Custom-made bikes are a very small slice of the US bike market. According to The Atlantic, the vast majority of bikes sold in the US are made in Asia and a handful of companies dominate the market (America’s Rebel Band of Custom-Bike Builders, Apr 3).
Though thriving, the 100 or so builders in the hand-built bicycle scene make up about 3.3 percent of the overall U.S. bike industry, which was valued at $6.1 billion in 2012 and is sourced almost completely overseas, according to bicycle industry expert Jay Townley with the Gluskin-Townley market research firm and a report by the National Bicycle Dealers Association. In 2011, 99 percent of bicycles sold in the U.S. were assembled in Asia—93 percent in China and six percent in Taiwan.
Additionally, just four companies—Dorel Industries, Accell Group, Trek Bicycle Corporation, and Specialized Bicycle Components—own about half of the 140 bicycle brands available in this country, including Schwinn, Cannondale, Raleigh, Gary Fisher, Trek, and Specialized, Townley said.
The article goes on to note that while small, those custom builders are responsible for a lot of the innovation in the industry. Because their work is premised on doing something unique, they are inclined to take more chances than a larger firm. So what does it take for these small guys to be successful?
An obvious consideration is price. Most of the bike makers discussed in the article are selling bikes in the ballpark of five or six grand — although some are a bit less and many are considerably more. The average price of a bike at a specialty bike store is $673 so custom work draws a significant premium. (To be fair, I should note that there are many models from big brands that go for four figures and some even into five figures.) Consequently, a small maker does not need to be pumping out tens of thousands of units annually to make money. However, some of these makers are making only 30 or so bikes a year. The difference then between successful enterprise and a hobby masquerading as a business is managing growth.
Figuring out matters of scale is crucial, builders say. A few companies, like Moots, employ a couple dozen people and produce 1,500 bikes a year. Other companies, like Mosaic Cycles out of Boulder, Colorado, consist of three builders who construct up to 200 bikes per year, while still others, like SyCip Bikes, are one-man operations that make fewer than 100. While some custom companies partner with dealers to sell their products, many others coordinate directly with their customers.
“As you’re coming up as a small business, scalability is a thing that makes or breaks the business — usually breaks,” said Aaron Barcheck, who founded Mosaic five years ago.
Part of what facilitates scale is, frankly, sacrificing something on customization.
Last year, after years of playing catch-up, the two long-time frame builders teamed up to launch a new venture called Breadwinner Cycles. Rather than designing a brand new bicycle for each customer like they had before, the duo developed six (now eight) basic models, priced from $4,000 to $8,000, that customers can tweak to their specifications and size. While they still build the bikes by hand, they’re able to turn them around in eight to 12 weeks, rather than one to two years.
I find this an interesting story for several reasons. First, it is an industry in which the barriers to entry are fairly low. Sure if you want to produce bikes at scale that they can be sold for a few hundred bucks at Costco, you will have to plunk down some cash. However, if you are content to produce dozens of bikes per year, you can get by with much more general purpose equipment. The furniture industry is similar. Much of the industry has moved overseas (particularly for casegoods) but that doesn’t keep local firms from hanging out a shingle to sell custom-made bookcases and dining-room tables. In either case, success depends on convincing the buyer that you have superior operating capability — that you can turn out a product that has both unique design features as well as higher build quality than a high-end product from a high-volume product.
It is also worth noting that technology has made the production side more important by lowering the cost of reaching customers. That is, the web has made it much easier to sell over a large geography. That opens up opportunities but it also has the potential to increase competition. Production and design capabilities are consequently more important.
What does it look like when a brand manages to scale up without selling out to a larger firm? Consider Brompton, a British maker of folding bikes. As Businessweek tells it, they are bigger than the American custom makers but certainly are not operating at the scale of Trek or Specialized (The Cult of Brompton Folding Bikes, Apr 3). Their worldwide sales are on the order of 45,000 bikes but only 3,000 of those were sold in the US.
Interestingly, as they have grown, they have been adamant about keeping production in-house and in the UK.
The company has never moved its manufacturing out of London for the same reason it let its patents lapse. The secret is not in the design, but how the bike is made. If Brompton ever published its methods or outsourced its production, someone else could learn how to make the bike. After that, Butler-Adams says, “it’s good luck—we’ll see you in court in China.”
So even after achieving some scale, production knowhow remains crucial to success.