BRANDING

Born To Be Wild

Dave and Dan Hanlon hope to challenge long-dominant Harley-Davidson for a portion of the American-made motorcycle market. Can their company, Excelsior-Henderson, compete?
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Anatomy of a Start-up

Excelsior-Henderson makes a bid to become the next Harley-Davidson

Dave Hanlon donned his sunglasses, rubbed his goatee, and adjusted his black-leather vest. Throwing his leg over a sleek red-and-white Super X prototype, the first new Excelsior motorcycle in more than six decades, he gunned the engine and smiled. With its low-slung seat, teardrop-shaped split fuel tank, and fork tubes passing through the front fender, the heavyweight cruiser embodied the styling of yore. Yet it had a thoroughly modern V-twin engine and a contemporary design. Hanlon and his bike looked good.

His brother Dan pulled up alongside him on an antique 1931 Excelsior Super X, a handsome emerald green bike with bright yellow spokes and classic American styling. Sporting three-day-old stubble, Dan was decked out in black boots, black jeans, and a jean shirt emblazoned with a large red X, the Excelsior-Henderson logo. He gave the thumbs-up to his older brother. The wild ones were off to the races.

Riding in tandem last August through the streets of Sturgis, S. Dak., the Hanlons quickly attracted lots of curious stares. And why not? They and their Excelsiors had crashed the biggest unofficial Harley-Davidson party in the country, the 1997 Sturgis Rally and Races, a gathering of 200,000 Harley faithful. But instead of being shunted aside, the Hanlons and their machines were heartily welcomed.

After a quick right and a left, the Hanlons were on Main Street in downtown Sturgis, the Hollywood Boulevard of the biking world. They circled slowly, like proud roosters strutting their stuff. A few bikers checked them out. They circled again, passing the tattoo parlors, the biker bars, and the leather-clad gawkers lining the streets. The cameras came out. A man in a black Harley jacket snapped photos of the biking brothers. Another Harley aficionado trained a video camera on them. One excited onlooker turned his camera away from a half-naked motorcycle mama and began shooting the Excelsiors. "Nice bikes," he said. By the time the pair had made a third loop, they owned Main Street.

"It's an adrenaline rush, riding these bikes around," said Dave, high-fiving his brother. "It was really cool to have the old and the new--the grandfather and the grandson--side by side. But the biggest rush is the fact that we're building one of these bikes."

I. Think with your heart

Sturgis, 1993. Dave and Dan Hanlon had come to the Black Hills for a week of mirth and motorcycling. Having made the long trek from Minnesota on their Harleys, they were ready to party. But the Hanlons felt restless. Dan had just sold EverGreen Solutions, the biodegradable-packaging-materials company he had founded, for $2.4 million in restricted stock. He was ready for something different; he just didn't know what. Like Dan, Dave wanted to shake up his life. For 17 years he had worked in the trucking business, becoming a general manager for Rollins Leasing Corp. Now he felt bored.

Hanging out with their biking brethren at Sturgis, the Hanlons noticed that nearly everyone owned a Harley or a Harley knockoff. There was nothing else. Harley had a monopoly on the American-heritage cruiser market. "We decided to offer another choice," Dave recalls.

The Harley-loving Hanlons knew a thing or two about motorcycling. They had grown up on a 160-acre dairy farm in Belle Plaine, a tiny farming community about 45 minutes southwest of Minneapolis. Dave and Dan, along with their three brothers and three sisters, sometimes worked 14-hour days, seven days a week, milking the cows and feeding the pigs and chickens. But life was good in Belle Plaine, especially when the brothers tooled around the farm on a primitive dirt bike, their first love.

Framed photos of the 11 motorcycles Dave Hanlon has purchased in his life, his "second family" as he calls them, line the walls of his office. Inspired by the movie Easy Rider, he bought his first bike at 18. He disassembled it, modified it, repainted it, and basically consecrated his life to it. "Girlfriends would complain that I was spending too much time working on my motorcycle and not enough time with them," recounts Dave, who still owns four Harleys. "Motorcycles are my release. I love to ride 'em, fix 'em, beautify 'em, and just have fun with them."

