Rocky Mountain Adventures, Inc.

RMA's Growth Opportunities

Bill Peisner and Dave Costlow had discussed a number of possibilities for increasing RMA's revenues and net income. Bill was intrigued by the thought of adding a second floor to the Fort Collins retail store to allow the owners to open a restaurant. Bill had thought that upon their return from the river, many rafters would enjoy being able to select a meal from such menu items as grilled free-range chicken sandwiches, broiled or grilled trout, fresh fruits, or other tasty and healthy fare. With the proper menu, food quality, and service, the restaurant might also become popular with Fort Collins locals during dinner hours. Bill estimated that the cost to construct the second floor and purchase all necessary restaurant equipment and fixtures would be approximately $200,000-$250,000. The two owners had also discussed the purchase of an espresso and sandwich cart that would be located outside of the store to sell food and beverages to the company's rafting customers as an alternative to adding a second-floor restaurant. The company could begin a joint venture with a local restaurant that would take responsibility for preparing food off-site, stocking the cart, and serving customers. Bill and Dave estimated that the cart could be acquired for about $30,000.

Dave and Bill had also discussed purchasing land adjoining the North Platte River in northern Colorado or southern Wyoming to build and operate a mountain outpost and lodge. The lodge would offer its guests multiday guided rafting and fly-fishing trips and extensive instructional courses. There were a number of guest ranches in northern Colorado and southern Wyoming that offered a variety of outdoor recreation activities to their visitors, but there wasn't a lodge dedicated to rafters and fly fishers. RMA could offer multiday all-inclusive fly-fishing packages where the company would provide lodging accommodations and guide anglers on fly-fishing or rafting excursions. The lodge could be targeted to serious trout anglers and rafters, as were its international outings. Bill estimated that the mountain outpost could charge its kayaking guests $200 per day and trout anglers $300 per day. These fees were comparable to the fees charged by most guest ranches in the area. The estimated cost to acquire land and build five cabins and a dining hall was $200,000-250,000.

The two partners were also interested in offering additional international expeditions if they were unique and could be scheduled during the Colorado off-season. The company's Colorado rafting and fly-fishing operations were highly seasonal, with most of its business occurring between late May and early September; the Patagonia trips were usually scheduled during January and February. The company did offer snowshoe and cross-country ski rentals and outings during the winter months, but these guided trips contributed very little to the company's overall profitability. Dave commented, "Our entire winter cross-country ski and snowshoe business doesn't match one day's rafting business during the summer."

Bill and Dave each worked over 70 hours per week during the height of the Colorado summer tourist season and had practically no time alone while on expeditions. During an expedition they were responsible for everything—lodging, meals, fishing, and even fellowship. Having the late-fall and early-spring downtime was beneficial because it allowed the partners to catch up on some rest and to plan for the upcoming Colorado summer tourist season, but it did lead to volatile cash flows throughout the year. Bill and Dave believed that additional international trips would be successful, since the company had developed a good reputation among avid fly-fishers for providing quality international fishing excursions. In fact, many of its international fly-fishing expedition customers returned at least every other year. Bill felt strongly that these customers would enjoy visiting new rivers and new countries if such trips were available at a price comparable to that of the Patagonia trips. However, both partners were certain that their families would not want them away from home an additional two to four months during the year.

The company could potentially use the additional trips to provide year-round employment for an additional RMA guide, but leading an international trip required highly specialized skills that took years to develop. Bill stated that additional international trips could very likely bring in the necessary revenue to justify a permanent employee who could be responsible for river operations during the summer and lead international expeditions during the winter. However, finding the right person would be difficult. Bill explained, "It's a very demanding job. You are completely responsible for your customers while they are with you. You not only have to know how to row a raft and guide a fishing trip, but you have to understand the local language, culture, and customs. You have to make sure that the raft is waiting at the river, the lodging accommodations and food are ready and satisfactory. It's really an 18-hour-a-day job when you're guiding an international trip."

There were also opportunities that required little additional capital or commitment from the two owners. The owners had discussed finding new customers for its Pigeon Express™ photographs. The company had recently purchased a Fuji minilab that had the capability of finishing many more photos than what was currently required by Pigeon Express™. Dave thought that with five additional birds and one additional photographer, the company could provide photography and photo finishing services to other rafting outfitters in the Fort Collins area.

