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Green River Rod Makers

written by:
Alec Johnson, Ph.D.
University of St. Thomas
St. Paul, MN
Green River Rod Makers Alec Johnson, Ph.D., University of St. Thomas 2

Give a man a fish and he eats for a day, but teach a man to fish and he eats for a lifetime!
Chinese Proverb

So the story goes with Burt Stanski and his company, Green River Rod Makers. 1 Burt
and his only business advisor, Scott Fentress, toasted with a shot of tequila as they sat in
the warm, wood stove-heated workshop overlooking the Green River and watched the
falling snow. Both were feeling as inconspicuous and lazy as the Green River, having just
realized that the business was about to enter bankruptcy and discussing the possibility of
Scott buying the business from Burt, assuming managerial and marketing control. It was
March 1998, the Burts bankers were at their breaking point and the ABC Corporation of
New Hampshire had just filed a judgment against Green River. Burt was several months
behind with his financial commitments and losing money on every rod he sold - a
difficult situation indeed for a man who loved his work enough to describe it in the
following manner:

"Flyfishing's best kept secret. That's the way we've been described by one of
our industry's leading journalists. But then, we're not so secret anymore and,
more importantly, we've been here long before flyfishing was an "industry." At
Green River we're still craftsmen and flyfishers. And though we've grown we
will never become part of that industry where factories produce cookie-cutter
rods on an assembly line. We remain dedicated to that same intention with
which we began: A small shop committed to produce the best flyrods our
hands and technology can produceplease notice that they don't change with
the new year as car and dishwasher manufacturers do. No hype, no changing
slogans. Ever.

Despite his passion for fly-fishing, Burt was unwilling to bring discipline to operations
and marketing of the business. Given the banks warnings of foreclosure and other legal
action recently brought against the business, Scott was under some pressure to decide
whether this represented a good opportunity to get into a business of his own. He found
himself engaged in some soul searching, considering the following issues: lifestyle, his
personal risk profile, income needs, and viability of the business.

The Current Owner, Burt Stanski I wanted a life without compromises. Burt Stanski.
Burts slight build, gray beard and gentle voice gave the impression that he could be
anyones kindly grandfather, yet his passion for building the absolute best fly rods
slapped one in the face like a cold wind off the back side of a glacier. Simple, passionate,
and caring, Burts story is certainly in the top echelon of interesting life paths. Burt
started out as student of architecture at Taliesin, Frank Lloyd Wrights architecture school
in Spring Green, Wisconsin. Mr. Wright, failing to learn Burts first name, simply
referred to him as the blue-eyed boy. Burt left Taliesin when he was drafted into the
Army between the Vietnam War and Korean Conflict. Four years later he left the military
and traveled to Japan to take up spiritual studies. Still searching for his foothold in life,
Burt returned to the United States and enrolled in Yale Universitys architecture program,
where he was one of six to graduate from the program. He spent the next 30 years as a
prominent architect on the east coast. In the mid 1970s he began building fly rods as a
hobby and found himself apprenticing once again, this time under the two most notable
Individuals and events in this case are real. Names have been changed to disguise their identities.
Green River Rod Makers Alec Johnson, Ph.D., University of St. Thomas 3

rod builders, Sam Carlson and Tom Maxwell (founder of Thomas & Thomas). Burt
describes his shift from architecture to fly rods:

I woke up one morning and realized I didnt like what I was doing. I wanted
a life without compromises, without the new materialism that had penetrated
society and the architecture profession.

Because of this epiphany, he aspired to develop a lifestyle that combined right-livelihood

with his newly discovered talent for building fly rods. Therefore, on his 200 acres of
prime Vermont real estate, in a little barn he designed and remodeled into a small fly rod
manufacturing facility, at the end of a dirt road where the Green River runs 30 feet from
the door, Burt began handcrafting some of the finest fly rods in the world.

