Manufacturing Maturity

Manufacturing Maturity

Strategy by Mark Gordon | Managing Editor

After a few starts and stops, an above-ground diamond manufacturer is hopeful a sales boom is forthcoming.

Over the past year or so, cultured diamond maker Gemesis has doubled its number of employees to 50 and increased its manufacturing capacity 800% - with plans for more growth in those areas. The Lakewood Ranch-based company also hired a new CEO two months ago, a move preceded by naming new operations and finance chiefs a year earlier.

Now the company, a two-time finalist for the Review's Technology Innovation Award, hopes the next chapter in its growth book is a massive increase in revenues. It's the one aspect it has yet to grow significantly since it was founded 12 years ago, despite several starts in that direction that sputtered out.

"We are getting to the point where we are no longer a startup that burns through cash," says Stephen Lux, hired as president and CEO in November. "We are becoming a more mature company."

Gemesis is essentially attempting to go from a research and development stage that loses money to a sales and distribution phase that turns a profit. Revenues have been in the "several millions" the past year, Lux says, declining to elaborate on the specific amount, or how much it has grown.

But by switching its strategy to sell only to wholesalers and jewelry designers, company executives are projecting some staggering sales for the yellow and orange diamonds, which are manufactured uniquely through Gemesis' man-made machines.

"We did not come into this to run something to $10 million [in revenues] or even $100 million," says S. Clark McEwen, Gemesis' COO hired in July 2005 to head up marketing. "We think this could be a $1 billon business."

Been there, done that

Some hurdles stands in the way of reaching those lofty predictions.

For one, the push has somewhat of a been-there-done-that flavor. In 2003, then-president and CEO Carlos Valeiras said commercial success was imminent. In 2004, then-president David Hellier spent time at international jewelry trade shows trying to build industry buzz for commercial and retail sales. And in 2005, then-COO John Clement boasted to the Review about an around the corner sales boost, a theory bolstered when the company was featured prominently in a Newsweek magazine Valentine's Day cover story on the manufactured diamonds industry.

Despite the stalls, the new executives remain confident. The company is about two years into its plan of selling to jewelry designers, rather than its old way of selling individual cultured diamonds in a loose cut and polished form to retailers. The new way mirrors the approach taken by the more well-known mined diamond producers.

"We are the premier manufacturer of lab-grown diamonds," says Lux. "We have the most commercially viable product."

That product stems from the finely tuned Gemesis machines, of which Lux says the company is adding about one every two days to the facility, a non-descript building a few miles from Interstate 75 on the Sarasota-Manatee County line. The machines replicate the conditions under which diamonds are created in nature, applying about 850,000 pounds of pressure per square inch and extreme heat to a tiny synthetic or diamond.

After about four days, the end result is Lux's best friend: A diamond that can be as large as three and half-carats and, after it's cut and polished, could be sold for as much as 75% less than diamonds found the old-fashioned way. Plus, there is none of the controversies connected with traditional mining. Says Lux: "We are basically a diamond mine above the ground."

Carter Clarke, who retired from the U.S Army in 1973 after rising to the rank of brigadier general, founded Gemesis. He discovered the technology while in Russia and refined it at the University of Florida's business incubator program. And even though Gemesis hasn't yet captured full-blown sales success, during the past year of employee and production growth it has scored big in another important realm: Industry legitimacy.

'Tipping point'

The first step in that direction was taken a few years ago when competitors began attempting to make diamonds in the same way. Then, Gemesis started getting national print and TV press attention, receiving a big boost last June when teenage golf star Morgan Pressel wore earrings with Gemesis diamonds while on the Late Night with Conan O'Brien TV show. What's more, the company and a competitor, Boston-based Apollo Diamond, were featured in a lengthy Jan. 13 Wall Street Journal story.

And late last year, Gemesis received its biggest jolt yet, when Lux appeared on CNBC's Wall Street Journal Report along with Ralph Destino, chairman of the Gemological Institute of America, the industry-trusted nonprofit group that sets the grades - and by extension, values - of diamonds. Lux touted Gemesis diamonds with host Maria Bartiromo, while Destino confirmed that starting in 2007, the organization will begin grading cultured diamonds such as the ones made by Gemesis through the popular four Cs method.

"The tipping point is the certification," Lux says. "No one can question it now."

New occupants in the C-Suite

Last March, Lakewood Ranch-based cultured diamond maker Gemesis went through a major executive upheaval. The company's CFO, vice president of sales and chief technical officer quit, followed by the firing of CEO David Hellier. In an August newsletter to customers, company founder Carter Clarke said Hellier's firing was without cause, adding that the board thought new leadership would be "beneficial." The other executives left the company, current CEO Stephen Lux says, partially because of a dispute with the board over where the company was looking to receive its outside funding. Lux declined to elaborate on those sources.

Lux says the executive turnover slowed Gemesis' progress by a few months, but the upside is a new team of executives is now in place for the company's drive to increase revenues. Here's a glimpse at the background of the new executives:

• Stephen Lux, president and CEO: After earning a masters in chemical engineering from San Jose State University, Lux spent 24 years in management with St. Louis-based agricultural giant Monsanto. After Monsanto, Lux was a senior executive with the Englehard Corp., a New Jersey-based chemical and material company.

• S. Clark McEwen, COO: McEwen has worked in the diamonds industry for more than 20 years, in retail sales, mining and buying in Africa. Before coming to Gemesis, McEwen worked in branding for BHP Billiton, a global chemical company.

• Bernard A. Wagner, CFO: Wagner has worked in corporate finance and accounting for more than 20 years, most recently as the CFO for Sarasota-based Correctional Services Corp. He's also served in executive financial roles with Sarasota-based Uniroyal Technology Corp., a Sarasota-based specialty chemical and plastics manufacturer.

WSJ weighs in

The debate over manufactured diamonds versus mined diamonds is heating up as the quality of the man-made gems improves.

The Wall Street Journal's Pursuits cover story Jan. 13-14 was entitled "Gem War," and delved into the political and marketing battle being waged between diamond-mining behemoth De Beers and companies that make the diamonds from cultures.

Sarasota-based Gemesis was featured prominently in that article.

Review summary

Company. Gemesis, Lakewood Ranch

Business. Manufactures cultured diamonds

Key. The company hires new executives and seeks major revenue growth by changing sales focus from retail to jewelry designers and other wholesalers.