Jan
24
2010

Bicycles & Business Design

There are plenty of smart & talented people who have lots of things to say about bicycle design.  There are also plenty of incredible bike designers that spend their time designing, and don’t often spend much time waxing romantic about how great their designs are – they are far too interested in their work to waste time talking about it. But there is one other area in all this, the design of the bicycle business itself, that is rarely talked about explicitly, though often complained about.

Every industry has a bell curve of attrition, in one form or another.  I could go open a pizza joint, or a coffee shop, or an auto repair shop, and my competition becomes a combination of the others around me offering similar stuff, and my own ability to not screw things up too badly.  And in a twist of that adage of “everyone, eventually, is promoted to their own pinnacle of incompetence”, there is some sick economic theorist that will have predicted that the bulk of the competitors will thrash about at or near the level of subsistence, while the least talented will fall away, and the most talented will be the subject of much envy and scorn.  Banks are, if you’ll pardon the pun, a prime example these days.

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Bike shops, and the bike industry as a whole, seem to revel in this bell curve of poverty. Sure, there are plenty of bike shops and bike companies that have vanished in the past year.  There are also plenty that have sprung up in their place, and some that have done very, very well for themselves.  Despite what some might have you believe, we do not share any similarities with the Facsimile Machine Manufacturing and Retail Selling Industry from 2002. The bicycle industry churns year over year, in a largely predictably annual cycle, and chances are that while the product designs will continue to innovate and improve in the future, the industry itself will maintain itself within a similar business model. By this, I mean that brands will design their bikes, factories will manufacture on behalf of these brands we know and love, those brands will then sell mostly to independent dealers, those dealers will sell to customers, and the products will mostly be released on an annual model-year cycle.  There are myriad small departures from this, but this is the foundation.

If you’re wondering why I think the business model itself won’t change much, here’s why: a massive shift towards online sales is unlikely, if only because customer product education, fit, and repair services rely heavily on in-store interactions.  A massive downturn in interest in cycling seems similarly unlikely, environmental concerns are just one reason.  I could be wrong in either of these assumptions, but I think they are safe bets in the near term, say the next 5 years.  Exogenous forces that I’m also counting on: no massive global currency crisis, no military conflict between Taiwan & China (since they manufacture all this stuff), and no protectionist shocks, like massive increases in import duties.

No doubt, there will be shining examples of success – both regional and global, some short term and some lasting.  At the product level, the actual product design will play a massive role in the companies that succeed.  This has been true in the past, and it should not come as a surprise to anyone that it will continue to be true. This is the most hotly contested realm of design, and the most visible – especially given the model year cycle we operate in. We want and expect that the 2010 model to be superior to the 2009 model.

But at the business design level, where companies and retailers alike experiment with alterations to the way they interact within the overall business model, there have always been (and will continue to be) massive opportunities that ultimately shape the long term success of the companies or shops that do well.  If we take the overall model as a given, then redesigning our place within it can allow for some massive behavioral changes.

Two examples of what I mean, first at the manufacturer level: SRAM started as scrappy startup in a garage (sound familiar?), and fought a long, hard battle to convince cyclists at every level, from newbie to pro, that twisting their hand to shift was an improvement over thumb and finger-operated levers.  Over time, they made their impact, but this single product innovation was not their raison d’être. Stan Day and his crew of talent at some point shifted from the standard suite of inductive/deductive logic tools – what is, or what will be – and instead they started thinking abductively, about what could be.  At some point, SRAM stopped being a quirky shifter company, and became a bicycle component juggernaut that could rival Shimano on every level.  It wasn’t long ago that Shimano’s stronghold seemed simply untouchable.  Now, it’s been years since Shimano’s last Tour de France victory. Last year, SRAM won their first Tour de France.

