By all rights, Stan Day should have failed. Yet here he is, taking on the two longtime leaders in bicycle components, with a shot at breaking away
Twenty years ago, Stanley Day Jr. was out of work, bumming around the ski slopes of Utah with his best friend, when he came up with an idea for what he might do with his MBA.
Day cycled to train for triathlons. What bugged him about road bikes was how they forced riders to reach from the handlebars to the frame to shift gears. Why not create shifters at the end of the handlebars? he proposed to his friend, Sam Patterson, as they rode the chairlift. Patterson, an engineer, agreed, went home, and made a prototype in his garage. Along with Patterson, Day teamed up with his younger brother, Frederick, and three other pals to launch SRAM—an acronym of the first and middle names of three of the founders—in 1987. They called their first product Grip Shift.
It was a bust. Cyclists, loyal to the world's leading brands in bicycle components, Campagnolo and Shimano, didn't like the looks of it, even if the technology made sense. SRAM planned to sell 100,000 shifters its first year. "We sold about 800," Day says.
Since then, Day has turned Chicago-based SRAM into a manufacturer to be reckoned with in bicycle components—the gears, derailleurs, brakes, and other parts that make a bike work. After catching up with Shimano in the business of mountain-bike components, SRAM in 2006 vaulted into the rarefied parts market for road-racing bikes, the familiar sleek machines of the Tour de France. And last summer one Tour team used SRAM components for the first time. "Believe me, that's as difficult as getting an NFL franchise," says Alex Wassmann, SRAM's racing program head.
The privately held company's sales have risen at a 15% to 20% clip in each of the last five years, to $318 million for its fiscal year that ended last June 30, according to Day, SRAM's majority owner and chief executive. He declines to discuss profits, but says SRAM is in the black.
Against Japan's Shimano in particular, though, SRAM faces a competitor with deep pockets. The publicly traded company posted 2006 sales of $1.54 billion. It spent more than a third of SRAM's revenue—$122 million—on research and development and marketing alone. "They are not really credible yet," says Joe Vadeboncoeur, director of product development at bicycle maker Trek, producer of the frames Lance Armstrong rode to a record seven Tour victories—with Shimano components.
An Atypical Vending Machine
SRAM also competes at the high end with Italy's Campagnolo, whose stylish components have a decades-old racing pedigree. While Shimano is far bigger, its parts don't have as much design flair. The Japanese company would be the Lexus of the bike industry, to Campagnolo's Ferrari. Day knows SRAM's position in the hierarchy of desire: "We are Porsche."
You won't find many cars at SRAM's headquarters on the Near North Side of Chicago. Nearly all the office's 100 employees pedal to work, including Day, who is 51. Expensive road and mountain bikes clutter the place. Day himself doesn't work from a regular desk or office. Six-foot-three and fit, he uses a drafting table in the open. Walls, he says, would cut him off from co-workers. Or the beer vending machine, where employees can buy cold ones for 75 cents after 5 p.m. Or his view of the bike test track, which runs the circumference of the interior.
Day didn't set out to be in the bike business. After getting his master's degree from Northwestern's Kellogg Graduate School of Management in 1984, he went to work for electronics maker Molex as a marketing manager. He left in early 1987 to buy and run a company for his father's mobile-home business. But when that deal fell apart only a week later, Day found himself unemployed.
Antitrust Suit Against Shimano
Although SRAM bombed at first in road bikes, it got a second chance. Day's brother had pitched a handlebar twist-shifter for mountain bikes. Day nixed the idea. Luckily for SRAM, Frederick ignored his older brother and continued to work on the project behind his back. In 1989, SRAM launched the CX shifter. It was a hit with mountain bikers.
But there was one problem. While local bike shops started to carry the CX, SRAM couldn't get bike manufacturers to put it on their frames as original equipment. The reason: Shimano charged manufacturers a lower price if they bought all the components for a single bike, and more if any parts were excluded. SRAM filed an antitrust suit, and the two parties settled in 1990, with Shimano dropping the pricing practice. Shimano didn't return calls seeking comment.
SRAM's shifter sales then took off. The company rounded out its ability to sell a full set of mountain-bike parts through four acquisitions, including one of German manufacturer Sachs Bicycle Components. SRAM now sells components for about half the high-end market for mountain bikes, which cost $2,500 and up, bicycle dealers say. All that gain came at Shimano's expense, because Campagnolo makes parts only for road bikes.
Standout Shifting Technology
Now SRAM is taking on both Shimano and Campagnolo again in the road market. The move is one part prestige. "There is more elegance, speed, and history to the road market," says Day. It's also one part financial. "That is where the dollars are," he says. More baby boomers are turning to road riding because it's easier on the body than pedaling a mountain bike. And many are willing to pay big bucks for the carbon-fiber frames and wheel rims. Sales of $12,500 road bikes aren't uncommon. At independent shops, where most high-end bikes are sold, road bikes make up 15% of unit sales but 50% of dollar sales, Day says.
In 2006, SRAM launched its first two component sets for road bikes, a premium line called Force, and a midtier one, Rival. Its standout technology was in the shifting action. With Campagnolo and Shimano, riders have to use two levers to shift—one to go up, and the other to go down. With SRAM components, a rider needs only one lever to shift. Two SRAM engineers conceived the idea on a cocktail napkin while drinking Pabst Blue Ribbon at Weeds, a nearby bar. Hence, SRAM's name for its two-way shift: Double Tap.
SRAM representatives also work bike shops, making frequent visits to try to convince store owners of the advantages of the new road products. If a dealer gets behind a product, Day says, SRAM starts pushing bike makers to install it on new bikes. The calls are another way to distinguish SRAM from Shimano and Campagnolo. "The other two companies do not come to our store," says Chris Dimmick, general manager of Turin Bicycle in Evanston, Ill.
Specialized and other high-end brands, such as Scott Sports of Switzerland, now offer road bikes with SRAM parts. And SRAM's newest and priciest part set, Red, is sparking more interest. It is lighter than previous weight-winner Campagnolo and costs slightly more at $2,220. Competitive Cyclist, one of the nation's biggest online bike retailers, has presold dozens of the Red part sets, which doesn't happen often with a launch, says co-owner Hap Seliga. "That speaks volumes about people's expectations," he says.