With help from FSB's consultants, a cattleman starts to think outside the corral.
(FORTUNE Small Business) – Craig Winterburn, his black beaver-felt cowboy hat tilted slightly forward and his brown work jacket spattered with mud, steers a burly red pickup across a flat expanse of fescue, clover, and alfalfa near Helena, Mont., where his black Angus cattle stomp and groan in the late spring sun. "I been ranching on this land a long time," he reflects in a slow cowboy drawl. "It's been my life, and I've never not liked it, but it has had its rough spots."
Winterburn, 65, is a rugged man with callused hands, a wind-beaten face, and a nose that looks as if it's been kicked in a few times. He leased his first ranch in 1959, when he was 19. In 1975 he founded the Running W Cattle Co. Today Winterburn's property sprawls across roughly 5,000 deeded acres and another 5,000 acres in private leases and forest permits. About a quarter lies in the Helena valley, and the balance is scattered around the surrounding mountains, where a century ago, speculators hunted for gold. More recently the Unabomber hid out in these hills before the feds nabbed him. Winterburn makes his money mainly by selling breeding heifers to other ranchers and steers to feedlots.
The entrepreneur hit his most recent rough spot during the cattle slump of the middle to late 1990s. In an already crowded marketplace, fierce price competition from larger outfits forced many smaller ranchers to shut down. Winterburn and four hired hands fought hard to keep the ranch alive. The Running W ran in the red for about seven years, struggling to cover operating costs and interest payments on Winterburn's hefty loans. "My dad told me once, 'You know, son, you done good,'" he jokes. "'You came to Montana with a broken-down pickup and a worn-out saddle, and now you're $1 million in debt. That's some progress.'"
In late 2003, Winterburn's cowboy dream brightened. A cow in Washington State was diagnosed with bovine spongiform encephalopathy (commonly known as mad cow disease) after it crossed the border from Canada. The U.S. government later banned all Canadian live cattle imports, which drove domestic steer prices from 92 cents a pound in September 2003 to $1.11 in May 2005. The Atkins diet craze also bolstered meat prices in the U.S., as did an eight-year drought that reduced cattle herds. In 2003, Winterburn made enough to fix busted fences and repair aging tractors. Last year he earned $34,000 after taxes, capital improvements, and depreciation. "It's a real thrill to run in the black," he says.
Winterburn is particularly vulnerable to market downturns because he owes about $850,000 to local banks. But what if the Canadian border opens up again this year, flooding the U.S. market with cheap Canadian cattle? And what if the next health fad drives beef out of fashion?
Some might call Winterburn an anachronism, but he's also a fighter. FSB sent three consultants to help the rancher ponder his business options, including whether to go organic. For advice on all things organic we recruited Allen Moody, director of livestock procurement at Organic Prairie, a subsidiary of the Organic Valley farmer cooperative in La Farge, Wis. Another option is to leverage the Running W's abundant wildlife and mountain scenery by expanding into the recreation business. For that, we turned to John Turner of Triangle X Ranch, a dude ranch in Moose, Wyo. And for general advice on the cattle industry, we enlisted Roy Moore, CEO and founder of Maverick Ranch Natural Meats in Denver (featured in FSB in March 2004).
Moody, 49, fronts a folk band called Sinister Dane and the Kickapoo Cosmo-Knots when he isn't overseeing meat procurement for Organic Prairie. He settles in at the kitchen table in Winterburn's cozy red ranch house, whose windows look out on grassy range and snow-capped mountains. Moody advises Winterburn to start raising organic cattle. "You're selling a commodity product right now," he says. "You have to access a world that's not dominated by the big guys."
Organic beef can command as much as a 50% premium over conventional beef, especially when demand is strong. And today that market is ripe. Over the past ten years, U.S. organic-food sales have grown at an annual clip of 20%. Nationwide, organic beef sales were a paltry $10 million in 2003 (compared with overall beef sales of $62 billion, according to Cattle-Fax, a market research service in Englewood, Colo.). But the Organic Trade Association projects annual sales growth of 31% between now and 2008.
Going organic is neither easy nor cheap, cautions Moody. For beef to bear the U.S. Department of Agriculture's "organic" label, the cattle must be raised on organic feed (which can cost twice the price of conventional feed) or grass. Pastures that have been treated with synthetic fertilizer or pesticides need to lie fallow for three years before cattle that graze on them can be certified organic. Livestock must have daily access to the outdoors and can never taste antibiotics or hormones. USDA agents make regular ranch inspections to monitor compliance.
If Winterburn converts a few pastures every year, the Running W could be certified as an organic ranch within ten years, Moody estimates. That might seem like a long time, but it's worth it. As consumers grow increasingly picky about what food they eat, the organic market will continue to expand, giving ranchers who go organic early a big financial leg up. "Organic is the future," Moody declares.
Fast-forward to the next day. After a six-hour drive from Wyoming and one flat tire, John Turner arrives just past 9 A.M., as the sun is beginning to warm the valley floor. At 37, Turner is tan and fit, the very model of a modern recreation guru. Leaning over the kitchen table, he asks whether outsiders hunt on Running W property.