Dan Hanlon shares his brother's passion. He bought his first bike, a Honda, during his senior year of high school. When he speaks of motorcycling, he turns mystical. It's not a hobby; it's a way of life. "Biking is a kind of cleansing of the soul," he says. "I like the feeling of the wind in my face and the freedom of the open road. I like the smell of gasoline and oil."

Loving motorcycles is one thing. Knowing the motorcycle business, of course, is quite another. Yet on a hunch, the Hanlons decided to build a motorcycle-manufacturing company from scratch. They committed themselves to what was clearly an extremely arduous, capital-intensive endeavor. And they resolved to take on nothing less than Harley-Davidson Inc., which by 1993 was a $1.2-billion powerhouse and American icon. The brothers had no backers, contacts, or connections, and little cash. They appeared to be heading the wrong way on a one-way street.

II. The wide world of motorcycling

The golden years of American motorcycle manufacturing lasted from the turn of the century until the early 1930s. At various times manufacturers produced more than 200 brands of motorcycles. But eventually, the field consolidated into the big three: Harley-Davidson, Indian Motorcycle, and Excelsior Supply, which together accounted for 90% of the market. The Great Depression devastated the industry, wiping out most of the smaller manufacturers. In 1931, Excelsior Supply ceased operations. Indian survived until sputtering out in 1953. Several attempts to revive it in the 1990s went nowhere.

That left Harley as king of the road. Although it struggled against intense Japanese competition in the 1970s, Harley has roared back stronger than ever. It dominates the U.S. market for cruisers--heavy, expensive bikes with low seats and growling V-twin engines--with a 52% share. It enjoys a 58% share for touring bikes--large motorcycles with big seats designed for long rides. Harley has become the ultimate biker status symbol, the Cadillac of motorcycles. "Many Harley riders go out and buy the clothes, join the Harley Owners' Group--HOG--and put the patch on their backs," says Scott McCool, associate editor of Easyriders magazine. "I've yet to see a Kawasaki tattoo anywhere, but I've seen thousands of Harleys."

No company is close to matching Harley's 39% slice of the $2.1-billion street-bike market, which comprises touring bikes, cruisers, and speedy, high-tech sport bikes. Driven by affluent baby boomers, the market is exploding. Four major Japanese manufacturers--Honda, Suzuki, Kawasaki, and Yamaha--have been vying for a larger share. But the leader among them, Honda, has snared only 22%. Together the others account for 35%, with BMW, Ducati, Triumph, Buell, and Moto Guzzi claiming the remaining 4%.

Harley appeals to both the hard-core rider and the weekend warrior--typically, a lawyer or an accountant who wants to live a tad dangerously every so often. There's something about the distinctive guttural rumblings of a Harley that causes otherwise rational men and women to shell out big bucks for what many consider a low-tech bike. The Japanese bikes may cost less and offer newer technology, but that doesn't matter to many American bikers, who spurn the Hondas and Kawasakis in favor of the aura and prestige of a Harley.

While lacking in expertise about the motorcycle business, the Hanlons knew instinctively that they would have to challenge Harley on its own terms, that they would have to create a company that could rival Harley in capturing the heart and soul of the American consumer. In other words, they needed to create an Excelsior-Henderson cult.

III. Reborn to be wild

The Hanlons worked tirelessly between September and December in 1993 to craft a business plan. Incorporating as Hanlon Manufacturing Co. in December 1993, the co-CEOs kicked in $5,000 apiece and took out a $40,000 bank loan, using their motorcycles as collateral.

Besides lots of money, the Hanlons' new business needed a suitable name. The brothers understood that nobody except their parents would get all that worked up over a cruiser called Hanlon. With Harley's venerable image looming over them, they decided to search for a historic name that would resonate with the biking community. Nostalgia sells, they concluded. So the brothers delved into the archives of American motorcycling and discovered a host of companies that had vanished--Yale, Cyclone, Flying Merkel. None of them struck a chord. Then they came upon Excelsior, a name with a rich, proud tradition.

