thundering hooves postmortem

"Thundering Hooves, the pasture-finished, organic beef operation that became a model of sustainability and staple of the Walla Walla locavore movement, has closed amid financial tumult " - Seattle Times,  March 16th, 2011

Overview
I first met Joel Huesby at the Farmer/Chef connection event a few years back, where he, and I, and several other farmers sat at a table with a sign labeled "meat" (as i recall, might have said "meats") and waited for chefs to come over to see us.  For me it was a bust -- chefs want a particular cut, and in quantity, and on a schedule that I can't make.  If I could grow a pig that was all bacon, I'd be set, but that's another topic. 

I'd seen Joel speak earlier in the day about his USDA butcher shop and operation, and the impression I took away that day was that he had a nice operation and was making a go of it.  He had several revenue streams, was producing what he sold, and had a nice marketing effort.

To be blunt:  Hearing that thundering hooves was closing its doors came as a shock to me, and I wondered why.  So I've spent the last three weeks interviewing everyone that would talk to me, and reading all of the things that were written about Thundering Hooves over the past 10 years.

Thundering hooves timeline

The start of Thundering Hooves is really the story of a small farming operation that was initially started by Joel and his wife Cynthia.  As with most farming families, Joel has a job off the farm installing phones and did farm in a conventional way, growing crops under contract to a cannery and alfalfa for animal forage.

Around 1994, Joel apparently became disenchanted with the life of a contract farmer, and let his fields go fallow for a few years.   Here's Joel:  "...During the initial period of withdrawal and rehabilitation, weeds grew. The soil lashed out. It got ugly. When someone asked me what I was growing, I said, "Dirt"..."

As Joel Salatin does on his farm, Joel Huesby sought out organic material to add to his soil, finding a cheap source in the form of wood pulp from a now-bankrupt paper mill, ponderosa fibers, eventually spreading 34,000 tons of it over 215 acres of his 225 acres total. 
It's not clear how this production gap was paid for; perhaps the mill paid enough to dump the pulp that it made up for crops that had been produced, or savings, or debt.  Joel considered this to be successful and has told this story many times.
Initially it was Joels wife Cynthia who started raising chickens for sale starting small (the first batch for sale was just 15 birds.)  Cynthia:  "...It just exploded from there", reaching a production level of 7500 birds a year in 2004.  Although they started producing chickens, they eventually dropped chickes from their product line. 

At first the idea was to have a small operation, but it rapidly became clear that no matter how much profit you made on 15 birds that it wouldn't pay the bills, and that the operation needed to grow to provide a living for the Huesby family.  So thundering hooves started to appear at farmers markets, first in Walla Walla, the largest population center closest to the farm, and then in Pasco, Washington and finally in Seattle.  This was a way to broaden the sales, and eventually this became a series of dropoff points in Portland, Seattle and other communities.     

The chicken business grew rapidly, but interestingly, Cynthia is on record as resisting fast growth of the business.  "...I’m the one who doesn’t want a lot of growth...", which seems prophetic, given that rapid growth is one of the primary reasons for the failure of Thundering Hooves by Joel Huesby. 

"We must grow to support our families, part 1"
The basic calculation was that the operation needed to be scaled up enough to produce enough profit to support the families of the people involved;  in this case, more chickens, and then even more chickens.  This basic decision was repeated several times with several different products, and with the slaughter facility that Thundering hooves eventually purchased. 

By 2005 thundering hooves had accumulated $800,000 in debt.  Initially this was in the form of bank loans, but as the business grew they were able to get capital from customers, and the percentage owed to banks decreased from 2005 to the shuttering of the business in March of 2011.  
This debt was initial purchase of livestock, equipment, fencing, trucks and other assorted equipment; moving from a crop-oriented farm to a livestock-oriented farm required quite a bit of investment. The meat shop was a big part of this initial debt.   As they added each different type of product there was a substantial investment in the equipment, facilities and learning curve required for each one.  Chickens, Turkeys, Cattle, Lamb. 

