufacturing is a very asset intensive business, human capital, physical capital, emotional capital and financial capital. And so one of the things that we provide to manufacturers is different types of capital financing to allow them to not only maintain their business, but grow their business. So again, I’d like to thank everyone here for coming today and I hope you find the esteemed talents that we have to be beneficial to you. Thank you.
JIM GARDNER (SFBT): Thank you, Steve. Our other partner is Wendell Rosen. Please welcome Bill Azevedo.
BILL AZEVEDO (Wendel Rosen): Good morning. I’m Bill Azevedo. I’m a partner at Wendell Rosen. I’d like to thank you for that tepid response to lawyers. That’s nice of you, and I’m going to keep mine brief.
What we do for manufacturing is, and this is going to shock you, is provide legal services for manufacturers. so manufacturers come to us large and small from all sorts of industries and they are looking for the things that know what the manufacturers need. They need contracts. They need help with their most helpful and most problematic assets. And they need help with their intellectual property. All those things. That’s what we do. And besides that, we sponsor events like this. So those are some of the things we do for manufacturers. Bill Azevedo, Wendell Rosen.
JIM GARDNER (SFBT): I’d also like to say thanks to our supporting partners which are Manix, the East Bay ADA, East Bay Manufacturing Group, SF Made and the Oakland Chamber of Commerce. Now, we invite to enjoy our discussion on Twitter. Teresa Mathew from the Business Time, wave to everyone, Teresa, is going to be live Tweeting on at SFBT events using the hashtag SFBT manufacturing if you want to add a comment. Now, more information on how to describe to our weekly edition decision or daily morning and online, please visit the Business Times subscription table before you leave today or go to San Francisco Business Times dot com/describe.
Before we begin, I want to welcome Karen Burns, partner at Sensiba San Filippo. Karen works with many manufacturing firms in the region and she will make some open air remarks to set the stage for our panel discussion. Please welcome Karen Burns.
Introduction by Karen Burns: Re-shoring; near-sourcing; advanced manufacturing. These are terms that have been coined as recently as 2010. They define the rebirth of manufacturing here in America. “Make it in America” became a battle cry of sorts in 2010 with the plummeting economy. To a large extent, we were no different here in the Bay Area. So how have we responded to that cry? Today we are going to hear from manufacturing company executives about their struggles and their triumphs, and in particular, the areas that have become essential to the way they operate.
Anybody remember that I Love Lucy episode where they have the chocolate factory with the line and Lucy tries to keep up by stuffing her mouth full of chocolate?
We need to overcome this image of manufacturing where workers stand in line in a factory rather than the things that are happening today with the advanced manufacturing. Dangerous, dirty, unhealthy— it’s a stereo type that’s very important to overcome for a number of reasons. A primary reason is the shortage of skilled workers.
We’ve seen this shortage across many sectors, but manufacturing is particularly hard hit with being here in Silicon Valley with the attraction to be working for the next company that’s doing gaming and apps and going to go public. Our youth don’t realize that there is a very promising future to have a career in manufacturing. We do have a huge opportunity to make a difference and to change this image problem with something that has evolved over the last several years called National Manufacturing Day. The first Friday in October is dedicated to this National Manufacturing Awareness. Manufacturers are asked to open their doors, to give tours, to allow students to come in and to learn about really what manufacturing is today.
Recently, there was a study that was conducted in Alameda County and I’d like to share a few of those statistics with you. The average compensation for somebody who is in a manufacturing career is $80,000. Surprising? Many people think it’s a lot lower than that. In fact, compared to all other sectors combined, the average is $64,000. So where is this manufacturing happening? About 30 percent of those jobs are actually in Fremont. Another 30 percent would be Hayward and Oakland combined, and the rest are throughout Alameda County. The particular areas of manufacturing that happen to be very significant and growing within Alameda County are food and beverage, machining, bio med and life sciences as well as digital and electronic manufacturing.
The East Bay Manufacturing Group gets manufacturers together to learn a little bit more about each other, and to collaborate on issues that we’re collectively facing in the sector. The East Bay Advanced Manufacturing Partnership is doing very similar work, gathering manufacturing executives together to strive to make a difference, to make it easier to actually manufacture here in the East Bay. On Friday, September 18th, there will be the first ever East Bay Manufacturing Summit in San Leandro.
If “Make it in America” was the battle cry about five years ago, I would suggest that today the battle cry is to “Connect with Our Future.” If you are a manufacturer, that means bridging with local community colleges and high schools to facilitate getting our youth into the future of manufacturing, opening your doors to the youth for tours, and collaborating with each other to further innovation that’s going on in the Bay Area. If you are a manufacturing partner, a term that we are coining for anybody that doesn’t do the actual manufacturing but is really part of this community, then I encourage you to guide your clients, open your networks to help them be more successful by connecting them.
JIM GARDNER (SFBT): Thank you, Karen. Very interesting to hear just how much of the Bay Area’s manufacturing base is here in the East Bay where we are today. And you do have to be of a certain age to remember I Love Lucy. I’m not sure everybody does, but for good or for ill, I sure do.
Two more thank you’s here. We want to thank our co-sponsors as well. That would be McLadry and Bank of Marin. Now we are ready to start our discussion, and I would like to get our panelists and our moderator to the stage. Leading the panel discussion this morning will be Annie Sciacca, one of our reporters to the San Francisco Business Times. In her capacity as food and beverage reporter, Annie probably covers more manufacturing business topics than anybody else on our staff. She also covers hospitality and regional. There will be opportunities for questions from the audience as well. So I will now cede the floor to Annie and the panelists.
ANNIE SCIACCA (SFBT–Moderator): All right. Thank you. I have a number of questions for our manufacturing leaders. I will pause for my questions a few times to ask, you, the audience questions. First let’s welcome our panel of manufacturing innovators. Next to me I have Michael Mendes, CEO of Just Desserts, Rich Stump, principal and co-founder of Fathom, Pamela Kan, president of the Bishop Wisecarver group, Tony Meneghetti, CEO of Timbuk2, and Mike Phillips, the VP of operations at AlterG.
As a first question to open up and help our audience get to know you all, I’d like for you to answer this. Give a brief snapshot of your business; age, size, scope, number of employees, and maybe a little bit about when and how it was founded. Help us understand the nature of what you all do and answer this, if you can. What keeps you up at night? What’s a top challenge, concern or issue? So I will I guess we’ll start with Michael.
MICHAEL MENDES (Just Desserts): My name is Michael Mendes with Just Desserts. Our company was founded about 40 years ago. Started as a corner bakery in San Francisco and had a series of revolutions and today we are a wholesale bakery distributor with business throughout North America and some business in South East Asia. We employ approximately a hundred employees. We have a manufacturing facility in Fairfield and — which we just opened this year, and we have our administrative office at Innovation Center in San Francisco. Let’s see. Probably the thing that keeps me up at night is just trying to have that balance between executing against a strategy and a plan that we have today that’s based on a set of assumptions in the market and then being vigilant how the world changed, and when it’s time to reconsider your plan because the assumptions have changed around you in terms of technology, in terms of what’s happening politically, and I think those are the kind of things that the balance of staying focused and executing the plan and then pulling back and monitoring the volume of things and changing when you need to.