Winterburn nods. "How much do you get for duck hunting?" Turner asks. "We don't," the rancher replies. "How about white tail?" Turner shakes his head when he learns that Winterburn never charges anyone to hunt on his land. "You pay to keep up your land, so I think the hunters should help pay for your costs."
Winterburn could start by building five or six shooting stands along the western shore of a lake not far from the ranch house. He could charge up to $100 a hunter per day for bird hunting. He could charge deer hunters as much as $5,000 for the season. Winterburn could bring in up to $18,000 in annual revenue at little cost, Turner estimates.
Winterburn is interested but has one objection. "There are a lot of people who can't afford commercial hunting fees around here, and I don't want to stop them from coming and enjoying the same things I do, like being out with Mother Nature," he says.
"So you have the people who pay come at the beginning of the [hunting] season," says Turner, "and offer two or three free daily permits to the public at the end."
"That's interesting," remarks Winterburn, scratching his chin.
"Sleigh rides in the winter and wagon rides in the summer are also very popular," Turner continues. "Tourists and local businesses pay a premium for these things."
Turner suggests hiring an old-timer to tell stories on a nightly ride through the range. Include a bottle of wine and throw in a guitar player. Maybe even add a casual steak dinner. "Take ten people and charge each one $38," he recommends.
Winterburn mentions that he already has two wagons and the horses to draw them. "You're almost there," says Turner encouragingly. And finally, Winterburn needs to advertise his existence to the world. "You should have a website," says Turner. "Four years ago we advertised by word of mouth and got about two good inquiries a day," he says. "But when we put up a website three years ago, we started getting around 50 inquiries a day."
After lunch at a roadside restaurant with consultant Roy Moore, we all take a bumpy pickup ride into the mountains, where Winterburn shows off his herd's summer stomping grounds. Moore, 69, is a tall, burly man with a bushy white beard that recalls the country singer Kenny Rogers, especially when Moore dons his cowboy hat. "I'm actually bigger than him," Moore says when Winterburn notes the resemblance.
Back in Winterburn's living room, Moore digs into his jeans for his notes. Paying off the ranch is priority No. 1, Moore says. And the best way to do that is to sell off some land. "Take a look at selling 160 acres right next to that subdivision," says Moore, referring to a tract of two-story houses sprouting at the edge of Winterburn's property.
At $3,500 an acre—the current market value—Winterburn would make an instant $500,000. He could cover the balance of his debt by selling an additional 50-acre parcel at the foot of the mountains. That land is also worth nearly $500,000, and Winterburn barely uses it. "This way you clear off your debt and just have operating expenses for the ranch," Moore says. "No more interest payments."
Instead of going organic, Winterburn might want to save some of the conversion money and think about partnering with a natural-meat company, such as Coleman Natural Meats, Creekstone Farms Premium Beef, or Moore's own Maverick Ranch Natural Meats. "Natural" and "organic" are very different labeling standards. According to the USDA, any meat can be labeled natural if it is minimally processed and contains no artificial ingredients. The language is imprecise, but basically the "natural" label describes what happens in the slaughterhouse, not how a cow is raised. But the more rigorous natural-meat companies apply stricter standards that allow them to use labels such as "No Hormone Implants Used in Raising" and "Raised in an Open Pasture." (These animal production claims are regulated by the USDA's Food Safety and Inspection Service.)
Winterburn doesn't resort to hormones or other growth stimulants, hardly uses antibiotics, and allows his cattle to run free in huge pastures. So he's the perfect partner for natural-beef companies, all of which pay a premium for naturally raised steers. "You could be getting $30 to $50 more a head," says Moore. Most years Winterburn sells around 500 head of cattle. He could increase annual revenues by almost $13,000 if he moved into the natural-beef market.
The Running W also needs to raise more bulls, says Moore. Instead of producing 250 steers a year, Winterburn should pick out the strongest 100 bull calves and raise them as bulls. Breeding bulls bring in $500 to $1,000 more a head than steers, which could add an extra $100,000 a year to the top line. "Wow," says Winterburn, as if he'd just been punched in the nose. "That's a great idea!"
On the morning I leave, Winterburn shows up at the airport to see me off. It's 6:30. As always, he's cheery and thanks me for bringing everyone into town. "I learned a lot," he says. He's considering raising more bulls and contacting one of the natural-beef companies, but he's not ready to go organic. While he liked Turner's recreational ideas, he's also not sure that he wants to take on another business at his age. He is negotiating for a conservation easement with a local nonprofit called Prickly Pear Land Trust. In essence, Prickly Pear would pay Winterburn not to subdivide his land. "I consider myself a steward of this land," he says. "I want to leave it the way I found it."
And lastly, the rancher has a little advice for FSB. "You wanna hear my three rules of business?" he asks. "Rule one, it's gotta be fun. Rule two, it's gotta work for everybody. And if you don't have rule one or two, rule three is don't do it."