From startup to small batch: when a craft business becomes a manufacturer

How important is it that we continue to incubate small businesses so they become thriving companies?

Michael Porter, co-chair of the Competitiveness Project and the Harvard Business School, declared on CNBC's Squawk Box. "We're stalled in America. Our performance, economic performance, on many metrics is worse than we've seen in many generations. I mean not five years. I mean 10, 15, 20, 30 years," he said. "The combined failure of the political system and business class has had a greater negative impact on small business."

According to Harvard's fifth annual U.S. Competitiveness Project report, the reasons are easy to identify and impact small business most. The study finds:

The United States retains key strengths in areas like higher education, entrepreneurship and capital markets. But those advantages have been offset by weaknesses in the corporate tax code, early and secondary education, infrastructure, the political system and health care.

Those problems have gone unsolved because Washington has failed to have an honest conversation about addressing them, and the country lacks a cohesive economic strategy, particularly at the federal level.

Colorado's economy is small business-centric, as are many neighboring states, so as we enjoy a regional boom compared to other parts of the country, it's a reminder that while things are good, not all may be well.

Yet small business success was the topic last week at a Denver Startup Week panel I moderated along with Brooke Wolfe of Merchants Office Furniture. The topic was 'Startup to Small Batch – How Craftsmen Become Manufacturers.' On the panel were founders from several companies we've profiled -- including Winter Session, Topo Designs, Azure Furniture, and Waste Farmers -- and two we're excited to write about, Coda Coffee and Rachio.

Their stories are an intriguing mix of a passion and place, of determination and controlled insanity, really. How else do you explain a decision to stay the course after realizing those pesky details like relationships, weekends, and vacations take a back seat to running a business?

One pivotal point for small maker companies may be that moment -- that opportunity -- when a company evolves from craft business to full-fledged manufacturer. There are many existential moments for small businesses, but it was fascinating to hear when these successful entrepreneurs realized they'd graduated to another level. Getting more small business to this moment is the objective.

For John-Paul Maxfield, founder and CEO of Waste Farmers, it was a recurring financial theme. "We knew we were a manufacturer when our rapid growth required diligent attention to capital allocation as we invested significant capital into our manufacturing capacity to keep up with our current and projected sales," he explained.

"When we grew from my garage into a slightly larger 6,000-square-foot facility that we leased, it never hit us that we were a manufacturer, even as we manufactured our products, it was just a logical evolution of being really excited about the products we were making. When we moved into the 80,000-square-foot facility we'd recently purchased to give us 10X capacity, that quickly brought the reality of the importance of the manufacturing component of our business to the forefront," he added.

Topo Designs Mark Hansen also pointed to finances. "Our banking relationship became more important."

Azure Furniture's Corbin Clay had no doubt when they arrived. "I realized it when we had two shifts running, when 6 p.m. came around and I decided to head home, and everything just kept on going," he said. "Production kept on running long after I left the building. That is when I realized that not only had Azure gotten much bigger than myself, but that it was a proper manufacturer; with SOPs, and policies, and managers. Pretty cool feeling."

Tommy Thwaites of Coda Coffee had a similar experience. "My brother (and business partner) and I were always hesitant to take vacations at the same time -- we always thought one of us needed to be there," he laughed. "But we finally did and came back and were relieved, but not surprised really, that the lights were still on and things were running smoothly." An exclamation point for the importance of the care of feeding of small business.

More on the journey of small manufacturers in coming weeks.

Bart Taylor is publisher of CompanyWeek. Contact him at btaylor@companyweek.com.