Founder Milt Kuolt strangled himself with debt to build a network of 14 idyllic camping preserves.
Everyone knows that campgrounds are often pretty dismal affairs. So it was time for the reporter to kick a few tires, do a little fieldwork, and check things out for himself. There was a chill in the air, and a fine drizzle had begun to fall air, and a fine drizzle had begun to fall on this April morning in Chehalis, Wash., a small town about halfway between Seattle and Portland, Oreg. Jerry Andres, 38, vice-president of resort services for Seattle-based Thousand Trails Inc., was at the wheel.
Once past the guardhouse at the entrance to the campground, Andres set out on a gravel and dirt road that twisted slowly through acres of virgin timber. The periodic, rectangular notches cut into the forest sometimes held silver, bullet-shaped Airstream travel trailers. Sometimes, they held elaborate recreational vehicles with lawn chairs nestled under green-and-white striped awnings.
Good Lord, the reporter thought, this is all just too idyllic to believe. "Don't you think we should check out the bathrooms?" he asked Andres.
As an experienced camper himself and a trained observed of the human predicament, the reporter knew that the condition of the restrooms would indicate the true quality of this chain of campgrounds. Andres pulled the car in front of a freshly painted building by the side of the road and hopped out. Inside, the building was not only clean, but it also had, prominently displayed, a checklist indicating what maintenance had been done, when, and by whom. Andres tapped the list and smiled.
Behind the idyllic picture of Thousand Trails's Chehalis campground stretches a long road scarred by struggle, all leading back to one man: Milt Kuolt (pronounced Colt). In fact, Kuolt brought campers his vision of the good life in the great outdoors by selling his wife's jewelry, second-mortgaging his house, getting laughed out of bank loan offices, and generally strangling himself with debt.
In the 12 years since Kuolt quit his job at Boeing Co. in Seattle, Thousand Trails has acquired or opened 14 preserves, which now serve 25,000 members in Washington, Oregon, California, and Canada. In 1980, Thousand Trails reported sales of nearly $34 million with earnings of $4.5 million. Since sales had barely passed the $1-million mark only four years earlier, the company earned 19th place on the 1981 INC. 100 list of the fastest-growing smaller companies in the United States.
The company's success has also earned Kuolt the satisfying privilege of having the last laugh on a small army of doubters. Not only has his idea been proven in the marketplace, but Kuolt has also become a multimillionaire. In September, he resigned as chief executive officer and sold 400,000 shares of his stock to Jim Jensen, the new chairman, at $11 a share (see page 88).
"The worst mistake an entrepreneur can make," Kuolt explains, "is to think that the abilities he had to run a company of 20 employees are good enough to run a company of 850 employees. I've made my contribution. The company needs Jim now."
Although Kuolt will still serve on the executive committee of the board of directors and remain the single largest shareholder, it is without a doubt the end of his relentless, 12-year march. Along the way, Kuolt fought a series of skirmishes against a number of adversaries, in sharp contrast to the tranquility of the resorts he created.
"I built this company because I wanted to," he says. "The more I heard that I couldn't, the more I wanted to do it. It's been a long time coming."
Throughout the '60s, Kuolt worked in the business planning division of the Boeing Co. He filled his free time with two hobbies: buying and selling 10- to 20-acre tracts of rural land and camping in his 16-foot Terry Travel Trailer. By 1969, he was restless at Boeing, always thinking about a business of his own. His land dealings had been reasonably successful and he had gradually acquired larger patches of real estate, including one 640-acre site in the woods of Chehalis, Wash. And over the years his love for camping had been sorely tried by deteriorating conditions at local public campgrounds and state parks.
"My wife, the kids, and I tried to go someplace every weekend," he says, "but it got more and more disappointing. There were crowds, the facilities weren't clean, there was a lot of drinking and pot smoking, and there were no planned activities for the kids. Frankly, it was a boring experience."
At the same time, Kuolt had been following the growing popularity of tennis clubs and health clubs. Somehow this trend, combined with his experiences in real estate and camping, generated a novel idea. "What if," he reasoned, "I developed campgrounds and, instead of selling sites in fee simple, I sold lifetime memberships, kind of a modest man's country club." He envisioned a network of several campgrounds, each equipped with the amenities he had found lacking in his own trips to the backwoods. The lifetime membership would allow the camper to use any and all of the campgrounds at his or her convenience. Everyone would be happy, including Kuolt, because the plan had several built-in benefits.
First, the company that developed the system would end up owning the land. "I believe strongly in investing in real estate," Kuolt says. "My mind tends to think in perpetuity." As site improvements were made, the increased value of the land could support borrowings for other developments. Second, since many of the memberships would probably be sold on an installment basis, a receivables base would be created that could also support development loans and, in time, could turn the company into a veritable cash-flow machine.
