Inside Chicago's high-tech bicycle-components company that last year raked in $700 million and is up 15% while its competition struggles in a flat market

McMahon: The high-end road-bike market is soft. Why is that?

Day: We certainly don't have the turbo-charge effect that we had when Lance was popular. There's general softness in the bike market, but we're right at the inflection point in the road market where disc brakes are coming in and the disc availability is very limited, in terms of bike selection and, literally, availability.

I think — my hypothesis, my hope — is that consumers are postponing new high-end purchases until the suite of new disc bikes becomes more filled out. I mean, you could buy a few now, and you could build up a few, but even if you did a kit build, your frame selection is limited. So as we swing forward, there are going to be more standard-specced disc bikes and more frames available for kit builds. I think 2018 is going to be meaningfully better, and 2019 is going to be a lot better, because in another 18 months that entire category is going to be well populated.

McMahon: I've heard from some road cyclists, including industry insiders and even veteran pros, that they're doing less road cycling these days and instead seeking out trails and more off-road-type riding, in part because of distracted drivers and some of the horrific news stories you hear about. What's your perspective, as a year-round bike commuter and the head of a major cycling brand?

Day: Distracted driving is an incredible issue and a terrible thing. You can see it when you're commuting. People are texting or on their phones. It's horrendous. I think it's maybe a piece of why the road market has slowed a little bit. John Burke will say it is a factor. It's one of the reasons we're so into advocacy for more bike lanes. Bike lanes help a lot, even a stripe. And it doesn't have to be protected — just some visual. One of the things that drives me crazy here in Chicago is you go down some of these streets that were striped and now the paint has worn off. Like, Gimme some more paint!

There's work going on as well in the auto industry as we go self-driving, as we go driving-assisted. How can we see the bikes better? And proactively create the linkage into those information systems? So we're going to get better, meaningfully better, but right now we're in a little bit of a valley where we've got more cyclists on the road, which is great, but exacerbated by the problem with distracted driving, so we've got to get through this valley and come out the other side.

McMahon: How do you plan to maintain strong growth?

Day: We're all about product innovation. That's why people get up in the morning around here. They love new product. We'll continue to innovate on the drivetrain side, in mountain and road, and you'll see some more of that coming out as we progress through the year. But also on suspensions and wheelsets. The 454 wheelset this past year was a great move forward. We launched the 858 at Kona. The whole wheel portfolio also has to be disc-compatible. It was tubular, then it was clincher, and now it's going tubeless. All of this means changes to the molds, and all that product needs to be reengineered. There's a ton of work on the innovation side for our engineers. We've got 450 people working in product development. And there are many more products that I can't get to.

Another area that is hot right now is power meters. Quarq power meters — our effort in that space — we're working to take data feeds and make it better information for cyclists. We call it "connected components." That's another innovation coming down the pike.

McMahon: Does SRAM have any interest in making frames or complete bikes?

Day: We don't — that's our customers' business. And we love being in components. We love other people being in other parts. I do wish the frame suppliers would speed up their deliveries, though, because oftentimes that's a negating factor in the whole channel. We run on 30-day lead times, and frames are usually 90 to 120 days. If they could speed up, then we'd all get to take a piece of inventory out of the channel, which would be great.

You know, when we first started the company, we thought we'd be just shifters and do a shifter company. We got into it, and we became really successful on mountain-bike shifters — not road shifters, but mountain shifters. It was an interesting ride. I remember in 1991, we went from about 10,000 shifters to 300,000, so we really cracked the code in the market. Then 500,000, then 2 million, then 5 million, then 8.5 million shifters. It was an incredible rocket-ship ride. It was at that point we chose — instead of just riding the profit curve on shifters — to take the profits and become a full line of components supplier.

And it just happened at that time that we discovered that the Sachs Bicycle management division was available for sale. That was our first acquisition. But it was really important because it brought with it an experienced team of German engineers who really knew how to stamp, forge, and heat-treat metal parts, whereas with Grip Shift, it was all injection, with the plastic, where you get the shape out of the mold. So it was terrific that we were able to complete that acquisition at that time and drive it forward. It was great to bring the Americans and the Germans together. We were probably a little more freethinking, and they were more disciplined, and it took some time to get those two approaches together, but it's come together really well now, and it's exciting. When we look at Eagle now, on the drivetrain side, all of that came out of Schweinfurt, Germany. There's a ton of innovation multiplied by the German engineering skills.

McMahon: From a business perspective, what's the most important difference between SRAM and Shimano?

Day: Shimano doesn't pay attention to channel integrity. There's a lot of gray market and discounting of product in the aftermarkets. If you go to Chain Reaction, for example, you can buy Shimano at 40% off, and you can't do that with SRAM. We've stopped that. When that dynamic plays itself out, we end up being more expensive, but we also end up protecting the profitability for the retailer and the channel. We're paying a lot of attention to it right now, and the dealers appreciate it — and the dealers are rewarding us, which is great. Two-third of our business is OEM [original equipment manufacturer] and one-third is aftermarket. Most of the OEM stuff ends up through the dealer and about a third through aftermarket.

McMahon: What are your biggest challenges right now?

Day: We've got a good, strong pipeline of product coming down. The challenges really relate to execution. When you look at what we do across all these product categories — wheels, drivetrains, brakes, suspension, connected components — there's a ton of technology that goes into that. Actually our OEM product catalog is about 50,000 part numbers, so it really comes down to execution. The team has great ideas. They sift them well; they prioritize them well. And now you've got to execute. We've got six design centers around the world, and we've got five factories around the world. We've got to coordinate our supplier base, our engineers, our manufacturing, all of that to generate, in a reliable fashion, these 50,000 skews. It's hard.

McMahon: And so why Chicago?

Day: When we started, with six people, some of us were already living in Chicago or in the Midwest. We knew the business environment, and the fastest, easiest way for us to get going was Chicago, because we could snap our fingers and go. We had banks; we had space available. And it turned out, as we did research — because we were thinking we should maybe move out to California — that at that time, in 1987, there were 7 million bikes manufactured within 300 miles of Chicago. You had Huffy doing 4 million in Celina, Ohio; you had Roadmaster in Olney, Illinois; Trek up in Waterloo, Wisconsin; you had Schwinn headquarters right down the street, four blocks from where we are now. We recognized the leading edge for bikes may have been coming out of California, but the business base for bikes was here. And we had O’Hare Airport, where we could fly anywhere we wanted. So we decided to make the easy decision and launch from Chicago.

McMahon: How would you describe the culture at SRAM?

Day: Cycling is definitely a huge part of the culture. All the people on product development and sales — most of them — are cycling enthusiasts, and some are supercompetitive racers. The vibe is very collaborative, very bike-oriented. We want to expand the potential of cycling — it's in our purpose statement. We want to inspire cyclists. That's what we live for. I think people really enjoy working here.

McMahon: So what, if anything, keeps you up at night?

Day: What we were talking about earlier — execution. We're very ambitious; we've got a lot of stuff going on. It's getting it right. It's easy to think about it. It's easy to call the play. It's a lot harder to execute.

McMahon: And what helps you sleep?

Day: Being up 15%. [Laughs]