Originally founded in 1876 as a bicycle company, Excelsior Supply became the smallest but perhaps the most prestigious of the big three. Charles Lindbergh and Henry Ford owned Excelsiors. Excelsior's Big X was the first motorcycle to break the 100-mile-per-hour speed barrier. Ignatz Schwinn bought Excelsior in 1911 and six years later acquired the Henderson Motorcycle Co. and merged them. In 1931 the depression forced him to close Excelsior forever.

When the Hanlons discovered that Schwinn's trademark on the name had lapsed, they exulted. "For us it was like finding the lost city of Atlantis," Dan says. "The Excelsior's reputation fit into what we wanted our motorcycle to represent." Dave adds: "Using the name Excelsior gets us to the essence of the American motorcycle soul. People want a machine that embodies the history of American motorcycling. There's no better name than Excelsior." In March 1996, Hanlon Manufacturing officially became Excelsior-Henderson Motorcycle Manufacturing Co.

What's in a name? A lot, according to David Aaker, the author of Building Strong Brands and a professor at the Haas School of Business at the University of California at Berkeley. Relaunching a brand, rather than inventing a new one, makes good sense, he says. "They have a story to tell that's interesting, and they should be able to get good publicity," Aaker says. "Excelsior can tap into people who want to have links to the past, which some people need to fill out their personality. There are a lot of bikes out there, and the company has a point of differentiation from the competition."

The Hanlons had a golden name but little money and few executives to start their company with. They attacked the cash problem first. From December 1993 to March 1994, the brothers called hundreds of venture capitalists. Despite the Hanlons' enthusiasm and strong business plan, they achieved little. "We ran into some resistance," Dan says. "Some venture capitalists did offer to give us money, but we didn't want to turn over control to people who, like ourselves, had no experience in motorcycle manufacturing." A new strategy was in order. A private-placement expert in Seattle told Dan to forget about VC money. His advice: do a better job of targeting prospective investors.

"We decided to go to an audience that would understand our project: CEOs and founders of marketing and manufacturing companies," Dan says. "We found their names in annual reports and business journals, and picked up the phone and started pitching our story to them."

It worked. By April 1994 the Hanlons had raised enough money to move out of Dan's basement and into new offices. By the end of 1996 they had taken in more than $15 million in private-equity capital. "I didn't invest in the company per se. I invested in Dan and Dave," says David Pomije, CEO of Minneapolis-based Funco Inc., a video-game retail chain, who has invested $1.1 million in Excelsior. "Concept is only 3%, while execution is the other 97%. These guys are bright, resourceful, and resilient, and have that certain spark and ingenuity that maybe one in a million entrepreneurs has."

In July 1997 the brothers took Excelsior-Henderson public, raising $27.6 million after commissions through the sale of 4 million shares at $7.50 apiece. The stock was hovering around $6.30 a share by mid-September. The successful completion of the initial public offering, which represents 31% of the company's equity, gives Excelsior-Henderson a market value of nearly $100 million. Proceeds from the IPO will go toward industrial design, engineering and testing, completion of a new factory, and sales and marketing. The company's books show a loss of $6.2 million through June 30.

To supply the manufacturing know-how they lacked, the Hanlons sought professionals to build their factory. During an early scouting trip to Triumph Motorcycles Ltd.'s Hinckley, England, facility, they met Allan Hurd, then production engineering manager at the new Triumph. The brothers so impressed him that Hurd defected to Excelsior, becoming its vice-president of manufacturing and operations. Working alongside him is Neil Wright, another Triumph alum, who is designing the Super X's engine. Hurd and Wright are considered among the best in the industry and played key roles in the revival of the Triumph motorcycle in 1990. (The original company had gone out of business in 1983.) "I'm not a gambler," Hurd says. "I wouldn't be here if I didn't think we could do it. Remember, I've done it once before."

After a national search, the Hanlons recruited Dave Auringer, who had built an extensive dealership network for Sea-Doo Watercraft. As Excelsior's vice-president of sales and marketing, he has already signed up 35 dealers nationwide by offering them high margins, said to be about 25%. The company's chief financial officer, Tom Rootness, has 30 years of accounting experience. "The Hanlons have been very systematic in what they've done," says Ed Youngblood, president of the American Motorcycle Association. "They've attracted a lot of support."

