New businesses gamble on the economy

FARIBAULT, Minn. -- Who would start a business in this economy?

Chuck Mooty and his cousin Paul Mooty did. In September, they began producing blankets at Faribault Woolen Mill, which had been closed for two years. They have about 35 employees and hope to have 100 next year.

Ed Maier, his son Fred and Mark Nobile are opening a brewery in Pittston, Pa. They hired 15 workers and expect that number to increase.

Brent and Michelle Deatherage opened a small grocery a few months ago in downtown Tampa, creating four jobs.

And in Montclair, N.J., Marc Ronches and Russ Teitsma recently opened a personal-training studio. They have five employees and plan to hire more.

They and other entrepreneurs are bucking long odds: More than half of small businesses fail within the first five years, the Small Business Administration says, and the lingering economic downturn can make credit difficult to obtain and consumers stingy with their dollars.

The new start-ups come amid some signs that consumer confidence is rebounding. Retail sales broke records during the Thanksgiving weekend. Online sales on Cyber Monday were up 33% over last year, according to data from IBM Benchmark.

An October survey of small-business optimism by the National Federation of Independent Business, however, found that 26% of owners called poor sales their top business problem. "This is not a level of economic activity that will support job creation," the report said.

Bill Dunkelberg, the NFIB's chief economist and an economics professor at Temple University, says the outlook for new small businesses remains poor.

"On the cost side, you couldn't pick a better time," Dunkelberg says, "but two-thirds of new starts are financed almost entirely by the savings of the entrepreneur and their family. How long that lasts depends on cash flow from customers."

None of that deters the people who have an idea, determination to fulfill it despite the risks and the belief that they can improve their communities by creating jobs when they are desperately needed.

"We don't have the luxury of waiting out the economy," Ed Maier says. He and his partners are investing up to $10 million to retrofit their former beer distribution center into the revived Susquehanna Brewing, which Maier's great-great-grandfather created. It closed in 1920. They're doing it without government assistance and have hired several people who worked for them at the distributorship. "Keeping people working is a very motivating factor," he says.

Rescuing jobs for the USA

When Chuck and Paul Mooty bought the Faribault Woolen Mill, they literally saved jobs from moving overseas: Most of the equipment was about to be shipped to a company in Pakistan.

The cousins knew nothing about turning raw wool into blankets, but they knew a lot about business and wanted to manufacture a quality product, create jobs and revive the historic brand, which dates to 1865.

"There were big hurdles," says Chuck Mooty, 51, a former International Dairy Queen CEO who is Faribault Woolen Mill's president and CEO. "You're looking at a business you don't know anything about. It needs significant capital to refresh it. There were no customers. We didn't know what cost and revenue structures would make sense." Still, he says, "we were stupid enough to think we could do it."

When the Mootys first toured the mill this spring, machines that clean, dye, process and weave wool still had half-finished products in them. Papers remained on desks in offices beside half-empty coffee cups. A few machines had been sold. When the Mootys began to prepare the building, parts of which date to the 1890s, for a resumption of work, they discovered that the roof and boiler had to be replaced.

Paul Mooty, a lawyer and the mill's chief financial officer, says he and his cousin wanted to create and run a business together; their fathers, both attorneys, had long worked together. They were intrigued by the prospect of resuscitating an iconic American brand, he says, and agreed that "the time is right for a return to American manufacturing." Much of the American textile industry has moved offshore, and Paul Mooty, 51, says one city official told him she was concerned they would move operations overseas after they bought the mill.

That was never their intent, Chuck Mooty says. "We wanted to be a part of resurrecting something that had meaning and had a purpose at a time when things in our economy are very depressing and very sad," he says. "I'd like to support something that's made domestically."

It might be the right time to test demand for high-quality, American-made goods produced on a small scale, says Chris Christopher, senior principal economist at IHS Global Insight, a forecasting company in Lexington, Mass. "The prices of goods coming from China are starting to increase," he says, adding that skilled workers are available and niche products could succeed.

Still, entrepreneurs "take a gamble," Christopher warns. "The chances of success are very low."

Rehiring experienced workers

To increase their odds of turning the Faribault Woolen Mill into a profitable business, the Mootys recruited people who had been working there when it closed.

