Trek's Burke: How I did it Tue Aug 8, 2006 9:17 AM ET
By Leigh Buchanan
(Inc.com) - The first Trek bikes, manufactured 30 years ago in a barn in Waterloo, Wisconsin, were cult items, appealing to purists who would no more ride their fathers' Schwinns than drive their fathers' Oldsmobiles. But Trek had no brand strategy or money to advertise, and in the early years it wobbled badly. Richard Burke turned things around by positioning the company to ride the rising interest in competitive cycling. Today Trek -- still in Waterloo, now employing 1,727 people worldwide and producing annual revenue of $600 million -- is the largest bicycle company in the United States and the second largest in the world. The company is famous for its carbon fiber frames and really, really famous for making the bikes Lance Armstrong pedaled to seven victories in the Tour de France. Burke, 71, is chairman of the board and Trek's majority shareholder. His son John became CEO in 1998:
Here, Burke reveals how he built the bicycle giant:
I was marginal in college. I had a 2.0 average at Marquette University. They barely graduated me. But in 1956, the economy was booming. Everyone had his pick of offers. I entered a training program in Caterpillar's finance department. After 18 months I knew that large corporations were not for me and I was not for them. Just before they fired me, I quit.
I answered an ad in The Wall Street Journal for credit manager at a small paint company in Madison. I lasted about 18 months. Just before they fired me, I quit.
I took a job as credit manager of an appliance distribution company in Milwaukee, Roth Distributing. I was there a month when the president and sole owner dropped dead of a heart attack. I figured I was out of a job again. But some of the managers decided to try to reorganize the company. I understood finance so I became treasurer and a shareholder. If you go back in Trek's history, its original corporate charter was that company's.
In 1973 two things happened: the oil embargo and the first physical fitness craze. That caused an enormous increase in bicycle sales. As distributors we wondered, should we get into bicycle distribution? But we decided that the boom would end and manufacturers would eventually sell direct to retailers. So we passed.
Later I met a fellow who had represented a French bicycle company in the United States. He had married an American girl and wanted to stay here. We decided it might be possible to make bicycles.
In 1976, management gave me $25,000 to investigate manufacturing bicycle frames. At first that's all we made: frames. We opened a small factory in a red barn. I was president but low profile. Trek was still a division of the distribution business. In fact, it was until 1997.
At that time Schwinn was dominant in the domestic market. But the Japanese were making major inroads, and Schwinn would not allow its dealers to handle Japanese product. So we offered the dealers American product.
In 1978 I was a Sloan Fellow at MIT, which I think somewhat offsets my miserable academic record. I got to work with Lester Thurow and Paul Samuelson.
We built our first real bike plant in 1980. By 1983 we were around $20 million. Some years we made money; some years we lost money. Everyone looked on it as Dick Burke's Tonka toy.
In 1984 we made some bad product. Then in '85 we introduced the first bonded aluminum frame, but we didn't know how to build it in a production environment. We went through a year of building bad frames that came back to haunt us.
I had to make a management change. On a Friday night I took out the general manager. On Monday morning I was running a bicycle company, and I didn't know a goddamn thing about manufacturing. We did a turnaround: fixed the frame and got rid of that bad '84 product. We also executed a major growth program. From 1986 to 1996 we took sales from about $30 million to more than $300 million.
We've never been a great strategic planning company. I put down a mission statement that's still in place today. It says we're going to provide our customers with quality products at competitive value and deliver them on time. We are going to create a positive environment for our customers and employees. And we are going to make money. That's what we did.
All five children have worked in the business. It's a rule: If you're a family member you're entitled to a job. My son John graduated from Boston University in 1983. He was offered a marketing job at Procter & Gamble, which I told him he should take. Instead he took over a Trek sales territory. A couple of years later he became customer service manager. He just knew that he wanted to sell bikes.
We first backed a team in the Tour de France in 1998. In 1998 if you asked 10 people on the street they wouldn't have heard of the Tour. If you wanted to watch it you couldn't find coverage.
No one had any idea in 1999 that Lance or the team would do so well. When we realized that Lance might prevail I flew over. I get there three days before the end. Our VP of marketing is there and he says, would you like to ride in the team car? Johann Bruyneel, the team manager, is driving. I'm sitting in the front seat with a stopwatch and a clipboard to write down intervals. I'm not too good with the stopwatch. The mechanic is in the back seat with another set of wheels in case Lance goes down. This is my introduction to Lance, sitting in a car 50 yards behind him listening to Johann talking to him on the radio and exhorting him to that performance. The intensity was amazing.
We have a separate long-term endorsement deal with Lance. If it had been up to me we would have never signed him. I'm too cheap. I give all the credit to young people like my son and Dick Moran, the marketing manager. They said, "This is something we want to be a part of."
I think now that Lance is retired we will just continue to push cycling. He's a poster boy for us, but our focus is still technology, quality products. We put a lot of emphasis on R&D.
Global sales are 30 percent of revenue, 35 to 40 percent of profit. We're losing money in China, but not a lot. Eventually the Chinese will have the time and the money to take up cycling seriously.
About four years ago Trek moved to S status. It's been good for my family; everyone owns 3 percent to 4 percent. And it's been good for the ESOP, which holds about 25 percent of the company's stock. We tie a lot of direct and indirect compensation to company performance. If you're making money you ought to share it.
Family businesses are frustrating. Going from the first to the second generation can be clear cut. But the third generation isn't far away. I have nine grandchildren. Most people say half of them won't want anything to do with the business. So which four or five might be interested? And what will it take to run a billion-dollar company, which we will be in five to seven years? It isn't a case of which kids will have the opportunity. We don't have enough kids for all the opportunities.=09 =09 (c) Reuters 2006.
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Mordecai Silver
NYC=09