Jackson Kayak state of affairs, a business review

October 25, 2004

Last week was a Fun 1 (no pun intended). Tony Lunt,
my sole partner, and my CFO, David, were here together for the first time.
David, Lorraine, Kristine, Tanya, and I worked hard to get the Quickbooks
file in proper form. There is a ton of stuff to keep track of and Lorraine
had every bank statement properly reconciled, but there was still many
things in the wrong categories, etc. This included inventory valuations,
etc., etc. By the time we got things organized and in proper form, it
was 48 hours later. Not bad. Tony flew in on Wednesday and came straight
to our Jackson Kayak party at my house. Tony brought a cooler full of
beef from his best cow from the ranch. We went through quite a lot of
beer and hung out on my deck in the 70+ weather (got to love the SE USA!).
It was the first time that Tony got to meet much of the staff, and some
team members.

By the time David finished getting the financials in
order, it was apparent to me that we would be profitable in our first
year. I was going for more profit than we will earn our first year, but
hey, we aren’t going to lose money this year! Everybody was so excited
about this, while I was very disappointed in my performance, since it
was my goal to earn over 10% in our firs, and it will be ½ that
unless we decide to increase sales this fall, which we won’t. I
am now off of my dream cloud, which didn’t allow for mistakes, and
accepting the fact that we will have to wait at least another year before
we build the kids their own bedrooms and a new house to go with it.

Tony was very excited and commending us on the job
we have done in our first year. I know we could have done better, especially
on the prices we were paying for our parts, but the sales and administrative
budgets were all under, only manufacturing was over and that is getting
fixed faster than a flat in a NASCAR race. The best part of the trip for
me was handing Tony a $100,000 check for payback of part of his loan to
the company. We still owe him more but it is coming back to him fast.

So the deal for Jackson Kayak is this:

1. Our business plan has been executed and it seems
   to be a viable approach to a whitewater only company
   • Put all resources into making the best product
   • Keep prices affordable
   • Let the product sell itself (no ads or sales reps)
   • Make kids boats, and boats for all sizes
   • Stay lean and mean- no offices, small facility, lean staff, family
     business.
2. We will not fail as a start up. We will thrive in
   the current market, and can handle a downturn in the market.
   • We have no fluff so we can survive even being small. We will be
     profitable at our current size and much more profitable at our 2005
     size.
   • We have a great team of experts who CARE about the product we
     are putting out there and the dealers and customers who buy them.
   • We are finally hitting Europe markets and will do very well there-
     Look at this link for our Europe dealer list- http://breatheproductions.com/jackson/media/jkdealers06/dealers.cfm
   • We have an incredible lineup of dealers in most of the key territories
     in the USA that are happy to sell Jackson Kayak.
3. We are challenged to spend less on our hulls, our
   components, etc. because it is way over what we budgeted.
   • We will never sacrifice quality for a savings, but instead use
     my dad’s quote- “A good engineer can do for a penny,
     what any idiot can do for a dollar.” As a guide.
   • We can finally prove to our vendors that we do what we say we
     will do, we pay our bills on time, everytime, and will help grow
     their business.
4. Next year will be more of the same- with a few changes
   • We will have 12 models out for most of the year, so there is a
     Jackson Kayak for everybody, instead of just getting going in April.
   • I will not be focused on opening up dealers, so I can focus on
     other areas of the business.
   • I will have lots of cool kayaks to choose from every day I go
     paddling!
     We will have the same staff we currently have, with the addition
     of John Ratliff this week, cool, perhaps Jackson Kayak is a good
     place to work too!

There are plenty of areas I can improve as the CEO,
in sales, in marketing, in design, in administration, etc. This is all
new to me. I am very lucky to be in such good company with my team. An
example of a question I asked David, my CFO. “David, if I have $100,000
in profits my first year and am required by law to distribute at least
40% of them since I am sub chapter S corp, and have a 65% ownership I
am assuming that I will get about $25,000 in January right?” The
math made sense to me. Well, I learned yet another lesson in accounting
and business that day. David quickly replied, “NO, you will be lucky
to receive anything since you will be taxed on the entire $100,000 and
only receive the $25,000.” So, my next question was…”So,
how do I get the money to build my log house on the hill?” He explained
that as long as I was growing, I would not see any dividends, and my only
income would be my salary, fair enough. I quickly reconfigured my internal
compass and decided that I would hurry up and grow the company to a big
small company and halt the growth in two years and hold it steady, keeping
the dealer base stable and small, the product selling itself, and enough
product for the customers to be able to get a boat if they really wanted
one, but not have them shoved in their faces. So, ground breaking party
in the spring of 2006, everybody invited, bring a shovel.!

Meanwhile- I am very excited about making the new creekboat
and can almost smell the first prototype! Yes, this boat will cost the
company another $60,000 to get on the market, but it will come back eventually,
and will make for many happy creeking days, and perhaps also help my kids
get their own bedroom in 2007!

🙂 EJ