Mike Sinyard dropped out of school at 16, toured Europe on a bike and became the Specialist no one knew they needed.
Dave Young:
Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those.
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Dave Young:
Welcome to the Empire Builders Podcast. I’m Dave Young, and that’s Stephen Semple. We’re talking about empires and business building and all of the things. And the subject that you whispered in my ear just as we started was Specialized mountain bikes. Mountain bikes is not my area of expertise. Specialized is a brand name or are we just talking about mountain bikes in general?
Stephen Semple:
No, Specialized is a brand name, but they do more than mountain bikes, but where they’re really known is mountain bikes.
Dave Young:
I kind of thought that they were a-
Stephen Semple:
Yeah.
Dave Young:
Yeah, which is first of all, Specialized is a strange name for a brand.
Stephen Semple:
It is.
Dave Young:
Like calling yourself exclusive, okay. But I’m anxious to hear more. Like when you and I were kids, mountain bikes didn’t exist. It just wasn’t even a thing.
Stephen Semple:
They did not. No, they did not exist.
Dave Young:
There were bikes and there were road bikes, racing bikes, or you had a bike with just the usual kind of fat tires.
Stephen Semple:
Yes. And even before the mountain bike came along, you had a period of time there was the BMX bike actually predates the mountain bike.
Dave Young:
But more for kids and early teens.
Stephen Semple:
Yeah, exactly. So it was founded by Mike Sinyard in mid 1974 is when he started this business. So-
Dave Young:
It does go back a ways.
Stephen Semple:
Yes. And he didn’t start right away building mountain bikes. That does give you an idea where the mountain bike trend happens. And today they have like 1,300 employees, they do half a billion in sales. And he started selling parts for bicycles. And it really wasn’t until the mid 1980s that they became a big force in the mountain biking space. And the interesting thing that we’re going to be talking about is they made some decisions along the way that almost put them out of business.
Dave Young:
Okay, love that kind of thing.
Stephen Semple:
That’s the thing that really jumped out at me on their whole story. So Mike grew up in San Diego. His dad was a machinist in the Navy. His mom cleaned houses. They didn’t have a lot of money. They didn’t go out to eat, they didn’t do all those sort of things. They were just a very basic household. He did poorly in school. He was in school in the ’60s and had ADHD and really, again, not much known about that back in those days. And so he moved out of the house, dropped out of school at age of 16, and what he would start doing is he would go to flea markets and he would buy things, then resell them. And what he figured out was live cheap.
So he had lived in a house with lots of roommates, was doing this living cheap thing, going to flea markets, buying stuff, reselling it, and eventually he decides to go back to school and give school another go. And he attended San Jose State University. And one of the things that happened is remedial programs started coming out and that’s what allowed him to go back to school. And he basically did remedial everything. Like every class, every class was a remedial class, gets out of school, gets a job at an airport refueling planes, and he decides to become a pilot and started in an aviation program, got his pilot’s license. Which, given the amount of studying that has to be done for that, and the amount of books felt like a real accomplishment to him.
Dave Young:
Sure.
Stephen Semple:
This is amazing. And he always enjoyed riding a bike. And as a kid he would fix up bikes and resell them. And that’s actually one of the things that they were always looking for in terms of the flea markets as well. So he would continue doing that, getting these bikes, fixing them up. But what he found was, especially back in that day, European bikes were much more interesting, much better built. US bikes were basic and really boring. And he really felt that if there was some of these European bikes available in the US, that they would be big. So he started bringing parts from Europe and he had this professor who told him, “Every problem in the world is an opportunity to do it better.” And that always stuck out with him. So he graduates in 1972 and he didn’t know what he wanted to do, but he wanted to explore these sorts of things.
So in 1974, he takes a bike tour in Europe, basically he sells his car, takes this bike tour in Europe with a bunch of friends. Part of it’s fun, part of it’s also to learn about the bike industry. And at the time, UK was a huge country in bike parts, as was Italy. So he made up this idea that he had big contacts with all the big riders in the US and that’s what he would tell these bike companies when he goes in to visit them. And he visited suppliers in Italy as well and he bought products. He spent all of the money he had, and what he bought was handlebars and handlebar extenders. That’s the thing that he saw that was really cool in Italy. So he bought all these parts-
Dave Young:
They’re unique, yeah.
Stephen Semple:
Yeah. Brought them back to America, went door to door to the bike shops selling these parts and made a little bit of money. Now, he also gave the stores a deal to pay in advance because this would then allow him to get more product because he suddenly realized, “I got to get the money out of this to get more product.” And in the first year he basically sells $64,000 of these parts. It’s a lot of work. He’s going door to door, knock, knock knock, door to door, knock, knock, knock. So he went to the library. And back in those days, Dave, remember how the library would have reference books?