This is one of many examples of Business Design hard at work in the hard-working bike industry.  It’s cultural as much as it’s strategic: I know many people at SRAM, and they’re all far more interested in designing what’s next, rather than deciding what’s next.  The difference is subtle, but critical.  It takes one level of acumen to assess a situation, brainstorm options for what to do next, and then decide which option is best.  It takes an entirely different level of acumen to assess a situation, and then look forward in a way that combines past wisdom with a blank slate of limitless future options.  If SRAM had simply focused on decisions, we’d likely have a narrow range of very good twist shifters.  Instead, their design centrism means we have a new & massive range of component options that have won World Cups, Tours de France, Olympic medals, and retail sales floor space.

Second, at the retail level, the bike shop is changing – not at the transaction level, but at the far ends of the spectrum: how they interact with suppliers, and how they interact with customers. Now common, B2B systems for dealers to manage orders and inventory were rare only a few years ago.  But even more critically, a shop’s connection with their local community was historically tied to their conversational skills and their ad in the yellow pages.  Now we have bike shops with rabid fans on facebook and twitter, and the very best of them have altered their transactional relationships into behavioral relationships by organizing rides, skills clinics, seminars, and even trips.  They’ve redesigned the bike shop into a social hub, a clubhouse, or at the absolute top level, a big pile of united friends.  Think for a moment about how different this is from a place like, say, Radio Shack, where you might walk in, buy 4 batteries, and leave, not knowing (or really caring) if you ever go back there again.  Bike shops used to be there.  Now, the very best have redesigned their businesses to be something closer to an extremely hip club.  But here, it’s not product that the shops are designing.  It’s interactions – and these interactions rely on keen understanding of validity, which is another key difference between the shops that fight in the froth of subsistence, versus those who are far ahead of the chum.

These very best bike shops, whether explicitly or implicitly, understand the difference between reliability and validity.  It does not take a savvy shop owner or staffer to look backwards at their past sales data and conclude that a certain percentage of their business caters to an urban city-riding commuter segment, and then make pre-orders and sales floor allocations based on those analytics.  However, this backwards look at the data is merely reliable – it’s been true before, so the assumption is that the trend will continue.  Statisticians call this linear regression, while those who look at actual human behavior call it anything from ‘distracting’ to ‘utter bullshit’.  The savvy shops are those who stay focused on conclusions that are valid, based on a wider array of data, even if it doesn’t easily import into a statistical model.  Consider a shop who just had a 150-unit housing development and 14 miles of bike lanes installed in their community: should they be more or less concerned with their past urban bike sales data?  The world is full of changes that are not reflected in historical analysis, no matter how rigorously it was conducted.

The conclusion to all this is simple: the bike industry (and other healthy industries) will continue to thrive in aggregate, and the complainers will complain in disproportionate volume because those who succeed are likely fewer in number, and also likely to be far too busy to spend time bragging about their good fortune.  And the aggregate success, across all levels of the business model, will probably bring about a wider and newer array of cool new stuff that we’ll all want.  And then we’ll go ride bikes, and the sun will shine, and we’ll trade high fives and knuckle bumps, and share a pint afterwards with a $4 burrito.

Life is good; don’t let anybody tell you different.

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Written by chris in: General Musings |

14 Comments »

  • I think things will start to move online. The typical bicycle webstore will be like mine, selling accessories not bicycles. This is for the reasons you mentioned above, however some manufacturers are trying to sell bikes that can ship direct to the customer. There is also a resistance to this movement to online stores by the distributors that like their current business model with independent bike store owners.

    I do agree that good retailers are marketing themselves with social media. They are also making their stores (sometimes neighborhood) a destination hangout.

    I have been following you on twitter for a while. . . will now start checking your blog more often.

    Comment | January 25, 2010
  • Hmm. Sounds kind of Bike 2.0-ish to me. Can you be more specific, please?

    Comment | January 25, 2010
  • Insightful, as always, Chris.

    Perhaps the key strength of IBDs (many suppliers see it as a weakness) is the ability to react quickly to trends. So, if that cycle superhighway opens up a block away, a roadie shop could switch to becoming an urban commuter shop, at least in part.

    Of course, this ignores the fact that many IBDs are owned and run by passionate enthusiasts. A roadie focussed shop may snub its nose at the urban commute market, even when it’s on its doorstep.

