Cannondale Corporation

9 Brookside Place
P.O. Box 122
Georgetown, Connecticut 06829-0122
U.S.A.
(203) 544-9800
Fax: (203) 852-9081
Web site: http://www.cannondale.com

Public Company
Incorporated: 1971
Employees: 892
Sales: $146. million (1996)
Stock Exchanges: NASDAQ
SICS: 3751 Motorcycles, Bicycles & Parts

Cannondale Corporation is a world-class leader in the design and manufacture of high-end, high-performance aluminum bicycles. The company also makes and sells bicycle parts and accessories, including clothing, packs, bags, and bike trailers which pioneered an entire industry product category. Preceding most of its competitors, Cannondale introduced its first mountain bike in 1984, and continues to lead the pack in bicycle-related design and technological innovation—reflected in rapid sales growth, averaging 20 percent per year (from $54.5 million in fiscal 1991 to $146 million in fiscal 1996). Cannondale has two wholly owned subsidiaries, Cannondale Europe B.V. and Cannondale Japan KK. In July 1996, Cannondale formed Cannondale Australia Pty Limited, which imports fully assembled bicycles and accessories from the company and components manufactured by other parties. Cannondale products are sold in over 60 countries.

Treading Water in the 1960s

A near-death experience prompted Cannondale’s founder, Joe Montgomery, to consider a change of lifestyle. After dropping out of college, Montgomery joined a Caribbean sailing crew and soon found himself under sails buffeted by rain, high winds, and 15-foot waves. The boat sunk, and Montgomery spent the night treading water in shark-infested seas. That was his wake-up call. Entering new waters, he soon accepted a Wall Street analyst position offered by a friend he’d met on a prior chartered sailing trip. Montgomery told Gina Larson of Entrepreneurial Edge, “I was the grunt guy on Wall Street…. I didn’t have a real position or title, but it was a good education.” During this period he learned how small businesses were financed and operated—and noted problems to avoid. Combining this knowledge with that gained from his Ohio farming-childhood background, which engendered a practical, mechanical sensibility, he’d realized that there were good reasons for using aluminum rather than wood to build such things as airplanes and boat masts. An avid outdoorsman, Montgomery deduced that aluminum bicycles would be lighter in weight than the steel commonly used at that time, giving the cyclist an overall speed advantage, especially beneficial on uphill rides.

He told Elizabeth Maker of the Litchfield County Times that he had originally intended to start a camping-products business, but decided to “hop on” the bicycle business for three reasons: “One, I thought the technology was way behind the times; I thought there was tremendous opportunity to improve the state of the art. The second thing was that I thought the distribution process was archaic. Almost all of the manufacturers at that time used distributors, so bicycles went from the manufacturer to the distributor to the dealer to the customer. I felt it should cut across and just go from the manufacturer to the dealer to the customer.” He added, “I think we were the first company in the industry ever to go direct.” His third reason had to do with adding the first two reasons together, resulting in above-average growth—as is done in the computer industry: technological change plus distribution change equaled added growth.

The Uphill Climb: The 1970s and Early 1980s

Naming his company after a Cannondale, Connecticut train station, but not yet solvent enough to manufacture bicycles, Montgomery began his modestly-financed business by making bike-related accessories. The corporate line of bags and bike clothing was included in the L.L. Bean Catalogue, racking up needed capitol. With a part-time crew of six employees, the company designed and introduced a child-toting bike trailer, named the Bugger, which made Cannondale its first million. The trailer was popular with biking parents of young children who could now enjoy towing their children who were too young to ride along on their own.

Montgomery decided to concentrate efforts on establishing a strong rapport between Cannondale and the dealers, standing behind the company’s products and going directly to dealers to provide training and sales support—and allowing Cannondale staff to interact more closely with consumers’ needs and wants. By cutting out the distributor, the company also cut out about 25 percent of the cost, which was passed on to the consumer. The company decided to sell through only the best dealerships in the world, and controlled sales by determining from the beginning precisely where to place its products.

Finally, by 1983 Cannondale was positioned to introduce its first bicycle: an innovative large-diameter aluminum-tubed model, affordable compared to other brands of aluminum bicycles—and rapidly added $7 million to its revenues. In 1984 the company introduced its first mountain bike, a style distinguished by wide tires, straight handlebars, and designed for off-road conditions. Other companies followed suit by producing their own aluminum models, and Cannondale was off and running, adding to its mountain, racing (lightweight bikes with thin tires and curved handlebars), hybrid (straight handlebars to allow a more upright sitting position, thinner tires), touring (similar to road racing bikes in appearance, but frames are designed to carry packs and other touring supplies) and specialty (includes tandem and multi-sport bikes) bicycle repertoire. As stated in Cannondale’s 1997 annual report, the corporation directs product development toward “making bicycles lighter, stronger, faster and more comfortable.”

Emphasizing Quality Control into the 1990s

Cannondale advertisers explained that while most bike companies buy models from large Far Eastern manufacturers, which copy designs and sell the same models to various other companies, Cannondale products are original, patent-protected (holding 48 United States patents relating to various products, processes, or designs), and hand-assembled in its American factories. New frames—constructed from a high grade of aluminum also used in airplane construction—as opposed to the weaker heat-treated metal used by Cannondale competitors, are CAD-designed in the Georgetown, Connecticut headquarters and sent by modem to computers controlling high-tech lasers in the Bedford and Philipsburg, Pennsylvania factories where aluminum is then cut and shaped to specifications, allowing the company to minimize the time lag between design concept and production. The 125,000 square-foot Bedford plant is located on 23 acres and is the main production facility for bicycles and clothing, also housing customer service. The 40,000-square-foot Philipsburg plant on 12 acres houses the production of accessories, some clothing and bike sub-assemblies.

