September 24, 2017
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Where the Bangor region’s future job growth will probably come from

By Matthew Stone, BDN Staff

Editor’s note: We set out to understand how the Bangor region could grow its economy, and we’d like your help as we publish stories on the subject. Please visit the end of this page to answer a few questions to inform our reporting. Thank you.

The announcement came about 18 months ago: The growing, online home furnishings retailer Wayfair was expanding into Maine. It planned to hire 950 people to staff customer service operations in Bangor and Brunswick.

Today, 13 months after opening in a city-owned building near Bangor International Airport, the online retailer’s Bangor customer service center employs more than 200 people who help shoppers navigate the Wayfair website, answer customer questions via phone and email, resolve problems, and track the location of large items en route to customers’ homes.

In a couple more years, Wayfair expects to have 450 people working in Bangor, said Pete Boudreaux, director of sales and service for the company’s Bangor site.

Wayfair made a splash with its announcement of hundreds of jobs coming to Maine — as large business expansions and relocations typically do. Its choice to locate in the Bangor region represents a boost for an area founded on and long powered by forest products that has been grappling with what the future holds.

But when it comes to economic and job growth, Wayfair is likely to be the exception rather than the rule for the Bangor area. The odds are that most future job growth in the region will come from local firms starting up or expanding their operations, not from large corporations moving to the area.

However, for decades, economic development strategies for the Bangor area centered around trying to attract large manufacturing operations to a region that’s seldom on the map for large corporations. As part of a strategy many refer to as “smokestack chasing,” business parks popped up throughout the area, and local organizations sent members to national tradeshows, sometimes with the help of state money, in an attempt to lure relocating businesses.

“In all of those times, we spent a lot of money sending a lot of people to tradeshows, and it turns out, that wasn’t, maybe, the best thing that we could have done,” said D’arcy Main-Boyington, the economic development director for the city of Brewer. “There are very, very, very few successes that you could point to from that.”

Economic growth efforts in the region have since evolved to focus more on cultivating existing businesses, helping new businesses start, and troubleshooting the problems local businesses encounter — an acknowledgment that growth will most likely have local roots.

But the entire field of economic development still lacks a precise answer to the question: What will make a region grow? The question is more difficult to answer for a region like the Bangor area, which lacks the size and population density of the country’s thriving metropolises and has no dominant, growing economic sector that’s producing a product or service for export outside of the region.

In a 2006 paper written for the Kansas City Federal Reserve Bank, British economist Anthony Venables wrote about why urban regions are more likely to thrive than rural ones, and he wrote that there are compelling reasons for governments to intervene and spark economic growth in smaller, less densely populated areas.

As for what they should do, wrote Venables, who now teaches and researches at Oxford University, “we remain woefully ignorant about what works and what doesn’t.”

In other words, what we do know is that economic development in the Bangor area is more likely to look like Compotech Inc., a Brewer business with 10 employees that got its start at the University of Maine, than Wayfair. What we don’t know precisely is how to make that growth happen on a larger scale.

At the edge of growth

Compotech started in 2011 as a part-time venture for Paul Melrose, who was then the engineering manager at the University of Maine’s Advanced Structures and Composites Center, and his business partner.

At first, it was an engineering consulting business. Three years later, Compotech had the beginnings of a product — a military-grade ballistic protection system — and enough business that Melrose, a mechanical engineer with two UMaine degrees, decided to leave the university and run the company full time. Months later, in January 2015, Compotech had a multimillion-dollar contract with the U.S. Army to develop protection systems to keep soldiers safe at Army base camps.

“In base camps, they have all these tents and other facilities, and they really don’t have any protection from indirect fire,” Melrose said. The bunker system made from composite materials is lighter weight, lower cost and easier to set up than concrete bunkers the Army currently uses. Composites are combinations of two or more materials — often a high-performance fiber such as fiberglass, carbon or kevlar, and a resin.