Mel Kays, Thousand Trails's executive vice-president, treasurer, and chief financial officer, says that, in theory, the cash flow machine was to be built in three steps: Receivables would first cover operating expenses; then, as the receivables base grew it would begin to cover operating expenses and development costs; finally, the receivables base would get so large it would cover operating expenses and development costs, and still leave enough surplus to repay debt. Kays has all this down on a chart. The chart says Thousand Trails would hit step three in 1984. But things didn't work out exactly as planned.
"This company," Kuolt says, "got off the ground goddamn slowly." Of course, there was no way Kuolt could have foreseen the tough road ahead. Nor would he have been overly concerned if he had. He had the idea; the adrenalin was flowing and he was ready for anything.
"Chehalis was the first preserve opened by Thousand Trails," Jerry Andres is saying. "Preserve," he explains, is the preferred way of referring to what is usually called a campground resort. "What you're seeing here," he continues, "are some of the 425 campsites available to our members in this one location." Thousand Trails's members, he says, are largely drawn from middle-class, blue-collar America. The head of the household, on the average, is about 50 years old, has a couple of kids, and an income of around $20,000 a year. Most members own motor homes, pickup campers, or travel trailers.
During the spring of 1970, Milt Kuolt and his three sons set up long, folding picnic tables in the parking lots of three local shopping centers where travel-trailer shows were being held. Kuolt was in his element. Here were hundreds of recreational vehicle people come to gawk at the latest offerings in mobile comfort. After the shows, Kuolt had more than 1,500 responses to a questionnaire he'd drawn up. Not only did Kuolt find in most of the responses the mirror image of his own dreams, but more important he now also had a customer list to fuel his initial membership drive.
One of the most frequently mentioned requirements was the need to find a campground within a one- to two-hour drive of the camper's home. Kuolt realized that his Chehalis property was, therefore, ideally situated to attract campers from both Seattle and Portland. The die was cast.
In late 1969, Kuolt left his job at Boeing and began to punch some roads and campsites into the woods at Chehalis. "Everything I had went into the business," he says. "Any personal asset I had, like jewelry, was turned into cash, and I got a second mortgage on my house. It was all on the line and then some."
Kuolt figures that he put in roughly $40,000, not counting the value of the property itself. In addition, he took out a $90,000 personal note with a branch of the Canadian Imperial Bank of Commerce by pledging various small pieces of real estate he owned as collateral.
Kuolt and his three sons spent two years whacking away at his dream in the tangled undergrowth. They cleared most of the sites by hand and then started in on the clubhouse. Some nights Kuolt slept under a table in an old barn that he called his headquarters. In July 1972, he sent letters to everyone who had answered his question-naire. He offered them a lifetime membership for a $295 initiation fee and dues of $60 a year. "Up till then," he says, "everybody was selling the pride of ownership, not the right to use. It wasn't easy. There wasn't much to get excited about. I told everyone who came for a look that I would try to add more things, like a pool and tennis courts, but that I couldn't promise. What you see is what you get."
Following a practice widely used by recreational land developers, Kuolt offered a "premium" to anyone who toured the site. At first, it was simply a hamburger and hot dog barbecue held in a nearby meadow. A year later, an electric camp light and a set of barbecue utensils were added. In its most recent incarnation, the premium lives on in the form of a sleeping bag and cash awards to members who successfully encourage friends to join.
It would have been relatively easy if all Kuolt had to do was dangle carrots before eager potential members. But between 1972 and 1976, Thousand Trails's critical formative years, the task of gaining members became more and more complex. The way to greater membership sales was to add amenities to Chehalis and, at the same time, add new preserves. But this was a chicken-or-egg predicament, since new development required cash from new memberships, and vice versa.
John Cox and his wife, Frances, were floating around in the heated Olympic-size pool next to the club-house. John and Frances are both 58. They live in Clatskanie, Oreg., but they aren't there very often now. John, a retired steam engineer, and Frances have been members of Thousand Trails for four years and spend most of their time traveling between the 14 preserves in a 26-foot Chinook camper. They were swimming with their granddaughter, Nicole, who's 3 years old and lives in Eugene, Oreg. "Wherever you go," Frances says, "you always meet somebody you know. You're never a stranger. They say we're all a family and that's the best way to describe it."
Kuolt knew there was only one way to break out of the chicken-or-egg trap. He had to do as much of the work as he could by himself and borrow money wherever he could.
But bootstrapping is a risky business. Kuolt, for example, did convince a local builder to accept a modest amount of cash and the balance in the stock of the fledgling enterprise in exchange for the pool at Chehalis. On the other hand, Kuolt once jumped on a backhoe intent on repairing a broken water main but, in the process, burst two more pipes and effectively cut off the water supply to all of Leavenworth. Still, these events were barely noteworthy compared with the tribulations Kuolt suffered borrowing money.