Green River Rod Makers (GRRM) and then you discover its not the fishing; its not the
ritual, but the river itself. And these things that were once important to your life become quietly and
forever essentialyou find your own Green River.
A writer for Grays Sporting Journal stated, My favorite rods come from Green River.
They are magnificent fishing tools bordering on cybernetic appendages. By the time
Scott had met with Burt, GRRM had grown to producing about 150 rods a year. 95% of
the rods sold were graphite rods, with about 5% a classic bamboo rod (Appendix A).
GRRM had a full line of rods, ranging from lightweight small stream rods to heavy
weight rods for larger salt-water species. Burt made each rod by hand, buying rolled
graphite blanks made to his specifications and finishing the rods with nickel hardware,
eyelets, and special, high quality paint job that could be customized on request. He also
handcrafted rods in the time-honored tradition of bamboo. The eyelets were hand wound
with silk by a cottage industry of winders who worked on a piece rate schedule. The
windings were covered with a protective epoxy that required several hours of drying time
on a rotating spindle. The labor intensive nature of this process limited Burt to producing
about 200 rods a year; however, with an investment in a new spindle machine that could
handle ten rods at a time, Burt felt that he could boost that rate to 800 rods a year. As
Burt put it to Scott during one of their Vermont meetings,

Our product is known for the extremely high level of castability, quality finish
and fine craftsmanship, but I have to be priced below my competitors to
develop a real advantage. I dont want a big business, I just want to build fly
rods and make a living doing it.

While Burt had a passion for making the best fly rods available, he refused to
acknowledge the business aspect of his vocation, particularly its typical responsibilities to
debt holders. He was poor at record keeping and had no working knowledge of costs,
profits or cash flow. In fact, he had no interest in acquiring such knowledge. His
bookkeeper tended to mix accrual accounting with cash flow accounting, thereby
producing essentially useless financial statements. Burts method for reporting earning
for tax purposes was thus (Appendix B),

I simply estimate the number of rods sold, multiply that by what I think my
profit per rod is, and report that to the IRS.
Green River Rod Makers Alec Johnson, Ph.D., University of St. Thomas 4

Burt would do custom orders for special repeat customers, but his primary channel of
distribution was through retail sports stores, which he reached through the use of a single
sales representative who received a 7% commission on each rod. A majority of sales
occurred during the annual trade show in September. Retailers, who agreed to take
delivery after the first of January the following year, would place orders for rods during
the show. The industry had a policy of 60 days payment terms.

In addition to Burts substantial equity investment, the company was funded by two
loans: a block grant from the City of Brattleboro and a loan from the Bank of Vermont.
Each loan was approximately $30,000 and was collateralized with Burts real estate and
other assets of the business including machinery and finished inventory. Burt spent very
little on advertising, relying mostly on word of mouth and his presence at the annual trade

The Fly Rod Industry2 Pick industries that allow you to make a profit.
Trends Up until 1994, when Robert Redford and Brad Pitt made a big splash with A
River Runs Through It, the market had been flat for years. The movie was a shot of
growth hormone in the arm of the industry, with the next three years averaging 15%
annual growth. However, 1997 marked a sharp slowing, to near flat growth. The market
was fairly consolidated, with three large U.S.-based producers owning about 80% of
sales, and another two dozen small regional producers splitting up the remaining 20%.
Few of these competitors possessed the reputation for quality and performance at the
moderate price point of Green River. Several lower-end manufacturers used inferior
fiberglass to produce fly rods, but true fly fishers wouldnt even consider using those

Competition/Market Green Rivers main competitors were Loomis, Sage and St. Croix.
Each of these had enjoyed extensive distribution, excellent reputations, and competitive
pricing. They offered a broad line of products that appealed to the novice and weekend
recreational fisherperson as well as the enthusiast with excessive disposable income.
Enthusiasts make up the smallest segment of the market, which is not growing but
includes those people most likely to buy the best equipment available. They want to be
part of the elite fly fishing crowd, with L.L. Bean or Orvis fishing vests, bamboo baskets
for their fish, and pipes hanging from their lips. They read the prominent fly fishing
magazines, like Grays Sporting Journal, and belong to Trout Unlimited. They are the in
crowd of fly-fishing, predominantly white, male and between 35 and 65 years of age.
They believe in the act of fishing, not the catching of fish; they seek to understand the
rhythm of the river and wind, and the hatching of flies. For this small, image-driven
market, it is more about the experience of fishing than it is about catching fish.

