Lost Edge

Lost Edge

A 30-year-old Gulf Coast knife company is fighting to avoid its demise. It hopes some big risks will result in a big payoff.

manufacturing by Mark Gordon | Managing Editor

Tom Johanning Sr. counts sharpening knives as one of his favorite hobbies, which may be useful considering sheer survival is the ultimate business trend these days.

Johanning's Sarasota-based knife manufacturing company, Florida Knife, is in dire need of a new edge. The company is more than 150% off its peak of nearly $4 million in annual revenues, last reached in 2001. Its employee base is down from a high of 37 in 2001 to a current count of 12.

"It's hard to find work," Johanning says. "Our customers are constantly comparing our prices to China prices."

Indeed, business has been so dull that Johanning recently took several thousand dollars worth of homemade manufacturing machines to a metal graveyard, to reap at least a few bucks from turning the hardware into scrap metal. As recently as 2005, Florida Knife had used those machines to manufacture up to 50,000 textile knives a year for furniture companies such as Lazy Boy and Havertys.

Johanning says that niche market, which has completely moved overseas, was once worth about $500,000 in annual profits for Florida Knife.

Florida Knife's survival effort, in one sense, is not much different from dozens, if not hundreds of other Gulf Coast companies: The slumping economy, combined with cutthroat overseas competition that has been building for a few years, has brought out the stay-alive instincts in even the most successful entrepreneurs and senior executives.

Nonetheless, Johanning's tribulations as he looks to preserve his 30-year-old family business are worth a deeper look. He's taking a big risk by going into a heavily saturated market while constantly looking at ways to bring down expenses.

What's more, Johanning is taking the fight to another ring by going after some Sarasota elected officials, specifically the five-member Sarasota County Commission. "I don't even look at like they should be helpful," says Johanning. "But I look at like they should stay out of the way."

And he contends the commission is getting in the way, in a big way, by what he calls an "insane" $60 million proposal to use bed taxes and other county funds to help build a new baseball stadium to lure the Boston Red Sox to move their spring training facility from Fort Myers. (See related box.)

Rapid growth

Johanning, 66, wasn't always a knife guy, although he has spent his career in the closely related tool industry. Before moving his family to Sarasota in 1978, Johanning ran a tool manufacturing operation near Akron, Ohio. Says Johanning: "I just evolved into knives."

That was partially due to his Ohio-based partner's father, who ran Tec-Tool, a knife manufacturing company in the Buckeye state. Johanning ultimately took over that business and when he relocated to Sarasota, he renamed it the Florida Knife Co.

By focusing on manufacturing large industrial knives for rubber and textile companies, the company expanded quickly. It outgrew its facility on Clark Road in South Sarasota by the early 1990s, so Johanning bought land on Apex Road, a few miles from the Fruitville Road exit of Interstate 75.

Johanning initially built a 10,000-square-foot facility there, partially using a $300,000 loan he received from the U.S. Small Business Administration. But the company needed more space within a year. He added 4,000 square feet to that space and a few years later, he built another 10,000-square-foot facility across the street.

While revenues were never huge, Johanning kept a sharp focus on keeping expenses down. He was especially frugal when it came to materials. For instance, Johanning says during the company's best years he picked up roughly $100,000 a year in excess parts and materials from clients at rock bottom prices.

The hawk-like expense monitoring efforts paid off in profitability. At Florida Knife's peak, Johanning says the company ran unusually high profit margins for a manufacturing operation, although he declines to elaborate on the exact ratios. Says Johanning: "I know companies with 10 times the revenues that weren't as profitable as we were."

Hanging on

But the past five years have been a double whammy for Florida Knife. The most recent hit is the current state of the economy. And before that there was the onslaught of international competition.

"We saw it coming and we did everything we could to stop it," Johanning says of the overseas threats. "But you can't do anything if the industry leaves."

In turn, Johanning, along with his son, Tom Johanning Jr., are attempting to reinvent the company by forming two new units, including an entirely separate company.

