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EDITOR'S NOTE: The hurdles to a successful business in Bush Alaska are numerous: tiny markets, remote geography, harsh weather, massive fuel and transportation costs. But some do thrive. One study looked to uncover what it takes for businesses to succeed in rural Alaska. Here's what they found.

To a first-time visitor arriving by floatplane, the Southeast community of Thorne Bay seems more of an idyllic getaway than a former timber capital.

Southeast Alaska's timber industry has fallen into a deep snooze in the hamlet of 500 on Prince of Wales Island.

Once part of the largest logging camp in North America, these days, the few timber workers who remain in Thorne Bay are a collection of plucky entrepreneurs -- sawmill owners, seasonal loggers and road builders, mostly -- who work on the margins of a vast industry that has moved mainly overseas.

Vicky Hayes, her husband, Don, and another couple, Sally and Darryl Tinkess, are among the loggers who decided to tough it out in Thorne Bay when the region's large pulp mill operation, the Ketchikan Pulp Co., closed down in the 1990s.

With a brother-in-law, they created their own small logging and road construction company, 3D Logging, in 1997. But despite their prior business experience and logging know-how, the company failed dramatically nine years later -- a victim of mounting debts.

The owners said they've also thought long and hard about what went wrong and what they might have done differently to prevent their problems from snowballing.

"If we'd had some sort of business training first, it would have made a huge difference," Hayes said.

Last year, the owners shared their story with University of Alaska researchers who spent more than a year doing interviews, surveys and analyzing data to discover what factors make rural businesses successful in Alaska. The owners also agreed to share details of their business troubles with the Daily News last week.

The university researchers surveyed 96 business owners in 19 rural communities, and in their study, "Viable Business Enterprises For Rural Alaska," published this year by the school's Institute For Social and Economic Research, said the surveyed owners most frequently mentioned business training as the thing they needed most from outside organizations.

"About 20 percent said classes on managing finances and creating business plans for prospective owners -- as well as ongoing training in effective business management for established owners -- would help," according to the study's executive summary.

The second-greatest need, identified by 18 percent of the rural business owners, was better infrastructure and improved communications technology.

AVOIDING PITFALLS

The owners of 3D Logging said their company's bankruptcy will be finalized later this month.

"Right now, we're feeling like we're in limbo," Hayes said.

The point of sharing their private troubles is to help others avoid the same pitfalls, they said.

Following are some of the things they say caused 3D Logging to fail:

• Problems with cash flow: In 1997, 3D Logging's first year of business, the company grossed $350,000 but expenses were $320,000. The biggest surprises were the cost of business insurance and the cost of maintaining machinery, the owners said.

• No expert help or business education: The owners knew very little about bookkeeping, workers' compensation, managing payroll or negotiating complicated business contracts. They chose not to hire an attorney to review their contracts because they felt they couldn't afford it. Also, some of their business deals were not written down. That came back to haunt them when contractors and vendors interpreted agreements differently than they did.

• Growing too quickly: In its early years, 3D Logging worked only small jobs and was not able to maintain a stable income. So when a subcontracting opportunity for a big timber project in Wrangell appeared in 2004, the owners jumped at the chance. After getting the job, they ended up with crushing expenses that resulted mainly from their sudden increase in employees. Workers' compensation payments were huge and the owners also struggled with the expense of running a remote logging camp, they said.

When the owners began realizing that expenses were getting out of hand, they started researching their problems and found out how much information they lacked, Sally Tinkess said.

If they had prior business training, they would have done things a lot differently -- hiring fewer employees and creating a solid business plan, for example, Hayes said.

"We'd have had half the employees ... I really wish I had taken classes in how to run a business," she said.

By 2006, 3D Logging could no longer keep up with its expenses and the owners decided to close doors.

They hope to remain on Prince of Wales Island though they would consider moving if job opportunities open up elsewhere, Hayes said. "There is some work around Thorne Bay (but) my husband is sick right now," she said. "It's going to be tough I think for the next year or two."

WHAT WORKS

Sharman Haley, the lead author of the university study, said she wishes the team had gathered more data about companies that failed, though it would have been challenging to track them down. "The information is really valuable," she said.

One thing that was useful about the study was that it put a spotlight on some practical things that could be done in villages to improve the prospects for rural development, Haley said.

Increased access to and use of electronic banking is one way to deal with the currency problems in the Bush, for example, Haley said.

Other researchers involved with the study highlighted the Internet's ability to "shrink distances" for rural businesses.

Anchorage researcher Jane Angvik said business training that is tailored to rural communities is also important.

"If you are an agency that says (you are) going to help small businesses, that does mean going out there to talk to them. It's not the same (for them to come) to Anchorage to take a class," she said.

Find Elizabeth Bluemink online at adn.com/contact/ebluemink or call 257-4317.

Helping rural Alaska business:

ALASKA MANUFACTURING EXTENSION PARTNERSHIP

Offers: Business training for small business owners producing, marketing and distributing Native art and other home-based products.

www.ak-mep.org

ALASKA FEDERATION OF NATIVES' ALASKA MARKETPLACE

Offers: An annual statewide competition that provides cash awards for entrepreneurs who pitch innovative rural business proposals.

www.nativefederation.org/marketplace.php

ALASKA GROWTH CAPITAL

Offers: Commercial financing to Alaska businesses with potential for significant growth and profitability.

www.alaskagrowth.com

ALASKA REGIONAL DEVELOPMENT ORGANIZATIONS

Offers: State funding to support regional economic development initiatives.

www.commerce.state.ak.us/oed/ardor/ardor.htm

ALASKA SMALL BUSINESS DEVELOPMENT CENTER

Offers: Free, confidential business assistance and low-cost business training. It will soon offer a series of guidebooks for rural business planning on its Web site.

www.aksbdc.org/index.html

ALASKA VILLAGE INITIATIVES

Offers: Fee-based programs and services designed to strengthen village economies and create jobs and skills.

www.alaskavillageinitiatives.com

UNIVERSITY OF ALASKA CENTER FOR ECONOMIC DEVELOPMENT

Offers: Technical assistance, business courses and mentoring.

ced.uaa.alaska.edu

U.S. DEPARTMENT OF AGRICULTURE, RURAL DEVELOPMENT

Offers: Loans and grants to entrepreneurs, cooperatives and communities to develop rural businesses.

www.rurdev.usda.gov/ak

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