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Wednesday, 13 June 2012 18:46

Changing course while keeping afloat: NOC’s new owners try to improve bottom line while keeping core values

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The Nantahala Outdoor Center rose rapidly from a scrappy operation spawned by idealistic river rats in the 1970s to one of the largest and most renowned outfitters in the country. Now in its 40th year, NOC has struggled during the past decade to reconcile its founding philosophy — that of like-minded outdoors lovers carving out a living doing what they loved — with changing economic realities.

 

“I think the ability to change with the times is so important. Nobody would want to see NOC stick to what they did 40 years ago to the point it became unsustainable and it had to go away,” said Joe Jacobi, an Olympic gold medalist who worked at NOC as a dishwasher in the early 1990s and is now the director of USA Whitewater. “The challenge is how to you retool your company and keep the core values in place.”

John Burton, also an Olympic paddler and an early pioneer at NOC in the 1970s, has learned to take nostalgia in stride, however.

“Every year since the second year we’ve been here people have said, ‘You know the center is not like it used to be,’” Burton said.

Nonetheless, it’s something that figures prominently for the group of new owners and investors who took over the reins of NOC earlier this year, the first such changing of the guard since NOC’s original founders started the river venture 40 years ago.

“The business has a soul, and nobody wants to give that up,” Burton said. “The company has to be profitable, but at the same time, the soul and values have to be retained. If you are a new investor, you love what the outdoor center is, but you are bringing your own ideas. It is a difficult balance.”

Burton — who worked side-by-side with the company’s primary founder Payson Kennedy for two decades  — now finds himself in a role he calls CCO for “chief cultural officer.”

Burton discounts the idea that NOC’s glory days are long past.

“There is no good or bad era,” Burton said. “We have hundreds of people here who say this is a spectacularly fun job, and you have those who have left who would say, ‘You know the center isn’t as much fun anymore.’”

The identity crisis the Nantahala Outdoor Center has struggled with for much of the last decade finally seems to be righting itself, however. New owners are reinventing the company from its roots as a river outfitter to an outdoor adventure destination. They’ve charted a course to improve the company’s bottom line, like their plan to build an array of vacation lodging in the Gorge, from hiker hostels to luxury cottages. Yet they promise not to undo what makes NOC sacred.

“I get the sadness, and the decisions are hard, but that’s because we believe the core values and pillars are worth fighting for,” Jacobi said.

 

Fewer paddlers, new challenges

The struggle to redefine NOC dates to the late 1990s, when paddling began a slow, steady decline at a national level. NOC wasn’t immune to the downturn and suddenly faced the realities of running a business during hard times.

“You have to be financially successful,” said Bunny Johns, who was the president of NOC from 1990 to 2000. “You are talking about trying to become an everyday business when you are not used to that but you are being forced to.”

When times were good, NOC could afford to lose money on a daycare center for the kids of employees. Or to give employees gear discounts that were so cheap NOC actually lost money on the deals.

“You begin looking at those, and it becomes a very divisive thing when you look at what to cut,” said Johns.

“Every year we would debate in terms of where we should spend our resources and how we should fulfill our mission,” agreed Ken Howle, who worked in the marketing department during this time and sat on NOC’s board of directors.

Johns called ending the daycare a “heart-wrenching decision.”

“That one thing at least for the people with kids was very important,” Johns said. It also reflected NOC’s culture as a community workplace.

And when NOC also changed its policy on gear discounts for employees, “There was a huge outcry because people felt like ‘Our salaries our low, and this is our benefit,’” Johns said.

SEE ALSO: NOC believes the future is in kids

Johns had been a champion paddler and early pioneer of NOC in the 1970s. She had the institutional knowledge of NOC’s history and so wanted to tread lightly where necessary, but she also grasped the reality that changes were imminent.

Johns also cut back NOC’s international adventure travel trips, generally conducted in the off-season that were as much about giving staffers a chance to travel and paddle in South America as it was about actually making money. In fact, NOC was losing money, and so the international travel trips were mostly axed.

Just before these difficult times of the late 1990s set in, NOC’s co-founder Payson Kennedy stepped down as CEO for the first time in the company’s history, leaving Johns to assume the role of both president and CEO.

But after three years of losses, Johns was ultimately forced out in 2000 by the board of directors. Two people on the board had voted to keep her, however — Payson Kennedy was one of them. He realized she had been dealt a tough hand and was likely doing as good a job as anyone else could have.

