Siren Song

REVIEW SUMMARY
Company. Mermaid Manufacturing
Industry. Manufacturing
Key. Diversification early is the key to survival.

Bill Banfield isn't easily intimidated.

Wounded in Vietnam as a young Marine platoon commander in 1971, Banfield rides a bicycle to work in one of Fort Myers' seedier neighborhoods. He carries a Glock pistol when he has to stay late.

But that's OK by Banfield. The rent's cheap and that has helped keep his company, Mermaid Manufacturing, stay in business while competitors folded.

After a long and often colorful career turning struggling companies around, Banfield bought Mermaid in 1999 when he and his wife decided they'd had enough shoveling snow in upstate New York.

Talented entrepreneurs and executives like Banfield could be one key to economic recovery on the Gulf Coast. These Baby Boomers want to retire and move to Florida but they're not ready to stop working. They're risk takers and they're not easily deterred by the tough challenges in front of them despite nearing retirement.

For Banfield to use his life savings to buy Mermaid just as he was approaching retirement certainly was a risky move. “It's called bet your butt,” chuckles Banfield, now 64.

When he acquired Mermaid, the company was focused solely on making air-conditioning units for the domestic marine industry. At the time, that industry was doing fine, but Banfield's three decades of turning struggling companies around had taught him that diversification was essential.

Mermaid expanded its operations overseas and launched products for the ambulance industry. The result has been 12% to 15% annual growth in sales over the last few years. (For competitive reasons, Banfield declines to cite specific revenue figures.)

Selling planes to Angola

An accountant by training, Banfield established a reputation as a turnaround specialist who wasn't afraid to make the tough decisions. At one company, where Banfield jokes he was the “resident son of a bitch,” a disgruntled former employee destroyed his car with a sledgehammer.

Banfield's stints ranged from turnarounds and acquisitions at a maker of aluminum windows, a check printer, an electronics distributor and an Alaskan charter airline that sold used planes to Angola in the 1970s. Banfield flew planes into Angola's capital, Luanda, under heavy guard by the Cuban army that was supporting the regime at the time.

But in true Marine form, Banfield says he always cared for his troops, whether they were soldiers in the field or employees in a factory. “You take care of your troops and they'll take care of you,” he says.

For example, Banfield turned around an assembly plant in Juarez, Mexico. After cutting the workforce and realigning the assembly plant to be more efficient, he boosted pay by 35% for those who remained, hired three nurses and provided free medical care for employees, their children and their parents. As a result, absenteeism dropped while quality and profits rose. “We're not talking rocket science,” he says.

In addition to boosting morale, the key to successful turnarounds is improving the quality of the product. “To me, it's far cheaper to do it right,” Banfield says. That's one reason why Mermaid backs up its work with a five-year warranty, a surprisingly long period for equipment that gets battered around in boats and ambulances.

When Banfield acquired Mermaid in 1999, the company had four employees and was doing about $1 million in sales. “It was making money and I liked the potential of the products,” Banfield recalls.

In the first year, Mermaid more than doubled sales as Banfield persuaded retailer West Marine to sell its products. “We needed desperately to widen our penetration,” Banfield says.

As successful as Mermaid was when Banfield took over, the business was tied to the highly cyclical domestic marine industry. “If we had stayed in the marine business, we'd be gone,” Banfield says now.

So Banfield started diversifying the company's focus to include the international marine industry. He reasoned correctly that the boat-building and repair business is seasonal, so when the industry slows in winter in North America it picks up in South America where it's summer.

Through trade shows such as the annual Miami Boat Show, Banfield grew the international marine business by enlisting dealers in Brazil, Singapore, Australia and South Africa. Overseas business is brisk today, especially in emerging markets. “Brazil is going gangbusters,” he says.

Banfield doesn't bother with letters of credit, the traditional method of payment in the import-export business. Instead, he insists customers pay in cash up front to control risk. For example, Banfield is currently sitting on a $30,000 order from Egypt waiting until the customer can wire the deposit money before he starts manufacturing the units.

Banfield ships all his units by air to foreign customers. After accounting for theft and breakage, it's cheaper to ship by air than by sea, he says. That's especially the case when shipping to Asia, because planes come to the U.S. full of goods and return half empty. Recently, his cost to ship a unit to Nagoya, Japan, was less than the cost of shipping it to Boston.

Today, 40% of Mermaid's business comes from the marine industry, down from 100% when Banfield bought the company 12 years ago. Of the total marine business, 65% is international. “From Day One, we wanted to break the cycle,” Banfield says. “Most of the marine guys are in survival mode.”

That's why Banfield diversified Mermaid's products to refrigeration units for the ambulance market. “I was an ambulance attendant in college,” he recalls.

To land new customers, Banfield worked the trade shows. Surprisingly, there was little competition for stainless steel refrigeration systems that could keep drugs at the required temperature. Typically, ambulance drivers used an ice chest to keep medications cool.

Banfield invested $700,000 in new machinery to manufacture the stainless steel refrigeration units, which cost $1,000 or more each. It's paid off because now 60% of the company's business comes from making these units for ambulance manufacturers and the municipalities that equip and maintain these vehicles.

When he started making the ambulance refrigeration units in 2002, Banfield sold 75 of them. Last year, he sold 780 units and anticipates selling 1,200 this year. Mermaid now employs 17 people.

Mermaid sells through a network of dealers, but its online business has been growing. The direct-to-consumer route will grow to a majority of sales, Banfield projects. Mermaid hasn't trumpeted its Web sales because it doesn't want to upset dealers. “We're keeping a little quiet about it, but it's coming,” he says.