Dave Young:
Thomas Register.
Stephen Semple:
Yeah.
Dave Young:
Yeah, these-
Stephen Semple:
Yeah. So explain what that is.
Dave Young:
Yeah. Amazing books like the great big green book that listed every manufacturer of everything.
Stephen Semple:
And also stores and associations. There was these reference books of businesses.
Dave Young:
They were amazing.
Stephen Semple:
Yeah, so he went-
Dave Young:
I don’t even know where you find that stuff now. You have to Google stuff and sort through it yourself.
Stephen Semple:
Yeah, it’s Google is where you pull these things now. So he went to the library and he looked up a list of all the bike shops and basically he sent a letter to all the bike shops with this approach of saying pre-ordering parts, saying, “I’ve got these things. How much would you like?”
Dave Young:
Yeah.
Stephen Semple:
So which then allowed him basically buy the parts, sell it right away.
Dave Young:
He’d have orders in hand. And, yeah.
Stephen Semple:
Yeah, because he had no ability to finance. So that’s basically how he had to do it. And he called the business Specialized selling specialized parts.
Dave Young:
Yeah. Well, that makes sense.
Stephen Semple:
That’s where the name Specialized came from. So first year he did 64,000 in sales, year two, 128,000.
Dave Young:
A nice trajectory.
Stephen Semple:
Nice trajectory, doubled the business. In year three, he decides he wants to start making his own product. And he starts with a bike tire, because he’d been importing tires from Italy and they would get these little bubbles in the tire and he decided he could make a better tire. And he contacted companies in Japan because Japan was the best tire makers in the world. And again, back in the day, there was a lot more of these envoys who would come from Japan who would help connect you with Japanese manufacturers, because Japan was really trying to build that export business. And then in 1979, he decides to build a bike. Their first Specialized bike. Now touring bikes were great, but there was no great production bike. So what he wanted to do is kind of make a touring bike built on a production platform with all the benefits of these specialized parts that he was bringing in from Europe.
So he got it made in Japan. So the first bike was a racing bike and then what he started to notice was these mountain bikes around. He started noticing because in the mid 1970s, the first mountain bikes were being made for sale. And before that, mountain bikes were these old bikes that had just been modified. And Gary Fisher was the first to make and sell a mountain bike. And there was a few other makers and Mike had been supplying them with parts. He was aware of it. So he decided that what he wanted to do was get into this trend. He saw it as early trend, get in. He made this bike called the Stumpjumper and made that bike and then started taking it around. And most stores just were not interested. They saw it as a big BMX bike for kids. They didn’t see it as an adult bike. So it’s 1981, and he’s basically, he’s got this bike and he’s shopping the bike around. He got a few stores to take it. They didn’t sell well, he sold like 500 in the first year.
Dave Young:
Okay.
Stephen Semple:
Now he was still also making the road bikes and those were selling better, but he felt there was this cultural division between both styles of biking. But what he noticed was racing bikes were light and strong and mountain bikes, the frames are breaking all the time. So what he decided to do is take a lot of the technology from racing bike frames and apply them to mountain bikes to make this frame that’s stronger. So the specialized bike frame was way stronger and basically didn’t break. And in the late ’80s it really started to take off. And what he did is he shifted focus to the mountain bikes at that point. Now the interesting thing that happened is that trend starts to go and in the ’90s, guess what happens?
Dave Young:
Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.
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Dave Young:
Let’s pick up our story where we left off. And trust me, you haven’t missed a thing.
Stephen Semple:
Now, the interesting thing that happened is that trend starts to go. And in the ’90s, guess what happens? The mass producers come into the mountain bike space, so it starts to get crowded. Now Mike’s whole thinking on Specialized was that you want to make things more durable. It was all about design. Now the design was slow and it was a complicated production process because they were focusing on making things excellent. And he realized he was the bottleneck in terms of scaling up.
Dave Young:
Really? Okay.
Stephen Semple:
Yeah, in terms of how he was doing things. They were always profitable. They were doing, in the early ’90s, about 60 million in revenue. They felt like they had become an established bike brand, but they needed help and they started to look for executives to run the company. They wanted to hire experts in area of finance and marketing and production.
Dave Young:
Okay.
Stephen Semple:
Did not work out. It almost bankrupted them. And this was his first big lesson, hiring people is not about skill, it’s about culture and belief.
Dave Young:
Sure.