RICH STUMP (Fathom): My name’s Rich Stump. I’m one of the co-founders at a company called Fathom, Fathom is a product development company seeking to changing the way products are manufactured and we specialize in the 3D printing and we started the business in 2008 out of a garage in San Ramon. We sold our first 3D printer out of a garage, and in 2012 had the necessary capital to invest back into the business. We are now up to about 65 employees, just down the street here in Oakland, and we have about 2,500 customers exploring the technology of added in and traditional manufacturing coming together to do some things that we could never do before. So what keep me up at night? Besides my new eight week old baby, I think the biggest thing is just providing the culture to our employees that will motivate them and allow them to thrive in their career. And the responsibility that comes with that and their families and supporting that whole ecosystem, and then also how we are going to scale the business to the next level, what that entails and all necessary items needed to do that, especially in the fast paced manufacturing world that we sit in and how that’s going to affect manufacturing over the next five do ten years.
PAMELA WISECARVER-KAN (Bishop Wisecarver): Hi. I am Pamela Wisecarver-Kan and I’m second generation at Bishop Wisecarver. We also have Black Diamond Manufacturing and WRW Engineering. But the main company was started by my father who is GI bill right now, and he started the company in 1950 and we’ve made many different products throughout the year, but our primary product now is we are all about industrial automation or robotics. The type of the term you want to use, but basically we help those things with up, down, back, forth and around. We also can put intelligence on it in terms of controllers and do the programming and all of that and build a complete machine. So we sell from parts, and I think the Wendy’s commercial, so we have bearings and parts and we can build a whole machine for you, depending on which business union we use. We’ve got about 60 employees. We’ve got 80,000 square feet in Pittsburg in the Stoneman area across from Costco and down out there. I do have a union work force on the Floor Steel Workers International, so I have to support that. And what keeps me up at night actually is labor. Is really my biggest thing in the talent gap from where we are located to what we do, I mean, as the machines get more and more complex and we’ve got five and 6,000 machines, it’s a really different skill set and especially out on the floor. But even on the engineering side, our position is to stay open for months and months and as Karen was saying for us, the key from Silicon valley is really tough for a company in hour location and size. So talent acquisition is still hard for us.
TONY MENEGHETTI (Timbuk2): Tony Meneghetti from Timbuk2. Timbuk2 was founded in 1989 by a bike messenger, and Rob, in 1989 in San Francisco, was delivering papers and standard bike messenger stuff and was not really happy with the types of bags that were available for bike messengers at that point in time and was delivering to a bank and noticed a picture of a painting of a Wells Fargo Pony express rider from the hundreds and realized that riding a bike in San Francisco with all the potholes was not that dissimilar from riding a horse across the planes and the bag worked well for them. Why didn’t it work well for a bike messenger in San Francisco? And so he borrowed that design and started sewing bags for himself and his friends who were also bike messengers saw that and started to ask if they could buy them and so he started selling to them, and then as you probably all bike messengers are a bit of a independent group and no one wanted to have the same bag. And so Rob started customizing with three panel one two three design that you probably know us for now, and business really took off from there. And today we still manufacture in San Francisco in the Mission District. We also manufacture in Asia. So we are a little bit unique in the industry manufacturing both, major all of our custom bags are manufacturing in the Mission District and we make almost 70,000 of those a year. And all of the bags that we sell as stock bags you might see at REI or sports Basin or one of our stores that manufactured in amend is that so we have a unique perspective on this and manufacturing in general. What keeps us up is figuring out how to scale business still headquartered in San Francisco from the real estate perspective, from the labor perspectives they are talking about. It’s not easy to do that and ride the normal between right and success. We worry about a lot and work on figuring out how to more effectively grow to our target that we want to get to, yet still subject to the constraints in the Bay Area inherently provides.
MIKE PHILLIPS (AlterG): I’m Mike Phillips, AlterG Technologies. We got founded in 2005. It’s kind of a classic technology that came from somewhere else that got us started. It was NASA is a technology focused on astronauts and space, if you will, and how you counter effected the technology. The founder had invented a technology that his son actually grew up with literally seeing it in the garage and one day with some friends after college, started this company. The focus was really rehabilitation or support for the athletes at that time and as it evolved, it became evident that it was much more to this business than just a few athletes and what we have done is run this into a large physical therapy type of business for pretty much anyone in the world, any level of physical activity that’s needed but still lead athletes as well as people who haven’t walked in 30 years. The company itself was found in 2005. We’ve been in the Bay Area here the whole time moving to Fremont in 2009. And we’ve grown to 120 people. We’ve focused quite a bit on our what we call the antigravity treadmill. We also have something called a bionic leg. All of these are really focused on mobility for individuals. And we have seen quite a growth with that. Things that keep me up at night? Pretty much anything to do with how you grow and anticipate the changes and needs of a business. We are evolving from whatever we consider very small company to a midsized company, and with that come quite a few changes. How the service is brought, especially an enduring medical product. We have to anticipate a 10 to 20 year life cycle and be sure that we have a business model for that. How to grow defining space, pertaining always part of what we have to do. And again, doesn’t keep me up at night thinking about those type of activities.
ANNIE SCIACCA (SFBT–Moderator): I’m going to open up the next question and all these questions are mostly directed towards all of you and it doesn’t need to go Round Robin style. It can kind of jump in but why manufacture in the Bay Area and what are some of the benefits and challenges or draw backs that are specific to an area in manufacturing? Some of you touched on this, but expand on that.
MICHAEL MENDES (Just Desserts): Okay. I’ll start. We are in the Bay Area because we were manufactured in the Bay Area. I’ve manufactured my entire life. If you think about the evolution of where it’s going, I think it was the evolution or rebirth of manufacturing. It’s never really gone away, but I have seen it change quite a bit from what I would consider the bigger monolithic companies to the smaller niche companies. And I really appreciate that, especially in the current position. The challenges with that, though, are how do you compete with space real estate people because there are so many shiny objects in the Bay Area for those that are capable, 1how do you keep their mind share retained work force. I actually anticipate this, though, and I love where it’s going in business. And maybe to expand on this, today in our manufacturing, I’d say about 90 to 95 percent of our business we buy US based products. And of that probably 30 to 40 percent is Bay Area based. With our next generation of products, we are hoping to get that to 75 percent. Part of it is support of the Bay Area, but really we look at it from a publicity standpoint too. I have a lot of trash to take care of if I shipped in stuff from the midwest east coast and so forth. If I can reduce my footprint but just having things delivered daily, smaller footprint, less trash, and just be a better steward of the environment as well as make money for people. So this is the direction we are going that some of the challenges also planning the right resources for them.
TONY MENEGHETTI (Timbuk2): For us the economics make no sense in the Bay Area. Real estate, whenever we try to recruit new employees, and for us from a backpack and bag design world, most of those employees are outside of the Bay Area. First thing they do is go to the website and say, “I make X dollars in Salt Lake City. What do I need to make that in San Francisco,” and it is frightening to them. So it really makes no sense, but what we’ve done and the reason we’ve been successful and stayed, we sell it hard. We sell it. We are from San Francisco and we manufacture here. We debated back and forth. We keep San Francisco on our bags. We keep that on the handbag and we found that’s what enables us to stay here selling that culture, the attitude, the panache of being a San Francisco company and our heritage is from. And so that’s what allows us to get to the development market we’ve developed and the bags we make in San Francisco to the custom bag and charges a premium for it that enables us to keep making them here. And also from another side of it here, there is a culture here that is a bit special and from our brand itself, it’s a prevalent brand, talk about maintaining a building and keeping that culture going and I think it is real in the Bay Area, much different than if you were manufacturing in the central valley or Novato or someplace and that also allows us more of kind of indirect and hard to quantify the important part of both retaining and attracting and retaining employees and telling the story of the brand as well. So our choice has been since we are here is to sell it hard and sell the Bay Area San Francisco hard and make it work and hope the rest of the world buys into it. For us, at least they are doing that.
