Rural High Tech

I’ve been vacationing with the family at a camp in western Maine owned by some friends of ours.  It’s in the foothills of the White Mountains and is fairly rugged, with deep forests and lots of pretty lakes.  It’s scenic, but like most of rural America, the area around it is pretty poor.  There’s a veneer of money from tourism, but the only other local businesses are lumbering and granite quarrying.   I happened to be in a local bookstore when a kid went up to the guy at the register and asked  “Do you need any help around the store?”

“Sorry,” the guy replied, “I used to have some people but now have to do most things myself.  I might have something next summer.”

“I’ll be gone by then,” the kid replied, and then went over to browse the manga shelf.  Who can blame him?  If he’s going off to college, there’ll be nothing to bring him back.  It’s a familiar story all over the country.

Shively antennas being tested on Mt. Washington NH, site of the country's worst weather.

I was surprised, then, to drive past a large building in Bridgeton ME with a big sign reading “Howell Laboratories” and “Shively Laboratories”.  What kind of labs would be out here?   Some Googling revealed that Shively Labs builds radio antennas and filters for commercial FM broadcasters.  Their specialty appears to be in tuning a transmitting antenna to get an optimal coverage pattern for its area.  They sell all over the world.   Their founder, Ed Shively, started the company here in 1963, after working on circularly polarized antennas at RCA.

He sold the company in 1980 to Howell Labs, and they now share the same facility.   Howell builds water-handling equipment for the Navy.   They have a pretty wide range of products, including moisture meters, dehydrators, anti-fouling equipment, and potable water generators.   They’re about 50 years old, and started with their own gear, but now appear to license the base technology from German and Italian firms.  The two companies together look to have about 50 employees.

This is pretty sophisticated stuff for backwoods Maine.  How has the company survived here?   For two reasons that I can see:

  1. They’re a defense contractor.  They talk about their expertise in managing Navy contracts, and building and documenting things to Navy specifications.   That’s an odd kind of intellectual property, but a real one.   Although Bridgeton isn’t on the sea, the Bath Iron Works are only 90 minutes away, and they’ve been building Navy ships for 130 years.     Once the Navy has decided they like your gear, they’ll use it for decades.
  2. They’re employee-owned.   That means that employees get to vote on major company issues like relocation, although they don’t have a say in things like board votes.   In the US there are big tax advantages for a company to set aside money in a trust for employee shares.   The employees don’t actually own the stock until they leave or retire, so they don’t get direct control of the company, but they do get a say in how things are run.   If Howell were owned by investors, they probably would have moved to San Diego long ago, but Howell employees have no interest in that.  Employee Share Ownership Plans (ESOPs) actually seem to do pretty well as retirement vehicles, giving more money than pensions or 401Ks, and with similar diversification of assets.    It’s as if democracy actually works as an organizing principle in America.

I can’t tell how these labs wound up here in the first place.  It could be just that their founders loved the area.  That’s easy to understand, if you like fresh air, big views, and some space around you.  You just have to have a high tolerance for snow.  That’s not common these days, but if you have it, you can do 21st century work in a 19th century setting.

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2 Responses to Rural High Tech

  1. Rich says:

    ESOPs are pretty interesting way to shield profits from taxes and spread it around the company. They are also good ways for founders to effectively sell their company to employees. There is lots of material on this at the Beyster Institute web site.

    They are not easy to put in place and there are lots of pitfalls, and they are generally incompatible with other stock option plans due to rules on making the plan equitable and to prevent some tax abuses. They are also expensive to implement; legal and administrative fees can run towards $50K to set up. I’m not proud of it but when we tried to do it, we didn’t get the best legal advice, and chewed up lots of $ only to get into a mess with compatibility with stock options, which then led to lots of $ being spent to unwind it. it’s water under the bridge but not my best move.

    There are ways of coordinating them with the 401K to create what is known informally as a KSOP. This can provide a tax strategy where some of the safe harbor payments made in to the 401K can provide cover for a more owner centric distribution into the ESOP.

    Getting into the small business, employee owned, defense contracting world, is easier than one might think by pursuing SBIR contracts. That is, assuming that congress renews the program. It is the subject of some political football right now, with VC’s working to scuttle the program unless they can get into it with all sorts of special exclusions for them.

    • jlredford says:

      Sorry to hear that ESOPs are hard to set up! They seem like a great idea. If people were serious about this “ownership society” slogan, about giving everyone a stake in capitalism, they would make it easy to do.

      I’ve talked to some firms that used SBIRs to get going. They’re small, on the order of $250K, but that’s about like an angel round for a VC. It’s no wonder that VCs hate them, if it lets people escape their clutches.

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