    The bike shop I’d like to frequent is the shop that put staff on the council committee which decided to build the cycle superhighway. The best bike shops are out there making changes; not just cappuccinos.

    Comment | January 25, 2010
  • You’ve really described well what was a brain storm of mine about my own shop – that it is as much a meeting place and the locus of bicycle activity as it is a place to go and buy widgets (specialty objects for a given activity).

    I think the online store model is one that can succeed, but there is a vacuum of knowledge about bike parts and what parts will work with which bikes, etc. Having a shop that is tied to your neighborhood, and is willing to sift through both your needs and what is available/what they can fabricate/what they can order is a HUGE advantage I feel i have over my online competitors. Of course, the big distributors would instantly lose my business if they allowed every jerk with a garage and a couple hundred bucks to set up shop hustling bike parts – so I don’t see that side shifting unless specialty distributors market just to garage-based online punters. But if you’re bringing in massive quantities of stuff to be sold online, and doing all the hard work cataloguing it for someone else to sell for you, why not just go that extra step (a la Velo Orange) and sell direct to your consumers?

    The online thing will function, but it requires a lot of work communicating about your products (Rivendell anyone?), and not just setting up yet another lame eCommerce bike store. I don’t see this as that big of a deal.

    Comment | January 25, 2010
  • Social comments and analytics for this post…

    This post was mentioned on Twitter by matthewscd: New blog post: business design and the bicycle industry. http://creativextreme.com/?p=369

    Trackback | January 25, 2010
  • Good article.

    Minor factual point on “it’s been years since Shimano’s last Tour de France victory.” Shimano’s last win was in 2008 with Carlos Sastre and in 2007 Alberto Contador won on Dura Ace before moving to SRAM in 2009. Campagnolo won in 2006 with Landis/Pereiro and before that it’s solidly Shimano back to Pantani and Ullrich in the 1990s.

    You might be overstating the case for Shimano’s decline against SRAM’s extraordinary growth.

    Comment | January 25, 2010
  • Thanks to all for the comments – Carlton, you’re absolutely right, the IBD’s have a great capacity to be nimble and react quickly, and the best of them are focused on policy as well as profit.

    And Alex, you’re totally right – SRAM only won the tour this past year. My mistake.

    Comment | January 25, 2010
  • ewan

    Hey – As a lover of bikes and a sideways observer of the bike business I found this piece really insightful. Cheers.

    Comment | January 25, 2010
  • Pretty insightful, I think the only way bikes could be via website would be in house at a bike shop. This way the bikes can be ordered direct from the manufacturer, there would be a store login so that store could get credit for it, and since the customer would be ordering it with a sales associate it would be one on one interaction and making sure that the customer is getting the right product. This wouldn’t fully eliminate the need for the shop to house a supply of bikes, but would definitely help to reduce the operating costs of opening/running a bike shop. Just my two cents on how I see online bike purchasing increasing.

    Comment | January 25, 2010
  • Nicely written. Thanks.

    Comment | January 25, 2010
  • Bryan Willman

    “On the web” doesn’t have to mean “came via UPS” – the web will ever more important as a support for physical stores. How many queries do IBD’s already get for “I saw this thing on the web that looks very well suited to my needs…”

    Same is true of cars – very few people buy cars via ebay motors or the like – but what person under 50 goes car shopping without consulting the web?

    IBDs will survive based on inventory calls, service, and execution.

    Comment | January 31, 2010
  • [...] on the importance of design in the bike industry, check out Chris Matthews’ recent “Bicycles & Business Design” post. As is always the case at Chris’ blog, the post is well written and insightful. [...]

    Pingback | February 26, 2010
  • [...] Bicycles business & design [...]

    Pingback | March 25, 2010
  • We are living in the experience economy. If you don’t create an enlightening experience for your customers someone else eventually will. The value chain includes bicycle stores, because they are a network externality you currently rely on. What if you had to re-think the entire experience of buying a bicycle? Pre-purchase would include…? Purchase experience would look like…? Delivery would be…? Post purchase service would include…?

    If you’re not thinking about this… who is? And how will you react when it’s offered?

    Comment | March 30, 2010

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