Today, Compotech’s 10 employees work out of 8,000 square feet of space in the 126,000-square-foot Brewer building that housed international auto parts manufacturer ZF Lemforder until it closed in 2010.

Compotech is working to grow its business beyond defense contracting, Melrose said, so the company also cuts fabric for Maine boatbuilders using its computer-controlled fabric-cutting machine; it’s built bridge tubes for the composite-based Bridge-in-a-Backpack produced by Advanced Infrastructure Technologies in Orono; and Compotech is working on its first composite seaplane floats in partnership with PK Floats in Lincoln.

Much of what Compotech is working on is “right at the edge of rolling into heavier production,” Melrose said. At that point, he said, the company will have to expand.

A tale of two expansions

Wayfair and Compotech don’t have much in common. But they’re both important to the Bangor region’s economy because they’re businesses that involve local people providing products or services that are used outside of the Bangor region. These exporting businesses bring money into the region, which is what propels the region’s economy to grow.

That underlying growth is what allows a host of businesses that primarily serve the local market — including restaurants, hospitals, retailers, law offices and real estate agencies — to open their doors, stay in business and employ the greatest numbers of local people.

But the Bangor region’s economy hasn’t necessarily been characterized by growth in recent years.

In 2015, the most recent year for which federal statistics are available, the Bangor metropolitan area’s gross domestic product was 4 percent smaller than it was in 2008. Its population in that time was basically stagnant: It declined by 0.4 percent while the Portland metropolitan area’s population grew by 2.4 percent.

Per-capita income in the Bangor region, adjusted for inflation, grew in that period, but at $35,410 in 2015 it lagged behind the Lewiston-Auburn ($36,130) and Portland areas ($44,715).

There’s been no shortage of attempts to invigorate the area’s economy over the last several decades. But no one has come upon a clear answer to the question of what can be done that will work.

Chasing smokestacks

Over the last five decades, industrial parks popped up throughout the Bangor region. And a succession of local groups — often business-led — formed with the mission of enticing businesses to set up shop in the area. The Action Committee of 50, the Maine Partnership, Pro Maine and the Bangor Region Development Alliance all sent members to tradeshows across the country, trying to sell the Bangor region to businesses interested in a place where they could relocate or expand. From time to time, state money became available to support those trade missions.

“In the ’80s, smokestack chasing was the economic development buzzword. The whole country was doing that. Governors were very aggressive,” said Mike Aube, president and CEO of the Eastern Maine Development Corporation in Bangor, a former commissioner of the Maine Department of Economic and Community Development, and a former Bangor mayor.

“We were all looking for manufacturers. We were all looking for someone outside of the state to move into the state,” said Main-Boyington, the Brewer economic development director, who joined the economic development field in 1998 as the smokestack chasing era started to wane. “That was what people did.”

With time, the exclusive focus on business attraction as an economic development strategy subsided.

“It is finding the needle in the haystack,” Aube said. “It’s much better to sustain what you’ve got and build on what you’ve got.”

The economic research into what goes into job creation bears that out.

In 1979, MIT economist David Birch published research examining job creation between 1969 and 1976 and found that firms with 100 or fewer employees were responsible for 82 percent of net new jobs.

A decade later, University of Minnesota sociologist Paul Reynolds built on Birch’s work and determined that companies that began in Minnesota accounted for nearly all of that state’s job growth between 1978 and 1986. More recently, the Public Policy Institute of California found that just 1.9 percent of states’ net job gains between 1992 and 2006 were the result of businesses moving their operations into a state. Local companies starting or expanding accounted for the vast majority of states’ job gains.

Around the same time, more economists were also agreeing that economic growth was the result of innovation and the creation of new technologies, not simply the result of economic cycles of growth and contraction.

It’s still common today for politicians to focus on large business relocations when developing economic development policies, and it’s still a common perception that the job of a city economic development director is to focus exclusively on attracting businesses.