PAMELA WISECARVER-KAN (Bishop Wisecarver): I have to say it’s exactly the same. Obviously I took over a second generation building and when we already have that kind of land, 80,000 square feet, we have got a lot of land, but originally I saw it as a negative because especially for what we do we are competing against companies that for the most part are located in the midwest and east coast. And we are really sort of the only automation provider out here on the west coast, but with the way the world has become so flat and so global and with the opening up of the Asian markets, I now see us very well positioned. We are between two really big markets. For us it’s the midwest and east coast and Asia and we have a sales office in Shanghai now to help us sell to the Asian market. So I think from that perspective, it’s very well placed. And you know, for me, no matter where I travel in the world, I love coming home here. I love living here. I’m a native Californian, so for me, it’s kind of a draw. It’s the history of our custom, but we do it the same way we brand and market hard on the fact that not only are we USA, but that we can make product for the price that we sell at it and be in California and to be in the Bay Area and to be unionized, you know, efficiency is my big worry. Continuous improvement. So for us, that’s why we are here.
RICH STUMP (Fathom): I was going to say being in the Bay Area is our biggest asset, but also biggest challenge. We are a technology driven company, so obviously no better place to be in the world than the Silicon valley being around some of the smarters and brighters and some of the advanced technologies being developed every single day. So that’s an awesome thing that is building our culture and our business.
The biggest challenge, though, is recruitment of people, especially not sure how many people, but try to find people with this expertise. They just don’t exist. So you’ve got to go to the midwest, other parts of the country, other parts of the world to recruit them in, and at that point, you are competing with some of the best companies in the world who can pay a lot more than a small business. so on one hand, it’s our biggest asset and on the other hand, it’s our biggest challenge.
ANNIE SCIACCA (SFBT–Moderator): I want to touch on this — some of you mentioned it –talent and your labor force. Are you hiring? Where do you look for and find talent and is that talent here and existing in the Bay Area?
RICH STUMP (Fathom): Do you know anybody? We are hiring. The hardest part is finding the people and finding the people with experience and the drive and passion to be a part of the business, and I think where do we find them? All different types of places whether it’s online or Linked-In, or we actually made a decision to bring recruitment in house and for a small business, that can be a challenge. But rather than outsource it and have, depending on a firm outside, we brought it in house and found much more success just focusing and finding what we are looking for.
PAMELA WISECARVER-KAN (Bishop Wisecarver): We are hiring for sure. Yeah, you know, it’s, for us, it’s really tough because being here in the Bay Area and being with software in Silicon Valley, for most kids and Karen touched about this, the perception around manufacturing is still very out of date to what most manufacturing plants actually look like or the experience in a plant. And so it’s not supported by parents, which means it’s not supported as a career path for kids, and that’s really the crux of the whole problem. It’s really about a communication marketing issue around manufacturing and what manufacturing is about. I tell people now, you know, manufacturing is about brains, not brawn now. And a lot of people don’t get that. But for us to find, you know, we actually need mechatronic engineers because it’s not enough to be a mechanical engineer or a electronics engineer. We need them put together because everything is automation. We’ve got to put a motor and controller on everything we sell. So we need both disciplines. That’s really hard to find. San Luis Obispo has a program. Berkeley started a program. But these are really young kids. There is really no seasoned person unless they get dual degree or on-the-job experience. That’s really hard to find, and for most kids, the thought of going to school and having any mechanical engineer or even an BE is not very sexy now and they all want to be software developers and they are all going to get equity and be millionaires in two years and they just really have a warped perception about the work place. But you know, I think, I don’t know if you guys saw USA Today, we now have 5.8 million jobs posted that are not filled in this country. I mean, that should really wake a lot of people up. We have a lot of jobs in this country. We have a lot of jobs in manufacturing and we don’t have the talent to fill it. That’s really, that’s kind of, to me, I think it’s kind of a crime against, you know, our younger generation and the population out there that we have so many jobs that no longer have people that either want to do them or have the capacity to do them.
ANNIE SCIACCA (SFBT–Moderator): And related to this little bit, what do you guys do — I know we talked about this a little bit the other day in terms of work force development and education? Do any of you offer sort of training programs like that or partner with programs to help kind of fill those positions and educate the work force or what kind of solutions are you finding for this problem?
PAMELA WISECARVER-KAN (Bishop Wisecarver): She’s looking to me, so I am appointed to the California Work Force Development Board, so I sit at the state level board and work with the work force development offices and we have some people here today. Yeah, this is — this is a tough thing. I have two things that are really big issues for me. It’s accreditation and certifications. I think we really need to move as a company to nationwide accreditations and certifications. We see a lot of money to be spent regionally in creating certificates in the credits programs and it might be great for space X, who developed a program or Lockheed. The problem for the employee is it’s not portable and it’s not recognized by another employee. So once again, spending a lot of government money training people that are not recognized and portable and I think that’s a waste of time and money.
ETP, I think is the best secret in our state. I hear, some of you shaking your heads and obviously Manix knows what it is because they helped manage the program as well as California Managing Technology Association, which I sit on.
Yes. So ETP, we all are paying into it and very few of us actually go back to the state to get the money to fund our training programs in house, and especially I think it’s a real challenge for small medium sized manufacturers. Especially for me being in the union house, the union used to do programs. They don’t do them any more. It’s all up to the employer to do and a lot of employers don’t have the resources or skill set to do it. So who do they look for? Your community colleges. And I will make a shout out for community colleges. Next time you go and vote and there’s something around community colleges, just so you know, that’s actually who is training most of your work force now is your community based colleges are doing most of the technical education out there. But ETP is a great thing. If you haven’t applied for it, apply for it use. It’s your dollars. It kills me to at the end of the year that you haven’t used all the money in the funds. So go use that and train your people.
MICHAEL MENDES (Just Desserts): I agree with Pam. We’ve actually used the manufacturing extension partnerships in our business as well. I think it’s a great program. Needs to be extended, though, and I think that there is opportunities for additional identities, additional skill sets to be trained. And it’s very difficult for a small company to develop in house. It’s really, really a challenge.
ANNIE SCIACCA (SFBT–Moderator): All right. So since we are in the manufacturing innovator’s forum, tell me a little bit about how you all innovate or how do you build or innovate or encourage innovation.
MICHAEL MENDES (Just Desserts): We allow for failure. We — you’ve never seen anybody fired for making a mistake. We kind of encourage fail often, fail early, and we also kind of extend that. We value that. We go to, I’ve seen, I know this comes up later, but I was thinking about this. 20 years ago, manufacturing person on the floor manufacturing and that was it and was trained and did his job. Eight hours later, he left. Today we actually encourage our people to help support us through other methods. Perhaps they are helping with the processes that we are doing, training other individuals, training partners, cross training. It really comes down to making sure that as a company we are healthy, not just a department and that gets into what we call suboptimization. In other ways, an individual can be really good at their job, but if they are not helping the entire organization, are they really helping the entire organization? And I think that we have pushed that agenda very far so that you will see quite a bit of cross functional reach and support at all levels.