IV. Excelsior versus Harley

Having put together a topflight team, the Hanlons turned their attention to Harley, a fierce competitor. With enviable customer loyalty, a golden, all-American brand name, and 592 dealerships nationwide, Harley inspires a cultlike devotion among its followers. It is a quasi religion, an institution, a way of life. In 1996 the company had a record year, with revenues of $1.5 billion and net profits of $166 million. Some dealers have waiting lists up to two years long for popular Harley models, notably the Heritage Springer. Harleys have become so hot that a new Kansas City, Mo., factory is under construction to help the company meet its goal of producing as many as 200,000 bikes a year by 2003, up from 119,000 in 1996. Harleys are so popular that companies such as Big Dog and California Motorcycle Co., among others, have flattered it in the sincerest possible way: by copying its products, building thousands of bikes every year that look and sound like the real thing.

Though the Hanlons tactfully disavow that they're aiming for Harley's market, their strategy is clearly to siphon away bikers who value a made-in-the-USA heavyweight heritage cruiser. The brothers believe the Super X will succeed, in part, because it's not a Harley. Even Harley diehards, they figure, will want to add Excelsiors to their collections. "Our competitive advantage is that we're different. Our name is different. Our history is different. Everything's different," Dan says. "We're fostering the Excelsior-Henderson lifestyle. And we're going to do that through rallies, apparel, and merchandise, and most important, through the statement of the motorcycle."

Besides Harley, Excelsior has to grapple with the entry of a new U.S. competitor into the heavyweight-cruiser market. Polaris Industries Inc., a $1.2-billion, Minneapolis-based manufacturer of snowmobiles, personal watercraft, and all-terrain vehicles, will introduce in 1998 the Victory, a high-tech, midpriced bike that is already winning good reviews. Polaris, a 43-year-old company, has manufacturing, marketing, and engineering muscle. The Victory will cost thousands less than Excelsiors or Harleys and will mainly compete with the Japanese bikes. BMW also has just unveiled a new heavyweight cruiser.

Harley's chairman, Rich Teerlink, cautions that Excelsior had better do more than simply offer an alternative. "I think the best thing for them to do is go after new customers and build new experiences for people," he says. "They have to create a sense of need for their bikes."

Excelsior could easily take a spill, especially if the company runs out of money before production begins. "I think they've got a really tough road ahead of them," motorcycle-industry analyst Don J. Brown says. "The Japanese are building better bikes all the time, and Polaris has produced a first-rate V-twin cruiser."

On the other hand, the entry of so many new players could create excitement and fuel the already-hot cruiser market. "There's certainly room in the market for all of us," Victory general manager Matt Parks says. "What we're doing is growing the motorcycle market as a whole. The pie's just going to get bigger."

Demand for cruisers has never been stronger. Overall U.S. cruiser sales increased by 31% between 1994 and 1996. They should jump another 9% this year, to nearly 134,000 bikes. Excelsior should benefit from those trends. It needs to sell only about 5,000 motorcycles to break even, one analyst estimates.

The company hopes to produce 400 cruisers by late next year. By 2003, it plans to annually manufacture 20,000 motorcycles, including a touring bike, in several different models. There are already waiting lists for the Super X. "I have more than 60 people who've given me deposits of over $1,000," says John "Butch" Donahue, the first Excelsior dealer. "I could get a couple thousand deposits if I wanted, but I couldn't supply the motorcycles." Similarly, sales of Excelsior accessories--leather jackets, T-shirts, and vests--have taken off. In 1996 the company had apparel sales of $100,000, including orders from Japan and Singapore.