“People think I sit at my desk all day and cold-call places like Whole Foods and Ikea to try to get them to come to Bangor,” said Tanya Emery, Bangor’s director of community and economic development. “And that is about the furthest thing.”

Emery is much more likely to spend her time helping businesses solve problems, she said, whether it’s troubleshooting a permitting issue with the city, working with city engineers to accommodate a business’ concerns about having a road shut down for construction, or helping a business scout out a new location where it can expand.

“The idea of somebody going out to a big tradeshow — and that’s the 1950s-style, the 1960s-style economic development: You go to a tradeshow, you’d have your booth, you’d meet people, you’d bring somebody back,” Main-Boyington said. “That model, I don’t remember in my career ever seeing that work.”

Incubation

With the recognition that job growth is most likely to come from the people and companies already here, and that the area’s economy will grow from innovation, local efforts to stimulate economic growth have shifted accordingly.

Early on, one of the area’s industrial parks started with the intention of cultivating new businesses. With the help of funding from the U.S. Economic Development Administration, Aube said, the Maine Technology Industrial Park began in Orono in the mid-1980s with the idea of housing businesses working to commercialize products that resulted from research performed at the adjacent University of Maine.

The industrial park never filled to capacity with UMaine spin-off businesses, but it’s become home to another of the area’s major pushes to stimulate economic growth. The Target Technology Center — recently renamed the UpStart Center for Entrepreneurship — today houses a handful of businesses, many with UMaine ties, that are in incubation stage. As the incubator, the UpStart Center offers those businesses space for lease, basic business services such as conference rooms and high-speed internet, and support to help them grow, such as regular seminars and coaching.

Before it grew and needed to move to its larger space in Brewer, Compotech operated out of the Target Technology Center.

“We would do our initial engineering operations out of that location,” said Melrose, Compotech’s president. “As we wanted to move toward manufacturing, we started looking around the area to find suitable buildings and facilities that would help us long term.”

While businesses closer to Bangor could take advantage of the physical incubator, the “Incubator Without Walls” started in rural Washington County in the mid-1990s and later spread to Belfast, Bangor, Dover-Foxcroft and elsewhere. It was a six-month class for rural business owners that met once a week, designed to deliver the same sorts of help to rural entrepreneurs that they could receive at a physical incubator.

“You’d have, for example, an artisan, a painter who’s really good at painting, but when it comes to pricing their work, marketing their work, managing the accounting part of the business … you have to learn that stuff,” said Deb Neuman, who developed the program while working at the Eastern Maine Development Corporation.

“None of us are really born knowing how to do cash flow projections, but it’s important to know cash flow if you’re going to succeed at business,” said Neuman, who is now president and CEO of the Bangor Region Chamber of Commerce.

About a decade after the Incubator Without Walls got its start, Main-Boyington in Brewer was noticing a number of businesses fail because the owners lacked the skills needed to run a business.

They started; they had no marketing plan; and they just went into it thinking, ‘Everybody’s going to want one of these,’ without the thought of, ‘Maybe I’m going to have to market it,’” she said.

So the Brewer economic development staff started offering free classes to local businesses. The classes, called Brewer Business Resources, focused on marketing, budgeting, basic finance and other topics, and they were open to entrepreneurs from around the region.

“Every community has businesses that need those things,” Main-Boyington said.

Brewer stopped offering those classes, she said, when other organizations in the area — Eastern Maine Development Corporation and the Bangor Region Chamber of Commerce — also started offering free classes for business owners.

Our goal was never to duplicate anything anybody else was doing,” Main-Boyington said.

Today, a handful of other programs aim to encourage entrepreneurs to take the leap and transform their ideas into businesses (the Big Gig) and offer startup businesses intensive training to help them grow (the Top Gun Entrepreneurship Acceleration program and the Scratchpad Accelerator).

Incubators have become increasingly common across the nation over the past two decades, but research on their effectiveness is limited, as it is with many economic development strategies.