Stephen Semple:
What happened is these people he brought, they came from companies like Costco and Walmart and places like that, but they brought a specific playbook, make it big by going mass production, make something just good enough. Drop the price, sell it in Costco, sell it in Walmart. Looked great on paper, but it’s not who Specialized was and it was a huge mistake and it did not do well. And it turned out to be a breach of trust. They diluted down their brand, they reduced the culture. It was a huge failure. They almost went out of business. Also, the executives sensed that it wasn’t doing well, and they started to step away and resign and peddle things back, go on to the next big opportunity.
Dave Young:
Sure.
Stephen Semple:
So Mike finds himself going, “Holy crap, this has been really bad. I need to change this.” So Mike actually sent an apology letter to every one of the retailers, closed the discount brand, asked for permission, asked for forgiveness. Said, “We screwed up. It was really, really bad.” And end of 1996, they had lost 30% of the bike store business, but most accepted the apology and gave them a chance to earn back.
Dave Young:
That’s cool.
Stephen Semple:
And it took them three years. It took them three years to get back to where they were with the bike retailers. Now, late 1990s, things started to slow down a little bit again. And Peter Moore from Nike gave them advice and Peter Moore did early brand development at Nike and also helped turn around Adidas. And he was a big bike rider. And Peter created a brand book for both Nike and Adidas that was super powerful. And basically what Peter’s brand book was based around was, “What do we believe? And I mean, really believe.” And we do that. We create these we believe statements, and we always struggle with people on them because they put what they want or what they would like, but no, what do you really believe? And if you do those things, the money will come.
Dave Young:
Yeah.
Stephen Semple:
If we do these things, the money will come. And they use this as a playbook to measure decisions. So Peter helped them put this together. Every employee gets it, and it’s actually how decisions are measured is back to the belief book. And he calls it his brand playbook, but it’s about beliefs. And in 2001, they’re close to bankruptcy. They’ve got low price, low margin. The past has caught up to them. They’ve got inventory problems, and they’re now working with the bankruptcy group at the bank. Now, fortunately, Merida Bikes who are making their bikes, Japanese company was making their bikes, bought half the company for $30 million and that was the injection of capital they needed. So along with this capital, along with this new brand book and the apology letter, things are turning around. And over the years, they do well enough that they buy a third back from Merida Bikes and they’re also shifted the company back to the high end. They go back to their roots. But of course that takes time.
A few years later, they’re doing a half billion in sales. Now, three things that got them out of trouble and made them what they are today. The brand Bible, the focusing on quality, and the buyout. And what Michael will say if you hear any interviews with Mike Sinyard, what he will say is, “Doing things for money does not work. Doing what you believe, does. When you do what you believe, things work out.” When they were doing what they believe they’re on this trajectory, when they got away from doing what they believe, they almost went bankrupt. When they went back to doing what they believe, things worked out. And for them it had to be the high end because their belief was durability, lasting, performing really well. That means high end. You can’t do that. The brand Bible, not mission statements, what you really believe and only hire people who share those beliefs, which also means you got to stand for something. Choose what to lose.
Dave Young:
Yeah, and you lose the discounted, the big box stores, and I have danced around the cycling industry. You wouldn’t call me a cyclist, but I spent probably a year trying to find the right road bike for myself and looked at all kinds of different things, and I should have recognized Specialized. It’s not the one that I got. But what I did find out is that there’s sort of these two worlds. There’s casual bikers that go buy bikes at Target and Walmart, and it’s like, it’s just a bike. It’s got two wheels and the little shifty things and all of that. It’s a bike. And then there’s people that are cyclists that go to, basically they go to a store that specializes in bicycles for people that love to cycle. And the two are completely different worlds. They’re completely different worlds.
Stephen Semple:
They are.
Dave Young:
You either think of yourself as a cyclist or you think of yourself as someone who rides a bike or knows how to ride a bike.
Stephen Semple:
Yes, yes.
Dave Young:
And I sort of straddle that a little bit. I’ve also got an e-bike and I love getting on it and just kind of zooming around and letting it do at least half the work.
Stephen Semple:
And it’s amazing. [inaudible 00:17:23] is much more, she’s a cyclist, not like me, I’ve got some cheap bike, and the technology in some of these bikes is incredible. They have things like these electronic shifters. She has to plug her bike in to charge it up so that the shifter will work.
Dave Young:
And it’s not an e-bike.
Stephen Semple:
It’s not an e-bike. This is so the shifter will work. My joke is always given the price, these bikes are tens of thousands of dollars. I’m like, “Do they make coffee as well?”
Dave Young:
Yeah. Well, our friend Chris Maddock, who is a great rider and he’s an Austin Guy, and he helped me find the bike that I ended up buying when I lived in Tucson. And it was for me, like the bike I had before, it was $100 Walmart cruiser.