Even though RMA offered rafting excursions on five Colorado rivers, its trips on the Poudre River accounted for most of its rafting-related revenues. The company had not been overly aggressive at building traffic on the Arkansas, Upper Colorado, Dolores, or North Platte rivers because of the distance of these rivers from Fort Collins. The Poudre was more easily managed since its proximity to Fort Collins allowed Bill and Dave to closely supervise the company's operations and personally take over if unforeseen problems emerged. There were many times each season when either Bill or Dave were forced to guide rafts or drive a busload of rafters from the gathering point to the river when employees were absent from work. It was very difficult for the company to even remotely approach the limit of 100 rafters per day on these outlying rivers since the company lacked supervisors at each river.

The partners had thought about not renewing some permits to provide more time to focus on the rivers that were closest to Fort Collins. It was difficult to make rafting on the Dolores River a central part of the company's operations since the snowmelt made the length of a whitewater season highly unpredictable. Also, the amount of tourism near the North Platte River was much less than that near the Cache La Poudre River and Estes Park, which made it difficult to reach the company's permitted capacity on the river. Bill and Dave believed that the Arkansas offered the greatest promise since it was the most rafted river in the world, with over 300,000 rafters each season. The partners had thought that with the proper strategies, Rocky Mountain Adventures could potentially provide outfitting services to 25 customers per day on the Arkansas River. However, there were 62 other outfitters along the Arkansas River, making competition there stronger than on other rivers. The Upper Colorado River also provided opportunity for growth since it was on the opposite side of Estes Park from the Cache La Poudre River. The partners estimated that in the event that they chose to abandon some river operations, RMA could sell its permits on the Arkansas, Delores, Upper Colorado, and North Platte rivers for about $30,000-$50,000 each.

Aggressive expansion of its operations on outlying rivers would require additional rafts and gear, new staff members, and a manager to coordinate rafting on each river. Fully equipped six-person rafts would cost approximately $3,000 each, experienced guides could be hired at $70-$80 per day, and a permanent full-time manager could be hired for $25,000-$30,000. RMA used 19 rafts and 30 guides to meet whitewater rafting demand on the Cache La Poudre River.

There was also an opportunity that Bill and Dave had begun pursuing just days before Bill's departure for Patagonia. Bill and Dave had contacted the owners of Colorado Outdoor Center to determine if they had an interest in selling their Poudre River whitewater rafting permit. Colorado Outdoor had held its permit for close to 20 years but had never approached the 100-rafter-per-day limit and, as a result, its owners had decided to abandon their rafting business outside the immediate Boulder area. Colorado Outdoor had already obtained Forest Service approval to sell its permit to an existing permit holder. Preliminary conversations between the two sets of owners had revolved around a price of $100,000. Colorado Outdoor's permit was renewable as long as it or its assignee complied with all regulations. Holding two permits would allow RMA to take up to 200 rafters per day down the Poudre. However, Colorado Outdoor's permit only allowed two daily launch windows—a one-hour period when rafts could depart from launch sites within the Rocky Mountain National Park. RMA's existing permit granted six launch windows per day, which allowed the company to offer departure times throughout the day. Colorado Outdoor's owners were negotiating an increase in the number of permitted launch windows with the Forest Service when Bill had left for Patagonia.

Bill's wife, Kathy, would meet his flight in Denver and then drive him home to Fort Collins. He intended to sleep late and go into work around noon the next day. Dave would open the store at 10:00 am and would want to discuss the partners' plans for the upcoming rafting season and the Colorado Outdoor Center rafting permit purchase as soon as Bill arrived. Bill wanted to have his mind made up by the time he landed in Denver so that he and Dave could have a productive discussion. Bill felt the Colorado Outdoor deal probably needed to be finalized quickly before another competitor stepped in with a better offer.

The company's banking relationships would allow RMA to fund the purchase of the permit or to pursue other options. Both partners wanted to avoid becoming overly leveraged and were concerned about financing multiple projects at the same time.

John E. Gamble, University of South Alabama

Copyright © 1998 by John E. Gamble. Certain names and figures have been disguised to protect confidentiality.