The Situation Opportunity is a combination of preparation and luck. Anonymous

Burt was well behind on his bank installments, struggling to raise sales with little or no
marketing budget, and considering several options. One option was to open a retail store,
scale back distribution, and just sell direct through the store. Another was to move into a
larger facility in town and scale up production to nearly 1000 rods per year, a goal based
Data on market was gathered from the Green River Rod Maker Business Plan.
Green River Rod Makers Alec Johnson, Ph.D., University of St. Thomas 5

on estimates provided by Burts sales representative. Burt felt that he could climb his
way out of this hole by increasing sales. To this end he enlisted Scott to develop a
strategy and business plan to raise money.

Scott was enchanted with Burt and with the business, while also recognizing some of
their limitations. As he dug into the companys records a disturbing picture began to
develop; the problem was not a lack of sales, as Burt believed. The average price per rod
was $225 wholesale and the average variable cost per rod was $237, yet Burt thought he
could make up his losses on increased sales! When Scott suggested to Burt that an
immediate price increase was necessary to stabilize the situation, Burt replied, If I raise
my prices, the mailman wont be able to afford my rod.

In the meantime, pressure was increasing from the banks with threats to call his loans,
and trade creditors were threatening to shift their terms to C.O.D. Burt held discussions
with several potential investors; one suggested that he could reposition the company
against Orvis and develop an extensive merchandising program, taking Green River
public. Burts predictable response to this was,

Ill be damned if anyone will bastardize the name Green River by

merchandising. This is my living, my passion. Its not about merchandising.

Burt entered negotiations with ABC Corporation, an SBIC (Small Business Investment
Company) from New Hampshire, for an equity/debt investment structure. Burt asked
Scott to review the term sheet (Appendix C), after which Scott strongly urged Burt to
drop ABC and search for another investor. Scott maintained to Burt that this was not a
good investment given the existing business strategy, and that any SBIC willing to invest
must not have Burts best interest in mind. Burt, under heavy financial pressure, signed
the deal and three months later was in default of the terms, with ABC filing a judgment
for repayment. This action was the final straw that forced Burt to seriously consider
filing Chapter 11 Bankruptcy protection. Unlike Chapter 7, which liquidates the
business, Chapter 11 gives the owner protection from creditors while a reorganization
plan is developed.

Scott Fentress If money was no object, Id buy small businesses and run them right into the ground.
Scott Fentress.
Scott often made this tongue in cheek remark during weekly discussion sessions with his
colleagues, who jokingly referred to themselves as The Board of Directors. Yet, money
was very scarce for a graduate student, and the Board often discussed ways of
bootstrapping business start-ups and acquisitions. As an MBA student at the University
of Wisconsin, Scott met classmate Sasha Stanski, who approached him one day after
class to ask hesitantly, Youre an entrepreneurship major; can you help my dads small
business? Scott could not say no to this offer, being an avid fisherman and fan of the
underdog. In fact, Scott was so excited he began to think of what it might be like to own
his own fishing products company. After all, he grew up fishing and hunting the woods
of Wisconsin and found the Brattleboro, VT area quite beautiful. This could become a
great opportunity to learn the industry and make some good networking contacts. Over
Green River Rod Makers Alec Johnson, Ph.D., University of St. Thomas 6

the next few weeks Sasha gathered some marketing materials and a business plan he was
writing for his father; he then presented them to Scott as an introduction to the business.

Scott Fentress had a good feel for these small, niche product companies. After earning
his Bachelors degree in Mechanical Engineering from the University of Wisconsin in
1989, he worked as a product development engineer and professional test driver for
Goodyear Tire Company. Yet he never felt content with these jobs; privately, Scott
yearned for a different environment, one more personal, smaller and infinitely exciting.
He considered owning a small business, as his father had, but felt he needed more
knowledge of business. With that in mind, Scott resigned from Goodyear to return to The
University of Wisconsin - Madison for an MBA, intent on taking all the small business
courses available. Dr. Robert Pricer taught the first course taken by Scott,
Entrepreneurship and Small Business Management. As Scott recalls,

Sitting in Bobs class the very first day, I thought to myself What an
amazing opportunity it would be to work for Bob Pricer, learn what he knows,
and go start my business. But that kind of thing happens to other people.
That summer I was sitting in my living room when the phone rang. It was
Bobs assistant, Belle Heberling, calling to see if I was available to work for
Bob that summer, 1993.