Eventually it became clear that they couldn't pay that debt on the proceeds of the animals that they raised themselves; they needed larger volume, or larger margins, or both, and the direction they chose was to sell products from other farms. 

Along the way other products were added; beef, turkey and lamb. In 2004 they were still discussing adding pork to their own operation. By 2005 Thundering hooves was selling products from [at least 5 ] other farms, and had crossed the line from being a farm that sold just its own products to being a distributor of farm products.

Throughout this period there were many media contacts; lots of interviews by Joel, public speaking engagements and farm tours, and the business grew itself on this grass roots advertising, with close to zero marketing budget, and sales grew by 30 to 50% each year through 2005.  With that sort of growth, things were looking pretty good at Thundering Hooves, but servicing the debt started to become a problem.  Prices were too low, costs of unconventional farming too high, squeezing the margins.  Here Joel speaks about his beef and practices

One example of this was their handling of beef cattle:  The beef that they would slaughter would be as much as 18 months older than typical slaughter beef.  This meant that the return on the money invested in cattle came back much more slowly than with a typical beef operation, and from an investment point of view the return was lower. 

   The equipment purchased was not new, or top of the line, and this meant that there was a large amount of maintenance associated with it; there were breakdowns of equipment at crucial times.  In addition to equipment problems there were continuing problems with wells and irrigation, and tens of thousands of dollars were spent on this infrastructure to support farm operations. 

Despite the growth of the chicken business, Thundering Hooves wanted to outsource it to some other farmer who to produce the birds, and then sell them Thundering Hooves brand name.   I asked several people why this change was made, and it was economics:    The profit margin from 30 beef was the same as the profit from 5,000 chickens.  With cattle, for the most part, you put them out to pasture;  with good fences and forage, you really don't have much labor.  With 5,000 chickens there is daily maintenance and feeding chores, and the slaughter/package/delivery made the margins very small.   Very labor intensive, small sale price, thin margins.

In 2007 they started looking for someone to outsource their turkey production to. 

Sales between 2005 and 2008 grew rapidly; typically at 30-50% a year.  At the end of 2008 the infrastructure was fraying and it was clear that the business was going further into debt.  At this point the sales were $1 million a year.   Thundering hooves recognized this trouble and brought in a business consultant, who advised them to raise their prices by an average of 20% to allow them to have sufficient margin to sustain their business and service their debt. 

Between 2005 and the close of the business in 2011, the debt owed by thundering hooves swelled from $800k to somewhere north of $2 million. 

In 2008 the consultant advised them to raise their prices by 20% and gave them tools to better analyze their costs.  With the price increase came the biggest recession in the last 40 years, and a drop in demand by consumers.  Sales remained at the 2008 levels through 2009, and at the end of 2009, despite the price increase, it was clear that something had to change.  The challenge in 2009 was just to maintain sales; growth was out of the question. 

Distraction?


In 2009, Joel started a related company, Modular Food Systems. I can't help but wonder if this distracted Joel from the problems at Thundering Hooves. In this video he's pitching people to give him $600,000 to build what sounds like mobile slaughter units to me.   It's not clear what the funding or status of this new venture is. 

"We must grow bigger to feed our families, part 2"
In 2010 the decision was made to increase the volume of goods sold; wholesale agreements were reached and sales responded, growing from $1 million in 2008 and 2009, to $2.4 million in 2010.   The goal of this growth was to make larger amount of money on increased volume.

This increased volume strained the capacity of every part of the system; all of the employees were working as hard as they could to produce the goods, but the margins that they were producing were smaller than direct-to-consumer sales had been.  

In January of 2011 talks between the management and the creditors of Thunder Hooves broke down, and the assets were seized by the creditors in March, resulting in the shuttering of the business. 


