Sweden, Germany or USA? Packsize Selects Utah for International Headquarters
February 21, 2017
(Episode 12 of “The Project: Inside Corporate Location Decisions”)
Packsize is a pioneer in “on-demand packaging systems,” a technology that allows companies to create custom boxes for their products, reducing packaging volume by about 40 percent. With customers like Staples, Cabela’s and Boston Scientific, the company is rapidly growing and, though they considered Sweden and Germany, decided to make their biggest expansion to-date in Salt Lake City, Utah. We talk to Hanko Kiessner, CEO of Packsize and Brad Baird, Senior Business Development Manager at EDCUtah.
Patience Fairbrother (DCI): If you’ve ever received a package that was too large for the product it contained, you’re going to enjoy hearing about this next company. Packsize is the pioneer of on-demand packaging, or packaging that’s custom-fit to the product, eliminating the need for filler materials and drastically reducing waste.
Andy Levine (DCI): The company got its start in Germany, but became fully operational when it put down roots in Utah in 2002. And, in January 2017, the company announced a major expansion in Salt Lake City, a $9.2 million investment that’s expected to create over 350 jobs over the next 7 years.
So, welcome to episode 12 of “The Project: Inside Corporate Location Decisions”. I’m Andy Levine of Development Counsellors International.
Patience: And I’m Patience Fairbrother, also with DCI, and Andy’s co-host of “The Project”. Today we bring you the story of Packsize, the company that seeks to solve the excessive packaging problem, a problem that’s especially important given the recent shift toward the internet retail and home delivery model. We start our story with Hanko Kiessner, who is the CEO of Packsize International.
Hanko Kiessner (Packsize): Packsize reduces the box sizes by more than 40%, and we do this by providing our customers with automation, with robotics, with equipment and corrugated that cuts and scores the corrugated box to the right size for every order.
In other words, our customers are receiving their boxes in the perfect box size, easy to open, very easy to recycle, minimal amount of plastic involved, and that’s what we call “on-demand packaging”. On-demand packaging is a new industry that Packsize has founded, basically shifting the value added of making boxes away from the large corrugated factories to our customers, where they’re now making their boxes on-demand, inside of their own facilities, before the orders are shipping to all of us as customers.
Andy: Now, Packsize has a really interesting business model. In order to provide their customers with the ability to customize their packaging materials, they give away – yes, give away – the machines they manufacture in Sweden that cut the cardboard to virtually any dimension, almost in the blink of an eye. So customers only pay for the cardboard.
Hanko: Probably the first company in the packaging industry that deployed a PAAS product as a service business model. Today, you find this very commonly in the software industry, software as a service, but we looked at our machines as a product that really ought to be provided as a service to our customers, helping them not to have to allocate a lot of capital and funds to get into the technology. And, since our customers are saving on the corrugated, on filling material, on labor, on space, on redundancy, on shrinkage, obsolescence…there are roughly 12 value props, value drivers, within our value proposition for our customers.
All of this combined, even though the machine is included, it is still significantly less expensive; in fact, 20% to 30% less expensive than the cost structure and the supply chains that our customers were maintaining before they go to a Packsize solution.
Patience: So, really, if you’re a company that does a lot of distribution, you’re basically giving them no reason not to use Packsize.
Hanko: That’s exactly right, and what we are sometimes…and the funnest question we actually usually get as part of the sales process is, “Well, what is the catch? This sounds too good to be true. Where’s the catch? This couldn’t be real.” And then, the other question that we usually get is, “Why isn’t everyone doing it?”
Andy: Hanko Kiessner believes it’s only a matter of time before every company uses this model. Most companies just aren’t willing to take the leap into a disruptive product or technology without seeing that others are using it. But, a big step came forward in 2012. That’s when Staples announced it would exclusively use Packsize technology to cut costs.
Hanko: And Staples is part of what we call “a reference account strategy”, and what you’re describing is a deliberate strategy that we have chosen to deploy, where we would motivate companies that are regarded as referencers, role models, and leaders of their industry, and we would motivate them in particular to deploy the Packsize solution and we have benefited greatly. We have had just a tremendous amount of customer visits, or reference visits, at Staples’ facilities over the last years.
Patience: So, on to the decision to locate in Utah. Hanko grew up in Germany but actually participated in a high school exchange in Brigham City, and later went to the University of Utah where he met his wife. After graduation, he and his wife – who is from Salt Lake City, incidentally – moved to Germany, where Hanko worked for his father’ business, and planted the seed for what would become Packsize.
But, after 10 years in Germany, Hanko’s wife was ready to get back to Utah, and he was ready to consider a new business model.
