Does 'Bigger' Make Sense For The Bike Industry?

The July 31 issue of Inc magazine asked the question: Does Size Really Matter? The opinions of those interviewed were all over the map, but one stood out.

"There is a natural size needed for any company to be the best in the world at what it does. Sometimes that requires significant size, but other times it requires being smaller," said Jim Collins, a management educator.

"The real question is not—How do we become bigger to compete—but, how do we become the absolute best in the world at something, and what size do we need to be to be the best?"

This sounds like good advice for the bike industry.

Too often, companies get into trouble when they grow too quickly. To fund this growth, or to cover mistakes made throughout the growth process, companies take on outside funding, which changes the management dynamic.

Cannondale and RockShox went public to raise money to avoid the catastrophic effects of getting over extended during booming growth. Others have enlisted the help of individual investor or large investment groups.

This happens in all industries. The dot-com boom and bust is an example of this. Bicycle Retailer & Industry News' business—publishing—is consolidating as publishing houses gobble up more titles.

What drives this? Often it can be a simple matter of ego. Corporate bosses, by their nature, are confident and driven competitors. Once they take over their rivals and lay claim to being the world's largest, that is when the trouble starts.

The first thing they do is "synergize efficiencies." This means downsizing—more jargon that equates to eliminating people, facilities and services.

A recent study by the Institute for Policy Studies and United for a Fair Economy showed that as companies lay off workers, coporate big wigs get hefty pay raises.

The study found that, at the 52 major companies that announced layoffs of at least 1,000 employees in the first half of 2000, chief executives officers received an average of $23.7 million in compensation—including bonuses and stock options— compared with an average $13.1 million for chief executives overall.

Why? Because these moves offer short-term benefits to the shareholders. But is this kind of business good for the long-term health of the company?

We saw these same decisions made by the management of Schwinn/GT who reported to a board of directors made up mostly of partners in Questor Partners Fund. Questor got into the bike business thinking it could clean up Schwinn, toss in a merger, open new markets, move some stuff around, synergize efficiencies, then flip it for a profit.

Bigger may not be better. As simple-minded as it may seem, our industry has had its greatest successes when passion and hard work combine to produce companies focused on being the best in the world, not the biggest.

There have been many examples of this—Schwinn when it was run by the Schwinn family; Litespeed under the Lynskey family and still under the guidance of Mark Lynskey; Quality Bicycle Products under founders Steve Flagg and Mary Henrickson and, Trek (though large) which is owned and run by the Burke family.

There is a certain connection between the people who own and operate these companies and their success that big corporations can't find in reams of spreadsheets or through complicated mathematically created business models.

Long live the little guys.