The Daily Grind

The Daily Grind

ENTREPRENEURS by Jean Gruss | Editor/Lee-Collier

John Cauthen found a niche and way to meet it: the ground-up remains of the melaleuca tree.

John Cauthen runs a hand gently through the prized and feathery soft "Grade A" cypress mulch.

"Mulch is the ultimate commodity," he tells visitors at his mulch company's headquarters in Fort Myers. Then, with a chuckle, he adds: "I wish mulch was like oil."

Although it's not black gold, mulch has been good to Cauthen. Fort Myers-based Forestry Resources sells so much of the stuff that it could fill 20 football fields 10 feet deep with one year's sales.

There are few landscaped areas of Southwest Florida that aren't covered by Cauthen's mulch. Forestry Resources had revenues of $17 million in 2005 and Cauthen expects $19 million this year. "Within five years, the goal is to hit $70 million [annually]," Cauthen says.

Forestry Resources plans to expand by adding 20 new commercial-outlet stores throughout the state in addition to the five it already runs from Naples to Cape Coral. Cauthen will start by expanding up the Gulf Coast towards Brooksville.

Cauthen, 60, the company's founder and chief executive officer, recently hired a new president to oversee the daily operations and plans to expand the menu of landscaping items to include stone, soils and fertilizer. Most of his customers are in landscaping, though Forestry Resources sells bags of mulch to retail outlets like Lowe's and Albertson's supermarkets.

But selling mulch hasn't always been the cash machine it is today. What's more, Cauthen started the company by trying to sell mulch made from the dreaded exotic wood called melaleuca. "It was like selling refrigerators to Eskimos," Cauthen recalls.

'Grind that sucker up'

Cauthen, a Leesburg native who grew up in the family's citrus business, moved to Pine Island in Lee County in the late 1970s to open a plant nursery.

At the time, the exotic melaleuca tree was overtaking Florida's native vegetation, particularly on government-owned land. Cauthen and business partner Dexter Bender, a biologist and Fort Myers environmental consultant, started a company in 1983 to figure out a way to make melaleuca products commercially viable.

They considered making paper, charcoal, lumber and even tomato stakes. "Nothing worked," Cauthen recalls. But they discovered that demand for mulch was growing and they discovered that they could clear government land of the invasive species and turn it into mulch.

But it wasn't that easy. Each melaleuca tree can spread millions of tiny seeds that reproduce at an alarming rate. Who would spread melaleuca mulch all over their property and risk an invasion?

It turns out that the state was spearheading research through the University of Florida at the time on ways to eradicate the melaleuca tree, rivaling the efforts to stop the spread of kudzu in other parts of the South. What Cauthen and researchers discovered was that if you piled melaleuca mulch, the ensuing chemical reaction in the pile killed the seeds.

Much of the investment was in machinery to cut down trees and grind them into mulch. To finance it, Cauthen struck a deal with former Florida state Sen. Wilbur Boyd for $1 million in financing through his Bradenton bank.

Then, Cauthen and Bender had to persuade commercial landscape companies that the melaleuca mulch wasn't going to sprout millions of little trees. They promoted the environmental pluses of using melaleuca mulch versus using shredded cypress trees. Cauthen says one of the most successful tools was a series of humorous cartoons they passed out at trade shows. One memorable drawing showed a phone message that read: "While you were out: Mulch supplier called and said there was one cypress tree left in Florida. I told him to grind the sucker up."

In addition, the company developed specifications to help landscape architects and other related businesses determine how much mulch to use for a variety of projects. Today, the company's Web site, www.gomulch.com, has a calculator that lets you figure out how many bags of much you need to cover a certain area.

Bender, who 10 years ago sold his share of the business to Cauthen, drove to Coconut Grove to persuade Marjorie Stoneman Douglas, the grande dame of the Florida environmental movement, to endorse the company's product. Her endorsement graces every bag of melaleuca mulch today.

But not everyone bought the melaleuca mulch story and Forestry Resources found it had to sell cypress mulch, too, in order to stay in business. "We had to survive," Cauthen explains. Today, melaleuca accounts for about 15% of the company's mulch sales. The rest is pine and cypress mulch.

Initially, Cauthen believed that his crews could cut down and grind the melaleuca trees at no cost to the landowner because he thought sales would cover the cost of harvesting. But he discovered that he had to charge for the harvesting. "It's very capital intensive. That [equipment] is not cheap," he says. Today, the company outsources most of the harvesting to contractors, some of whom were former employees who started their own harvesting companies.

Fortunately, Cauthen and Bender started Forestry Resources just as the home-improvement boom was beginning. The company started packing mulch for Scotty's hardware stores and later expanded to K-Mart and Home Depot.

