Stan Day is co-founder, co-owner and CEO of the world’s second largest bicycle component manufacturer, SRAM. He also lent the ‘R’ from his middle name to the company’s unusual name, which is an amalgam of the initials of its founding investors.
In this exclusive interview with Bicycling Trade, Stan is refreshingly frank when talking about both SRAM’s high and low points.
We met upstairs in SRAM’s booth in the middle of the buzzing atmosphere of Taipei Cycle 2014. In this restricted area, bicycle manufacturers from around the world were in earnest discussions with SRAM product developers, surrounded opened black cases containing media embargoed 2015 model year components destined for future production.
Stan’s hometown is Chicago, USA, where SRAM was founded in 1988 and remains headquartered. Stan is tall, fit and always well groomed and polite in a very ‘clean cut’ American style.
Bicycling Trade: Is it fair to say that you were initially just looking to develop a better gear shifting system, that became GripShift, or did you have ambitions to become a major global component supplier from day one?
Stan Day: That’s a very fair thing to say. We started only with the idea in mind of having a better shift actuation. At the time we had no vision of making all the components on the bike.
BT: What was your personal background before you started SRAM?
SD: I graduated from undergraduate college from Tulane University in New Orleans. New Orleans of course is a fun town to go to school in.
Then I sold construction products in Texas and I’m a Yankee, so selling construction products in Texas to the ‘good old boys’ was a learning experience. After that I went to business school at Northwestern Kellogg and I got an MBA there. After that I went to work at a company called Molex, which makes electric connectors. I was the Marketing Manager for the personal computer and the telecom industry. So I was calling on Apple back when they were in a single building.
BT: Did you sell anything to Steve Jobs?
SD: Not to Steve personally, but I was selling to the company and trying to get on their Macintoshes.
BT: What do you think have been some of your key moments that have shaped SRAM and led to your success?
SD: I think one of the key ones was starting the company. Another one was, after the first year when we thought we were going to sell 100,000 GripShift systems and we only sold 800 pieces, we said ‘let’s keep going!’
I think another one was in 1997 when we decided to buy Sachs bicycle components and get into the full range of components. That was a real fork in the road for us.
BT: What would you say your biggest breakthrough products have been?
SD: You go back to the first of course, twist shifters, that was a breakthrough.
Then if we roll forward, I think our XO rear derailleur was a breakthrough product. I think that we built on that successfully into our mountain bike drivetrains
Our road groups that got us into the market were really well executed for a company just getting into the market, we won the Tour de France within three years of introducing our road components. I think that was testimony to the quality and engineering that went into that product.
I like some of the products that we’re doing today, the 1x series, the XX1, X01, the new downhill single chain ring. I think that is the wave of the future. Unfortunately we had this recall situation with our hydraulic road brakes, but I am confident that hydraulic road brakes are here to stay and it’s going to be how we’re all riding bikes in the future.
BT: You seem to be very good at expanding through acquisition, which most companies do poorly: Sachs in 1997, RockShox 2002, Avid 2004, Truvativ 2004, Zipp 2007, Quarq 2011. Looking at that list it looks like you’re just about ready for another one, so what’s on the cards and what is your secret to successful acquisitions?
SD: I think that the success in the acquisitions relates to some of the analysis up front… You’ve got to find the right people to buy. You’ve got to do the right judgements as to what the right price is, the right dealer structure. Put that in one bucket; that’s a piece of it.
The next piece of it is how you integrate the companies and you get the companies moving forward. I think we’ve been really good in that area. We have worked really hard to enrol the employees of the companies that we purchased to be part of a bigger and broader team. I think that’s been a real key part of our success.
I think also as we’ve done these acquisitions, we’ve recognised that the product knowledge of the bicycle components is rare. We’ve been really focused on keeping the product development people of all the acquisitions intact in our organisation going forward. It’s one of the reasons why we end up with so many locations around the world. It’s because we haven’t wanted to lose the people.
When you look at all of those acquisitions that you ran through, we have locations at every one of those places that we acquired as we sit here today and we’ve kept the people and we’ve kept the expertise within the company.
BT: Can you give us an overview of SRAM today in terms of your staff, locations and annual sales?
SD: Our annual sales are about $600 million ($660 million Aus). We’ve got about 3,000 people and we’re located in 20 locations around the world. It’s hard to keep them all connected, but we’ve found that keeping the people and connecting them with telecom and plane tickets is much more important than trying to reduce the locations.
BT: That’s interesting, because it’s against the flow what other people would do.
SD: It’s very much against the flow.
BT: In 2011 you said you’d like to take the company public, but then you put the plans on hold because of the state of the stock market at the time. Now the US stock market is at record levels, so is it time? Or is that strategy now in the past?
SD: I think being a public company is part of our future. Back in 2011 we had some very strong growth behind us and we’ve had a really soft year this year. We’re in the middle of working through this recall, so now’s not the right time to go public.
It is something that we will do at some point. It’s the best way to slowly evolve our ownership structure over time and keep the management group that knows the bike industry in place and leading the company for the long term.
BT: Helping the management stay there because they’re incentivised?
SD: Helping because I think they’re the most knowledgeable. If we started carving off slices of the company to private equity people. The private equity people at some point would want to put their own leadership in and I respect that. That’s what they do.
But I really like our home grown leadership that we have in our company because we know the customers, we know the bike industry, we know where the industry is going.
BT: So you believe in promoting from within?
SD: I do.
BT: Do you think it’s fair to say that your corporate culture is ‘no frills’? Is your own work space still basically a drafting table in an open plan office?
SD: Absolutely true. It is ‘no frills’. We have no secretaries in the company. I flew over (from Chicago to Taipei) in coach (economy class) and it was a long flight. Everybody flies coach and we pray for the upgrade and that’s the way the organisation works.
