A Quantified Success

Garry Snook thinks risk is overrated. Applying by-the-numbers rigor to every decision he makes, he has built Performance Bicycle Shop into an industry leader

In the warehouse the flow of product is relentless, moving from overhead bins that reach the 22-foot-high ceiling and converging on a central conveyor jammed with packing boxes. The boxes are filled, sealed, and loaded into a seemingly endless procession of tractor trailers backed up to wide-open doors at the back of the building.

The man at the center of all this motion wears a white shirt and red silk tie. Of medium height, with dark, darting eyes, he might be mistaken for an IRS agent on the prowl or a visiting banker (which in a former life he was). "I saw more companies get into trouble," he is now saying here amidst the hum of the warehouse. "They would build space before they had sales. Then they'd be sitting with a huge building, a fancy computer system -- all these fixed costs -- and not enough revenues." He shakes his head. "We avoid that. We always build late. We wait till the place is bursting at the seams."

To buttress his point he indicates a spot in the floor where the texture of the concrete suddenly changes. Small divides like this one can be found all around the building. Worn, old carpet suddenly gives way to new, higher-napped stuff. Smooth concrete yields to rough. Like telling layers of sediment, they signal moments in time when a wall was pushed out and the space expanded to accommodate one more surge in a fast-growing operation.

In 1982 Garry Snook scraped together $25,000 in savings and started a small mail-order operation selling cycling parts and accessories out of his basement in Chapel Hill, N.C. Today Performance Bicycle Shop is a $50-million-a-year business, the largest single retailer of cycling gear in the United States. The Performance empire is a real tree killer, cranking out 10 million catalogs a year. It also includes 14 retail shops that on average do five times the volume of the typical U.S. bike shop.

In looking at the big Performance payoff it is tempting to assume that Garry Snook is a man who bicycles 150 miles a week and favors cleanly crafted cranks and derailleurs in his dreams -- yet another high-rolling entrepreneur who turned a passion into a profit.

Not so.

Garry Snook, age 45, Duke M.B.A. 1981, rarely rides bicycles, preferring instead to get around in a monster Mercedes-Benz. He approaches his business with a cool eye cast not on the wild blue yonder but on the warehouse floor. Snook believes business is more science than art and that it can, for the most part, be quantified. He thus poses hard economic questions of virtually every decision he makes, focusing first on his downside risk, then trying to calculate the upside. If the payoff seems a large enough multiple of the cost, he tests the market. If the test proves out, then he makes his move.

Garry Snook comes to his work with a competitor's sense of urgency. He loves business most for the puzzle it presents, something he labels "a complex, nontrivial game." In the case of Performance the game has most resembled chess played by a master: a series of incremental, very calculated moves woven together as the game plays out in a seamless web encircling the prize.

Move #1: Finding the Business. Garry Snook's methodical approach to building a company reaches back to Performance's very start, Christmas of 1981. He knew he wanted to run his own show. What kind, exactly, was secondary to the constraints he faced. They would define his business.

His major constraint was, predictably, money. Snook had $25,000 -- his life savings -- to play with. He needed a business in which capital requirements were low and the opportunity to leverage other resources existed. Then his brother, an avid cyclist, told him about the poor service and choice of goods offered by the typical bike shop. When Snook took a harder look he noted that cycling products "were fairly expensive and very UPS-able." The fitness boom was in high gear, and cycling's popularity was notably on the rise. Moreover, a survey put the average age of committed cyclists at 32, not under 20 as Snook had thought. "These were people with discretionary income," Snook says. "That made a big difference."

Snook went to the library and checked out a book on how to start a mail-order business. He then studied the half a dozen cycling catalogs that did exist. Many ran small space ads in the nether reaches of cycling magazines. Most were poorly produced. Some charged a fee just to send a catalog. Few had 800 numbers. None offered warranties of any substance. They competed on price alone; customer service scarcely existed.

Snook sensed a niche was there to fill. He would do for cycling what L.L. Bean had done for outdoor wear. He would print a good-looking four-color catalog, have an 800 number that would be answered round the clock, and offer quality goods at a fair price. He would offer a 100%-money-back guarantee, no questions asked.

Snook struck a deal with a printer that had been his client when he was in banking, and in April 1982 he mailed 35,000 16-page four-color catalogs. If Snook printed that many and the business tanked, he would only have been broke. If he printed more than 35,000 catalogs and the business failed, he also would have had to file for bankruptcy protection, and that was where he knew he had to draw the line. "I was not willing to lose my reputation," he says.

That first catalog carried as many as 10 items per page, offering the illusion of a broad selection between the covers of a slim book. "I wanted to spread my risk out as much as possible," says Snook. "I also couldn't tell which items would sell, and which would not." He would order five of each item at a time, pay COD, sell what he had, and quickly reorder. "Our suppliers could fill orders in a timely manner because we were so small." The printer also helped out, spreading Snook's payments over 90 days.

Snook projected a 2% response rate and an average order of $45. That would get him into a second printing of another 35,000 catalogs. Sales spurted, however, and Snook printed 100,000 more catalogs. His wife, Sharon, who had delivered their second child just two weeks before the first mailing, helped Snook fill orders and keep records. The phone rang with such insistence they could never be away from the house together. When the weather got warm, Snook installed a bell that would ring outside when the phone rang inside, allowing him at least to get out and cut the grass, if somewhat fitfully. In its first year Performance grossed $700,000.

Move #2: Securing the Niche. In its second full year Performance soared to $3.2 million in sales. Snook had found quite a niche, but now he worried about securing it. The company, he reasoned, was vulnerable. "My competitors were all price marketers," he explains. "They could have outlasted me." Performance had differentiated itself from the pack with customer service, yet cyclists were a price-sensitive lot. Snook knew he had to provide customer service and compete on price.

His research told him that cyclists express little brand preference for soft goods -- apparel and accessories. They are less concerned with label than with price and performance. But with hard goods -- bike frames and components -- they exhibit strong brand loyalty; Campagnolo, Shimano, and Suntour cranks and derailleurs have evident cachet. "There was no point in trying to compete with the best," reasons Snook. Moreover, hardware was expensive to produce. So he decided to create a line of apparel bearing the Performance label, a line that would offer the quality and value cyclists looked for. He would start by risking as few resources as possible -- to make sure his hunch was right.