Creative Growth Struggles

New Characters in the Play

IF entered 2000 with a new VP of Sales, Matt Bracken, formerly of Merlin, who brought a depth and breadth of experience which proved invaluable to the further growth of the company. We continued to attract talented frame builders, recruiting Michelle Walquist and Diane Martini from Merlin; and gaining the services of Erin Croft in our paint department and Hatice Bulbul in final assembly and shipping. As of the close of 1999, the IF crew come from Connecticut, New York, Virginia, Texas, Wisconsin, Mississippi, Massachusetts, Rhode Island, Michigan, Turkey, Indiana, and Oregon.

Extending Ownership to New Employees

The year 2000 will go down as the year of growth struggles. When we started IF back in 1995, shares in the company were distributed to the original six employees in proportion to their contributions of sweat equity, tools and limited cash. It was our declared intent from the beginning to provide ownership to all IF employees over time. To keep this commitment to the newer employees, we agreed that there would be a distribution of stock in calendar 2000 based on the financial results of 1999.

To fulfill this obligation, we sought to establish a basis for distributing the stock. We considered a number of methods by which this could be accomplished including: the issuance of stock options, the establishment of an employee stock ownership plan (ESOP) and the distribution of new shares. The costs of maintaining an ESOP for a company our size, however, made this option prohibitively expensive.

We had seemingly endless committee meetings to consider various options. Very strong opinions were formed and debated, with no small amount of rancor and frustration. The issues were many. Should a person with high skills receive the same as a person who is semi skilled? Should a person who had been at IF since the beginning get the same as a person who had only recently been employed? Should compensation be a factor and, if so, should overtime be included? Should we base the distribution on hours worked and, if so, would it be fair to those employees who, through no fault of their own, did not have the opportunity to work overtime.

The composition of the IFSOP (IF Stock Ownership Plan) Committee changed as participants became frustrated and departed. Complicating the decision-making process was the fact that the Shareholder Agreement required that all shareholders agree to any change in the ownership structure. This effectively gave each of the original six shareholders veto power over any proposal.

We were not able to reach agreement on a method which would serve as a model for the future. As our frustration grew, we came to understand that, if we were to fulfill our ethical obligation to our newer employees, we would need to put aside our philosophical and other differences and craft a distribution of shares which we could support. Thus, we came to agree to the following:

• The method applied only to this distribution.
• All employees were eligible.
• The only factor to be considered was the length of service from the date of hire of the first non-founder employee.
• To make a change in the Shareholder Agreement so that, in the future, a vote of 75% of the outstanding shares will be required instead of the previous 100%.

As frustrating and time consuming as this process was for all of us, I am very proud of the fact that we hung in there and developed a workable consensus which allowed us to extend ownership to the balance of our employees.

Providing for open debate and consideration of the issues by all interested parties resulted in a cost-effective and practical solution. The respect with which we listen to divergent points of view and the willingness to craft a solution based on the best each of us has to offer has served us well. As will be illustrated in the story of the development of the Ti Crown Jewel, this process also has helped in the development of our products.

The Failed Acquisition Struggle

It had been part of our collective thinking from the beginning to establish a leadership position in the crafting of steel frames and then diversify into titanium. The 1998 hiring of Tyler Evans, a senior welder from Merlin, and the 1999 hiring of Matt Bracken, Merlin’s chief sales person, were part of a planned effort to add to IF’s titanium experience. IF already had Mike Flanagan, Lloyd Graves and Jeff Buchholz who had worked on titanium bikes for Fat City prior to forming IF.

The year 2000 was to be the year we developed our first titanium frames. It started off with some considerable excitement. I wrote a letter to the president of Saucony , Merlin’s parent company, in January expressing our interest in buying Merlin. Within two working days we received a positive response that Saucony would be willing to discuss a possible sale of Merlin to IF. This began numerous meetings and deliberations with Saucony, potential lenders and investors. The vision was to create a unified employee-owned company under one roof.

The deal would only be practical if we could find a new location to house both companies, put together the financing which would retain ownership control of the company by the employees, come to terms with Saucony and close the deal prior to the end of May. Merlin’s lease ran out at the end of May and Merlin’s landlord was not willing to extend it.

