Hudson Firm Finds Growth Through Reinvention
Photo/Matt Pilon
Marianne Lancaster in her Hudson headquarters. A new division she created in 2008 helped her survive the recession and is now driving sales growth.
Lancaster testified before a Senate committee in May about the struggle she has faced in accessing bank loans as a female and minority business owner.
Marianne Lancaster is having a great year. And it's about time.
The president of Lancaster Packaging — a Hudson-based supply management and wholesale packaging distribution firm that she founded 25 years ago straight out of college — said she's been positioning her company for success for a long time. But a series of setbacks, including the 2008 recession, got in the way.
This year, her sales are on pace to hit a record $18 million. That comes after revenue grew from $12.1 million to $16.5 million in 2012.
"I do feel like this is my year," Lancaster said during a recent interview at her Bonazzoli Avenue headquarters in Hudson's Riverside Industrial Park.
It didn't happen by coincidence. Faced with increasing competition in the packaging space from logistics and trucking companies, and after losing her biggest customer in 2005 (a bank that was bought out by a larger bank), Lancaster was forced to reinvent her industrial packaging distribution company's business model. And she did it without the help of traditional bank loans, which she said she has struggled to get. Banks have repeatedly told her that her cash flow isn't sufficient, despite her growing revenues. But Lancaster is also acutely aware of the challenges her fellow minority women business owners face in getting financing.
Borrowing From The Competition
Lancaster Packaging's core value proposition is it can source industrial packaging, often with military specifications, from multiple suppliers with which it has built relationships over the years. The company also keeps a supply of certain packaging in its Hudson warehouse to help clients who need it more quickly than if they were to get it elsewhere. For instance, certain sizes and types of packaging built to military specs can take a while to order from a custom shop. Having it available in Lancaster's warehouse allows a quick drop shipment.
But over the past decade, many types of companies have entered the packaging distribution business, from trucking companies to retailers.
"They're taking our world away, so what can we offer?" Lancaster asked herself.
The answer, she decided, was a procurement services division, which launched in 2008. To distinguish herself from competitors, Lancaster decided to focus her services on unique, one-time items companies purchase but likely won't again. That allows procurement managers to focus on their core purchasing, while outsourcing smaller bits to Lancaster. And it allows employees to save time they would have otherwise spent searching for places to buy the items.
"This is stuff that comes up that's unexpected that they may never buy from that supplier again," she said. "(Procurement managers) don't want to deal with a $20 flashlight someone needs in Alabama. That's what we do."
The bulk of her customers are in the aerospace industry, including BAE Systems and Sikorsky Aircraft Corp, she said. Engineering teams are often the ones purchasing one-off items.
The items may be unique, but there are many of them. The volume makes hiring her firm worthwhile, she said.
"I think over five years we may have purchased from 3,000 suppliers," she said. "It's a tremendous amount of transactions."
Lancaster credits the procurement division with most of the company's revenue growth over the past few years. Meanwhile, it has nearly doubled its staff, to 20.
She had anticipated the new division to start paying off much sooner, as she felt her company was poised for growth shortly after she launched the division. But then the recession kicked in, badly hurting many of her manufacturing customers.
"It was three more years of pain," Lancaster said. "It's been a tough decade."
Capital Challenge
Lancaster is plenty busy with her growing firm, which has two locations several miles apart in Hudson. She spends mornings at the warehouse, then returns to headquarters in the afternoons.
But she made time in May to fly to Washington, D.C., to testify before the Senate Committee on Small Business and Entrepreneurship, which held a hearing on how to strengthen the entrepreneurial ecosystem for minority women.
It's a topic close to Lancaster's heart. Her company qualifies as both a minority-owned and a woman-owned business. And she is a member of the New England Minority Supplier Development Council.
Studies have shown that minority-owned firms have a disproportionate challenge in accessing capital.
According to a 2010 study by the U.S. Department of Commerce, minority-owned firms are less likely to receive loans, more likely to receive loan amounts less than half as big on average, more likely to be denied loans, and pay higher-than-average interest rates.
Those statistics seemed to color the testimony of the female entrepreneurs who spoke at the Senate hearing last month.
(Testifying just before Lancaster was soap opera and "Desperate Housewives" actress Eva Longoria, whose foundation promotes entrepreneurship for Hispanic women.)
In her testimony, Lancaster, who is African American, said lack of financing has prevented her business from being a $50 million company today. She went five years in business without getting a loan, then managed to get one through the state for about half the amount she needed. She got a traditional line of credit in 2004, but the bank pulled it the next year after Lancaster lost its biggest customer — the bank that was acquired.
"For six months I hunted for a new line of credit," she told members of the Senate committee.
But banks wouldn't lend to her, she said. She was forced to factor her firm's receivables at an interest rate of 22 percent. That means she sold her receivables to a creditor at a discount in exchange for cash to meet short-term needs.
She's been paying back that debt in large sums for three years, she said.
"That's been crippling us," she said.
But with more revenue, Lancaster is preparing to go back to the banks again. She admits to feeling a bit gun shy from being turned down so many times, but she knows the capital will do wonders for her business.
"That would be the final peg," she said. "We could buy better. We wouldn't be waiting for the check to come in from the customer to do any type of action."
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