Specialized Bicycle Components Inc. Business Information, Profile, and History

Company Perspectives:

At Specialized, building bikes isn't a job. It's a full-bore, hardcore religion. A religion that's helped us evolve as a company and as riders over the last 20 years. To some, our obsession may seem a little sick in the head. But then, those people probably don't ride. They don't understand that, to be the best at something, you need to be a fanatic. And believe us, there's plenty of those wandering around our hallways. People like our product designers, who pursue innovations like they were well-hidden single tracks. Or the masochistic group down in R&D, who probably have more scar tissue than the entire NHL combined. Even our founder, Mike Sinyard, has been known to cancel meetings just so he could spend more time on the trail. Weird? Not to us. We started Specialized for two major reasons: Number one: We love the sport. Number two: We want to build products that help people like you enjoy the sport as much as we do. Period.

History of Specialized Bicycle Components Inc.

Specialized Bicycle Components Inc. is the United State's fourth-largest maker of high-end bicycles. Specialized is a leading innovator in the bicycle industry, consistently striving to create new and better bicycle technologies. In 1981, Specialized revolutionized the biking industry by introducing mountain bikes to the general public. The mountain bike Specialized sold in 1981, the StumpJumper, was such an important and groundbreaking product that an original model is on display in the Smithsonian Institute. Since 1981, Specialized has not backed off from its company motto, "Innovate or Die." The company, led by founder and CEO Mike Sinyard, has continued to create and introduce cutting-edge bicycle products such as lightweight helmets, physician-designed bicycle seats, a three-spoke wheel designed to cut bike racers' times, and bike frames made of high-tech materials. A minority share in the company was acquired by Merida, the Taiwan-based bicycle manufacturer in 2001.

Innovate or Die!

Specialized Bicycle Component's rags to riches story of Mike Sinyard's turning his passion for bicycling into a successful international business might sound like a cliché, but it is the honest-to-goodness story of Specialized's humble beginnings. After graduating from San Jose State University in 1974, 24-year-old Mike Sinyard sold his van for $1500 and flew off to Europe on a bicycling tour. While traveling, Sinyard met up with a woman at a youth hostel in Milan. The woman he met was acquainted with some of Italy's manufacturers of classic touring and racing bikes and their components. He went to meet the manufacturers and was surprised to find that they were willing to allow him to sell their bicycle components in the U.S. Sinyard knew that high-end bicycle parts were in short supply in the U.S. and that these products would be "as valuable as jewelry to people back home who were really into bikes." He used the remainder of his trip money to purchase bicycle components. When he returned home, he found that his intuition had been sound and that selling the components was a snap. He drew up a hand-written catalog listing his wares and sold the entire stock to local bike-shop owners.

After his first success--Sinyard had managed to turn his initial purchase of $1,100 worth of bike parts into $1,300--he found that the bike-shop owners were hungry for more. His lack of capital presented him with a problem, purchasing the parts up front was not an option with his current state of finance. Sinyard's answer to this conundrum was to persuade his bike shop customers to pay for their orders in advance. The shop owners agreed and Specialized was born. A few years of successful importing of bicycling parts gave Sinyard the taste for the bike business, and he decided that it was time for Specialized to manufacture its own products. In 1976, Specialized introduced its first home-grown bicycle component, a tire designed for the touring market. The years 1978 and 1979 were marked with Specialized's production of the first foldable clincher tire--the TURBO (with Kevlar bead) and the introduction of Specialized's first bicycles, the ALLEZ (road racing), and Sequoia (touring frames).

In 1981, Specialized changed the way that the world rode and thought about biking when they introduced mountain bikes to the general public. The bike Specialized sold was called the StumpJumper, and it revolutionized biking by moving the bicycle off of paved roads and into the great and uneven outdoors. The bike was a hybrid of durable bikes Sinyard rode in his childhood and the lightweight 10-speeds of his adolescence. The StumpJumper was advertised as the "bike for all reasons" and introduced the excitement and comfort of All-Terrain Bicycles (ATBs). The fat-tired and lightweight, 15-gear StumpJumper was so novel a product that the Smithsonian Institute had an original model placed in their museum. Specialized's 1981 production of 500 StumpJumper bicycles sold out quickly, and before long other high-volume bicycle manufacturers began to design and produce their own mountain bike models for the next model year.

Specialized's practice of selling their products exclusively in bike shops created a loyalty between the shops and Specialized. The shops knew and trusted Specialized's products and consistently recommended their products to customers. This close-knit relationship has served Specialized well. In the competitive bike market it is important that salespeople know and trust a company's product because when a customer enters a store they can easily be swayed from one product to another.