The separate business, called Accubeam Laser Marking, focuses on laser engraving a variety of material products such as plastics, metals, wood and glass. Tom Johanning Jr., who is heading up sales for Accubeam, hopes to tap into the product engraving market by marking everything from shiny metal business card holders to medical and surgical tools.

But challenges in the Accubeam effort loom over the Johannings. For starters, the engraving products industry has a low barrier to entry and as such, is highly competitive. The younger Johanning hopes to capitalize on the company's pair of $80,000 laser marking machines to make a dent in the market.

In the meantime, the Johannings are turning Florida Knife away from manufacturing and toward service and repairing current industrial knifes on the market. For example, the company now sends a truck out two days a week across Florida to its 300-plus clients in the printing and publishing industry, to pick up blades and cutters that are in need of repair and refinement.

Of course, high gas prices aren't doing the company any favors and, what's more, the repair segment of the knife industry has thinner margins than the manufacturing segment.

Florida Knife's survival effort has the added challenge of coming with a certain sense of urgency. The elder Johanning would have liked to retire a few years ago. But he now plans to hang on until at least he can see legitimate signs of a company turnaround.

"We aren't making the kind of money to be able to reinvest," Johanning says. "We are profitable, but the money for reinvestment in the company isn't there."

REVIEW SUMMARY

Businesses. Florida Knife Co., Sarasota

Industry. Manufacturing

Key. Company seeks to survive both an industry slowdown and the general economic slump.

GOVERNMENT WATCH

Business owner vs. Sarasota County commissioners

Tom Johanning Sr. knows that a big reason his business, Sarasota-based Florida Knife Co., is in survival mode stems from international competition and a struggling national and state economy.

But at a more local level, Johanning says Sarasota County commissioners have done Florida Knife, as well as the general business community, no favors with some recent votes, non-votes and decisions. High among Johanning's gripe list is the county's effort to lure the Boston Red Sox to move their baseball team's Spring Training site from Fort Myers to Sarasota. One option is the county using at least $45 million in tourism taxes to fund the construction of a new stadium.

"I have been reading daily about the city and county trying to find ways to get the Red Sox to move to Sarasota," Johanning wrote in a July 25 letter to the panel of five commissioners. "Someone stated that getting the Red Sox would help make Sarasota a world-class city. How long have they been in Fort Myers and when is the last time you heard anyone refer to Fort Myers as a world-class city? The county and city are making budget cuts everywhere possible and raising fees everywhere possible, and they are now looking for a way to raise at least $80 million for a team that pays 25 players $133 million per year. One suggestion is to raise the bed tax. That's great, now that the property taxes are so high that businesses and people are moving away, you can raise bed taxes so people can look elsewhere to vacation."

Three commissioners responded to Johanning's letter, which included other complaints about how the county spends taxpayer's money.

Nora Patterson wrote back to Johanning that she "doesn't support bringing the Red Sox [to Sarasota] at any price." But she does think if $45 million worth of the project could come from tourist taxes, toward the total of what she called a $60 million project, not $80 million, than she could support it.

"Your comments on the hyperbole surrounding the Red Sox are dead on," Patterson wrote back to Johanning in a July 26 e-mail. "I certainly do not believe that their presence or even the absence of professional baseball altogether will make or break Sarasota. On the other hand, I do think the Red Sox are a good tourist draw and with the building industry way down and the economy in the doldrums it may be that we could use that boost."

Shannon Staub, whose seat in District 3 is up for election this year, wrote back to Johanning that it seems like the benefits of building the stadium outweigh the potential drawbacks. Those benefits include not only possibly landing the Red Sox, but also a new stadium for youth leagues and special events.

What's more, Staub, in a July 25 e-mail, wrote "many businesses the size of yours told us in detail the positive financial impact of a having a major league team here. Since using the tourist tax revenues doesn't impact full-time residents, it seems to be a good match."

Jon Thaxton, the commissioner in District 5, wrote back to Johanning that he doesn't support the use of "sale taxes, property taxes or shell game maneuvers to fund a pro sports stadium."

Two commissioners - Paul Mercier, who is leaving his position this year, and Joe Barbetta - didn't respond to Johanning's letter as of Aug. 10, according to county e-mail records.