Rocky Mountain Adventures, Inc.

Company Background

Rocky Mountain Adventures, Inc., was established as Adrift Adventures in the late 1970s in Fort Collins, Colorado, by Pat and Robin Franklin. The Franklins, who had long been interested in outdoor recreation, began the business to add a degree of excitement to their lives and to supplement their Colorado State University salaries. During its first decade, the company was operated out of the Franklins' garage, where they stored their rafts, paddles, life preservers, and other gear. Nearly every Saturday during the summer months, the Franklins would load their rafts onto a trailer and drive to Ted's Place—a small Fort Collins service station—to meet rafters who had called the Franklins' home earlier in the week to schedule a rafting trip. Once all of the rafters had converged on Ted's Place, the excursion party would leave for the Cache La Poudre River outside of town to spend the day negotiating the river's rapids.

Adrift Adventures' volume gradually increased over the years to the point where the Franklins were forced to hire additional guides during the summer rafting season in Colorado and to rent a warehouse to store the company's rafts. By 1993 the company's revenues and net income had grown to approximately $125,000 and $30,000, respectively. The Franklins were quite pleased with Adrift Adventures' performance, but were forced to sell the business when Pat accepted a job as an assistant professor at San Francisco State University.

A Change in Ownership

Dave Costlow's interest in outdoor recreation dated back to his teenage years in Virginia, when he began to enjoy canoeing. As his canoeing proficiency developed during his 20s, Dave became interested in other paddlesports like rafting and kayaking. Dave eventually became a rafting guide with the University of Virginia's (UVA) outdoor recreation outing program while he was enrolled in the university's Ph.D. program in educational psychology during the late 1980s and early 1990s. Bill Peisner's outdoor experiences began when he fished and rafted along Michigan's Red Cedar River as a young adolescent. Bill continued to fish and raft during high school and through his college years at Rollins College and UVA. Like Dave, Bill met other rafters at UVA and eventually began to work with the university's outdoor recreation program.

Bill and Dave worked together on a number of the university rafting excursions, and as they neared the completion of their graduate programs they began to discuss the possibility of jointly operating an outfitting business in Utah, Colorado, or Wyoming. The director of the UVA outdoor recreation outing program knew of Bill and Dave's interest in purchasing a rafting business and told Bill he had heard that Adrift Adventures was for sale. Bill was elated that he had heard so quickly of an outfitting business for sale and called the Franklins to gather some basic information about the business and its sales price. After Bill briefed Dave on his conversation with the Franklins, the two decided to fly to Fort Collins in October 1992 to more closely inspect the business. While Bill and Dave were in Colorado and immediately upon their return, they evaluated the potential acquisition by examining the outdoor recreation opportunities in Colorado and assessing Adrift Adventures' competitive position in the local outfitting industry.

Bill and Dave determined that Adrift Adventures was in pretty good shape from both competitive and financial standpoints, and there appeared to be ample opportunity to grow and build the company into a much more successful business. Dave, Bill, and the Franklins all agreed on a price for the business, and in March 1993 Bill and Dave took over operations. During the first couple of months after the transfer of ownership, the new partners changed the name of the company to Rocky Mountain Adventures and took advantage of the off-season by developing strategies to attract customers and creating a set of operating policies and procedures. The partners also closely evaluated the retail store's inventory of merchandise, rental equipment, and rafting equipment. The company's assets were adequate but very limited, and it was obvious that Bill and Dave would have to make substantial investments into the business beyond the purchase price.

The New Partners' Strategy to Grow the Business

At the beginning of their first year as partners, Bill and Dave agreed not to take salaries so that all excess cash flows could be invested back into the business. Capital expenditures primarily went to improve the Fort Collins retail store; to open rafting outposts in Buena Vista, Colorado, and Estes Park, Colorado; and to purchase additional inventory and equipment. In 1996 Bill and Dave believed that the capital requirements of the business had subsided and that they could begin taking meager annual salaries.

The first strategy implemented by the partners in 1993 was to increase the number of RMA's rafting customers. The company was permitted by the U.S. government to take 100-120 rafters per day down the Cache La Poudre (pronounced pooder), but on average RMA sold only 50 guided rafting trips per day. Bill and Dave believed that the company could approach its limit of 100 rafters per day by developing a differentiation strategy keyed to a distinctive image and by utilizing a more effective marketing approach.

For the most part, rafting outfitters had something of a ragtag image. Many river outfitters operated lean organizations, did only essential maintenance on equipment, and often operated on the fly with only minimal attention to detail. Whereas it was common for many of the outfitters to use heavily worn equipment and to transport rafters from their outposts to the river in old school buses with a dilapidated appearance, RMA purchased and maintained quality rafts, and emblazoned its white buses with a big blue surging wave. The company marketed its trips to individual vacationers and to corporations and other organizations that might be interested in large group trips. The company reached its regulated limit of rafters within three years after implementing the new marketing campaign. Over the next year, RMA began offering rafting trips on four other Colorado rivers to continue to increase its annual revenues.

The company expanded its guided outdoor recreation activities to fly-fishing in 1995 when the U.S. Department of Agriculture (USDA) Forest Service issued a prospectus for guided fly-fishing trips on the Cache La Poudre River. During this same time, the company also began to offer kayak instruction courses in the Fort Collins area to both area residents and visitors. International fly-fishing, rafting, and hiking expeditions were added to the company's array of outfitting services in 1994 and 1995 as part of the company's strategy for growth. Exhibit 1 provides RMA's income statements for 1994-97. A balance sheet for year-end 1997 is presented in Exhibit 2.