Choosing milkweed to develop causes problems right from the start. Almost every farmer in our area has a ditch with a wonderful stand of healthy milkweed, whereas many of our cultivated fields look sick and full of disease. People wonder why we cannot grow it as well as it grows in the wild, and I envy those of you working on crops without the disadvantage of this close comparison.
Trials and tribulations abound for companies in new crops. The most recent setback for our Company occurred when a major loan application to finance our business was rejected. Nonetheless, you have to move forward. Like Satchael Paige said, "you can glance back, but you shouldn't stare." We feel you must move on rather than concentrate on the past. In this paper, I present an overview of how we analyzed and organized the milkweed opportunity as a start-up, and what we did to achieve the early tangible useful results with our Ogallala Down comforters and pillows.
This is where I entered the milkweed picture in the mid-1980s. As Manager of Corporate Ventures for Standard Oil, I was in charge of starting up new businesses and was asked to take a look at the milkweed opportunity. During the process, I made contact with William G. Wilson of Kimberly-Clark in Neenah, Wisconsin, who was looking for someone who knew how to grow milkweed. At that time, we had about five years' experience growing milkweed in research plots and there seemed to be a good fit between our interests. Arrangements were made for Kimberly-Clark to handle product development and for Standard Oil to handle growing milkweed.
When British Petroleum took over Standard Oil, they were not interested in promoting diversification efforts. In 1987, I acquired the milkweed venture and founded Natural Fibers Corporation with the dream of creating a new agricultural industry based on milkweed.
In milkweed or any alternative crop, the market in terms of volume and price needs to be matched with what you can do. With all the resources of Standard Oil, it was a reasonable dream to go into the nonwovens market. To compete in the $2 billion nonwovens market you needed at least a quarter of a million kilograms of fiber and a price less than $20 per kilogram.
We took a hard look at the opportunity from the perspective of small Natural Fibers without Standard Oil's financial resources. How much was this start-up really going to cost? We produced financial projections, a critical part of any alternative crop's planning process, and determined that penetrating the nonwovens market would require at least $6 million of investment in our Company.
To Standard Oil, $6 million is a modest investment. For Natural Fibers, six million is a lot of money. When we counted the potential sources of financing, there was no chance of raising that kind of capital. Thus, penetrating the nonwovens market in the short term was out of the question. Rather than targeting this high volume, low value nonwovens market, we had to back up to target a lower volume, higher value market.
Milkweed floss showed properties similar to goose down. The United States waterfowl down market has an annual volume of less than 5 million annual kilograms at a price in the range of $20 to $70 per kilogram. We chose to target our commercialization efforts on the waterfowl down market where milkweed floss could be substituted for goose down.
Based on this strategy choice, we made our projections and came up with a projected investment of $1.5 million to enter the down market--a challenging but more realistic number. So far, we have raised and spent about $900,000 of that amount. According to our original projections, we have about $600,000 more to raise. Recent projected numbers indicate that we might be able to achieve breakeven with as little as an additional $250,000 in investment, but $600,000 will probably be more accurate.
From its founding in 1987, Natural Fibers Corporation has made considerable progress toward achieving its ambitious goal of creating a new milkweed industry. The progress achieved is the result of efforts not only by me, but also the result of major contributions from our Board of Directors and the extended entrepreneurial team. Each person brings their unique skills to bear on the problems faced.
A vigorous Board of Directors is a necessary component of a successful business. I recruited internal Boards for all of my ventures in Standard Oil and have an active Board at Natural Fibers. Our Board consists of six people: Robert L. Raun and Ralph Holzfaster, who are growers in our milkweed program; William G. Wilson, a former Vice President at Kimberly-Clark; J. David Hopkins, a former Vice President at Springs Industries; the President of the Enterprise Fund, a State of Nebraska sponsored venture capital fund; and me. This Board functions to see the forest rather than the trees. We have plenty of brush fires and need a Board to help us see the overview of our activities.
In the very beginning of the start-up of this business, we decided to do only two things--grow milkweed and process milkweed pods to recover salable floss. With this focus in mind, we set out to recruit the people needed to accomplish these two broad tasks.
First, we needed people who want to grow milkweed. I was extremely fortunate to find Richard D. Zeller, an agribusiness professional. What he really wanted to do has to learn how to grow milkweed. He has been a real blessing for us and has worked hard to learn as much as possible about this plant. He is our expert and works closely with our research plots and with farmers to raise experimental production fields of milkweed.
