The long view | Downeast Energy & Building Supply has been through wars, depressions and recessions. Its next trick? Surviving another 100 years.

In 1908, Downeast Energy & Building Supply was born into an age of optimism. It was a new century, Maine's textile industry thrived, and the company's hometown, Brunswick, was a bustling commercial and railroad center.

This year, the company celebrates its 100th anniversary, and the cultural and economic climate is markedly less buoyant. The country is at war, Maine's housing market has collapsed and the town will soon lose the Brunswick Naval Air Station, which for more than 50 years has been the backbone of its economy.

It's not the most auspicious time for a centennial birthday party. Still, when you take the long view, Downeast Energy & Building Supply has plenty to celebrate.

The company has grown from a coal and firewood operation to a multi-faceted business offering home heating fuel, a full range of building supplies and even house lots. And Downeast Energy has been owned by the same family since Alan Morrell bought the company in 1931. Today, a third generation of Morrells play key roles at the company.

Through the years, Downeast Energy has weathered wars and depressions, booms and recessions. It has evolved in response to shifting trends and new technology. When market downturns hit, it has made difficult cuts. And, it has designed a business model that avoids the insularity that can thwart the growth of family-owned businesses.

Downeast Energy's willingness to change has made it possible for the company to make it to this milestone, says John Peters, Downeast Energy's president. And looking forward, its ability to change may well be its ticket to reaching the next century. "We've moved from firewood to coal to distributing fuels, and we are prepared to move to whatever's next," says Peters.

Division of labor
Downeast Energy divides its efforts between two sectors: fuel and building materials. The energy division is the larger of the two divisions, accounting for about 80% of the more than $200 million in revenues the company expects this year. Though smaller, the building supplies department is still a key part of the business, and in any given year can bring higher profit margins than fuel, says Peters.

The two sectors work in tandem, offering the company some protection from changes in the market and consumer behavior. This business model was put in place by Allen Morrell, who bought the Brunswick Coal Company in 1931 and quickly added an extensive building supplies division.

The arrangement is still useful today, and is helping Downeast Energy recuperate from last year, when a winter that barely came and a lagging housing market took its toll. "2007 was the most challenging year that I've seen and I've been around for a long time," says Peters.

After the first quarter of 2007, building supplies sales were down 20% and energy sales looked low, too. Peters says the company "circled the wagons" and devised a plan to control costs while retaining jobs. In the end, employees made sacrifices as overtime was cut and worked harder as vacant positions went unfilled. The measures, though painful, were effective, says Peters. "We weathered it well and ended up a little better than we thought we would," he says.

This year, the construction market remains flat. But winter is back, and consumers need to heat their homes. "We're fortunate that we have some diversification. Energy is more of a necessity, so it's less cyclical than building supplies," says Peters.

That said, Peters is quick to point out that today's sky-high fuel prices are no boon to his company. Fuel companies make their profit on a pennies-per-gallon basis, not as a percentage of total sales. With today's rising prices, many customers are forced to keep thermostats lower because they can't afford to buy fuel. "We'd be better off, as would the consumer, if fuel prices were a third of what they are today," says Peters.

Seasonally, Downeast Energy's two divisions make sense, too. When heating fuel sales taper in the spring, sales of building materials increase. The arrangement keeps earnings constant, and helps ensure year-round work for employees, some of whom transfer seasonally from the company's heating oil branches to its building supply yard in Brunswick.

The two sectors also provide opportunities to expand the company's customer base. Often contractors who buy their building materials at Downeast Energy also purchase boilers there. Or heating oil customers turn to Downeast Energy when planning home renovations.

Family ties
All companies face challenges in the marketplace at times. But family-owned businesses like Downeast Energy must reckon with a unique set of internal challenges in order to succeed.

About 80% of Maine's businesses are family-owned, but few endure as long as Downeast Energy. "Companies that reach 100 years are called 'centennial companies,' and it's a huge landmark," says Tom Juenemann, director of the Institute for Family-Owned Business at the University of Southern Maine. "The average lifespan of a family-owned business is 20 to 22 years, basically one generation," he says.

Businesses that are owned by families typically survive longer than those that are not, in part because of what Juenemann calls an "unspoken dimension" in family businesses: the desire to pass the company on to future generations. Whereas non-family owned businesses focus on providing value to stockholders, family businesses often prioritize longevity and community involvement.