TONY MENEGHETTI (Timbuk2): We think about the manufacturing questions and the problems, particularly in the Bay Area. It always, first things people think about is cost and that’s real and it’s not going to go away. We are always going to be more expensive than take your pick. So we try to flip that equation a little bit and turn it into what is a local manufacturing operation into a strength for a couple of different reasons. One is speed of delivery. When we make bags in Asia, it’s six weeks to get them here. Right now, for example, it’s, what, late afternoon in Singapore and Tokyo and we’ve got customers who are going to our stores there right now who are placing orders for a custom bag. We will get that order this morning in our factory in San Francisco. We’ll sew it today and those bags will be on a plane tonight to Tokyo and Singapore. So they’ll have the bag in 48 hours and it’s made right here in San Francisco. Nike manufactures, for example, all custom tennis shoes that all my kids and I’m sure all your kids spend thousands of dollars on them in china and it takes four to five weeks from the time to order them to get them here because the way they set up the cost structure and delivery time to put on a boat going over here.
So the fact we can’t compete from a cost perspective, we are trying to turn that into a strength from a speed of delivery perspective. We’ll do the same thing here. Customers will order bags in our stores in San Francisco or online today and we’ll make those today or tomorrow and get them out to them in some cases the next day if they would like expedited shipping.
And the other thing we are doing, when you manufacture oversees, a whole variety of time that is not even related to shipping is coming into play. For example, in our pretty much all our industry, we are now working on products that are not going to get delivered until the end of 2016 and in some cases 2017. And so we are making bets on styles and colors and fashions that are a year out and we hope we are right and we are not going to know for a year or more. So if we can do it by manufacturing in San Francisco in smaller lots, we can test fabrics. We can test styles. We can get feedback right away what’s working, what’s not. What’s trending, what’s not and incorporate that into our processes and designs for making manufacturing in Asia and improve that overall efficiency, talk about efficiency and people tend to think about it from a manufacturing perspective, but also this is from a design perspective improving efficiency which is more bets that turn out to be positive than bets that turn out to be negative. So we are trying to flip that cost equation around a little bit or flip the answer to it a little bit and innovate those kind of ways to offset the cost delta that we face here by manufacturing in the Bay Area.
MICHAEL MENDES (Just Desserts): As a smaller food company, it’s critical that we are perceived as the innovator in our set because we don’t have the scale of cost efficiency to be more modernized products. We’ve found that engaging our employees deeply has been a very cost efficient resource that helps us execute against innovation. For example, we were considering launching a line of organic products. And when I first joined the company, I was told out of hand you can’t do organics in the same factory as non organics. And my ignorance was my greatest strike. Finally asked a lot of questions and got someone who told me no, that’s absolutely not true and we went forward to design a line of organic products and I was very concerned about the issue that we were going to deal with and what the problems were. And rather than spend a meeting with the very high ups in the company, we brought a cross functional team and we were very candid and transparent about the challenges. And those team members were so critical in helping us not only get to product launch, but get to a point that we could sustain great quality day in and day out in a platform. So I think that, I would think that true innovation is about new platforms, not just new products. With new platforms come a lot more risk. So I think engaging your team deeply can help you avoid some of those issues downstream and help you do that consistently with quality and cost effectively.
RICH STUMP (Fathom): I was going to say we met just last week with our management team to try to challenge them as the employees what motivates them on a daily basis and the one thing that came back was education. Learning new things. And so that’s no surprise to any of us, but as we have a younger work force, the challenge is keeping them focused on what they are doing, but also allowing them an environment for them to learn new things and achieving the KPI’s. So I think, you know, for, us it’s really about the culture and training our folks and allowing them to develop as employees in their career, but also achieving the objectives that we needed to achieve. We have a job to do every day. We want to train you on all different things, but there’s still objective and that balance has really been a challenge and difficult for us to figure out what the perfect balance is.
PAMELA WISECARVER-KAN (Bishop Wisecarver): One thing that we like to do is have interns, because I think interns help kind of shake up paradigms because they don’t know what they don’t know. So they ask really provocative questions. They do things in a way we would never think to do. So I love having interns in house because it keeps things fresh and really creative. We also look at technology, and I love what you are saying about platform versus just the product. We like to look at technology sort of as a weapon and how can we leverage technology to be doing things in our marketplace that keeps us at least two years ahead of our competition? So we are looking at our augmented reality now. It’s not just about a 3D parametric drawing or how do we take that into our augmented reality to now see our parts within the machine. Obviously with the Internet and things and sensors, you know, you’ve got a lot of data that can come back. So now trying to figure out how do I start embedding sensors into my product so that I can get all of that data to save the predictive life so now I can tell by the speed or the heat of our bearing in a system that it’s going to start to fail and I can actually be proactive with a customer and say, “Hey. You need to do some PM, preventative maintenance, or time to place some replacement bearings.” But really start to get that customer generated data by embedding sensors out in our product as well as in our floor and Go Pro’s are kind of cheap. So the other things I want to do is have real time whip for our customers and if they want to know where their order is, you know, it’s not hard to put a camera on every machine and let them see their part being made. And that’s kind of cool. It’s interactive. It’s great for the customer. Shows them where it is in the work in process. And so those are the type of things. So it’s kind of, sort of an experience when you wrap around our products more. So we are looking at innovation than just the products per se. So that’s another area.
ANNIE SCIACCA (SFBT–Moderator): Did you want to pause for a moment and open up one or two questions from the audience? Are we able to do that? I can wait and ask one more question. Okay. Just while we are waiting for that, I want to talk about real estate and I know that’s a burning issue for everyone and we’ve written about the frenzy for space. And particularly in manufacturing, has it been a challenge for any of you to find space and how do you find space as you grow? Talk about that a little bit.
TONY MENEGHETTI (Timbuk2): This weekend the Chronicle had the story on the average one bedroom apartment in San Francisco is $3,150. Okay? The first $50,000 of employee is going to pay rent and obviously that goes with everyone else. Finding a space. And we are competing against the, honestly a lot of employees don’t have money yet for space, and a lot of the tech companies, and also we need more space to for machinery and equipment, also. It’s a real, real, real problem. And it’s probably, I’d say we can figure out how to manage the employee issues on comp and competition, but the real estate issue is our number one problem in actually for the last three times we’ve been looking for space. Fortunately, you know, at least in San Francisco itself, the City, kind of gets this and is you know, the mayor’s office and through SF is working really, really aggressively to make it easier for people like us, manufacturing companies, to find and acquire space in doing as much as they can. But it is by far been the number one challenge we are running up against and just layering that in as the overhead is scary from competitive basis. And the other side of it, people don’t think about a lot is bidding on a labor cost as well. San Francisco, now speak specific to San Francisco because that’s where we are, minimum wage is going up $15, and you know, a living wage is good and we support that. But from a manufacturing perspective, the stories and the press coverage about the wave rising, a lot of it is typically about restaurants and hotel workers and a hotel in San Francisco competes with another hotel in San Francisco or a restaurant in San Francisco competes with another restaurant in San Francisco and it’s true anywhere and when another person’s wages is rising, it’s easier for those if they need to raise the cost if they need to do that. So we are competing, our wage rates and our real estate costs, competing with somebody who is manufacturing in Kansas, for example. So it’s a little bit different. We don’t get included a lot of times in those discussions in the City when wages come up or real estate costs come up. But all of that is, it’s definitely our number one problem and we talk about scaling, how can we double our manufacturing space and still make it work economically?
