The Importance of a Friendly Regulatory Climate
2006-06
While small businesses are the main driving force behind our state’s economic growth, they have garnered little support from our state legislature. Since 2001, Washington Policy Center’s Small Business Project has dealt with the state’s restrictive legislative climate and given a voice to small business owners through research and analyzing their policy recommendations. However, during that time the Project has only been operating on a part-time basis.
The Project was recently changed into a full-time research center, which allows a stronger capability to identify and confront many of the unnecessary regulatory obstacles that small businesses face. (see below) While Washington has the entrepreneurial spirit to have the third highest rate of business startups, it also is in the unfortunate position of having the third highest rate of business failures.
Since the Center now has the resources to pay more attention to issues, such as worker’s compensation, tax policy, and regulatory reform, there can be a continuation of finding beneficial and comprehensive legislative and policy insight for small businesses.
The following is a summary of remarks by CJ Buck to a Washington Policy Center luncheon on June 22, 2006 where WPC launched the Center for Small Business & Entrepreneurship.
Buck Knives has made handmade knives for over a hundred years, and has established itself as a widely respected brand. In his speech, CJ Buck, President and CEO of Buck Knives, addressed the issue of the restrictive nature of many state regulations in regards to access to health insurance, workers compensation, the cost of energy and tort reform.
Running a small business in Southern California, CJ Buck wanted to escape the harsh regulatory conditions and move his business to the Northwest. Instead of relocating to either Washington or Oregon, he settled on Idaho mainly because it allowed him to conduct business in a stable, open and business-friendly environment.
The late 1990s was marred by high-energy costs, which hurt Buck Knives badly. The enormous cost of energy had more than quadrupled in 2001. Instead of paying about seven to eight center per kilowatts an hour, which had been the standard cost, the price rose to 31 cents almost overnight. Another devastating setback was the attacks of September 11th. With both the change in federal regulations and the fears of the consumer, there was no longer the need to have a travel knife. The company’s market was quickly disappearing, so something had to be done.
How to deal with a changing market
When a small business owner faces such a crisis, he needs to reevaluate every aspect of the company. CJ Buck implemented a “lean enterprise” process, which encompassed revolutionizing how sales, marketing, finance, and operations were conducted. He believed that the market for knives should not be exclusive to just hunters, but that other markets should be explored. Getting feedback from outdoor enthusiasts was enormously helpful in designing a product that would give the company more adaptability to enter a new market. In addition, the use of a well-known mountain climber to endorse the newly created knives helped establish inroads into a new market.
The “lean enterprise” concept also needed to take into account the cost of conducting business in their present location. Buck Knives had been at their Southern California factory for decades, but soon CJ and his board of directors realized that the cost of doing business in California was high enough to threaten the business.
The move to business-friendly Idaho
In the process of relocating, CJ Buck decided on Idaho, since it brought the best of both worlds. It enabled him to live and work in the Pacific Northwest, without having to deal with the more constricting state regulations of both Washington and Oregon. Even the offer of one million dollars in tax breaks from the state of Oregon, which was quite tempting, was not enough to sway him from the decision to move to Idaho.
One of the key variables in the decision was the difference between Washington and Oregon versus Idaho in the cost of manufacturing. CJ explained the difference was like “night and day.” The three main costs for a manufacturing business are energy, workers’ compensation and labor. All three of these costs are drastically lower in Idaho. When Buck Knives moved in 2004, its energy costs fell sixty percent, workers’ compensation fell ninety percent, and labor costs were cut by twenty percent. Clearly put, “California is not a good place to have a manufacturing business.”
Idaho simply offered a better climate in which to function in many areas including workers’ compensation. In Washington state lawyers play a big role in workers’ comp claims. In Idaho, this is not the case. The cost savings were enormous. In California, Buck Knives’ insurance cost had spiked up to $1.7 million a year; while with the same plan in Idaho only cost a fraction at $170,000.
CJ Buck recognized that in order to save his family’s company (he was the 4th generation owner) he needed to take drastic steps to cut down the cost of operations and make his business profitable and relevant in the 21st century.
His story is not unique, especially in Washington. Thousands of businesses start up each year, and thousands also fail. The moral of the Buck Knives story is that policymakers should refrain from making our state a region that businesses flee from in order to survive—or are not attracted to in the first place.