But family-owned businesses also face challenges, as anyone who has experienced sibling rivalry or a rocky parent-child relationship can imagine. If left unchecked, long-standing, emotionally-charged family conflicts can play out in the workplace.

Trouble often arises in family businesses when it comes time to pass the torch from one generation to the next. Leaders of family businesses often find that their entire identity is wrapped in the company. When it comes time to retire, many can't quit working.

Dick Morrell, who is still actively involved in Downeast Energy, though he stepped down as president five years ago, says letting go isn't easy: "It's a challenge not to interfere. It can be hard to hang back." Even after his sons took over the business, Allen Morrell kept an office at Downeast Energy until he became too ill to work.

Though it sounds counterintuitive, Juenemann says it can sometimes be harder to hand the reins to a family member than to an outsider. While an employee typically has some control over how they present themselves to employers, family members know almost too much about one another. "You changed their diapers, and you know the trouble they got into as teenagers. You know their weaknesses," says Juenemann.

Dick and Bob Morrell found a unique way to share power. Since their father stepped down, the two have alternated as president and treasurer of the company, handing the post off every few years. Today, they take turns running meetings as co-chairmen of the company's board.

But most transitions aren't so smooth, and Juenemann says bringing in outsiders is key to succeeding as a family-owned business. Outsiders bring perspective and expertise gained with other companies, and their very presence often creates a more business-like workplace.

Downeast Energy's board was originally family only, but now includes a former accountant, a trusted consultant and a retired executive from Unum. "They bring a hell of a lot of talent. It's been very useful to us. Their guidance is good, and they're experienced business people themselves," Dick Morrell says.

Downeast Energy's willingness to share leadership with non-family members is best illustrated by the decision five years ago to name John Peters president. Peters came to the company as controller in the early 80s, in response to the company accountant's advice that Downeast Energy add a person with finance experience to the payroll.

Peters has worked extensively in the private and public sectors, including stints at General Electric, Central Maine Power, the Public Utilities Commission, and in the state government. After several years as controller, he was made a vice president, and then took over as president when Dick Morrell stepped down.

Dick Morrell says the decision was a natural one. "He came to us as a financial person and expanded his relationship with us over 21 years. So, it was a normal, comfortable transition," he says.

Peters, 59, says that he bridges the age gap between Bob, 81, and Dick Morrell, 79, and their children, who work for the company today and are in their 40s and early 50s. He also says he enjoys the scale and atmosphere of working at a family business. "I have the best of both worlds. I'm involved in the same issues as large corporations, such as lines of credit and strategy, yet if I'm at my desk and an employee or customer walks in, I have to be able to give them answers," he says.

Downeast Energy is one of a growing number of Maine companies who are committed to overcoming the obstacles common to family-owned businesses, says Juenemann. "These are businesses that have started working on these problems early. It's not that they don't have problems. It's that they work on them and find formal solutions," he says.

Moving forward
Looking toward the future, Peters and Dick Morrell acknowledge at least two potential challenges to Downeast Energy's growth.

The most immediate hurdle is the impact of the Brunswick Naval Air Station's closure — planned for 2011 — on Downeast Energy and the larger community. Dick Morrell says that although Brunswick has weathered mill closures and recessions in the past, the impending BNAS closure is the biggest blow the community has ever been dealt.

Everyone will feel the eff1ect, he says. "You can't generate sales from nowhere," says Morrell. "We're losing 3,000 employees around town and a couple of million dollars worth of sales. So it isn't going to be easy for anyone."

However, Peters admits he sees BNAS' closure as an opportunity for Brunswick because the facility's acreage and state-of-the-art runway have huge commercial potential.
Downeast Energy's tradition of growth through acquisition also faces challenges, says Peters. Although the company has acquired nearly 50 businesses in the past, these opportunities are becoming scarcer. There has been tremendous consolidation among retail oil businesses in the state, meaning there are simply fewer potential companies to acquire.

And Downeast Energy looks to acquire full-service oil companies who don't just sell fuel but also offer automatic delivery and a range of other value-added services. Problem is, so do their competitors: Webber Energy Fuels and Dead River Company. "Most of the low-hanging fruit has been scooped up," says Peters.

Still, experience has shown Downeast Energy that success is found by looking forward. Peters says that while his company does not want to be the beta site for anything radically different, it never stops looking for new ways to grow. "We have a good infrastructure, and a great staff with succession plans in place," says Peters. "We are constantly training and developing, so I think we're poised for whatever the future holds."