We found a new location and obtained financial commitments, but Saucony delayed negotiations beyond the point where all the pieces could be brought together in time. We withdrew our offer and the rest is history. Merlin was sold to Litespeed and we went on to develop our own titanium road bike, which we call the Ti Crown Jewel.

The Ti Crown Jewel

As soon as the decision was made to withdraw our offer to Saucony, we accelerated the development of the Ti Crown Jewel. Our disappointment spurred our competitive juices and some of us adopted a "We’ll show you!" kind of attitude. A committee was formed to coordinate the activities required for the development of the ti road bike. The committee consisted of Jeff, John, Tyler, Matt, and Steve with the support of others as required.

The geometry of the Ti Crown Jewel was based on the proven geometry of our steel Crown Jewel. Agreement was reached pretty quickly on the major design criteria. Jeff undertook the creation of the tools, heat sinks and devices for flooding the frame with argon gas during the welding process. Tyler took up the challenge of designing a new cast metal head badge. Matt, Jeff and Tyler reached agreement on tube selection and Matt put us in contact with top quality tube suppliers with whom he had come in contact during his days at Merlin. Steve researched the ti road bike market so we would have a base of data by which to establish a price.

We wanted our ti road bike to be equipped with a top quality, all carbon fork. We make our own forks for our steel Crown Jewel which allows us to provide a truly matched set of frame and fork where fork rake varies with frame size to produce the best overall result. There were no producers of carbon forks who offered enough variety in fork rake to allow us the same design flexibility. We negotiated with Reynolds Composites and paid them to develop the tooling required to provide the range of fork rakes we required to mirror the results we achieve with our steel Crown Jewel.

With leadership from Jeff Buchholz, Tyler Evans and Matt Bracken and feedback from the riders of our prototypes, we made steady progress in the development of our frame specifications and soon had three prototypes which we put in the hands of Lloyd, Steve and Matt. The feedback from our riders was very helpful in refining our tube selection.

The Shot Peening Controversy

With limited space in our factory, we were concerned that the usual methods of polishing and/or brush finishing ti frames fill the air with dust particles and likely would contaminate our paint department. Tyler made the suggestion that we consider shot peening our ti bikes. As we looked into the shot peening option, we discovered that we could avoid the contamination issues of brush finishing and polishing and produce a unique finish which would distinguish our frames from other high end ti frames. We shot peened one of the prototypes and were impressed with the results and celebrated that we would not have to employ a dirty and possibly unhealthy process.

As we learned more about shot peening, we discovered that we would also enhance the engineering characteristics of our frames. Shot peening has 3 major engineering benefits in the crafting of titanium bicycle frames:

• Fatigue life is enhanced significantly, increasing the useful life of the frame.
• The frame is stress relieved to remove any internal stresses imparted to the frame during construction.
• Surface hardness is enhanced, increasing resistance to scratches.

Matt and Steve were concerned that we ought to be prepared to offer alternative finishes similar to those offered by our competitors. This was strongly opposed by Jeff and Tyler. They argued that, if we were convinced that the engineering characteristics of the shot peen finish were superior to our competitors, how could we in good conscience offer a lesser finish. I saw the shot peen finish as an opportunity to differentiate our ti road bike in the marketplace. If you lined all the high end ti bikes up and stood back 20 feet, it would be hard to tell one from the other. The shot peen finish was distinctive and would stand out in the crowd.

This debate raged for weeks and became more intense as the time for the Interbike Trade Show approached. Dare we depart to such an extent from the established wisdom of finishing titanium frames? How would we describe the benefits of shot peening? If we were to offer alternative finishes, who would do the work of finishing? I drafted a paper describing the benefits of shot peening. Data was obtained on the improved structural properties of welded titanium joints when shot peened and incorporated in a one page handout that we distributed at Interbike. Up to a few days before getting on the plane for Interbike we had still not resolved the issue of whether we would offer alternative finishes.

It was decided that we show the shot peened prototypes of which we were justly proud, distribute the technical information which described the benefits of shot peening and evaluate the reception which the frames received at Interbike before deciding whether to offer alternative finishes. Matt expressed grave concern about missing an opportunity if we did not have an alternative finish available at Interbike and took a stab at brush finishing one of the prototypes for the show, giving up in frustration after working most of one day and staying up most of one night.