BT: How important is the Australian market to you and do you know what percentage of your sales now represents?
SD: The Australian market is very important to us and everybody in the organisation would love to go and work in Australia! (laughs) Including imported brands (bikes with SRAM OEM), I estimate the total as US $15 million ($16.5 million Aus) for calendar year 2013. By market, we estimate it as our sixth largest.
If you have a chance, give a shout out to our great Australian team, Rob Eva and his group.
BT: You’ve recently had a recall of your road hydraulic brakes. How are you progressing with a solution?
SD: We’re progressing very well. Our solution was to move from the model year 2014 product that had the problems and replace that product with our model year 2015. We’ve tried to accelerate the model year 2015 introduction. As we sit here today, I think we’re still going to be able to start shipping the product in late April. We won’t be able to do everyone at the same time, but we’ll start that process. We’ve gone through a whole different level of testing of course.
One of the things that we’ve added to our testing is we’re doing endurance testing at minus 20 decrees C and we haven’t done that before. Our fault, we should have put it in environmental chambers, now it’s part of the testing routine.
BT: How forgiving do you think the market will be of this situation?
SD: I wish we’d done more testing first, but you learn these things as you go. As we went into it we thought we’d done plenty of tests, but it turns out we hadn’t. I think the dealers who bought the bikes are frustrated. I think the consumers that invested their personal money in a new bike are angry and I think we need to earn our way back into their trust. There’s no way to do that other than show them.
BT: You’re clearly a huge supporter of bicycle advocacy, arguably the biggest bike company supporter in the world. Why?
SD: We were intrigued by the efforts of the advocacy folks beginning in the early 2000’s. We started following it, then we started supporting it and we saw it work. Then in 2008 when we did our first private equity investment, we carved off $10 million ($11 million Aus) of that and put it in the SRAM Cycling Fund.
We thought that was a ‘give back’ to the industry from all the people at SRAM for the success that we’ve had. But also it’s an investment back into the industry because we firmly believe that finding safe places for people to ride creates a healthier bike industry. So we just thought that was the right thing to do.
BT: Your initial plan was to spend the $10 million fairly quickly and not just have it as an endowment where you only spend the investment income from the money, is that still the case?
SD: Yes. When we looked at the $10 million commitment that we were going to make, we talked about, ‘Do we spend it? Or do we make it an endowment?’ We thought where the bike industry was and the political situation was in 2008, there was a chance to try to push the political situation over the top so we made the commitment, ‘Let’s spend $2 million a year and let’s really try to support the advocates to make a big difference.’
I think it has made a difference. I think it was the right decision. Those funds run out at the end of this calendar year. We’ll continue to support advocacy, not at the same level.
If we have another liquidity event at some point in the future maybe the group will be interested in making another significant contribution, but until that time we’ll continue to support advocacy more in a normal way.
BT: What’s your current take on the state of the global bicycle market?
BT: I think it’s really very healthy. We’re coming off a very difficult year, but overall I look at the mountain biking side of the business and I see nice growth there. Whether it’s drive train innovation or wheel innovation, we’re giving the consumers reasons to buy new bikes.
Road bikes have been soft for the last 18 months. I think maybe there’s a Lance effect hangover. But when we get the hydraulic brakes back out we’ll be giving people another reason to invest in their bike.
I look at the urban side and I see all the new bike lanes going up in the US and in Europe and I’m sorry about Australia, but hopefully it comes there too! I think there are more people riding urban bikes. I see it every day in Chicago.
So I think the state of the industry is relatively healthy. Another benchmark I keep at the back of my mind is whether event participation is growing and I see event participation growing, so that’s people using their bikes in a meaningful way.
BT: What do you think the biggest growth areas will be in the next five to 10 years both in terms of product categories and cycling activities?
SD: I think in terms of cycling activity, the Grand Fondos are going to be the biggest growth area. I think that an extension of that into the off road side is going to evolve—something a little less technical than mountain bike enduros, although that’s fun to see the growth there. More dirt road riding, the gravel bike riding thing. Getting away from cars is a wonderful thing.
I think road cycling and road growth will come back. I think urban’s going to be a big growth area. In the United States the electric bike hasn’t happened yet, but I can tell you that my wife has an electric bike and she loves it! I much prefer riding with her when she’s on her electric bike.
BT: Are you following developments at the UCI with the new president Brian Cookson and the appointment of a new technical liaison officer?
SD: Dimitris Katsanis. I met him for the first time yesterday and he’s a really good guy.
I like where they’re headed. I think the UCI has acknowledged that the bike industry is important to the sport and before under Pat McQuaid it wasn’t as interested.
I think they have acknowledged that it is appropriate for there to be a reasonable level of technical evolution as long as it keeps the playing field level for the cyclists. That’s an important awareness, because if the professionals are not allowed to use the best equipment that the bike industry can design and manufacture, the bike industry won’t invest in racing. Because that’s our marketing platform and we can’t be making a 14 pound (6.2 kg)bike and spending our marketing dollars on a guy that’s riding a 16 pound (7.1 kg) bike. That just doesn’t make sense.
BT: It seems like Shimano’s getting a lot of OEM spec (Original Equipment for Manufacture), certainly in Australia in the mid to high end road and mountain bike categories. Did you think they would be such a tough competitor?
SD: Shimano is a great competitor and I think as they sit across the aisle (at the Taipei Show where the booths are adjacent) they look over at us to and they go, ‘SRAM pushes us really hard!’ When you have two great competitors going at it, the benefit goes to the spectators and in this instance, the cyclists who have a wider range of options that they otherwise would.