Successful business entrepreneur Paul Logan needed another mountain to climb. He chose the firewood business.
By Tim Cox
Date Posted: 1/1/2016
AMHERST, Virginia — Paul Logan is not your average firewood business entrepreneur. He is from Northern Virginia and for about the past 25 years or so has lived in Arlington. The region is an economic engine for Virginia, bristling with contractors for the Department of Defense and other government agencies, and home to burgeoning suburbs and thousands of federal employees working on both sides of the Potomac River.
Paul, 52, has been involved in the technology industry since graduating from Shepherd University in West Virginia and a “serial successful entrepreneur.” His last company, Contact Solutions, was an “unqualified success.”
“A career became an option after that,” he said. “What I needed was a new mountain to climb.”
His mountain? The firewood business, and he and his associates turned to one of the industry leaders in firewood processing equipment — Multitek — to be the workhouse for the start-up company.
Paul’s lifelong friend, Andy Pearcy, approached him about two years ago. Andy, working in project management in the construction industry, and though successful at his chosen profession, wanted more out of his professional life. Paul suggested he consider some options for starting a business, do some research and come up with a business plan. Paul would help him polish and refine it and introduce him to some other people who, like himself, could help him fund it to get it up and running and give Andy the opportunity to “scratch his entrepreneurial itch.”
Those efforts led them to the packaged firewood business. “I fell in love with the business model,” said Paul. He saw a lot of parallels between the packaged firewood industry and mulch and potting soil industries. That industry gestated about 30 years ago, he said, as small players entered the arena for packaged mulch; they sold their product to consolidators and re-sellers who in turn would sell branded products in a certain geographic region to the home improvement chain stores.
He was intrigued by federal regulations governing the sale of firewood to prevent the spread of the emerald ash borer; those regulations require the firewood to be heat-treated to kill the insect and any eggs. There are many small producers of firewood, Paul observed, and they cannot afford the infrastructure necessary to heat-treat their product. And in order to afford that infrastructure, a business needs large-scale operations and volume.
After thoroughly researching the industry and crunching numbers, “We pulled the trigger,” said Paul, and he decided to be the sole financial backer. Paul turned to Brian McIntee, a friend and former business partner, and tapped him to be the chief financial officer, and they jointly purchased property in Amherst, Virginia, about 50 miles southwest of Charlottesville. They bought a facility that had been used in the past to reclaim lumber from old barns and other buildings and remanufacture the material into flooring — 35 acres, a 40,000-square-foot warehouse, two pole barns, a three-sided barn, and an office. Andy relocated to Amherst and now oversees the company’s operations there.
The company — named Cremium, which is the Latin word for firewood — invested at first in a firewood processing machine that, in retrospect, turned out to be a bad decision. The machine was more suitable for producing bulk firewood, Paul pointed out, not the type and quality needed for the packaged firewood market. “We just quickly knew that we made a mistake.”
The principals quickly began researching other manufacturers, attending trade shows and interviewing other firewood producers, and turned to Multitek. “It became clear that the market leader was Multitek,” said Paul, and the company purchased a Multitek 2040. It can process logs up to 24 inches in diameter and 40 feet long. “The 2040 was perfect,” said Paul.
An important factor in selecting the Multitek was the box-like 16-way wedge, which produces uniform, square- or rectangular-shaped pieces of split wood about 3×3 or 3×4. The square edges make it much better for bundling firewood in packages.
The Cremium principals chose a model with circular slasher saw for bucking. “That for us was a must-have,” said Paul, because it provides more reliability and requires much less maintenance than a bar saw. The Multitek uses a patented overhead grapple system to hold a log securely and feed it forward to the bucking station.
Paul and his associates also were persuaded of Multitek’s reputation for reliability and service. In addition, they were able to rely on the expertise that the Multitek staff had in the firewood industry. Marcus Steigerwald, sales manager for Multitek, “has been a true partner in helping us evolve our business,” said Paul.