Stephen Semple:
There you go.
Dave Young:
Yeah. I liked riding on the trails in and around Tucson, but I realized that I go for a bike ride with somebody that had a good road bike and we’re on a trail that has just a slight downhill to it, and I’m peddling my butt off riding next to somebody that’s just coasting.
Stephen Semple:
Just didn’t seem fair.
Dave Young:
I’m like, “Really? It’s that much easier?” Those bikes are so light and the tires aren’t, the friction… It’s like, “Okay.” So I went and found one, but then I realized that you’re also in this realm of like, you don’t go get fitted for a Walmart bike.
Stephen Semple:
No, you don’t. But those other bikes you do.
Dave Young:
I found a guy in Tucson that was a bike fitter who helped me adjust the bike for me and then helped me find a saddle for it. This is the indication that you’re talking to a cyclist versus a bicycler.
Stephen Semple:
Yes.
Dave Young:
A bicyclist would say, “Well, we need to find a new bike seat.” And a cyclist would say, “You need to find the right saddle.”
Stephen Semple:
Yes, yes, yeah.
Dave Young:
So it’s terminology and it differentiates you. When Specialized was selling bikes at big box places for mass distribution, they left their core constituents behind and it felt like they were traitors.
Stephen Semple:
Yes.
Dave Young:
“Oh, now you’ve got bike seats, not saddles. I’m sorry, but we use saddles here.”
Stephen Semple:
Yes. And this is the thing that people miss is often you can’t communicate to the two because the language is different and the belief system is different. How the phone has to be answered is different. But it’s even interesting when you talk about fitting, what’s the big thing that they adjust on fitting? Handlebars and the extension, which is… Right. And what was the first thing that Mike was importing? Handlebars and the extension.
Dave Young:
Handlebars and extension.
Stephen Semple:
Which is the first place that they start when you’re fitting a bike.
Dave Young:
God, the saddle was amazing. He had this, the guy that fitted me, Tucson is a place where lots of cyclists go to train in the wintertime. And so this guy was always busy fitting Olympic level cyclists. He had this sort of an exercise looking bike thing that he had a quick release. So you could, I tried probably 25 or 30 saddles and it’d be like, “Nope, that’s a nope, nope.” “Okay, this, put this one aside.” So you start narrowing it down, and when you finally find the saddle that makes you happy, you can’t look at it and say, Well, that’s the one that I like.” it was an amazing experience.
Stephen Semple:
Yeah, incredible.
Dave Young:
So it’s like any field, you find the people that are deep experts in it and you’ll find out that no, they really are different.
Stephen Semple:
Yeah, yeah, absolutely.
Dave Young:
When he got back to his roots and started talking about what makes his bikes different and speaking the language of his customers, things went well again. I love that.
Stephen Semple:
And I also thought, what was brilliant, so when we talk about building trust, and especially in this case where he had to reestablish trust, vulnerabilities are a powerful tool for building trust. We’re often talking to our clients about this. And sending out a letter as an apology letter, and he was like, I wish I could get a copy of it. I’ve not been able to find a copy of the letter, but when I’ve heard Mike Sinyard talking about it, he was like, “Oh no, it was an apology letter.” He came right out and said, “We screwed up. Here’s what we did. Here’s the mistake we made. We apologize, we’re going back.” And I think that’s also very powerful and people are often, especially in business, hesitant to admit to screw-ups.
Dave Young:
Sure, yeah.
Stephen Semple:
He put it right out there. “Here’s the mistake we made. We chased the dollar.” So anyway, I thought that that was very interesting, especially when it’s kind of this whole, getting back to beliefs is what saved the company.
Dave Young:
Yeah, I love that story. I wish I had a Specialized bike now. Actually, Austin and Tucson, two different places when it comes to bikes. I know this doesn’t have anything to do with this story, but when Maddock took me for a bike ride in Austin, it’s all mountain bike trails.
Stephen Semple:
Yeah, okay.
Dave Young:
Tucson, lots of paved, like 100 miles of-
Stephen Semple:
Oh, so it’s all-
Dave Young:
Really nice paved… Yeah. And so a road bike does great in Tucson unless you want to do mountain biking. But in Austin, if you let Google tell you how to get somewhere on a bike, you’re going to be on some gravel trails or worse. Yeah.
Stephen Semple:
There you go. All right.
Dave Young:
Be careful out there. Be careful out there, folks. That’s the lesson today. Thanks Stephen.
Stephen Semple:
Thanks David.
Dave Young: Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app and leave us a big fat juicy five star rating and review at Apple Podcasts. And if you’d like to schedule your own 90 minute Empire Building session, you can do it at empirebuildingprogram.com.