Of course, one also needs farmers who are willing to grow milkweed. Robert L. Raun, former Director of Agriculture for Nebraska, is doing a great job of raising this new crop. Ralph Holzfaster and Edward D. Perlinger, farmers in the Ogallala area, also have acreage in milkweed.
Second, we needed people who would take up the challenge to make a beautiful clean floss from milkweed pods. George Ragsdale headed these operations and was provided very able assistance from Jerry L. Quick and my son, Peter D. Knudsen. These three worked diligently on equipment that we could beg or burrow to develop our milkweed pod processing system.
Our main processing unit is a 1940 John Deere combine that had been the home of raccoons for 40 years. George Ragsdale cleaned and modified it with a cutting torch so that floss could be separated from seed and pod hulls. Two of our other separating units are cracked fertilizer tanks converted for use in our process. The end result is a minimum investment processing facility that works very nicely to produce the developmental quantity and quality of milkweed floss that we needed for our operations.
Finally, we needed someone that could hold things together. LaVae H. Fattig is absolutely expert in taking care of the many administrative tasks from ordering to reports. She has expanded her role into sales as products were developed and sales effort was required. My wife, Karen M. Knudsen, also has important responsibility in comforter sales.
Soon after our start-up, we found other tasks needed to be addressed. Product development activities were needed because people in the goose down market wanted to see the practical results that could be achieved with milkweed floss. General scientific data was not enough. Down users were not inclined to conduct research on this new product, but wanted to see what we could do. Patricia C. Crews, at the University of Nebraska and Elizabeth McCullough, at Kansas State University, took on the responsibility for product research work and Natural Fibers staff did most of the production development.
Because our nuts and bolts people were fully occupied with the processing end of the milkweed floss production, we separated out the agricultural equipment issues. Kenneth Von Bargen and David D. Jones, of the University of Nebraska were recruited to develop harvesting, drying, and transfer systems. They, along with a number of their graduate students, accepted the challenge and have done an outstanding job of providing what we need when we needed it.
Historically, our efforts are based on research developed at Standard Oil of Ohio by Steven Price, Melvin Keener, and Janis Farmer. Jess Martineau at Native Plants Incorporated in Salt Lake was also responsible for developing a good share of this agricultural technology.
Currently, a number of researchers help us with the agronomic issues. Merle D. Witt, Paul Nordquist, and Lenis Nelson help us with our field research and production problems. Anne K. Vitivar and Michael G. Boosalis assist us with research related to milkweed plant pathology. We have also recognized the need for a milkweed breeding program, and efforts to organize and fund these activities are underway. These efforts are critical to our long term success in dealing with the many issues of growing milkweed.
Natural Fibers Corporation is aggressively pushing its way into the commercial market, but it is important to have timely and skilled research input to overcome the many obstacles faced. We have certainly had plenty of problems. The research component helps you analyze the situation encountered and helps you develop possible solutions that can be implemented.
"Partnership" is the word used to describe our relationship with the university research component available to us. In my past experience, there is cause for skepticism as to the practical utility of what university people are willing to do, what time frame they respect, and what drives their efforts. The people we are working with provided the data, equipment, samples, and advice on time and within budget. It is a model for public/private cooperation.
Our general theory of economics for farmers is to provide them a crop that will produce the same revenue as maize with only half of the input costs. Milkweed requires less fertilizer, chemicals, and water than maize. The major agricultural problems the farmers face are weeds and disease. Weeds stress the plant reducing the yield and disease kills the plant--prematurely opening the pods before they can be harvested. Solutions for these problems in a milkweed monoculture still need to be found.
With specialized equipment operated by Natural Fibers, milkweed pods are harvested, dried, and processed. We harvest with a modified ear corn picker at about 70% moisture while the pod is still closed. The pods are opened in a modified rolling mill and dried to about 30% moisture on the farm.
Partially dried pods are then transported to our processing facility where they are dried to 10% moisture. At 10% moisture, the dried pods can be stored or processed. Processing ten units of pods yields two parts of floss, three parts of seed, and five parts pod hulls and other biomass.
Floss is collected in a hopper and then bagged for future use. We have an inventory of 3,000 kg of floss. Translated into comforters, this inventory is about 6,000 comforters which have an average retail price of about $200. Thus we have enough floss to support about $1.2 million in retail sales for comforters.
With this information you look at the floss fiber economics. Can we make any money at the price the customer is willing to pay? You have to generate revenue from customers in the business of alternative crops, or it does not make any difference.