I began as a grader, but Bob soon started to give me a personal education in

the entrepreneurial process and small business management. Through
consulting projects arranged by Bob I began to gain experience in strategic
planning, financial analysis, business planning, feasibility studies and
valuation. Most importantly, I was learning the mindset of the small business
owner. At the risk of stereotyping, I was observing some worrisome
assumptions made by them. The top three were: 1) Everyone is my customer;
2) I have no competition because no one else does it exactly the way I do; 3)
The only competitive strategy available to me is lower price. After preparing
two different business plans for my own ideas and presenting them to
investors, my concerns were quickly validated; Investors didnt think this way
either. How on earth did any of the small businesses ever raise capital?

Scott and some other classmates formed their own Thursday evening social club, which
they dubbed The Board of Directors. At these invitation-only social gatherings, the
Board members would discuss, noodle, tear apart, or generally constructively critique
members various business ideas. All members felt this form of open discourse
sharpened their opportunity assessment skills (while at the same time improving their
Euchre skills). Armed with this modest wealth of experience, Scott felt quite comfortable
trying to address the needs and problems of Burt Stanski and Green River Rod Makers.
Scott spent a great deal of time learning Burts business, the industry, creditors and
customers, yet he was unable to stop the slide into bankruptcy unless he could find a
suitable buyer. Armed with his knowledge, Scott approached Burt with the idea of
buying the business, installing some new control systems and a new business strategy.
Green River Rod Makers Alec Johnson, Ph.D., University of St. Thomas 7

Appendix A Green River Products

Enso In Japan "Enso" is the classic symbol for that unique
and profound experience of the connectedness
Graphite Rod between all things in the natural world. For some of us
flyfishing has been the path towards that experience.
For others it is an unacknowledged pursuit. Sometimes
the rods that are the tools for this "flyfishing" are an
unexpected pleasure, our connection to the whole. The
rivers keep us humble, and the trout teach us
gratitude. With that gratitude we have chosen to name
our premier series of rods "Enso."
Jade The Jade is a pristine little brook that flows into our
own Green River - a typical Vermont trout stream. Our
Graphite Rod new Jade2 rods are, however, far from typical. Just as
the original Jade series that brought with its
introduction extraordinary reviews from the magazines
and critics and the attention of discerning anglers
everywhere, these new Jade's retain their roots in
classic New England flyfishing where long delicate casts
with small flies are "de rigueur."
Mettowee The stream for which this series is named is a
classically beautiful and still relatively unspoiled trout
Bamboo Rod stream just a short drive from our shop. To us it
represents the essence of flyfishing and recalls the
"golden age" of rodmaking. To offer its name to this
series is not so much an homage or a dedication but
more a recognition that just as the natural world calls
to what is best in us, so we are obligated to bring our
best to it.
Rawson Place Collectors and discriminating flyfishers who fish only
with cane consider Rawson Place rods exceptional
Bamboo Rod heirloom quality flyrods. Every Rawson Place rod is
built by master rodmaker Burt Stanski. They are made
one rod at a time using only the best materials.
Starting with carefully selected cane from our perfectly
aged stock and using proprietary tapers, the long
meticulous process is completed with fine silk wraps
and classic handcrafted jewelry-like fittings.
Green River Rod Makers Alec Johnson, Ph.D., University of St. Thomas 8

Appendix B
Planned (not actual) Product Costs and Pricing Strategy

Jade 3pc. Enso New Enso Mettowee

Total Variable $180 $249 $238 $415
Whole Sale $210 $324 $297 $760
Contribution $30 $70 $59 $345

Burts estimated income for tax purposes: # rods x contribution margin for rod type.
Green River Rod Makers Alec Johnson, Ph.D., University of St. Thomas 9

Excerpts from Term Sheet With ABC Corporation


July 7, 1997

This term sheet summarizes the terms and conditions of a proposed financing
facility (the Facility) consisting of a Secured Debenture (the Debenture) with a
detachable warrant (the Warrant) and a Line of Credit (the Line of Credit) for Green
River Rod Makers. The terms of the proposed Facility are as follows:

1) Company. Green River Rod Makers (GRRM or the Company), a corporation to

be organized under the laws of the State of Delaware with its principal place of
business in Brattleboro, VT.
2) Investor: ABC Corporation, a Federal Licensee under the Small Business Act of 1958,
incorporated under the laws of New Hampshire with its principal place of business in
Regis, New Hampshire.
3) Financing to be provided.
a) Debenture: Fifty Thousand and No/100ths Dollars ($50,000.00) to be represented
by a Debenture to be purchased pursuant to a debenture purchase agreement
acceptable to ABC and a five-year (5) detachable warrant to purchase an
undiluted thirty percent (30%) of the Common Stock of GRRM for one dollar
b) Line of Credit: Tow Hundred and Fifty Thousand and No/100ths Dollars
($250,000) to be advanced according to a loan agreement on terms acceptable to
4) Term/Amortization. The proposed Facility will have the following terms and
principal amortization schedule.
a) Debenture: Five (5) years, with principal amortization features as defined in 7(a)
and a balloon principal payment due at maturity.
b) Line of Credit: Five (5) years, interest only, with a balloon principal payment due
at maturity.
c) Warrant: Five (5) years, from the date of purchase by ABC.
5) Interest.
6) Financing to be provided.
a) Debenture: The debenture shall bear interest at an annual rate of fourteen percent
(14%) during the term of the Debenture. Such interest shall accrue and be added
to principal (the PIK Payment) for the first twenty-four (24) months of the term
of the Debenture unless GRRMs monthly cash flow is positive. In such an event,
fifty percent (50%) of such positive monthly cash flow shall be paid to ABC and
applied against the Debenture as follows: first to fees; second to interest due
and/or accrued; and third, if any, to any outstanding principal. In addition, ABC
will receive, at maturity or upon an earlier repayment in full of both the
Debenture and Line of Credit, as an additional payment of interest, an amount
equal thirty percent (30%) of GRRMs accumulated annual cash flows calculated
Green River Rod Makers Alec Johnson, Ph.D., University of St. Thomas 10

as follow: pre-tax earnings, for each fiscal year through the term of the Debenture,
before any allowance for depreciation and amortization expense; interest other
than that paid or incurred to ABC under the Debenture and Line of Credit.

b) Line of Credit: Interest on the Line of Credit shall be payable at the rate of
fourteen percent per annum (14%) paid monthly.

7) Collateral. GRRMs and the Principals obligations to ABC under the Line of Credit
and Debenture shall be secured by the following:
a) A UCC-1 first security interest, in all tangible and intangible property now owned
or acquired in the future including without limitation: accounts receivable
together with all instruments, notes, claims, choses in action and other types of
obligations arising therefrom, inventory, machinery, equipment, real property,
other tangible and intangible property, patents, trademarks, and all future credit
balances and reserves, goods, merchandise, other property in GRRMs possession.
b) A first mortgage on the land and buildings, approximately 200 acres, currently
owned by Burt Stanski in Green River, Vermont. Such property currently houses
the operations of Green River Rodmakers. Mr. Stanski shall provide ABC with a
copy of the existing mortgage on the property that shall be retired in full with the
proceeds of the Debenture at closing. On or before the date of the Closing,
GRRMs attorney shall provide ABC with: an opinion of title, obtained at the
GRRMs cost and expense, certifying that as of the date of the Closing the
GRRMs holds good and marketable title to the property subject only to the
existing first mortgage which shall be fully repaid at closing; and an ALTA title
insurance policy, obtained at GRRMs expense, insuring 150% of the interests of
ABCs first mortgage.
c) A second mortgage on the Principals personal residence that is located in
Richmond, New Hampshire. The Principals shall provide ABC with a copy of
their existing mortgage on their personal residence. ABC second mortgage shall
be subordinate to not more than One Hundred and Ten Thousand and No/100ths
Dollars ($110,000) of first mortgage debt. On or before the date of the Closing,
the Principals attorney shall provide ABC with: an opinion of title, obtained at
the Principals cost and expense, certifying that as of the date of the Closing the
Principals hold good and marketable title to their residence subject only to the
existing first mortgage; and an ALTA title insurance policy, obtained at the
Principals cost and expense, insuring 150% of the interests of ABCs second
mortgage. ABC shall agree in the event of a default, that BC shall proceed to
judgment against all other pledged collateral, however, for the first 90 days, ABC
shall look only to the other pledged collateral before looking to this mortgage for
collection of indebtedness.