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Farmers and Distributors
I'll make a distinction here:  Someone who sells someone else's products isn't a farmer, they're a distributor, a middleman.  A good distributor in my mind does several things; they select suppliers that have quality products; they ensure timely delivery, and in the event of a problem with a particular vendor (farmer) they find another source.  They manage the relationship with the vendor (farmer) and they're aware of problems (like a crop failure) in time to make a change so that their customers can get the products that they need. 

Thundering hooves was operating as a farmer (selling their own products direct to consumers and wholesalers) a distributor (selling other farms products to consumers and wholesalers), and as a retailer at their meat shop.   At their peak they had  21 Employees to cover these three very different business models.

As an aside, Corfini Gourmet one of the distributors who purchased meat wholesale from Thundering hooves did what a good distributor does, according to Daniel Newell, a local chef.  "[corfini gourmet]...had a sense something was going to happen, so they started to talk to other ranchers," explains Newell. Those ranchers had been breeding cattle sold to Thundering Hooves, who'd "raise and graze them," Newell says.

The turkey failure points out to me that they weren't handling their role as a distributor well.  It's a pretty fundamental mistake.

Wholesale market
Thundering hooves sold meat to other distributors (wholesalers), one of which was Corfini Gourmet.  Margins for this business are often thin, and distributors can switch to another vendor fairly quickly.  This lack of margin, concentration of a lot of sales into the hands of one distributor (wholesaler) combined with the inability to guarantee a steady supply was a contributing factor to the eventual closing of the business.   Having a number of customers is generally considered more stable than having several, or just a single, large customer. 

"Sustainable"
Want to know what I consider to be a sustainable farm?  Very simple:  One that stays in business.   It's fine and good to be for the environment, and all farmers I know  care very much about their land, but you can't save the world unless you're a going concern.   If you, dear reader, are interested in farming to improve the environment, please do consider this point carefully.  Whatever good practices Thundering Hooves had been promoting are now moot.   It makes great public relations, and newspapers love writing feel-good stories about it, but the bottom line is...  well, the bottom line.  Make a profit.  Keep going.

By this measure, Thundering Hooves was not a sustainable farm.

Reasons for the demise

Joel Huesby:   "...said the operation's demise came ironically as a result of massive growth and demand. Between last spring and fall, he said, demand for Thundering Hooves beef, chicken, pork and other products grew more than 350 percent. But with commodity prices at their highest rate in history, Huesby said, Thundering Hooves got behind on payments to creditors. "


Huesby said the company's original vision became obscured when demand exploded. "It got away from that, in part, because you get dollar signs in your eyes and, in part, you get massive demand."


I've spoken to several people and I've gotten different answers.  Here's a couple that I found interesting:
 
In a comment made to a local news story, a user named "David_the_Gourmet" made the following comment: 

"Actually, the reason Thundering Hooves sought to grow its sales to more restaurants and grocery stores in 2010 was because it was riddled with debt and had been living on the brink of bankruptcy for a few years. They had been living on borrowed money, and their hope was to grow quickly in 2010 and find new investors to help with the cost of growth by converting debt into equity, but the majority owners couldn't resign themselves to giving up control of the company and turned down the offers that might have saved the company. As I understand it from those who were involved, they would have been unable to survive as a small company given the position they were in. Growing quickly was their last hope, which fell short when they alienated their major creditors. There was also in-fighting among the family, which had a lot to do with differences of opinions as to whether or not to let their creditors take control, which probably wouldn't have been so bad because all of the creditors were either Thundering Hooves customers or fans of local, grass fed meats. It's a shame."


HDBright offers this: 
"It sounds to me like the managers (family business) needed a consultant. According to this article, the demand is still there. I don't understand why a 1 or 2 year plan to regain control of the business couldn't be financed to get out of the hole and back into the red. [black]"

What actually closed when thundering hooves shut their doors?

The farmers who supplied products to Thundering Hooves are still there.  The customers are still there.  In fact, several members of the thundering hooves staff are trying to start a successor business, careful to note that "...Blue Valley Meats has no affiliation with Thundering Hooves, nor the debt that ultimately led to the company's closure."