"In those days," he says, "I couldn't borrow the price of a dried grape. I was laughed out of nearly every bank in Seattle. At least once a month, every friend I had told me to bankrupt the company because I couldn't make it."
According to Kuolt, the kind folks at the Canadian Imperial Bank didn't want to lend him any more money because they weren't entirely sure they were going to collect on his original loan. "I was late on the payments," he says, "and they told me I was a 'problem' loan." Nor were other banks eager to part with their funds. This idea of "right to use" rather than "pride of ownership" needed to ripen on the vine a little longer. Kuolt says banks were also troubled by the dependability of the receivables that would eventually repay the loan. Today, with the average price of a membership hovering around $5,000, 67% of all new members choose to pay in installments with a 20% down payment, financing the balance at rates between 15% to 18% over an average term of four years. As the company's ability to police these receivables has improved, the provision for doubtful accounts declined to a point where it is now less than 2% of total membership sales. But in 1975, that same figure was 8%, and it was based on only three years of experience. "I've mostly found bankers to be pompous bastards," Kuolt says. "Hell, some of them wouldn't even come out to the office to look around."
Kuolt struck out against the indignity of it all with a long, desperate combination of jabs and hooks, a Joe Frazier style of financing -- keep coming, keep swinging, don't let up. "Nothing so-phisticated," he says, "just hard grubbing in the street." Every week, Kuolt would take a bunch of receivables down to a local consumer finance company that would set up a bad debt reserve of 15% of the total value of the receivables and give Kuolt the difference in cash.Then Kuolt would drive back to Chehalis or some other preserve and pay bills.
Membership receivables were also used to acquire property. Mel Kays says that the differences in financing arrangements then and now clearly demonstrate Thousand Trails's improved financial stability. "In those days we had to conserve cash," Kays says, "so we typically put down 3% to 5% as a cash down payment and then pledged some receivables to get the down payment up to 15%. Then we worked out a deal where we would pay off the balance with a monthly combination of some cash and more receivables. We'd do development to the extent there was anything left over."
In 1975, this method was used to acquire Thousand Trails's second preserve, a partially developed campground in Leavenworth, Wash. In contrast to the murky past, Kays points to the November 1980 acquisition of an 84-acre site at San Jose, Calif. -- a $1.6-million chunk gobbled up for $250,000 down and a note for the balance at 11% over seven years. "Before, a seller would've been nervous as hell to take back a note," he says.
THOUSAND TRAILS: STATYING AHEAD OF THE DEBT
Year ended December 31 1976 1977 1978 1979 1980
Sale of memberships ($ mil.) 1.2 7.7 14.3 21.4 34.0
Fully diluted earnings (loss) (.11) .55 .66 1.17 1.42
Current assets ($ mil.) .5 1.7 2.8 8.0 7.6
Current liabilities ($ mil.) .8 1.7 5.0 7.0 7.8
Total assets ($ mil.) 3.6 7.9 17.2 34.3 52.6
Long-term debt ($ mil.) 3.5 4.1 7.0 17.5 20.5
($ mil.) (.1) 1.0 3.0 7.1 14.1
Debt/equity ratio -- 4.1 2.3 2.5 1.5
Memberships sold 614 2,826 4,263 5,581 7,704
Average price of
membership $1,900 2,725 3,375 3,825 4,400
In and around the receivables financing, Kuolt wove an intricate web of supplementary loans with friends, relatives, and various acquaintances. "There was a lot of Mickey Mouse financing going on," Kuolt says, "but we did what we had to -- $100,000 here, $40,000 there. We probably raised $3 million to $4 million that way."
Milton and Lucile Clarke were passing the time quietly inside the clubhouse, a long, high-roofed wooden structure bordered at one end by the pool and at the other by a general store called The Trading Post. Milton is 63, a retired cab driver from Portland. He and Lucile have been Thousand Trails members for 10 months. Lucile says they used to go to state parks, but got fed up with "the carrying on. We have security here," she says, "It's perfect for us."
By 1975, Kuolt and his cash flow machine appeared to be making some progress. True, there was an operating loss of $49,000, but there were also two preserves, 583 members, and sales of $353,000. The contraption had yet to kick over, though, and Kuolt sorely needed to hear even a faint spark of ignition. It sputtered to life the very next year.
By year end 1976, memberships had doubled and, aided by a higher membership price, sales tripled past the $1-million mark for the first time. The powerful propellant behind this sudden burst was a high-octane blend of two more preserves and 40 go-getting salespeople. "It was a turning point for us," Kuolt says. "For one thing, the public saw that we now had four preserves, and that obviously made a membership more attractive. For another thing, we were able to hire Rich Toohey as sales, manager."