MICHAEL MENDES (Just Desserts): We actually moved this year because we had a real life opportunity to examine the real estate situation and what works best for us. And what we elected it do is bifurcate our physical location and we asked ourselves what are we best suited to do where? We worked with Collier and did a very exhaustive search of geographies throughout California, Texas, Nevada. We elected to acquire a manufacturing facility in Solano County. And we’ve put our manufacturing and supply chain team in that facility and then we located an administrative sales and marketing innovation center in San Francisco, which is well suited, which is located in the Bay Area and is great for us to attract the great talent for those particular roles. What should we be doing where and where is the most cost effective way? And the best ways to show us the right talent for those geographies. It’s challenging because the team is mentioned, but I will say this. This is a great place for the world to live and if you can afford to live here, you must be pretty good. And we’d like for you to work with us and have that talent come across in every product we create. So I think a lot of the team here has embraced the fact that there is a bit of a, I think anyone who would say, “Okay. Let’s go into a white room and decide where we should be located,” with an existing business is probably not learning the reality of that existing business. Having just moved, I’ll tell you it’s very painful it’s distracting and it does take you away from what your business’s purpose is. So I think there is some reality of that. But I will — I would say we are very pleased by experience. Solano County is phenomenal area. Fairfield is a great location. Lot of support from the city government. Which we had a little more monetary support, but unfortunately those types of things are limited. But our office in San Francisco has been first like a renewal. We founded four years ago. We left Oakland. San Francisco is a big part of the brand definition of our company. We’ve been amplifying that and to have our innovation for food in one of the greatest culinary meccas on the world and that’s been one of our biggest that works for us.
RICH STUMP (Fathom): For us, the biggest thing is we are growing so quickly. We signed a five year lease. We think we are going to be there for three to five years and we are there for six months and we need a new space. So just trying to balance growth and find new space that makes sense in location. We are based right here down the street in Oakland, which is great. It’s been affordable and we are able to attract the talent that we attract in our business. We also use resources in the East Bay to find tools and other things that are available for us to grow our work force and enhance our business. But the biggest thing is just to as we scale and grow, how do we find more space that makes sense for our business?
ANNIE SCIACCA (SFBT–Moderator): Are we ready to ask one our two questions from the audience?
Audience Question: Good morning. Thank you for the information. It sounds like finding employees and space kind of rank up there one and two for most of you in terms of challenges and issues of being in the Bay Area, but I was wondering if you could address capital and capital markets and whether it’s lending or investors. There’s a lot of capital providers in the room, and just give us some insight in terms of what’s working well, what’s not working, and what you’d like to see as a business owner in terms of the capital markets and capital outlooks.
MICHAEL MENDES (Just Desserts): That’s interesting. Well, I’m not our CFO, so I can only give you the peripheral review of this. So our company was founded by family and friends. Then venture capitalists got involved. They have been incredibly supportive of our business. They’ve allowed us to grow, expand and so forth. But there came a time about two years ago that they said, “We are not going to put any more in. You’ve got to figure it out,” and we have. But it’s been primarily through banks, financing, looking at other options as do we finance debt? Do we finance materials? Do we finance inventory? And we’ve actually been working very well with our bank on this through, I think two different rounds now of capitalization in there. It is a challenge and it’s scary because there’s a cliff at the end if you don’t turn that corner. So it’s an interesting dilemma for us, especially in the capital equipment business, which we are, capital equipment business, which we are in, you think about exit strategies what is that exit strategy, exit strategy, it’s not for everyone, multiple capital for a company is not that great today as opposed to a software company. The Googles of the world. So we are looking at how do we transform our company also turns a corner in terms of where we need to be financially. I don’t know if that answers.
RICH STUMP (Fathom): I was going to say, I think looking to banks and trying to maximize the amount that we lend in those opportunities without trying to go private equity or VC based funding to try to maximize everything in the business until we really need to make a move to scale the appropriate need and try to balance cash flows, figuring out, trying to get, our customers are trying to pay us later and our suppliers wants money later. So trying to balance that with cash flow and then back in the capital equipment space and everything else that we need for the business to grow is extremely difficult. So if you are a banker, then just give us more money.
PAMELA WISECARVER-KAN (Bishop Wisecarver): I think we’ve been now, been with the Bank of the West and all the iterations they’ve been. But I think one thing that we are lucky with them and I haven’t seen it necessarily across all banks in dealing with manufacturing is dealing with the reality, especially with me when I’m dealing with metals is dealing with supply chain and we are talking about cash flow. When I designed a product and especially if it’s non aluminum, most products I offer, I’m offering in two to four different sizes. you go to portion and slim extrusion, I can’t say I just want hundred pieces. I’ve got to push tonnage. So when I’m launching new product and you have got covenants that are dealing with terms, it’s really, really unrealistic. You know, we’ve moved away from that with our bank, because we’ve been partners for a really long time. But I mean, the reality is, is you are going to get a huge hit of inventory all at once because you’ve got minimum pushes in metals whether I’m cold rolling my steel or pushing aluminum and those types of things, and there’s no way around that. It’s just the way the business works and that’s a big drag on term and all that stock first hits your floor before you start launching your product and you’ve got to deal with that and it’s really important to have a bank that understands that it’s not that you are doing your job, but that’s the reality of the ebbs and flows of the supply chain. And especially, like for me, when I have products that are metal.
MICHAEL MENDES (Just Desserts): The cost of funds is 6.2 right now. This is an incredible time to access traditional debt. I think the banks know this and they are concerned about the future cost of, I think for them, and they are being prudent as they should be in lending manufacturers. That being said, the gap between do you believe your equity to be valuable, and most of us do, and the value of that equity versus having to do the things you need to do to be able to secure bank financing, there’s a massive gap there. There’s a massive opportunity to manufacturers. I think the challenge for the smaller — larger company versus now a smaller company is that the needs of the bank or security differ and they are often looking for personal guarantees that are in many places well heeled individuals. So I think that trying to manage that situation and getting a smaller company to be creditworthy as a free standing entity and getting to that point where you can live up to the bank covenants that may be required to borrow money, that could be very rewarding for a small company. I do think that it’s a significant gap to cross, and it’s something that a lot of smaller businesses are working with. We do know that on the real estate front then that improving real estate, while maybe the return of those investments may not be as significant, the ability to drive down your unit cost in our industry is dramatic. So we’ll be looking quite intensely in partnering of the attendees here today, and hopefully accessing capital. But First Republic has been very helpful to us to this point in time, and we will be looking to our partners to help us grow our business and reduce the cost of manufacturing feature.
ANNIE SCIACCA (SFBT–Moderator): One more question from the audience.
Audience Question: Thanks. The old model of manufacturing included manufacturers owning real estate. It doesn’t seem like a lot of you do. Do you think that there’s a size component to where you become more like the old manufacturers in the Bay Area where they owned plants and equipment?
