Mountain-Bike Innovator Now Rolling With The Punches -- Specialized Has Matured With Founder

SAN JOSE - Mike Sinyard pedals effortlessly into the parking lot of Specialized Bicycle Components, locks his bike and strides briskly back to work after a daily 17-mile ride through the hills of southern Santa Clara County in California.

Sinyard, the trim, 46-year-old founder and chief executive of Morgan Hill, Calif.-based Specialized, is in some ways like his company, the nation's fourth-biggest maker of high-end bicycles. He started the business when he was just 24 and has had to mature as a businessman.

Likewise, Specialized has done some growing up. The company initially flourished because of its employees' youthful love of cycling, then fell victim to sophomoric business practices. Now Specialized is rebounding from a slump because it has learned to marry its passion with sage business practices.

"Specialized will come roaring back," predicts Felix Magowan, president of VeloNews, a bicycle-racing magazine. "It has sharpened its focus and expanded its accessory business, and it's finally listening to its dealers and treating them better. It has grown into a well-managed company that regularly dots its i's and crosses its t's."

Sinyard founded Specialized 22 years ago in a San Jose trailer. In 1980, the company introduced the first mass-produced mountain bike - the $750 Stumpjumper - which turned the company into the Wunderkind of the bicycling industry in the 1980s and garnered a spot inside the Smithsonian Institution.

Things began sliding in the '90s, however. Other companies, including Trek, Cannondale and a revitalized Schwinn-Scott, also began making top-flight mountain bikes and narrowed Specialized's lead in innovative research and development. And Sinyard couldn't stop meddling in product development at the 11th hour, which delayed shipments and sacrificed sales. In 1991, for example, Sinyard fiddled around so much with the Stumpjumper M2, a mountain bike with a metal matrix frame, that he missed most of the bike's first sales season.

"I was too fanatical," he admits.

There were other problems, too. Quality glitches were fixed at the end of the production process, rather than in the middle, requiring extra work and further slowing shipments. Moreover, designers sometimes grew too attached to their products, and salespeople grew careless about staying in touch with the company's 1,200 retailers. Sometimes, shops didn't get new models until a year after their introduction.

But Specialized has changed. Bicycle industry experts say it has started the long climb back to high-end bicycling's No. 2 spot, the highest it can aim because of the unmatchable size of Trek Bicycle, the General Motors of high-end bicycling.

Reflecting an improved research and development process, Specialized recently rolled out one of its biggest arrays of new products, including 7-ounce to 9 1/2-ounce helmets with 27 vents and a spiderweb-like retention system. Another new product - the company's Ground Control line of full-suspension mountain bikes - incorporates technology that used to cost $3,000 for prices ranging from $900 to $1,500.

Specialized has also improved its assembly and quality-control processes and its dealer relations, and it recently merged with Redwood City, Calif.-based Ritchey Design, a well-regarded maker of top-of-the-line bicycle components.

Specialized's sales declined 5 percent in fiscal 1996, to $160 million, but that compared with a 14 percent industrywide decline, caused in part by an unusually wet winter and hot summer in the East and Midwest. Bicycle-industry observers support Sinyard's contention that Specialized can grow at least 5 percent in 1997, despite the discontinuation of its low-end line of Sportrock mountain bikes.

Tough competition hasn't been Specialized's only hurdle. Total U.S. bicycle sales, which range from 12.5 million to 13 million units a year, have been flat to down since 1992, the victim of the growing popularity of competing activities, including in-line skating, snowboarding, hiking and mountain climbing.

"As it turned out, mountain bikes were a catalyst for all kinds of outdoor activities," says Chris Murphy, Specialized's marketing director. "Once people got outdoors, they discovered lots of new things they wanted to do."

Specialized was born out of Sinyard's early interest in bicycling, which dates to when he was 8 years old. The timing for a bicycle business was great: Adult interest in recreational biking enjoyed a resurgence in the early 1970s for the first time since the 1930s.

The trend didn't escape the attention of Sinyard, a San Jose State University graduate with a degree in business, who also noticed that most bikes were poorly constructed.

In summer 1974, right after graduation, he took a bicycle tour of Europe and decided to introduce himself to first-class bike manufacturers there, including Italian-based Campagnolo and Cinelli. He decided to buy $1,200 worth of components for resale in the United States and sold all of them to San Jose-area bike shops in two days. He told shops he would bring in more if they would pay him in advance. By November, they agreed, and Specialized was born.

Sinyard began buying parts from Japan and Taiwan, as well as Europe, then quickly expanded from components to tires.

Shortly afterward, though, sales of road bikes began declining as people began finding them somewhat uncomfortable and flat-prone. That prodded Specialized to develop and commercialize the fat-tired mountain bike in 1980. Annual U.S. bike sales ballooned from 10.5 million in the early '80s to 14 million by the end of the decade, and mountain bikes and related "fitness bikes" accounted for 90 percent of the total.

Most mountain bikes are priced at $300 or less and sold at mass market merchandisers like Kmart and Wal-Mart. Higher-priced bikes - the average Specialized bike, for example, costs $600 - are sold almost exclusively at bicycle specialty shops.

Historically, Sinyard has been a shrewd marketeer, but he also erred on that front two years ago. He began selling lower-end Specialized bikes under the name of Full Force at mass merchandisers, creating a rift with longtime Specialized dealers. Specialized discontinued the Full Force line this year.

Sinyard wrote a formal apology to all Specialized dealers - an act that he and others see as his graduation into a mature businessman.

Meanwhile, Sinyard has been rebuilding Specialized's reputation as one of the nation's premier bicycle makers. Over the past three years, Sinyard has increased the company's R&D budget 25 percent, to $5 million annually, much of which has funded a doubling of Specialized's designers and engineers. There are now 20, and they work on new computer-aided design systems to decrease the time it takes to design, develop and test bikes from 14 months to nine months.

Earlier this year, Sinyard turned for help to John Lillie, the former chairman and chief executive of American President, a containerized freight-transportation company. Lillie, who became Specialized's chairman in May, oversees operations and finance, while Sinyard concentrates on marketing and R&D.

The improvements at Specialized haven't escaped the attention of bicycle-industry observers.

"Specialized is doing things right again," says Bill Fields, president of Fields Associates, a Peoria, Ariz., bicycle industry consulting firm. "In fact, it's doing things better than ever."