Hanko: So, she went to Germany with me, and after 10 years she says, “You know what, 10 years, Germany, that’s long enough. It’s always rainy, gray, overcast, cloudy, people are grumpy sometimes. Let’s go back to Utah.” And so that’s when we said, “Okay, we start over with our careers,” and that’s when we said, “Okay, let’s try this. Let’s try this with the machines, providing the machines as a service. Let’s create a new category in packaging.
There’s a big need for on-demand packaging. Let’s create a new industry.” And so, we came to Utah and, I have to say, the rapid growth that we have had, I don’t think – in Europe – we could have started and grown a business the way that we were able to do this here in the United States, and then, in particular, from Utah.
Andy: In the last 15 years, the company has gone through 5 major expansions establishing operations in more than 28 countries, thanks to this no-cost lease model that Hanko created, but the most recent expansion is by far the most significant. Ultimately, it came down to which of the 28 current locations that Packsize has that was going to be the best fit for this expansion.
Hanko: If we look at the decision-making process to expand here in Utah, I have to say that I was actually in the camp, in the early stages of the decision-making process, to relocate out of Salt Lake City, and if you are looking at relocating out of Salt Lake City – or out of the air shed, actually, because of the air pollution – then, all of a sudden, you find yourself considering all sorts of options.
So, yes, we did consider any of the locations where we are currently doing business. Out of those 28 countries, we have operations…or, we have more significant operations in 3 or 4 of those. And so, yes, we did consider Sweden, Germany, but also other locations within the United States.
Patience: As a company dedicated to sustainability, Packsize takes pollution very seriously. The commitment by the state to clean up the air was actually a major factor in their decision to stay in Utah. Packsize is also doing their part to build a culture around reducing CO2 emissions. The company’s Salt Lake City offices are lighted with solar and wind energy, and about 15% of their employee base commutes to work in zero- emission vehicles. They actually have the state’s largest workplace recharging station.
So, as the discussions evolved, the finance team was really pushing for Sweden, which is attractive from a tax perspective, but Hanko was concerned about giving up the culture the company had worked so hard to create.
Hanko: And then, as the discussion evolved, we got finance involved, and then finance took over the decision-making process to look at the financial implication, taxes. But, at the end of the day, it was the driver for the culture of the company that was more manifested by the team here in Utah that is so much behind our company mission. And so, we would have actually been at risk of giving up our culture.
We would have seen, probably, significant turnover had we moved the headquarters here out of Utah. And then, really, at the end of the decision-making process, the finance team then had engaged with the Governor’s Office of Economic Development, and they treated us just so well and helped us with our decision-making process; gave us a financial incentive, also.
Andy: To hear more about the state’s assistance, we talked to Brad Baird. Brad is a senior business development manager at the Economic Development Corporation of Utah. We asked Brad how Packsize Project came into EDC’s court.
Brad Baird (EDC Utah): We have a very close working relationship with the local real estate community. So, in this particular project, Luke Burbank – who is, you know, one of our great real estate professionals with Newmark Grubb ACRES – arranged for an introduction with Packsize, and our objective going into the meeting was to try to assess what Packsize’s needs were and to determine if those needs could best be met by expanding in Utah as opposed to another location. And, immediately, we were just so very impressed with the company’s technology and business model.
Patience: The company was looking for a building where they could, ideally, not only expand but consolidate two current operations in Utah. According to Brad, Utah’s work force and combined expertise in technology and distribution were major advantages for Packsize.
Brad: We have a terrific work force, and they just love the work force, and I think that was probably our biggest advantage as they looked towards the future, is where are they going to find the tech- savvy engineers that they need to grow the company. Their product is unique to the distribution and fulfillment industry, and one of the things that’s happening is that Salt Lake is emerging as a major western hub for distribution and some things are just starting to emerge. Union Pacific put in an inter-modal hub several years ago.
We have a foreign trade zone, and they just completed a study about the possibility of establishing an inland port. Salt Lake City has an international airport and, within five minutes of the airport, we have rails served; basically, green field property, 3,000 acres of green field, develop- able property, which is really unique. There are very few international airports that have that kind of development potential.
Patience: EDC Utah was aware that the company was also considering locations in Germany and Sweden, but Brad felt pretty confident that the deal could go their way.
Andy: Was there a point in the conversation…? Sometimes there is a…kind of an interesting turning point, or a moment where you think this is really gonna happen. You know, was there a point in your discussions with them where you said, you know, “I think this is coming our way,” or, “This looks like a likely win for EDC Utah and the state of Utah,”? Was there any point along the way that you had that feeling?