Considering the commercialization of milkweed floss, we looked at the value of milkweed floss products in a number of markets. Four of these markets are analyzed in Table 1.
Our experience is that we can produce floss for $17/kg. To develop a start-up business strategy, the estimated cost of producing floss fiber was evaluated against the projected milkweed floss market price information (Table 1), the market volume, and the amount of money available. Our inability to raise larger sums of money to finance extended losses while penetrating the large, lower price nonwovens, yarn and paper markets, led us to adopt a strategy of focusing on the down market to begin our business.
The down market is a high value use of milkweed floss. Down prices of $20 to 70/kg were expected to support floss prices of $15 to 30/kg. These economics are approximations, but close enough to establish a commercial direction. At this point, product development issues and market penetration factors have a much greater impact on the viability of the business than refined economic numbers.
Moreover, fiber economics are not stagnant in a developing business and factors that will drive costs down would be aggressively pursued. About 90% of our fiber cost is growing the crop. To push floss fiber costs down, the yields need to be dramatically increased, more experience in growing the crop is required and uses of the seed by-product could be developed.
Our goal is milkweed floss prices of less than a $2/kg. Confirmation that this goal is realistic comes from cotton, a similar crop in many respects, where the cost of cotton fiber is less than $2/kg.
The prospect of lower cost floss fiber drives our dream that milkweed could become a major new crop. With slightly improved fiber prices, initial penetration of the $2 billion nonwovens market may be possible. With greatly improved economics and much lower fiber prices, penetration of the enormous yarn and paper markets with milkweed floss fiber may be feasible.
Focusing on milkweed floss properties important in the down market, we found that floss is: a non-allergenic cellulose fiber; with a fill-power of about 350 cm3/g which is comparable to high quality goose down; white in color; 50% more breathable than down; 20% more durable than down; and 10% warmer per unit of weight than down.
Milkweed has a positive image, but the name "weed" detracts from peoples' positive reaction to the product. Floss is a natural vegetable fiber and not an animal byproduct. Environmentally, milkweed is attractive because it is grown in low impact agriculture or collected from native stands. Milkweed is a plant known to consumers. In a national survey, 59% of those surveyed in the United States were familiar with the plant. Milkweed provides habitat for Monarch butterflies; it is the subject of extensive native American lore, foods and medicines; and milkweed is the subject of many artists renditions of Autumn.
To our surprise, publicity about our efforts identified many people who are in love with the milkweed plant. Nellie Skipper of Oklahoma sent us a beautiful floral arrangement using milkweed floss, a woman from New York photographs milkweed as her avocation and presented us with photographs for our office. Artists from all over North America have provided us paintings, paper weights, Christmas decorations, and needlepoint art depicting milkweed. Fourth grade students in Iowa Falls are conducting milkweed floss mitten experiments on the playground this winter. It is a special treat for us to find such great interest and fascination with our product.
When we were just beginning our milkweed processing operations, initial tests of our modified 1940 John Deere combine spewed out a cloud of milkweed floss into a gunny sack. To us that was our product, but to anyone else, such a small bag of milkweed floss certainly is not an attractive product. Real products are needed for real people.
We develop prototype products for all the potential markets we can envision. We also encourage others to develop new prototype products with our milkweed fiber. You cannot, however, dilute your commercial thrust spreading limited resources over a broad range of products--you need to focus on a product that makes the most sense. Our general strategy was to focus on products for the down market.
Our initial down prototype product was jackets. Jackets with milkweed floss alone, milkweed floss and down, and down alone were prepared and tested. Thermal insulation and other properties were good, but milkweed floss alone matted upon washing. The mixture of milkweed floss and down, however, worked well. The volume and economics of using milkweed floss in jackets were a good fit with our capability so we began promoting a mixture of down and milkweed floss for jackets and showing off our prototype product.
Presentation of our milkweed jacket prototype to customers evoked the reaction that the jacket market would be very difficult to penetrate. It is better to switch than fight--you need the easiest target you can find.
We then switched down products and made prototype comforters first hand stuffing milkweed floss and down into comforter shells (this is not fun), and then by borrowing some time on another company's down filling equipment. Experiencing acceptance, we built a small developmental comforter filling facility so that more prototype comforters were supplied to potential customers.
In the comforter development process, we found that the mixture of milkweed floss and down needed to be changed from our initial blend to assure excellent washability. None of our technical data showed this, but experimentation by our customers with our prototype comforter products demonstrated this need.