It Comes Together

Thus, only the shot peened frames made their way to Interbike. The Ti Crown Jewel was to be offered for $2,879 with:

• Any customization required.
• Size specific tubing.
• Reynolds Ouzo Pro all carbon 1 1/8" fork.
• Painted panels with any of 32 stock colors and choice of decals.
• Fork painted to match panels or left natural.
• New cast bronze head badge developed by Tyler. This was later changed to Sterling Silver.
• Extended head tube to minimize the use of spacers. (Important with the use of an all carbon fork).

We were delighted with the reception the Ti Crown Jewel received and found that most people understood our choices and appreciated the benefits of shot peening. The Ti Crown Jewel was also perceived as providing good value relative to the other products on the market. Orders flooded in. We had hit a home run.

Unfortunately, the number of orders exceeded our ability to get them to our customers in timely fashion. What was most gratifying, however, was that even those customers who expressed frustration at the delayed delivery of their new Ti Crown Jewel, called, wrote and e-mailed back that the bike was well worth the wait.

The Relocation Struggle

IF has occupied 3,500 square feet of manufacturing and office space in an ancient Somerville industrial building for the past 5 years. We were beginning to feel the pinch of space and so we started looking for alternative space for IF. Inasmuch as the City of Somerville had helped us get started, we let them know of our interest and solicited their assistance. It is a coincidence of history that our need for new space occurred at a time which was unquestionably the hottest real estate market in the history of the area. What had been light industrial space was being gobbled up and converted to office space for startup dot com companies and rents which had been $6/sqare foot/annum increased drastically.

Our most important assets are the people who comprise IF. Thus, any relocation of the company would have to take into consideration the needs and preferences of our personnel. As is the case in most things, different people have different ideas as to what is in their own best interest and what is in the best interest of the company. Some of us would like to move the company to Maine or Vermont out in the woods where the bike riding is sweet and the air is clear. Others of us have family and friends in the greater Boston area with whom we are reluctant to part. Yet others are committed to the bicycle life style and would wish to remain within bicycle commuting distance of our present location.

Multiple surveys have been conducted over the past several years to help us to craft a workable consensus. The realities of the industrial real estate market, however, severely limited the choice of properties which we could consider. As possible candidates were identified, we would organize outings for people to visit.

When we were considering the purchase of Merlin, we found a space in the Davis Square area of Somerville about which we were all enthusiastic. The space was too large for IF by itself and thus that location did not pan out when we decided to withdraw our offer from Saucony for Merlin.. It has since been developed as dot com space.

Given the severe limitation of available industrial space in Somerville, we also came to consider alternative communities. We have looked in virtually all of the surrounding towns. We again reached agreement on a site which was advertised as being available in Salem, famous home of the witch trials. The then current tenant’s business was not doing well and he asked his landlord to allow him to terminate his lease. It was a free standing, 20-year old modern steel industrial building, fully air conditioned and perfectly appointed with offices and work space so all we had to do was move in; and at a price we could afford.

All of us were enthusiastic despite the fact that some of us would have to compromise our preferences. Salem even had a Starbucks. We agreed to the rental and looked forward to signing the lease. We asked the landlord to advise us as to a date we could plan on taking over the premises. His tenant kept postponing the date and ultimately advised that his business had improved and he would not be moving. We were all truly disappointed.

Later in the year, we reached agreement among ourselves on another space in Somerville near Davis Square. As we sought to reach agreement with the landlord, he progressively increased his demands to beyond that which no person in their right mind would agree. That building is likely to be torn down to make room for residential condos.

Approaching the new year, we decided to hunker down and reorganize our current space to see us through 2001. Everyone pitched in to reorganize, throw out and remove junk and personal items and to make the current space work for the projected production for 2001. It is our hope that the new year will present us with new viable opportunities for relocating and expanding our work space.

As we developed a more complete understanding of the limited options afforded by this unusual real estate market, our willingness to compromise with our personal preferences has been enhanced. We are more likely now to be able to reach a decision about future relocation opportunities.