PAMELA WISECARVER-KAN (Bishop Wisecarver): I’m old, so I know.
RICH STUMP (Fathom): I’m new, so I don’t. I think for us, we are in an interesting space where the technology is developing so quickly that we are uncertain but confident what the next three to five years look like. And for us to scale and utilize the technology, I don’t know how many people in the audience know 3D printing, how many people know manufacturing for manufacturing applications and how that’s going to play a role? So less hands start going up. So that shows our ignorance together and where this technology is going to play manufacturing. What’s going to change over the next five to ten years? And in that case, investing in real estate, I don’t want to be a landlord and investor in real estate. I want to run my business and focus on growing the business and that’s been our take so far. that may change if an opportunity lends itself, but that’s our take.
MICHAEL MENDES (Just Desserts): Our growth, too. We’ve found from 1,400 to 4,000 to 15,000 to 55,000. I don’t think I want to buy a place now because I won’t know what our capacity should be, and to put money down on a risk like that and be constrained in three years to me doesn’t make sense. And putting money in that investment as opposed to the manufacturing of the business, or at least a sort of, in our industry, Sort of depends on the industry and our industry is very industry specific investments that we need to make in a real estate that we look to third party investor to lease that facility who would be economically, we could, at least we can’t compete. We can’t. So we just bought a facility and we are investing in that facility and our hope is that we are going to scale up and really benefit from the capacity that sort of offers us. So in our industry, it helps that you can only manufacture and have control of those assets.
PAMELA WISECARVER-KAN (Bishop Wisecarver): Very much the same for us, though ironically, with technology, as we get more and more efficient, we are using less and less space in our building. So we used to occupy almost all the 80,000 square feet. And honestly we could run our business now out of just half the building. It’s quite expensive to rewire all the machines and everything, but even getting more efficient, we might actually do it at some point. It’s on the books and we can actually move everything we do into half the space of what we used to do it. Having those, like I said, having the multi access machines, doing things in cellular production now, just makes things highly efficient. So it’s interesting. We used to think we were going to need more and more space and now we keep shrinking. So I can lease you some space.
TONY MENEGHETTI (Timbuk2): We made the decision we were going to stay and manufacture in San Francisco and so that puts immediate constraint on what we can do. And it gets back to priorities and where to invest capital. So our focus is on growing the business so we can get maybe a second and third shift and get better leverage out of the facility we have and that’s the direction we are headed.
PAMELA WISECARVER-KAN (Bishop Wisecarver): I think the other constraint that is not just the land, but the access to the land. Right now, for us, I know for us we own a huge piece of land out on Highway Four. The problem is it’s Highway Four and if any of you have traveled Highway Four, you know the agony of the commute there and it’s a real detractor and BART only goes to Bay Point. There’s transportation plans to extend past that, but I think that’s something more and more that goes along with the employees that we want to hire. More and more they want to use public transportation to get to work. And so for a lot of the locations, for the sizes that we need, those two don’t always go together and so that can be an issue. So I’m really looking forward so when light rail expands and the BART expands. I think that will actually open up some talents when they can take BART, take public transportation to work.
TONY MENEGHETTI (Timbuk2): And carry a Timbuk2 bag along the way.
PAMELA WISECARVER-KAN (Bishop Wisecarver): We do have somebody that commutes by skateboard right now. With his Timbuk2 bag, of course.
ANNIE SCIACCA (SFBT–Moderator): What would you like to see done on a city or regional say even national level to support manufacturing?
TONY MENEGHETTI (Timbuk2): I’ll start on that. With national level, we pay really high tariffs for a lot of the materials we import for industries that have left the United States a long time ago.
PAMELA WISECARVER-KAN (Bishop Wisecarver): We are not protected anymore.
TONY MENEGHETTI (Timbuk2): And so all of our tariffs to bring this stuff into the country. And if we can eliminate that, there are methods to do that through GSP, what’s happening with that is a huge cost add on to us that if we could, for example, our bags that we can sell for $150 for a custom bag, if those tariffs weren’t there, it could drop to, we’d make the same profit at $125. Lower the price to the consumer, be more competitive and/or to maintain the same price and have more opportunities to invest in manufacturing here in the United States. So import tariffs are a big issues.
PAMELA WISECARVER-KAN (Bishop Wisecarver): So every time I get in front of Government Brown, my first question, I think he sees me coming every time, is we need a 40 hour week. So anyone who is in manufacturing, you know, we need a 40 hour week. Not an eight hours a day. And I keep telling him, guess who is asking the most for it? It is my union employees who are asking for a 40 hour week versus an eight hour day. And I think that is a huge. We are not a right to work and we don’t have the 40 hour week and I think those are huge, huge black marks against us in terms of being able to compete. And I agree with you. I deal with anti-dumping on businesses that were not protected that no one knew existed. Who makes a bearing in the USA? But I got to pay an anti-dumping tariff to protect an industry that no longer exists in the United States. So yeah, those would be my things.
MICHAEL MENDES (Just Desserts): For me, I’m looking for an advocate for the local cities. Having moved several times now, I find they are critically nice but not overly friendly. So literally forcing a meeting between the chief of the fire deputy, the chief of architecture and so forth to get changes has been a drain. And getting them coordinated a little better would be nice. So advocacy. I think someone needs to be stronger in the local cities and that would be very useful for us.
RICH STUMP (Fathom): For us it’s more economic help. So more assistance on growth hires, recruiting people. There’s some of that out there that we utilize today. It’s not significant. I wish there was more to help us in our growth mode. But I have to say the City of Oakland’s been great for us. I’m sure you guys have seen the three to five days the city has grown very much and even Sunset Magazine just moved down to Jack London Square from Menlo Park. So there’s a lot of transitioning going on here. But just more programs to help us hire more skilled individuals and train those individuals and be able to grow.
MICHAEL MENDES (Just Desserts): I think on the state level, the minimum wage level increased to $10 an hour and we do have a significant group of entry level employees in our partisan style business and it’s hard to compete when nationally the minimum wage is not increasing at all. And I think one thing that’s frustrating sometimes is being in California or the Bay Area is our tendency to want to make changes and stomp our feet and just change locally and we can’t change the rest of the country, but long term, I don’t know how it’s going to work for us as a competitive business region. So I’m a little concerned about that, about the and minimum wage increase inflation that’s going to cause them in the job creation area and that ultimately, I think there’s downstream issues in that disparity between California and the rest of the country, I think the unforeseen consequences are going to be challenged for sure. And it would be — I would like to see the, you know, the government take more of a unified thought process on how it’s going to work. But I’d be an advocate for the national wage increase.
ANNIE SCIACCA (SFBT–Moderator): What do you all think is different about either the skill sets or the positions, types of positions that manufacturers are hiring today versus 20 years ago maybe, or are they different in your sectors?