Dan Smith, 57, had worked at the mill for 30 years when it went out of business. He got unemployment benefits for six months, then found a part-time job at a local electronics manufacturer that eventually turned into a full-time position. It didn't pay nearly as much as his job at the mill.

When he got a call about coming back, he was ready. Now he's assistant supervisor of the dye and finish department. His paycheck is the same as when the mill closed. "It's a gamble," Smith says of the mill's chances. "If we create the right product at the right price, it'll sell." Smith says it's exciting to be "part of a start-up, a rebuilding."

Don Morrissey, 61, looked for a new job after the mill closed in 2009, but he never got a job interview. He started working at the mill in 1968 for $2.14 an hour. There were plenty of factories in Faribault then and they all were hiring, he says.

Things were tough at the mill in the final months of the previous ownership, Morrissey says. Paychecks bounced, vendors demanded payment in advance and hours were cut. "I was never laid off before in my life," he says. "I thought it would never happen to me."

He got unemployment benefits but was getting low on savings when he got the call asking him to return to the mill as a general machine operator, Morrissey says. He makes a little less than he did before the shutdown. "I told them that if it would help them make a go of it, I'm willing to give up a couple bucks," he says. "We were all willing to do whatever we had to do to keep it going."

Morrissey says the Mooty cousins can bring the mill back to its glory days, when there often were three shifts and almost 200 employees. "It's still going to take some luck," he says, "but they've got some brains, some money and some guts."

'What the heck did you just do?'

Chuck Mooty admits that he has had sleepless nights during which he's asked himself, "What the heck did you just do?" He and his cousin are the primary investors in the mill; each has three children who also are investors. Chuck Mooty's son John is the marketing director.

Although Paul Mooty says forecasting the venture's future is like "throwing darts in a dark room blindfolded," the cousins say they can make the company work. They are adding employees gradually "because we don't want to overextend ourselves too early," Chuck Mooty says.

"Revival" blankets are available for pre-order on the mill's website, www.faribaultmill.com, and a catalog and online and on-site stores are planned when the mill is operating at a greater capacity. The Mootys are trying to rebuild the mill's customer base, which before its closure included hospitals, cruise ships, hotels and airlines.

Competitors for some of that business include well-known companies such as Pendleton Woolen Mills and Woolrich Woolen Mills. This month, Faribault Woolen Mill opened a store at the Mall of America, one of the nation's largest shopping centers, in Bloomington, Minn. The lease is for two months; it might be extended after the cousins gauge consumer interest in their throws and blankets, which can cost more than $200.

Faribault Mayor John Jasinski says he met with five potential mill tenants before the Mootys bought it. The only incentive the city provided: forgiveness of a $72,000 water bill. This town of 23,352, where the unemployment rate is 6%, "hit the lottery when the Mooty family came to town," he says. "They're doing it for the right reasons." The cousins say their gamble will pay off. "I don't have any doubt," Chuck Mooty says.

Have to take risks

Ronches has the same confidence about the future of NJ Fitness Factory. He and Teitsma have 100 clients and are scouting for a second location. Eventually, they hope to have 10 employees at their first location. "When you open a business, a lot of the same challenges are going to be there whether the economy is good or the economy is bad," Ronches says. "People are using the economy as a scapegoat, a reason not to take a risk."

Michelle Deatherage says the sour economy actually made it easier to open Duckweed Urban Market. "You can get so much more for your dollar right now," she says. If prices hadn't been depressed, "we wouldn't have been able to afford rent on a place like this." Deatherage says it will take 12-18 months to pay off the initial investment in the store, but she's already thinking about opening another downtown store, perhaps to sell makeup. "We hope the economy will turn," she says, "but we're investing for the long term."

So are the Maiers and Nobile, who hope their Susquehanna Brewing will expand over the next few years. "The sky's the limit," Fred Maier says. "As we grow, more people will be hired. We're in it for the long haul."

Dennis Melchert, who had worked at Faribault Woolen Mill for 36 years when it closed and stayed on as caretaker of the empty building, is back as vice president of research and product development. "This place deserves to open back up," he says. "The soul of it is what I'm taking about. You walk in and you feel that. America deserves it."