Looking back on his 40-year history with the NOC, Kennedy said losing Johns is the thing he regrets most. If there was anything he would do differently, he wished he realized sooner that there was a leadership coup afoot among the directors so he could have fought harder to keep her.

NOC went through two CEOs during the next four years, but neither turned out to be an ideal fit for the company, thus their short tenure. Some of NOC’s long-time employees left during those years as the outfitter struggled with its identity.

In 2004, Payson Kennedy stepped back in. By then in his early 70s, Payson once again found himself the president and CEO of the company he’d founded more than 30 years earlier.

As the largest stockholder, he’d remained intimately involved in NOC’s operations. His first goal after returning was to stabilize the company and instill a sense of confidence that had been faltering among employees. His next goal: finding the right fit this time around to run the company — someone who was a smart businessman but also a paddler and would embrace the NOC ideals.

In 2007, Sutton Bacon, who was then 26, came on board.

Bacon and his wife lived in Atlanta. He was one of the founders of a consulting firm that had Fortune 500 clients, and she was a lawyer at the largest legal firm in the Southeast. However, he had also paddled in the Nantahala and throughout the region since he was 10.

There was a parallel there to the early pioneers of NOC, who came out of the Atalanta area and left behind higher-paying, big-city jobs to start a river outpost.

“We are in the lineage of giving up our careers in Atlanta and moving up to mountains,” said Sutton, although the couple chose to settle in Asheville. “Both of us did a big lifestyle change and haven’t regretted it a bit.”

While he took up his post at NOC, his wife became a lawyer with the nonprofit Legal Aid, which provides legal services for low-income people in civil suits. They are raising two children, now 1 and 3.

When it came time to find buyers for NOC, it was Bacon who put together the team of investors, tapping acquaintances and friends from his old business circles in Atlanta and structuring the deal to buy out the majority stock holdings of NOC’s original founders.

 

A perfect match

When courting buyers, Payson and Aurelia Kennedy weren’t looking for the highest bidder. Even as they stare down their 80s, they wanted the legacy of NOC to endure as they envisioned it.

They started NOC as a haven for outdoor lovers. The river became a refuge for paddlers who wanted to live on the water among like-minded souls. The living itself was modest, but the reward was worth it — they could spend their days plying their passion for paddling to the world.

Meanwhile, the community of river guides and paddling instructors — along with the myriad waitresses, motel maids, cooks and cashiers looking for a slice of adventure each summer — worked, ate, slept and lived side-by-side with the river and the outdoors, an isolated utopia marked only by the daily masses of rafters drifting by as a backdrop to the surreal life.

They wanted new owners who wouldn’t gut these ideals.

“I have become progressively reassured as I have gotten to know these guys,” Payson Kennedy said.

The selling points Payson and Aurelia seized on when sizing up the new investors was atypical, you might say.

For example, the son of one investor spent two years traveling around the world backpacking, climbing and paddling after graduating from college. The adventurous spirit is a prized trait for the Kennedys. It meant something that one of the investors had apparently instilled a youthful wanderlust of sorts in their son.

“That’s the kind of criteria that is more important to me,” Kennedy said.

SEE ALSO: Paddling downturn forces NOC to expand offerings

When the Kennedy’s started NOC, it was all hands on deck all the time. Everyone guided rafts, drove shuttles, washed dishes, cleaned motel rooms. Forty years later, employees are still expected to pitch in wherever needed.

Payson can still be found pinch-hitting as a raft guide during rushes.

To prove their mettle, the team of new investors spent a week on the river last year going through guide school so they, too, could serve as rafting guides.

“The fact they were all willing to train on the river as guides and work on the river on busy days was important to us,” Payson said.

Payson also wanted to find owners who were motivated for the right reasons — not someone simply looking to capitalize on NOC as a business investment.

“They say one of their main reasons is they have young children and they want them to have the opportunity to grow up on the river,” Payson said.

That’s also reassuring.

“They want their kids to spend time hanging around a river instead of hanging around a mall. They want their kids working here in the summer and being part of the culture,” Burton said.

 

Keeping the ship afloat

While the Kennedys were clearly ready to give retirement a second try, that wasn’t the main reason for selling NOC to the new group of investors. NOC needed capital. It needed to upgrade facilities, and most of all, to build lodging.

Borrowing money wasn’t an option. In fact, the company was somewhat worried banks would call an existing loan.

The company had already borrowed money against its land to build a giant retail store in Gatlinburg, the Great Outpost, which sells outdoor gear and clothing and acts as a concierge for guided outdoor recreation in the region.