They were fortunate in having the electrical power infrastructure at their property that they could buy a processor powered by electricity, which costs only one-fifth to one-quarter of the cost of diesel fuel, noted Paul. In addition, the maintenance will be much less.
The Multitek 2040 produces four to six cords of processed firewood per hour in the company’s operations. (Multitek’s advertised production for the machine is 4.5 to 7 cords per hour.)
The company also purchased a conveyor and tumbler system from Multitek to remove bark. The tumbling action knocks off the bark, which falls into a basket under the equipment, and the clean processed firewood exits onto an outfeed conveyor and is dropped into a metal basket. Removing the bark not only provides the type of quality the company wants in its finished firewood — and makes packaging easier — but it also saves on fuel for the Nyle Systems heat-treating system.
The company also purchased a 30-foot live deck to feed logs into the Multitek. “That was a very good secondary investment,” said Paul. An employee operating a loader can fill the deck with logs and then stay busy doing other tasks while those logs are being processed.
(For more information about Multitek and its firewood processors, visit www.multitekinc.com.)
Cremium buys hardwood logs from 8-16 inches in diameter and 30-40 feet long. About 90 percent of the logs are some type of oak, mainly red oak and white oak. The company also processes some black locust and hickory.
The log specs are very important in Cremium’s operations, as Paul explained. Logs 18 inches in diameter must be bucked into 40 pieces to produce a cord of packaged firewood. Logs that are only 6 inches in diameter would require nearly 400 bucking cuts to produce an equal amount of split firewood.
Nyle Systems has a long history as a supplier of lumber kilns, but it is relatively new to the firewood industry. “Nyle had a greater reputation for being service focused,” said Paul, “and they have lived up to that.”
The Nyle Systems firewood kiln has a gas-powered indirect fire heat exchanger system, which is safer and easier to insure than traditional open flame heat exchangers due to the reduced fire risk. Yet, it provides the same drying efficiency. A unique wet bulb control within the kiln enables a reduction in relative humidity and results in better drying. It features a dual fuel system, a wood-fired boiler that circulates hot water throughout the edges and a propane boiler. Cremium also invested in high-density foam insulation to help retain heat during the winter.
The Nyle Systems firewood kiln allows the company to save data from all past loads for easy and quick reference, enabling the company to optimize drying and troubleshooting with ease. It also provides remote access to the system, controls and real time data on the load being dried via a mobile device.
Each metal basket holds about one cord of unstacked firewood. In the Nyle dryer, they are stacked two high, a total of 30 cords at one time.
Meeting federal regulations for heat-treating firewood was easy, but Cremium goes beyond that to produce dry firewood. The consumers who buy the company’s firewood are not rural residents who use firewood for heating, noted Paul. “They’re building a fire for ambiance,” which is a much different type of consumer. For that type of consumer and market, Cremium uses the Nyle Systems dryer to thoroughly season the wood, heating it above 200 degrees for 72 hours. Eventually, when the company goes to market with its own branded product, it will include a guarantee that its firewood will burn the first time it is lit and that it will be fully consumed by the flames. Customers will be able to fill their fireplace or fire pit, light a match, and sit back and enjoy their glass of wine and their company and not have to bother any more with the fire, said Paul.
For packaging Cremium has two of the largest bundling lines from Wood Paker, which is made by B&B Manufacturing; Cremium bought the equipment on the after- market. The equipment requires about five workers to operate. Sheet plastic is used for wrapping the bundles, and the company uses a slightly thicker sheeting because it helps maintain uniformity and consistency in the packages through shipping. Depending on the customer, some bundles are fixed with a plastic handle for ready pick-up while others are not. Cremium believes that the shape and uniformity of its bundles not only allows for better stacking and shipping but also makes a much better appearance in the retail store.
Ancillary equipment includes a knuckleboom loader, front-end loader, and three forklifts.
