Living with Giants

Most small U.S. companies live with the uneasy knowledge that at any moment their traditional markets may be snatched away by an advanced new product developed in the research laboratories of some corporate giant. Ten years ago this nightmare came true for Brooklyn's Old Town Corp. A modestly successful manufacturer of carbon paper, typewriter ribbons and duplicating products, Old Town suddenly found its bigger competitors selling radically improved typewriter ribbons and speedy office photocopy machines that sharply reduced the demand for carbon paper. Helplessly the firm watched its business slip, until in 1960 it lost $289,000 on sales of $5,300,000.

Old Town is now clambering back onto its feet. Early this month, Italy's Olivetti signed up to produce and market internationally a photocopying machine that Old Town developed. For 1962 the company expects profits of $100,000 on sales' of $6,000,000, and by 1965 it anticipates sales of $15 million.

Call for Help. Old Town's turnaround began three years ago, when Chairman James H. McGraw Jr., 69,* installed his son James III, 34, as president and brought in as general manager, Marshall Mazer, 41, an ace operating man who had previously headed National Cash Register's research planning board. After analyzing Old Town's cost and price structure, Mazer dropped many money-losing special-order products, raised prices on others enough to bring a profit. "Small companies," says he, "so often don't even know what their products cost them."

Next, Mazer set up a 17-man research and development staff that in two years turned out 15 new products, ranging from tough plastic and nylon typewriter ribbons to photocopy paper for use in the machines of rival manufacturers. To cut the time lag between idea and product, Old Town's research staff unabashedly called on the extensive laboratories of their big supplier companies for help. "A lot of small companies are afraid the big companies will steal their ideas," notes Mazer, "but actually they are very willing to help." Riegel Paper helped work out development problems on Old Town's photocopy papers, and the machine that Olivetti will make is based on an electrostatic copying method perfected by RCA.

Stay-at-Homes. Unlike most small companies. Old Town has taken full advantage of the export aid program of the Department of Commerce. At Old Town's request, U.S. Government representatives abroad have searched for foreign firms interested in manufacturing Old Town products under license. So far, in addition to Olivetti, Old Town has concluded, or is negotiating, licensing arrangements in Mexico, Australia, Colombia, the Philippines, Costa Rica, Canada and The Netherlands. These arrangements are so profitable that although Old Town's export sales this year will amount to only $500,000, they will account for half the company's profits--and it has all been done without a single Old Town executive leaving the U.S. to drum up business.

* Who bought control of Old Town after he resigned in 1950 as chairman of McGraw-Hill Publishing Co., which his father founded.

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