MICHAEL MENDES (Just Desserts): You know, it’s funny. I think I touch on this earlier how we use our work force more today than traditionally, and if I look at the direct manufacturing floor, I’ve actually had kind of a bifurcation. A lot of the people that I initially hired were people that I knew from an industry that had moved out of the Bay Area and they were all people who were manufacturing folks already knew medical devices, very sharp, very skilled at what they need to do. We began to backfill with college graduates. Fortunate for us, not so fortunate for them, you know, as our growth spurt happened, it was during the down cycle, some of these college kids couldn’t find jobs. “Come on over. We have got something to manufacture for you,” and it’s turned out to be incredibly beneficial program for us and the individuals I’d say pretty much all of the younger folks have all graduated into senior positions, taken on leadership roles. But they now have a fundamental position of manufacturing and support it entirely and they totally get and could be relied upon to get back in if they need to or go on with their jobs or in service financial areas. So it’s been harder, I think, to find manufacturing folks, but at the same time very beneficial to find folks that didn’t know anything but were well educated and we are able to bring them in and train them rather rapidly and have them figure out their own path. So it’s worked out very well for us so far.
PAMELA WISECARVER-KAN (Bishop Wisecarver): I think there’s on, for me, because I still have sort of that traditional production floor, you know, we still have one manual machinist. There’s still something. You have to have a manual machinist for and honestly, I mean, that’s the skill set and art that is pretty much going to die with the next generation, which really should frighten people. It’s one thing to have a CNC and additive and how all these new machines work, but there’s, you know, even like we have a five meter bed grinder. It’s second largest one in the US, if you want to be honest, but that’s actually an art, too. We run a heat treatment line. That’s very much a touch and a feel and it’s a learned on the job type of skill set. I think so there’s not as much desire, I think for some employees, to want to learn a skill, to skill a craft like that. But on the other side, new machines require a skill set that’s, you know, requires more than high school. Doesn’t necessarily require four years in college, but requires more than high school. And they have to like technology and computers because it’s really about programming issue to run the machine. And it’s really critical, most of all, really to be hiring employees that just want to continue to learn. Because I think technology is impacting how we all do our businesses so fast. We have to have, you have to have an employee base now that understands just because they do the job one way today doesn’t mean it’s going to be done the same way next year. And I think that’s really where times were depressing for our businesses because it used to be a change in the process to take maybe a decade to really get in where technologies has compressed that to, you know, new technologies come out and, you know, it can be a standard within a year. Right? So you have to have employees that have that desire and capacity to keep upgrading your skill sets.
TONY MENEGHETTI (Timbuk2): We’ve got the same issue. Even if you tour our factory, and we invite people to do that, the machines that we use to sew our bags are the same as when we founded — started 26 years ago. What has changed, though, is to selling the market brand, we’ve hired many, many more technology oriented people to do that. So a third of our employees has some sort of technology oriented degree and that’s very different than even ten years ago or so. And so that was just square in the middle of the competition set with software companies here in the Bay Area. So that’s a big changes we are dealing with.
MICHAEL MENDES (Just Desserts): In the food industry, the changes with how information is disseminated and the government’s involvement through history has dramatically changed where it’s like an employee 20 years ago. Food safety is very carefully monitored, and one of the big reasons is 9/11. And I think that people again sort of what are the downstream consequences of people fathering how terrorists can damage this country. One thing they were very concerned about is the food system and how people and the government has invested a lot of resources to monitor what’s happening in terms of risks to the food system in fear of bioterrorism. The by product is the bar is very high for food borne illnesses in the food industry and the responsibility of individual employees has dramatically increased and trying to transmit that knowledge and to get people to understand this and to embrace this has been a big challenge and this is a recognition that if you are building a brand and investing a lot in that brand, you make a mistake, it’s out there and it’s out there in a way that obviously the shelf life of that information is out there in a way that it wasn’t 20 years ago.
ANNIE SCIACCA (SFBT–Moderator): I’m going to open to up to some more questions.
Audience Question: Every national election cycle, at least for the last eight years, they talk about a 20 percent federal manufacturing tax break. Never goes anywhere. That’s obviously manufacturing as well. And a huge difference. Why do we think there’s no national lobbying group for manufacturers to make that happen? Because you know, all of a sudden I think I paid –
PAMELA WISECARVER-KAN (Bishop Wisecarver): There is.
Audience Question: And Apple computer, what they can do in Ireland and stuff like that? Why do you think we haven’t all gotten together and sort of demand it?
PAMELA WISECARVER-KAN (Bishop Wisecarver): There is ANM National Association of Manufacturers. I actually sit on the board of directors. I would encourage you to join. They are fighting that fight every day across lots of different regulations and taxation and join — join the — add your voice is all I can say. The more we add our voice to NAM or at the state level CMTA. I have to say there’s a really big, I see a big disconnect even when I’m on the hill in DC or up in Sacramento between politicians really understanding. Most politicians have never owned their own business. They’ve never paid an employee. They’ve never actually, you know, built products and services and priced it to the market and sold it to a customer. So therefore, their understanding of the impact of the lawsuit and taxation that they put down, there’s really just a complete disconnect. I mean, I’ve had, to your point, talks about competing globally up in Sacramento with the environmental regulations and we’ve got the storm water permits and all these other things add cost. So especially I have got a huge roof line. All those kind of things. But the politician from Sacramento looked at me and said, “Just charge more for your product.” And I said, “Well, that’s really nice, but my competitor in Rockford, Illinois doesn’t have to.” I said, “How do I stay competitive,” and he looked at me and said, “Wow, I never thought of it that way.” So I mean, that’s why it’s not just a tag line. It’s why our voice matters. It’s why we do need to write to our elected officials both here and state federally. It’s why the manufacturing day is important. To get people into our facilities to see what we do and important to go tell your story, because honestly, they need education from us as to how our businesses work. They really are a lot of quite ignorant to what it takes to run a company, though I’m a manufacturing facility.
Audience Question: You talk about renting zoning land and access to your land. Ten years ago there was a lot of talk about us being a post industrial society and more recently you talk about on shoring. What about the supply industrial land in the area or in your community and the investment in industrial land? Vis a vie other uses of land.
PAMELA WISECARVER-KAN (Bishop Wisecarver): I don’t know if I understand the question. I will just tell you where we’ve located has been zoned industrial for years along Highway Four between Railroad and Loveridge. We’ve now been rezoned commercial mixed use, which is, you know, which is great for me. But to your point, it makes actually finding true industrially zoned land tougher and tougher to find. Is that your question?
Audience Question: Yes. Manufacturing now. Are we conscious enough of deserving and investing in that land?
PAMELA WISECARVER-KAN (Bishop Wisecarver): I think that might be why, why you had to go across the bridge.
MICHAEL MENDES (Just Desserts): We did quite an exhaustive search and we found going to the outer bounds of the Bay Area and we looked quite into the San Joaquin valley. The cost delta was significant. Fortunately the cost per square foot of productive space in Oakland, San Francisco, was probably 50 to a hundred percent higher than where we ended up. So I think it’s going to be for certain industries.
ANNIE SCIACCA (SFBT–Moderator): Do we have time for one more question?
Audience Question: And so we talked about and kind of addressed what you are kind of looking for in a city, government, local, state government local changes that you would like to see. We’ve got a lot of people here representing a lot of local things that are supported in your industry and insurance companies, financial institutions, staff, legal talent resources companies. What would you like to see at a local level from the people that are directly supporting you on a daily basis that you haven’t seen?
MICHAEL MENDES (Just Desserts): From the City again, it’s a coordinated advocate. Instead of dealing with each individual department trying to get them to help you, let’s have an advocate to help you get to the system. A guide of some sort. It’s been very frustrating getting different answers and different time tables from different departments. So for me, that’s the most important.