Moving on Up

Specialized grew quickly in the seven years after it was founded, and, in 1982, the company moved out of its warehouse in San Jose and into a much larger Morgan Hill space. The Morgan Hill site had 60,000 square feet and was surrounded by miles of trails perfect for Specialized's staff of biking enthusiasts. Specialized blazed new trails in 1983 with the creation of the world's first mountain bike racing team. Specialized's teams have been a great success, with team members and captains often winning competitions on Specialized products. Specialized's professional bikers test ride the company's equipment before it is released for sale to the public. The company's track record of releasing the professionally tested products within one year of testing works to their advantage as customers crave and appreciate the opportunity to ride the most technologically advanced products possible.

Specialized's founder and CEO Mike Sinyard's special contribution to the sport of mountain biking was honored in 1998 when he was inducted into the Mountain Bike Hall of Fame. During this year, Specialized released a few notable products--including the first affordable carbon fiber mountain bike, the StumpJumper Epic and the Body Geometry bike seat. The Body Geometry bike seat was designed in response to growing concern that bicycling was linked to male impotence. The possibility of male impotence being liked to bicycling was not news to many long-distance cyclists, and Specialized was working on a solution when the scientific study, written by Dr. Irwin Goldstein asserting the impotence connection, was released. Specialized's Body Geometry seat was designed by a physician and intended to shift the bulk of the rider's weight from the perineal area to the seat. Cycling enthusiasts and recreational riders alike made the switch from the traditional seat to the new design.

In 1989, Specialized once again made tracks where other bike companies had not dared venture. In a deal with Duralcan Corp., a San Diego-based aluminum fabricator, Specialized ordered 5,000 metal-matrix composite bicycle rims. Sinyard noted that the new rims are a "major break-through in the industry" and other bicycle manufacturers agreed. Michael D. Milton of Huffy Corp.'s Bicycle division (a competitor of Specialized) noted that Huffy had experimented with the metal-matrix composites but faced problems and ended their research. The metal-matrix rims made their debut mounted on Specialized mountain bikes and were also sold in the aftermarket (in bike shops for individual purchase). The making of a metal-matrix rim was an international affair with companies in the United States, England, and France working on different aspects of its production. The first metal-matrix rim was introduced in 1990, and Specialized's global reach expanded when it opened Specialized Canada and Europe.

A New Kind of Advertising

An advertising campaign that Specialized launched in 1990, featuring Soviet leader Mikhail Gorbachev, attracted a significant amount of attention to the company and characterized their advertising methods to be almost as revolutionary as their bicycling technology. Specialized purchased a photo of Mr. Gorbachev and altered it so that Gorbachev was pictured on a bicycle wearing the bicycling uniform of the Soviet national team, his famous mole was altered to resemble the Specialized symbol, and he was holding a Specialized racing helmet. The caption of the photo read, "Mr. Gorbachev is riding a Specialized 'Sirrus.'" The company chose to use Gorbachev's image for a multitude of reasons, including the fact that the Russian National Team was, at the time of the advertisement, wearing Specialized helmets when they raced. Some members of the advertising community felt that the ad was breaking the spirit of privacy laws and was a violation of advertising ethics. The company continued to use the advertisement as they had planned and characteristically spun the ad in a press release to be a declaration of Specialized "setting the standard for ads in the 1990s and creating a new brand of advertising for the cycling industry: advertising with an attitude; advertising with an edge."

Bumpy Road Ahead

The early 1990s were a hard time for the mountain biking industry. The popularity of the bikes attracted a lot of competition so that companies were flooding the market with mountain bikes while at the same time sales were flat or in decline. Specialized faced management and production problems and floundered in the now competitive market. The other bicycling companies (like Trek, Cannondale, and Schwinn-Scott) had begun innovating as quickly as Specialized had been, and Specialized was left in the dust of these more established companies. Specialized's special relationship with dealer-customers slipped when salespeople grew lax: some bike shops did not receive new bike models until a year after the models had been announced and introduced.

Many of Specialized's competitors had begun selling low-end mountain bikes in sporting goods chain stores. Specialized saw the potential to boost its sales, and in 1995 announced that they, too, would begin selling bikes to sporting goods stores and discount retailers, but that they would be selling bikes under the Full Force brand.

Specialized's decision to expand their retail channel beyond bike shops was met with skepticism from Specialized dealers. Many bike shop owners saw this move as a serious mistake. It was easy for Specialized's customer-dealers to see the move as a breach of their trust and loyalty--they had been loyally selling Specialized's products only to have their customers stolen from them by discount sports stores. Sinyard reasoned that the customers who purchased bikes at the discount stores were customers who would not have ventured into specialty bike shops, and he hoped to hook them on the purchase of the bike in the discount store, and then reel them into the specialty bike shops to purchase additional Specialized parts.

