A Quantified Success

Profile of a successful start-up in the bicycle industry.

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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.

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