Our initial prototype products were jackets, but our market analysis led us to focus on the down comforter segment of the home furnishings market. The market is growing at a rate of 10% per year, 2.3 million units were sold in 1989 for $250 million and comforters were competitively produced in the United States. There are no strong brand names. Milkweed floss has fiber property advantages primarily in allergenic properties and breathability; it was as good as or better than down in thermal insulation and durability; and, washability problems could be solved by mixing floss with down.
Our choice to initially focus on the down comforter market was also guided by the unattractive features of the sleeping bag and jacket markets. Down sleeping bags are a small segment with little or no growth, and we felt milkweed fiber resilience properties were not as good as we would like to assure successful market entry. About 90% of all down jackets are manufactured offshore, jackets involve strong brand names and use small quantities of down per unit. Style trends in jackets were away from the very full look of down.
To us, the high quality down pillow segment of the home furnishings market was hidden by the dominance of very low price feather pillows. We also had concerns about the resilience of floss. Even though milkweed floss had good resilience, it was not superior to down. We, therefore, focused on the down comforter market where thermal insulation and comfort were important. This focus on comforters continued for two years with only occasional customer requests for pillows. After the CBS Sunday Morning television program with Charles Kuralt aired a segment about our Company in June of this year, we had orders for 10 high quality pillows with milkweed floss, and we entered the pillow business. Customers judge allergenic properties and quality important in their buying decision.
Our original promotions in 1989 were rather crude. We provided potential customers a detailed message of milkweed development and promoted sales with an Indian maiden named Flame, an Ogallala Sioux legend, and Monarch butterflies. About $20,000 in sales were achieved, but it was tough.
From experience, we found out that touting comforters containing milkweed floss did not result in significant customer acceptance. We needed an attractive product name. Natural Fibers logo was and still is a milkweed pod opening. I like it, but it is not a strong logo for promoting a consumer product. We had no positioning statement.
These three deficiencies were corrected about a year ago. We adopted the name "Ogallala Down" for our blend of milkweed floss and down. We adopted a strong simple logo of a rounded lower case "d" that could be interpreted to be an "o" and a "d" for Ogallala Down. We invented the positioning statement "Nothing Warms You Up Like Ogallala Down" and made everyone swear allegiance to use this statement in all our promotions.
With these three decisions made, we developed and produced sales materials including an attractive high quality brochure on our products, labels and product inserts for the comforter and package. Product information sheets were also written.
Quality, price, and value of the product need to be designed to attract target customers. Who buys? When do they buy? Why do they buy? Retail sales are a fourth quarter business, but wholesale sales are made in the second quarter. To our retail customers, we stress the benefits of the product: exceptional comfort and warmth, non-allergenic floss, a good night's rest, light weight, and easy care. Continued experimentation with different messages and sensitivity to customer feedback develops the best message.
Our experience allows us to further segment our market. For example, environmental consumers show special interest in Ogallala Down comforters. We target these customers and gear our message to meet their needs. Environmental customers want a clean environmental history of the product and environmental benefits of using the product. In response, we stress that milkweed floss is a vegetable fiber produced in low impact agriculture and that our warm comforters allow users to turn back their thermostat in the winter saving energy and money.
Distribution is a key issue. We adopted the strategy of demonstrating acceptance of Ogallala Down products by retail customers so that wholesale customers would be willing to carry our product. Retail sales require a solid promotional program to convince ultimate consumers to buy your product. Successful wholesale sales require contacts with innovative retailers who like your story and are willing to take a risk.
In 1990, our second year of comforter sales, we achieved almost a five fold increase in sales to a little over $100,000. About two-thirds of our comforter business in 1990 was wholesale sales, and the remainder was direct retail sales throughout the United States and Canada.
In retrospect, it seems more planned than it actually was at the time. We used the trial and error approach, mainly error. We started by promoting jackets, but that was not the right market fit. We got sidetracked on nonwoven batting. The few hundreds of yards of experimental batting we have, make wonderful jackets and blankets. When that inventory is gone, however, we would be out of business. That thrust was stopped.
We also developed a new rugged comforter product, the Bunk Buddy. The comforter has a durable cover, and we tried to promote it to over-the-road truck drivers, owners of recreational vehicles, and couch potatoes. We love the product, but it was a lethal combination--a new company, new product, and new market with too many hurdles to overcome. We cut back and now focus on being a new company producing traditional comforters and pillows containing a new fill in the existing home furnishings market.
Through all of the trials and tribulations, however, we achieved "tangible useful results" with milkweed. Many formidable challenges remain to be conquered, but these successes lay a strong foundation for future development of this new crop.
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