Alejandro Amezcua, an assistant professor of entrepreneurship at Syracuse University, found that businesses that start with the help of incubators aren’t less likely to fail than their counterparts that don’t. But incubated businesses, he found, are likely to see faster sales and employment growth. He also found better results in incubators affiliated with universities; the Bangor area’s UpStart Center is affiliated with the University of Maine.

A historical accident

So much in economic development comes down to chance. In his 1991 book “Geography and Trade,” Nobel Prize-winning economist Paul Krugman attributed the success of some regions in fostering industrial growth — and the failure of others — to historical accidents.

Indeed, there’s no set formula for a region to follow to become a hub of entrepreneurialism or a magnet for outside businesses looking to expand.

For Wayfair, Bangor happened to have the right ingredients for a customer service operation:

— There was a city-owned space already outfitted to host a call center — and it was due to become available as L.L. Bean planned to shutter its Bangor call center.

— There was a city willing to make the arrangement work. As Wayfair’s landlord, the city of Bangor replaced the building’s roof and improved the parking lot before the new tenant moved in last year. At the city’s request, L.L. Bean vacated the space earlier than it initially planned to accommodate Wayfair’s schedule.

— There was an advocate for Bangor in Peter DelGreco, president and CEO of Maine & Company, a nonprofit organization that works to attract businesses to Maine. He had been following Wayfair’s progress as it got its start in Boston, attracted private equity investments and grew. “This is a company that needs to be in Maine,” DelGreco said he thought as he followed Wayfair’s growth. “They’re growing. They’ll need additional space to grow. Whatever money they got means they have to grow.”

— There was also a workforce in the Bangor area almost ready-made for Wayfair. In addition to the L.L. Bean call center that was closing, NexxLinx employed 180 people at its Orono call center, and Verizon Wireless employed more than 200 at its call center around the corner from Wayfair’s new Bangor location. Soon after Wayfair opened its doors in Bangor, Verizon Wireless announced plans to close its Bangor center, and NexxLinx announced plans to shed all but 70 of its employees.

“When Verizon announced, the next day we were talking to their employees,” said Boudreaux, Wayfair’s sales and service director in Bangor.

While call center work pays less in Penobscot County than almost everywhere else in New England, it’s still a relatively appealing option for employment in the region. For Wayfair, the Bangor area was a place where it could find people who were more likely to stick with the company long term, not bounce from company to company, Boudreaux said.

Wayfair — which is growing in terms of customers and revenue but is not yet profitable — is still hiring more people to staff its Bangor call center, and it’s in the second year of a seven-year lease for its space. But as the recent closure of Verizon Wireless’ Bangor call center shows, call center work can be portable and subject to decisions made at out-of-state headquarters.

‘I know where to get engineers’

After spinning off from the University of Maine’s Advanced Structures and Composites Center, Melrose said he had no intention of locating Compotech outside of Maine.

“I’m from Maine originally, so I wanted to stay in the area,” he said. “There are some advantages staying close to the university, too.”

Most of the company’s employees are UMaine-trained engineers. “I know where to get engineers, no problem,” Melrose said.

And Compotech relies on the composites center for help with product testing.

The company also has made use of state programs to help in its growth. The Maine Manufacturing Extension Partnership, a program associated with the Maine Department of Economic and Community Development, has helped Compotech with its manufacturing setup and with developing prototypes. Compotech’s work to develop a composite seaplane float is partially funded by the Maine Technology Institute. And the Pine Tree Development Zone and Employment Tax Increment Financing programs have reduced Compotech’s state tax bill.

As for locating in Brewer, the city happened to have the right space for Compotech to carry out its research and development, with enough space to grow into later when production ramps up.

“I don’t see any real impediments to do what we want,” Melrose said.

Maine Focus writer Rosalie Hughes contributed to this report. Maine Focus is a journalism and community engagement initiative at the Bangor Daily News. Questions? Write to mainefocus@bangordailynews.com.


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