Recognizing the growing popularity of mountain bikes abroad, Cannondale was among the first American bicycle companies to expand internationally, having gained acclaim for its innovative aluminum frames. Montgomery explained to Gina M. Larson of Entrepreneurial Edge that the deeper-based environment for cycling in Europe can mostly be attributed to inflated populations and the high expense of maintaining a car there. He stated that “They [Europeans] knew that Americans were the gurus of mountain biking, so they looked to the American press for answers,” and the press was, he added, “speaking highly of Cannondale.” By the mid-1980s the company had established subsidiaries in Europe and Japan, and later expanded to the Netherlands and Australia, and began planning further expansion into China and South America.

Company Perspectives:

”Speed is Our Friend” has become the motto of Cannon-dale. On one level, these four words reflect our support of the world’s top professional cycling teams. On a more fundamental level they convey our commitment to a lightning-fast product development process that, with unmatched speed, turns the combined insights of our sponsored riders and R&D staff into technologically superior products. Underlying it all, “speed is Our Friend” speaks of our dedication to producing the fastest bicycles in the world. Our passion is to be the best cycling company in the world. We will succeed because: (1) We care about our customers, suppliers, and each other. (2) We design and deliver a stream of innovative products. (3) We continuously improve. (4) We concentrate on detail. (5) We limit our distribution to the best bicycle retailers in the world. (6) We govern our every deed by what is just and right.

Gearing Up for the 1990s

Cannondale introduced Elevation Suspension Technology (marketed as HeadShok suspension systems) in 1991, which was used in rear-suspension mountain bikes to ease the jolts of riding rough terrain by keeping the tire on the ground. Other product innovations included aluminum core frames, covered by a layer of carbon fiber skin, and a breathable aluminum-finish jacket that doubles as a belt-bag that can be worn around the waist; the finish is applied in a gaseous state, made from recycled cans. The aluminum finish boosts body heat retention by 53 percent. Scheduled for worldwide release in 1997 is a line of high-performance sport wheelchairs for disabled athletes. The first model to be produced is a four-wheel, full-suspension off-road model, which has been in development for over seven years, featuring a unique propulsion system suitable for cross-country and downhill use. Other models on the drawing board include road racing chairs, tennis/basketball chairs, and light-weight general-use chairs. Montgomery’s impetus for entering this market was personally significant because his son Michael is confined to a wheelchair. Montgomery informed William A. Luca in a Cannondale News Release that he expects the lightweight wheelchair market to be about $400 million annually. In his words, “Our initial goal is to capture 10 percent of the global market…. We also feel this is a wonderful opportunity to improve the quality of life for disabled athletes.” The athletes interviewed in a company study especially appreciated the opportunity to purchase wheelchairs in a sports specialty store as opposed to buying through a medical supplier.

Traded publicly since 1994, Cannondale paid off a substantial portion of its debt and used the added capital for further expansion. A second offering was made in 1996, following record sales and profits, which had increased approximately 20 percent over the previous fiscal year. With such rapid growth, Cannondale needed larger accommodations and announced a 1997 move to a bigger, $2.2 million facility in Bethel, located approximately 10 miles from the present facility and double the area of the 15,000-square-foot Georgetown headquarters. The Georgetown facility is located in and around a converted 1830s barn on a three-acre site (and valued at $1.7 million). Montgomery’s employees have touted his casual management style represented in his choice of rugged physical surroundings, and his preference for hiring biking enthusiasts. Montgomery told Elizabeth Maker of The Litchfield County Times that “he encourages his employees to work out in the company’s weight room and go for regular bike rides, not only because it relieves stress and yields more productive work, but because it allows everyone to stay on top, literally, of the latest Cannondale designs.” He added, “That’s especially true for the 12-member research team, which is constantly working to make lighter, stronger, faster, more comfortable bicycles.”

Since January 1994 the company has co-sponsored the Volvo/Cannondale mountain bike racing team in an effort to generate widespread publicity. In its first season the top-caliber team captured two gold medals and a silver at the 1994 World Mountain Bike Championships. Cannondale has focused advertising on its notorious team by using photo images of the athletes in the media, banners, product literature, and catalogs. Feedback from the team is taken seriously as the company continues to fine-tune its products. By 1995 Cannondale’s high-profile marketing strategy added the sponsorship of the Timex-Cannondale road racing team, New Balance-Cannondale triathlon team, and Cannondale World Force BMX team, and the Saeco professional road cycling team—a major force in the Tour de France and Tour du Pont. The athletes give exposure to and promote Cannondale cycling apparel in addition to high-end bicycles. Growing even faster than bike sales (which are especially successful in Europe) are the clothing, accessories and components. The company estimates that non-bike sales will account for 15 percent of total sales in fiscal 1997.

Joe Montgomery, chairman, president, and CEO since Cannondale’s inception, defines success on a quality rather than quantity basis. He told Delaine Fragnoli of Mountain Biking: “We don’t necessarily mean to sell the most bikes. I mean, we don’t think that we’ll ever sell more bikes than China Bike. That’s not what we want. We want to be the Mercedes Benz, I would say, the Volvo, the Porsche of the bicycle world.”