Brad: As discussions progressed, I…of course, I’m always optimistic about all the projects I work on. But I felt like, very quickly, this is our project to lose. There were so many compelling reasons to stay and expand here.
Patience: Ultimately, Brad was right. EDC Utah connected the company with the Governor’s Office of Economic Development, ultimately securing a post-performance incentive of about \$1.2 million over the next seven years. We asked Brad about the role incentives played in the decision from his perspective.
Brad: I think incentives always play, at least, a minor role. They want to…Companies want to know that they’re wanted and that state and local governments are willing to work with them.
Andy: This was certainly the case for Packsize. They were looking at a building in Utah, but they were also looking at facilities in Sweden as well as Germany. Now, they needed a quick turnaround on support from the state in order to make a decision. Brad attributes the success to the collaboration between the Governor’s Office of Economic Development, the EDC Utah, and the city of Salt Lake City.
Brad: We claim it to be our secret sauce, and that’s that the state government and local government and businesses work very collaboratively to try to find solutions. And so, the incentive process in Utah only takes…ideally, start to finish, you can have your incentive approved and in place in about seven weeks from the time you put in your application.
Patience: So the incentives turnaround process was a big plus for the company, but it wasn’t the only factor. To sum things up, we asked Hanko Kiessner to give us his top three reasons for expanding in Utah.
Hanko: Our existing culture, and through the quality of the work force and team members that we have, by far, number one. Number two, the commitment by the state and other leaders here in the community to actually clean up the air. And then, number three was the financial support.
Patience: Once the incentives were approved, Packsize purchased a building where they’re going to consolidate corporate offices and warehousing. They’re also heavily investing in R&D, which will be hosted out of the Salt Lake City operations.
Hanko anticipates seeing accelerated growth for the next 4 to 5 years, at least, and potentially as many as 10 to 15 years to come.
Andy: So, Patience, we’re up to the takeaways portion of this episode. First things first, we just wanted to say this was a really cool company to interview. It’s sort of interesting, when we started doing this episode, I received in the mail a small guitar tuner. It’s about 2 inches by 2 inches, and yet it came in this enormous amount of packaging, a box that was, like, 12 times the size it should have been, and it made me immediately think of Packsize and, sort of, the sustainability focus that they have.
Patience: Exactly. If you think about all of the materials that went into just packaging around that guitar tuner, you think what a huge deal it actually is for sustainability…Hanko said something like 98 million trees every year go into creating those filler materials that are basically made unnecessary if you’re using this on-demand packaging system.
Andy: So, let’s move forward, talking about, sort of, the location decision here. You know, it was interesting at the end when we asked Hanko to list the top three factors. So, clearly, number one was the talent as well as the culture that they had created in Utah. So, while it was financially attractive to look at Sweden, to look at Germany, in the end, he was just scared about losing, sort of, the talent that they’d built already, the culture that they’d built, and he wasn’t willing to give that up for some financial reasons.
Patience: I think what I found most interesting was actually his number two on that list, which was the role that the state’s commitment to clean up the air played in the decision.
Andy: This is one we really have not heard in any of the episodes we’ve done before.
Patience: That’s true, no one has ever listed this on their top three reasons. So I think that this really sends a message that businesses, especially those that are committed to sustainability as part of their mission – like Packsize – are really looking for the government and the community to step up and play a role in keeping the environment clean.
Andy: Number three on Hanko’s list was incentives, and the sense that I got was incentives were important, but it also was equally important, sort of, the responsiveness of the Governor’s Office of Economic Development, Economic Development Corporation of Utah, Salt Lake City; the fact that the three of them worked together and responded very quickly to the ask.
So, that is a wrap on episode 12 of “The Project: Inside Corporate Location Decisions”.
Patience: As always, we have a number of people to thank. Let’s start with Hanko Kiessner of Packsize and Brad Baird of EDC Utah. Thank you both for sharing your stories with us. We also need to thank Mike Flynn of EDC Utah, who brought this project to our attention and made the intros to set up these interviews. Thanks also to Melissa Klein [SP] with Packsize for her help in sorting through a couple of technical difficulties. I also just wanna give a shout-out to Stephanie Froman [SP], also of EDC Utah, who is a self-proclaimed “Project” super-fan who helped us coordinate the interview with Brad, and generally just made us feel great about our work on the podcast.
Andy: It’s always nice to have a super-fan. So, “The Project” is sponsored by DCI. We are the leader in marketing places, and have served over 450 different cities, states, regions and countries. You can learn more about us at our website, at aboutdci.com.
Patience: If you have any projects that you think would be interesting for us to profile, don’t hesitate to get in touch. Our last two episodes actually came as a result of that kind of outreach, and we always welcome it.
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