What's more, the home-improvement stores discovered that cheap mulch drew in customers who then purchased more-expensive items inside their stores. So they deliberately sold mulch at cost or even at a loss in order to steal customers from one another. "It went from a loss leader to a loss bleeder," Cauthen says.

A new partner: the FDIC

Many successful companies have gone through a period of extreme challenge that has made them stronger in the end. Forestry Resources is no exception.

Just as the business was becoming well established, the savings and loan crisis hit in the late 1980s and federal regulators took over Boyd's Bradenton bank. "All of a sudden, the FDIC owned half this company," Cauthen says. "We had to learn how to run an operation with no credit; we couldn't borrow," Cauthen says.

Then, the bank sold off the loan to a "vulture" investor as part of a $100 million portfolio. "He was mean and nasty," Cauthen says. The investor threatened to liquidate Forestry Resources, arguing that its assets were worth more sold separately.

So Cauthen did everything he could to buy out the investor's interest. He borrowed money from anyone willing to listen to him, he persuaded vendors to extend payment terms and collected payments early from customers.

"That was a great growing experience because we've been frugal ever since," Cauthen says. "It's like going through the Depression."

Cauthen, whose Spartan office is located within spitting distance of giant mulch piles, says he's careful about hiring. "I'm a big one for making sure the right people are on the bus and the wrongs ones are off the bus," he says. The company currently has 58 employees.

After that experience, the company grew through the 1990s by finding new customers. For example, Cauthen persuaded ornamental-tree growers to mulch around their crop by showing them that they could cut their growing time in half. A royal palm, for instance, usually takes three years to grow 16 to 18 feet tall. Mulching and proper irrigation cuts the growing time to just 18 months.

Forestry Resources also became more automated. In 2003, for example, the company automated stacking and wrapping mulch bags on pallets at its Fort Myers facility, allowing it to produce 22,000 bags per shift, or 40% more than before.

Mulch consolidation

The mulch business is generally local. Usually, a family-owned operation serves a single community or county. "This is prime for a roll-up," Cauthen says.

Cauthen recently hired Douglas Stewart as Forestry Resources' new president and chief operating officer. Stewart was most recently director of financial planning and treasurer with The Bonita Bay Group, a residential development company based in Bonita Springs. "I'll be able to work more on the company, rather than in the company," Cauthen says.

The plan is to acquire existing mulch distributors. That's because it's costly and time-consuming to open a new store. In Cape Coral, it took Forestry Resources two years from the time it purchased the property until the day it opened, in part because of lengthy permitting times. In Lehigh Acres, it took two-and-a-half years.

Cauthen says the company has access to financing from Bank of America and from cash the company generates. Despite the residential real estate slowdown, Cauthen says he's confident demand for mulch and other landscaping materials will continue.

But Cauthen acknowledges that he's not a good negotiator when it comes to making acquisitions. "I've never been able to tell people why their business is not worth 25 time earnings," he says.

He's hired Lee Rust, an Orlando-based business broker, to help him do that. "We have five acquisition targets," he says. The company is looking at acquiring mulch distributors in areas such as Punta Gorda, North Port and Venice. Cauthen says the Sarasota area alone could support three stores.

What's more, he plans to increase sales of higher-margin products such as stones, soils and fertilizers. Currently, about 80% of the company's revenues are from mulch distribution. Cauthen says his goal is to reduce that to 40%.

Now that his company's not struggling to survive, Cauthen says he's going to try to persuade retailers such as Lowe's and Albertson's that they don't need to sell cypress mulch. Melaleuca will then be Cauthen's top commodity.

From mulch to art

Pine Island in Lee County has become an arts destination and John Cauthen is now a big part of it.

Cauthen, the founder and chief executive officer of Forestry Resources and a resident of the island town of Bokeelia, recently bought a well-known gallery there called Crossed Palms Gallery.

"It's about five doors down the street from me," Cauthen says.

Are there any similarities between running a mulch company and an art gallery?

"The only similarity is that an item is sold and there's a transaction," Cauthen says. "Other than that, it's night and day."

For starters, there are no computers or bar codes. Every piece of art is unique. The gallery displays artwork by more than 120 artists. Items range from paintings to sculptures, pottery and jewelry.

"We do a fair amount of consignment work," Cauthen says. "The artist sets the price and we take a commission for handling it."

Cauthen plans to expand the gallery's grounds to include a garden where sculptures will be displayed, though he's leaving the day-to-day operations to manager Jeff Cowdrey.

"It's not really a hands-on situation at this point," Cauthen says. "I work on the business, not in it."

-Jean Gruss