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February 09, 2011

Concept 2 – A Vermont Business Success Story

It all started with the Olympic rowing trials. Recent engineering graduates Dick and Peter Dreissigacker were looking for an edge and designed a better oar, one in which carbon fiber replaced some wood for greater strength at lower weight. Despite their inventions, they didn't quite make the team, but they had a product and had done well enough in the trials so that coaches were eager to try it out.

In November, 1976 Dick, Peter, and Peter's wife Bari found an out-of-business dairy farm in Morrisville with a house they could all live in and a barn in which they could build a business. They chose Morrisville and Vermont because it offered the kind of outdoor lifestyle they all loved and because it was cheap and they could afford it. They had a few ideas for their engineering business; manufacture wasn't high on the list but the Dreissigacker Racing Oar was the second of the six concepts they explored (hence the name Concept 2 for the business) and it was the one that took off.

Over two-thirds of the rowers in the last Olympics used Dreissigacker oars. Concept 2 had an onsite support team in Beijing to support their customers. Worldwide, more than two-thirds of the oars used in competition come from Concept 2 in Morrisville.

The company branched out. The Dreissigacker brothers invented a machine that competitive rowers can train on when they can't be on the water (most of the time). Mary and I were surprised when we saw Concept 2 Rowing Machines in a BBC story about Olympic rowers in Iraq who had to practice indoors because there were too many bodies floating in the Tigris. We shouldn't have been surprised; 98% of the rowing machines used by competitive rowers everywhere are made by Concept 2. Their machines are increasingly showing up in health clubs and homes as well. Overall more than half of the product sold by Concept 2 is exported and brings dollars into the US (yes, the Chinese racing team practices on Concept 2 equipment).

Fifty-five Vermonters are employed at Concept 2, which has moved out of the barn and into a growing complex at the Morrisville Industrial Park. As the map above shows, the company has a web of Vermont suppliers and sub-contractors. They estimate that, all together, they are responsible for 250 to 270 jobs in the state. Some of the subs started just to serve Concept 2; some were even started by ex-employees with the encouragement of the Dreissigackers. But now these businesses have found other customers of their own. And the existence of these sub-contractors makes Vermont a more attractive place for other businesses.

Peter Dreissigacker spoke last night as part of Champlain College's BYOBiz entrepreneurial program. "Clearly we want more businesses like Concept 2 in Vermont," a questioner (me) asked. "Were there state economic development programs which encouraged you to come to Vermont or which were important contributors to your success?"

As Peter had already described, like many of us, they came to Vermont for lifestyle. Affordability was important. Taxes weren't important because they weren't making any money yet. They weren't recruited; they didn't get state aid; they did have problems figuring out when they had to pay which state taxes and fees once they did have some income. There wasn't then (and there isn't now) one central source for that information.

Low-cost space in the industrial park was at least instrumental to keeping the business in Morrisville, although it probably would have stayed in the state anyway. The low interest rate on a small VEDA loan was welcome. Bureaucratic delays on sewer permits for expanding IN THE INDUSTRIAL PARK were definitely not helpful.

So how do we encourage more businesses like Concept 2 to locate, grow, and succeed in Vermont? Looking just at this one success (will look at other successes and failures in the future), here's what I think:

  1. Our key asset is still being a great place to live. People come here because they want to be here. Environmental protection is important (but doesn't have to take forever).
  2. If we become unaffordable, people who want to live here won't be able to. If the dairy farm whose barn was Concept 2's first factory had been subsidized past its ability to support itself, the inexpensive property might not have been available and the Dreissigackers may have gone elsewhere. A vibrant economy means a succession of businesses.
  3. The state and localities have some opportunity to incent businesses to locate where government wants them (industrial parks). I'm not sure this isn't just one region against another, however.
  4. The state has a lot it can do to make it easier for businesses to succeed – but businesses do succeed here.
  5. Most important, business success comes from hardworking (and lucky) people putting together a great team around a great product and courting and supporting their customers.
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