Toohey, who had earlier won his spurs with a recreational land marketing company, joined Thousand Trails because he saw the company's right-to-use concept as a necessity. "In the middle '70s," he says, "developers were having problems with lead times and environmental considerations. This caused the price of a developed lot to go up so high that the average person couldn't afford it. It caused a slowdown in the industry. I saw Trails as the answer to the problem."
Nor was he the only one who saw the light. Crack salespeople were leaving the land marketing companies in droves, and Toohey encouraged some of the best to join Thousand Trails with him. Then, in place of the largely improvised tactics of previous sales campaigns, Toohey substituted a polished, well-oiled arsenal of proven, professional techniques. And just in case someone forgot where the trigger was, Toohey put the new methods down in manuals and put the manuals in training programs, neither of which had existed before. Toohey also came up with two other ideas whose worth has been apparent ever since: the sleeping bag premium and $50 cash payment to any member who gets a friend to join. "I'd like to take credit for the turnaround myself," Toohey says, "but it was really the salespeople we were able to hire."
Kuolt, like Toohey, also qualifies his success, because even though sales advanced sharply, the cost of staffing and preparing new preserves caused operating expenses to rise even faster, producing a loss of $194,000 in 1976. "Damn," Kuolt thought, "The machine kicks over, but can I take it on a trip?"
Only a year later, Kuolt at least got a chance to take his flivver once around the block. The attention given to the sales force paid off handsomely. "These guys," Toohey says, "had a product they could believe in and they started working 50 hours a week." In 1977, outstanding memberships more than tripled and sales, at $7.7 million, were more than six times greater than the year before. For the first time in five years, Thousand Trails reported positive earnings of just over $1 million. "I always knew," Kuolt comments, "that if we got enough people to walk around the preserve, to smell it and touch it, the idea would sell. That year proved it without a doubt."
But still Kuolt wasn't satisfied. Just underneath the awesome rumbling of all that horsepower, Kuolt heard the first telltale sound of too much debt rubbing against too little equity. In 1977, the company's debt-to-equity ratio was already 4 to 1 and climbing. Nor did the next year relieve the strain as three more preserves were added. By 1979, the pinging had changed to hammer blows. "That year was very close," Kays says. "We had been building on a pretty flimsy base, but it's hard to say things were actually done wrong in the past. Maybe property acquisition and construction could've been done at a slower pace. Plus, all that Mickey Mouse financing didn't help matters much." But the next two years would mark the end of cartoon financing; Thousand Trails went public in December and, then, in mid-1980, secured its first major bank loan.
Frank L. Bryant, executive managing director at the Los Angeles-based investment banking firm, Bateman Eichler Hill Richards Inc., remembers Thousand Trails's debut vividly: "It was one of the most difficult underwritings I've ever done, and I've done a hundred of them. We were going uphill in a market that was going straight down on any recreation-related stock that required the consumer to use gas." Bryant says investors were worried that higher gas prices and possible shortages might convince RV owners to stay home. "Even though we could show investors that memberships and campground visits actually went up -- even during the oil embargo," he says, "they were still jittery." So Bryant broke the deal into two parts: $4 million in 13% convertible subordinated debentures and 300,000 shares of common stock. Encouraged by the combination of yield and a play in the stock, investors bought out the issue on December 12, 1979, giving the company almost $6 million in balancesheet ballast. "I believed in that issue," Bryant says, "because I believed in Milt Kuolt. I thought he had done a Herculean job of building the company, in absolutely bootstrapping it."
In the spring of 1980, Gil Dempsey, a vice-president in the commercial loan division of the First National Bank of Boston, reached a similar conclusion. "Typically," he says, "we get involved in growth companies that have financed themselves piecemeal, anyway they can. You can say to a guy, 'Why did you finance that way?' And he'll say, 'Well, what the hell was I supposed to do?' That's just the way it is in a lot of growth companies. We give him credit for getting as far as he has." In this case, Dempsey's credit amounted to a revolving line worth $10 million. Thousand Trails had come of age: It was a public company in good standing; it had been recognized by a major financial institution; and it had brought its debt-to-equity ratio down to a manageable 2 to 1.
Life on the campground moves along at its own blissful pace. The sun is coming out at Chehalis, and Jerry Andres is saying it's time to go just as Dale Sturdevant is making a point. Sturdevant is 50 years old and lives in nearby Napavine, Wash. He says he's been a member of Thousand Trails since 1973 and was on hand when Kuolt started to improve the site. Many's the time he's watched Kuolt slog his way up nearly cleared roads already muddied and deeply rutted by crisscrossing bulldozers. "Iagreed 100% with the way Milt had things lined up in his dreams," he says. "If Milt was my father, I'd brag about it." Sometimes you've just got to believe.