RICH STUMP (Fathom): Lower costs, easier access to capital, easier access than more space at a lower cost. I think for us, it’s just everything when you are going from, when you are hiring 35 people in less than 12 months and you are going at that type of rate and you are going to manage that growth as a small business, it comes with a lot of challenges and I think just being adaptable, open and resourceful in that growth mode for small businesses as you as manage your businesses and organizations and things would help for us.
ANNIE SCIACCA (SFBT–Moderator): Question? Yes, sir.
Audience Question: Like you, I’ve committed to manufacturing in California. What are the strategies you’ve been able to employ to either command a premium price or get recognition for the fact that made in California connotes quality, innovation and other good things versus just competing on price and saying we have to be as cheap as we can?
MICHAEL MENDES (Just Desserts): We try to leverage the fact that we were founded in San Francisco and that is that sort of part of our innovation program and we’ve partnered with Ghirardelli chocolate and we have samples in the back for Just Desserts brownie bites, which uses a very expensive very premium chocolate from a partner also in San Francisco and we are going to be promoting the region in which we are from as a big part of the brand definition. And I think that was a big asset. We have a plan to grow internationally. I’ve had a lot of experience doing that. We are very excited about what California brings for us as an asset to our brand portfolio when working abroad. Perhaps even more so than the US. So I do think it’s a big opportunity. I will say that there are a lot of bankable assets there are in terms of the quality of the talent that you can find in this area and how that leads through. There are also a lot of great service providers in terms of industries such as advertising, public relation, tremendous talents to the Bay Area. We are very fortunate to have some of those resources here. So from our vantage point, we are good at a few things. We are lucky that we are good at a few, but the things that we are maybe not that great at we want to look to other partners to help us and I think the Bay Area in California offers a lot of that talents. So I think if you are in this area and you have got the cost platform with it, you need to leverage that asset and that’s how we try to look at that geography issue.
PAMELA WISECARVER-KAN (Bishop Wisecarver): I was just going to say, I mean, a travel a lot for work around the world and people, you are in a taxi. Where are you from? United States? Where in the United States? California. California, I mean, there’s a certain aura to it. So there’s a reason why we now put design in California. Right? There’s an allure to that. So as we’ve already talked about, it’s really integral in all of our branding and we sell it, we’ve been here for 65 years and there is definitely a worldwide love affair with our state and so use it to your advantages.
ANNIE SCIACCA (SFBT–Moderator): So I’m going to go ahead and wrap up because we just have a couple of minutes left. To end, I want to ask you all, what is maybe the biggest change you expect from your company in the next few years or what stories might I be telling, reporting about you all or is there a particular development that you are excited about?
RICH STUMP (Fathom): I’m excited about the changes in manufacturing. I think we are focused on one sector of this additive and enhanced manufacturing market still most of today for prototyping, although the biggest percentage growth that we are seeing are our manufacturing applications. So I think in the next five to ten years, maybe one to ten years, we are going to see this new technology and we are traditional in advancing applications to coming to do things we couldn’t do before. I think it will change the game significantly for a lot of our businesses. The challenge that we have together is basically us, and because one of the biggest benefits of that and manufacturing is the freedom of design. You can design something that you can never manufacture traditionally. So we can solve problems that we couldn’t solve before and focus on high value applications. Having said that, we need people to change and understand how they can leverage this technology, and I think what we find from our customers is they are so traditional in manufacturing focus that they don’t utilize all of the benefits of all the new technology. So we find that we actually have better results when we get people that aren’t so experienced in manufacturing and train them on this new technology versus focuses that try to train them on this new technology. So we are really passionate, excited about the future of manufacturing and what new applications will open up, and I think localized manufacturing and high value applications, we have a lot of new materials being developed in additive manufacturing that will allow us to solve problems outside our traditional material. So I think it’s going to be amazing what we see over the next five to ten years in our space.
TONY MENEGHETTI (Timbuk2): For the first 20 something years, our history was being manufactured with 23 different styles in San Francisco and in the past year and a half, we’ve introduced five new ones and we’ve got four more coming out in this next year in 2016. So we are really from a manufacturer’s perspective ramp up, what we provided and with both the volume and the options that consumers — we obviously have to have a place to sell all these. So from a company perspective, we are working very hard to grow our brand. In the past 18 months, we’ve opened up ten new regional stores around the world and so that’s a big focus of ours and going forward and finally moving into this last week, a women’s line of bags that sell for three to $400. So it’s a whole different level of pretty far from that bike messenger driving around San Francisco potholes. Kind of a market place where we started. So that’s another element of growth.
MICHAEL MENDES (Just Desserts): Some of the technology that talked about sensors embedding. I think our story, if you will, over the next couple of years will change from a medical device capital equipment manufacturer product to a platform that provides additional services and support to individuals who are rehabilitating. Made me think of it Estrada. You have a model where you compare and contrast yourself to others through a rehabilitation. So changing that whole model from not only just selling hardware, but hardware. So additional feature sets that really changed people’s lives that allow them to expand.
PAMELA WISECARVER-KAN (Bishop Wisecarver): So you know, I’m really looking towards sensors. I’m a data geek. So I’m looking at that whole connective floor to start getting back from our machines as well as if we can get it into our product from our customers. I also know the World Future Society. They do a conference every year and if you want to expand your mind I highly suggest it. But it’s interesting because you would think that they are talking a lot about additives. That’s like ten years ago. So now it’s all about subatomic manufacturing. So it’s not now it’s subatomic. So you started thinking about, you know, what these what the impact of these little tiny machines and motors are going to be able to make? It really does start to blow your mind after while, but I think it’s super cool. I can’t wait to see if we can leverage to make our products even better and I think, I think manufacturer is really in a renaissance of going through like, I said, rapid changes that are going to be highly exacted by technology. On the talent side, I think, and we are starting to see this, but you know, one of the trends we are starting to hear more and more about is solopreneurs. So I think, you know, the thought that I have employees that have been with me ten, 15, 20 plus years, I think that’s really going to starting to go away in a lot of ways. They say that the current generation is going to have five to seven years. Not jobs, careers. And I think more and more people are going to see themselves as, you know, the term they are using is solopreneurs. So now you don’t necessarily have employees. It’s almost like your employees become like a 1099 basis. How does that shake up things when you basically don’t have that same stability of your employee base? So I think there’s a lot of changes coming. But I think for the most part, the change is for the good and they are exciting. I’m looking forward to them.
MICHAEL MENDES (Just Desserts): I think the GMO free platform is a big opportunity and we are excited about what we are doing there. One thing that learned as we entered the space is that people that were selling organic products would say it was good for organic and for someone that likes baked goods, I wanted something that’s just good. So we really can challenge ourselves to make good products that also happen to be organic and GMO free, and we’ve made some great products and we are also having to do at a modest prime to the consumer. The pack and sell industry, 20 percent of that industry is organic. One of the reasons is the premium is 12 and a half percent. It’s a modest premium. So we think we are on a track to develop that in the baking industry, which will be a dramatic platform for us.
ANNIE SCIACCA (SFBT–Moderator): All right. Thank you all so much. Let’s thank our panelists, too.
JIM GARDNER (SFBT): That concludes our program today. I want to thank you again, thank our sponsor and Annie and particularly our speakers. So thank you all for coming and have a good day.