While the company had no trouble making its loan payments, NOC was saddled by a major liability: the remnants of an employee stock-ownership plan, or ESOP.

During its peak, employees collectively owned more than 60 percent of the company. It certainly did what it was intended to.

“The pros were if you feel like you own something, you are going to be a bit more attached to it than if you feel like you are working for someone else,” said Ken Howle, who sat on the NOC board in the 1990s as a representative of the company’s employee-ownership. “I truly felt like the employee owners took it more to heart than they would otherwise. You had the sense that if the company was doing well and your stock was doing well, there was a direct correlation.”

“Employee-owned” even had a spot in the company’s logo and letterhead.

But the larger the company grew and the more employees that bought into the company stock, the more difficult it became to give everyone the voice they thought they were entitled to.

“I think the decision-making process would sometimes become long and difficult,” Howle said. “It was sometimes hard to separate emotional issues from business decisions.”

During the past decade, banks began to frown on the ESOP. It became a regulatory nightmare for the company. The ESOP was already on the way out. No new employee stock shares had been granted in years and the percentage of the company held by the ESOP had fallen dramatically. But, it would take a major cash infusion from the new investors to buy out all the old shares on the books and rid the company of all the ESOP holdovers.

While the ESOP is gone, Aurelia Kennedy said she hopes the employees retain their historic voice in the company’s operation. You can get more than you bargained for when employees are given a seat at the table, Aurelia admitted. You’ll hear opinions you don’t agree with, and it can take longer to come to decisions. But, time spent engaging staff on the front end pays off on the back end — implementing a new program or initiative ultimately goes better when staff is consulted and included, Aurelia said.

“When you have a plan, have the people or the group that is going to carry it be part of the planning process,” she said.

The style of leadership didn’t go unnoticed.

“The Kennedys intentionally wanted everyone to feel involved. Most decisions were made with a lot of involvement and discussion,” said Howle.

A shining example of employee input and buy-in is the network of mountain bike trails built in the 1990s.

Howle, who worked at NOC during the time, was among a handful of staff who came up with a plan to build the trail system and got the green light to do it.

“It was the type of environment if you as an individual were passionate about something and were willing to put the time and energy into it, NOC would support it,” Howle said.

 

What now?

The new investors have two major strategies: diversify beyond rafting and paddling and build lodging facilities in the Gorge.

The idea for lodging isn’t exactly new. It appeared in NOC’s master plan created in 1983 — three decades ago.

Payson Kennedy hopes it will finally come to fruition.

“It is so capital intensive that is one of the things we hope the new guys can do,” Kennedy said.

It goes hand in glove with NOC’s other push to become a multi-faceted outfitter — another way the new NOC will differ from the old.

“My guess is there will be less dependence and focus on whitewater, and we will have more activities like mountain biking and the ropes course, fly fishing, activities that are not so intensively concentrated in the summer, and a more varied range,” Payson said.

NOC isn’t as river-centric as it once was. It offers 120 different activities at seven locations in the mountains. It boasts 1 million visitors, but that’s counting absolutely everyone NOC crosses paths with: from people who walk through their new retail concept store at the Grove Park Inn for some window shopping to Appalachian Trail hikers who cross their property in the Nantahala Gorge.

Next week, it is opening an adventure park in the Gorge, with a maze of zip lines, canopy tours and challenge courses.

“Ultimately, we would like a family to be able to spend a week on the Nantahala with us and do a different outdoor activity with us every day,” Bacon said.

Burton said NOC has to wean itself from its dependence on river revenue.

“The handwriting is on the wall,” Burton said. “We are late, but we are getting there.”

From his outside lens, Mark Singleton agreed NOC was late, maybe too late, to get on a new course. But if there is any business that could pull off a reinvention, NOC might be it.

“This isn’t a situation of where they need to put lipstick on a pig,” said Singleton, who worked at NOC for a decade and now works as the director of American Whitewater, a national paddling advocacy organization based in Sylva.

NOC was intended since its early days to offer an array of outdoor adventure — thus the Nantahala Outdoor Center instead of Nantahala Rafting Center, Bacon pointed out — but it’s just taken a while to get there.

“It will take time and be an evolution to help change consumer mindset from being a predominantly whitewater-based company to an outdoors company,” Bacon said.

 

Last week:

Launching a legacy: Nantahala Outdoor Center ascends from a meager outpost to river prodigy
Horace Holden’s ‘hunch’ pays off
Walking on water: Aura of greatness takes root at NOC

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