A Fine Mesh
Tuesday, December 13, 2005
Mikkel Vestergaard Frandsen’s textiles make a good profit by doing good. But suppose the funding dries up?
For the moment, at least, Mikkel Vestergaard Frandsen’s company is in the limelight, on the sixth floor of the Museum of Modern Art in Manhattan. Frandsen’s textiles are on display alongside creations from avant-garde sculptors and industrial designers. An odd forum to show off mosquito nets, the leading product of Vestergaard Frandsen S.A. of Lausanne, Switzerland. But these fabrics are cleverly designed.
Each month factories in Vietnam and Thailand churn out 2 million nets for Vestergaard S.A., mainly for use in Africa to protect against malaria, which kills at least 1 million children a year. The biggest customers for the nets are aid groups and other privately funded outfits, which distribute them free or at highly subsidized rates. Enough so that Vestergaard S.A. earned $5 million pretax on sales of $40 million this fiscal year.
But for how long? Interest in the cause, like malaria itself, comes and goes. Bill Gates, Bill Clinton and politicians from wealthy countries including the U.S. have all raised malaria’s profile–and plenty of money–in recent years. Still, with AIDS and avian influenza on everyone’s mind, that may not last. “What happens when the camera turns off?” Mikkel Vestergaard Frandsen wonders. “There is malaria hype in 2005. What about 2006?”
To reduce dependence on private funding, he is trying to create a commercial market for his nets in countries where citizens might be able to afford the $4 retail price. In six African nations, including Ghana and Mali, Vestergaard S.A. has launched TV, radio and newspaper ad campaigns. Too soon to tell about results, but in Uganda sales of his PermaNet product jumped 20% after a month of televised ads.
It’s a far leap from the company’s roots. In 1950 Mikkel’s paternal grandfather, Kaj, gave up the tedious and difficult life of a farmer in a small town in southern Denmark and went into business with a friend who owned four looms. The partners soon parted ways, but Kaj kept at it, selling fabrics for jacket linings and, later, weaving nylon for ladies’ uniforms. By 1967 revenue hit $250,000 ($1.3 million in today’s money), but when he fell ill in 1970, he was happy to relinquish control to his son, Torben.
Over the next couple of decades the company realized that the textiles industry in high-cost western Europe was doomed. But what to do? A production move to then low-cost Ireland failed because Torben set up shop in an area that lacked any kind of textile industry or infrastructure. He soon shut down there. While a shift to Poland in 1989 helped Torben survive, his big break came in 1990 when a friend mentioned that 1 million yards of an extremely fine fabric once used for military uniforms were squirreled away in various locations around Sweden. It was completely out of fashion–and cheap–and Torben found it could be thickened and softened by ripping the fibers (a process called raising), then cutting the fabric into strips and turning it into blankets. He enlisted his older son, Mikkel, to help sell the blankets to groups like the Red Cross and Save the Children.
Mikkel had entrepreneurial ambitions of his own–and had already hacked it in some of the world’s toughest markets. After graduating from the Danish equivalent of high school, he traveled throughout the Middle East and Africa and started a business in Nigeria importing used trucks, buses and engines. A military coup sent him packing, and in 1992 he joined his dad, making deals with aid groups; by 1994 such sales had outgrown the rest of the business. Mikkel figured that true growth lay in Africa and the rest of the developing world. So in 1995 he moved to Nairobi to set up a sales and logistics center. From there Vestergaard S.A. covered operations in what became 19 countries and serviced refugee camps in Tanzania, Sudan and Somalia.
Meantime, father and son were trying to sort out responsibilities. As Torben remembers it, he was ready to loosen the reins. Mikkel, now 33, says his dad found it difficult to let go. “The change in generation always looks very rosy from the outside,” Mikkel recalls. “But there is a lot of negotiation.” A couple of tense years culminated in an agreement in 1997. With revenue at $5.5 million, they set up two parallel businesses: Torben sold women’s uniforms; Mikkel, humanitarian textiles. Gradually Mikkel’s business bought an 85% stake in his father’s company for an undisclosed sum, folding it into his own (and eventually dumping women’s clothes). The remainder would be owned by employees, and his father stayed on as director of development. But in scrapping the long-standing board of directors, Mikkel essentially fired his grandmother and younger brother, replacing them with more seasoned professionals.
As business grew, so did competition, especially from textilemakers in India, Pakistan and China, all vying for the same UN tenders for aid supplies on the Internet. So Mikkel focused on R&D, inventing new products like PermaNet, which consists of plain mesh netting impregnated with deltamethrin, an insecticide that repels mosquitos and lasts for years (most other nets can only withstand a few washings). The World Health Organization credits PermaNet and similar products with reducing mortality rates among children by 25% to 30%. Another new product: ZeroFly, plastic sheeting that contains insecticide to protect against mosquito-borne malaria and diarrhea transmitted by houseflies and is used to provide temporary shelter after large-scale disasters, natural or man-made.
The company has landed eight patents for its technologies. Largely as a result of these innovations, revenue hit $15 million by 2003. Today Vestergaard S.A. invests 8% of revenue in R&D; 30 of the 80 employees in a dozen cities investigate new products. One promising innovation, overseen by Torben: the reusable, $3 to $4 LifeStraw, introduced earlier this year, which removes bacteria such as salmonella and staphylococcus from surface water in rivers and lakes, making it potable. The 10-inch-long, 1-inch-in-diameter device is made of a patented resin that kills bacteria on contact; it includes filters that remove particles of up to 15 microns and has activated carbon, which kills parasites. How well does it work? Earlier this year Torben appeared on a Danish TV news program demonstrating how the LifeStraw can be used to drink out of a Copenhagen lake, a salt-water canal and a toilet.
Mikkel has not paid an appreciable dividend to his shareholders–namely to employees and himself–in years, choosing instead to plow profits back into production. That works, as long as do-gooder organizations keep coming up with the money.