The company employs about 10 people in year-round operations. Six of the employees are work-release inmates from a nearby state prison, a partnership that Paul described as a “win-win.” The men
are “great guys, eager to work, looking for an opportunity to prove themselves,” he said.
The Cremium business plan has a multi-tiered approach. They quickly learned the quickest path to selling the company’s product was through the re-sellers, selling wholesale to established consolidators who supply packaged firewood to chain home improvement and ‘big box’ stores. They packaged the firewood with their customers’ label, and the re-sellers picked it up.
“The demand has just been incredible,” said Paul. “Selling our product has not been the challenge.” They made just two calls to re-sellers and sold 100 percent of their production.
The company’s firewood has gone as far north as Massachusetts, south to Georgia, and west to Chicago, but Paul said the “ideal” geographic market is within a 300-350-mile radius.
Ultimately they plan to have three to five production facilities along the Eastern Seaboard, each one producing about 600-1,000 truckloads of finished product per year. “That’s the end game of the business plan.” In fact, the company already is considering a second location and may acquire a site by the end of the first quarter of 2016. “By year five, we will be in full swing.”
Cremium’s facilities are located within 60 miles of three pulp mills in the region, including one that is only 19 miles away. When the Cremium staff talked with local loggers about supplying the firewood company, they learned the loggers were heavily committed to the pulp mills and that they would have to pay a premium for logs. The team tackled that dilemma by seeking out the lead log buyer at the closest pulp mill. They quickly got an education about how the dry months of summer favorably impact log supplies and the wet months of winter have the opposite effect.
The log buyer at the Amherst pulp mill had a problem himself. When loggers are productive in the dry summer months, he inevitably runs out of space in his log yard and has to turn away wood. The loggers, in turn, begin supplying other mills in the region, and his supply chain is damaged; they don’t return until those mills have so much wood that they turn them away.
The two companies worked out an arrangement that is mutually beneficial. When the mill log yard is full, they re-direct drivers to Cremium with the specifications for firewood logs. “We get beautiful, straight sticks,” said Paul, which are more efficient to process. In the event they get a log that does not meet the specs, Cremium sets it aside, the pulp mill buys it back at the same price. And the kicker is, Cremium only pays pulp wood prices.
Paul acknowledges that Cremium is not your typical firewood business. The business represents a $1 million capital investment to get up and running plus a $1 million line of credit for buying raw material and ongoing operations.
“We’re over-investing in it now, and it’s not paying off yet, but this is a marathon, not a sprint. We’re in this business because it’s at an inflection point. It needs large scale players.”
The firewood industry is a “very rapidly growing space,” said Paul, “and it’s just going to continue to skyrocket. People in Florida buy firewood,” he observed. “It’s ambiance,” not fuel. “That’s an important distinction.”
The first year the company will have revenues of about $750,000, according to Paul. In year two revenues should reach about $1.7 million, and by year three, $2.5 million.
“We’re approaching profitability,” said Paul. “We’re at or ahead of our original business plan, and we will be profitable in the 2016 season.”
“We’re fortunate to have a great team,” said Paul, referring to himself, Andy and Brian and their processing and packaging teams. Nevertheless, “We had an awful lot to learn about the complexity of what seems to be a very simple industry.”
In 2016 they plan to develop their own branded product with differentiated packaging and to establish direct relationships with other retailers. Selling directly to retailers, although it adds more complexity and will involve trucking, should provide better profit margins. The company plans to continue doing significant business with re-sellers, however. The company also will be developing a fire starter product that it will bring to market in 2016 and it plans to develop a premium product from hickory wood for outdoor barbecues and restaurants.
“No one has traveled a longer distance on the learning curve than us,” said Paul. He praised the work ethic of the company’s employees as well as the re-sellers and consumers who have bought into the company value proposition-which is “an uncompromising commitment to make the highest quality in the industry bar none!”
Timberline Magazine January 2016