Some dealers were extremely angry at Specialized's move, but most dealers took the news in stride and waited to see what would happen. Two years after Specialized distributed their low-end Full Force line, they discontinued it. Sinyard, in what some people believed to be a mark of his graduation into a mature businessman, wrote a formal letter of apology to all Specialized dealers.

Specialized followed up their attempt to distribute low-end bikes by releasing a slew of top-of-the-line bike products, including 7-ounce to 91/2-ounce helmets, concept bicycles, and the Ultralight Composite Wheel designed and produced with Dupont. The Ultralight Composite Wheel had a 1 mph advantage over a conventional wire spoke wheel tested at 30 mph. Specialized was so sure of their new wheel's superiority, that they issued a $5,000 challenge to any manufacturer who could prove their wheel to be more aerodynamic.

Although competition was fierce and internal company organization faced problems, low U.S. bike sales also had a hand in Specialized's trouble in the early 1990's. Ironically, the downturn in bike sales might have been the fault of Specialized's earlier success; "As it turned out, mountain bikes were a catalyst for all kinds of outdoor activities," said Specialized's marketing director Chris Murphy. "Once people got outdoors, they discovered lots of new things they wanted to do."

Innovative Partnerships

Specialized's success moving into the late 1990s had something to do with the formation of innovative partnerships with popular brands. Mountain Dew and Specialized joined forces when Mountain Dew signed on to sponsor the Mountain Dew Specialized Team and to sponsor the Specialized BMX program. With the increased support and sponsorship of Mountain Dew, Specialized began a national BMX project in inner cities. Specialized renovated deteriorated parks and constructed permanent fixtures for kids to use for riding BMX, skateboarding, and inline skating in New York, Los Angeles, Chicago, and Miami. Specialized's partnership with Subaru was equally community-minded. Subaru helped to support some of Specialized's grass roots programs including Friends o' Trails, which teaches off-road biking. While many other bike and car companies joined forces and offered buy-a-car-get-a-bike deals, Specialized and Subaru's deal did not include a similar promotion.

In 1996, in a strange twist of fate, one of Specialized's bicycles made the leap from backcountry trails to museum galleries. A San Francisco gallery's exhibit, entitled "Wild Design: Design for the Wild," showcased the artful design of many modern sporting goods. A Specialized mountain bike, made from lightweight aluminum typically used in airplanes, caught the curator's eye and was included in the display shown in both San Francisco and Minneapolis, Minnesota.

World Ride Web

Building a highly functional and dynamic Web site was a top priority for Specialized. Because their products were sold primarily out of their catalog and through bike shops, the company saw the Web as a prime opportunity to build brand awareness and cultivate even deeper customer loyalty. When a customer sends e-mail to the site, they do not receive a blanket response, said global E-marketing manager Mike Regan, instead they get a response with the name of a Specialized employee attached so the "customer has a clear sense that they're dealing with an individual who cares about their needs."

Specialized Sells Minority Share

In June 2001, Merida--the second-largest bicycle manufacturer in the world--acquired a minority share of Specialized. It was not revealed exactly what percentage of the company had been sold. Sinyard stated that Specialized needed the capital to meet the company's long-term goals to increase sales efforts, increase its service to specialty retailers, continue its dedicated attention to research and development, and to expand further into Europe. Specialized's relationship with Merida continued what was already a strong bond between the manufacturer and supplier. Although Sinyard claimed that Specialized would continue to use all of its suppliers, many people in the industry believed that suppliers external of Merida would be used only for products that Merida had no interest in producing.

Principal Subsidiaries:Specialized Central Europe, Inc.; Specialized Italy, Inc.; Specialized UK, Inc.; Specialized Canada, Inc.

Principal Competitors:Giant Manufacturing Co., Ltd; Trek Bicycle Corporation; Pacific Cycle, LLC.

Chronology

• Key Dates:
• 1974: Specialized is founded by Mike Sinyard.
• 1976: Specializes produces and sells their first self-made product, a tire designed for the touring market.
• 1981: Specialized introduces the StumpJumper, the first mountain bike sold to the general public.
• 1982: Specialized moves from its small warehouse space in San Jose to a 60,000 square foot space in Morgan Hill.
• 1989: Specialized introduces the composite wheel, a joint venture with DuPont.
• 1990: Specialized introduces M2 metal-matrix composite technology into bicycles for the first time.
• 1995: Specialized announces plans to distribute bicycles and accessories to sporting goods dealers and discount retails under the Full Force brand.
• 1996: Specialized discontinues the Full Force brand.
• 2001: Merida, a Taiwan-based bicycle manufacturer, acquires a minority share of Specialized Bicycles.