The Super X will feature a sophisticated V-twin engine boasting four valves per cylinder, dual overhead cams, and electronic fuel injection. The fine craftsmanship of the Super X may elevate it to Harley-like prestige, but it will also raise its price. In fact, the Hanlons are trying to dethrone Harley with a more expensive bike. The Super X's projected price of $17,500 will actually exceed the cost of a comparable Harley, albeit only slightly. "People always think we're going to sell for less, like we've got to do that to get the sale," CFO Rootness says. "As a marketing strategy, we're saying, 'No, no, no. Ours is a higher technology. It's got a better engine, better brakes, and a better suspension. It will be a premium-priced bike.' "

The high price of the Super X could drag down sales. Despite its promise, the motorcycle remains largely untested and unknown. Given the choice between an Excelsior and a less expensive Harley, many bikers might opt for the hog. "The performance of the motorcycle is going to make or break Excelsior," says David Edwards, editor-in-chief of Cycle World. "If it outperforms Harley on all fronts, it will do well. But if styling is the only difference, it will be a tougher sell."

V. Cruising into the future

A Harley rider named "Doc" walked into the cavernous Excelsior-Henderson tent at Sturgis with skepticism, wondering who these upstarts were. With a shaved head, a white beard, and a badass attitude, this 48-year-old member of a Vietnam veterans' motorcycle club wandered over to the Super X. He studied the bike, examining its engine and stroking its seat. A smile crossed his face. He liked what he saw. "I think the styling's unique, and I appreciate the technological advancements," he said. "I'd buy one. As a matter of fact, I'm gonna put my name on the list right now."

Moments later, Jim Shadwick sauntered into the exhibit. Dressed in a Harley hat, a Harley shirt, and a black-leather Harley belt, the 55-year-old pipe fitter and welder from Sand Springs, Okla., was a walking Harley billboard. Nevertheless, he bought an Excelsior-Henderson T-shirt for his granddaughter. "I think their bikes look real nice," he said. "I think if anybody can make it, they can make it."

It was like that the entire week of the rally. More than 25,000 people visited the Excelsior tent between August 4 and 9, snapping up $45,000 worth of merchandise. For the second year in a row, Excelsior-Henderson shined at Sturgis. "Last year we went looking for exposure for our unveiling, and we obtained that," Dave Hanlon says. "This year we came for acceptance, for people to walk up to us and tell us they like our product. That's what we left town with--acceptance."

Acceptance from hard-core Harley riders like Doc and Jim Shadwick means everything to the Hanlons. Bikers love to talk. The warm reception accorded the Super X will presumably translate into word-of-mouth sales and street credibility for a reborn American classic. Says Dan Hanlon, "When you purchase an Excelsior-Henderson, you're buying a piece of American history, a piece of the frontier, a piece of freedom, and a piece of individuality."

Marc Ballon is a staff writer at Inc.


Executive Summary

THE COMPANY: Excelsior-Henderson Motorcycle Manufacturing Co., in Belle Plaine, Minn.

COFOUNDERS: Dave Hanlon, 44; Dan Hanlon, 41

MAIN COMPETITION: Harley-Davidson Inc.

CAPITAL: Raised $3.6 million in private equity capital in 1995, $11.5 million in an oversubscribed private placement in 1996, $27.6 million through an initial public offering in 1997

COMPETITIVE ADVANTAGES: A brand name with historical cachet, a made-in-the-USA marketing appeal, strong management with some motorcycle-industry experience, support among biking enthusiasts

HURDLES: Getting to the production stage, building a dealer network, selling bikes at a premium over Harley

PROJECTIONS: Revenues will grow from $5.4 million in 1998 to $284 million in 2002


Where to locate? Bidding War

What happens when the cities and states of America learn that a start-up company is shopping for a site for constructing a 160,000-square-foot, $30-million factory and corporate headquarters that will eventually employ 450 people? A bidding frenzy, that's what.

Just ask Dan and Dave Hanlon. The U.S. economy may be in one of its most prolonged economic expansions; yet in 1996, when the Hanlons announced plans for the Excelsior-Henderson Motorcycle Manufacturing Co.'s factory, their phones started ringing and ringing. All told, they received from 20 states more than 200 proposals for tax incentives and other enticements, many unsolicited. "We were literally deluged with offers," says Patrick Pelstring of Public Resource Group, the Minneapolis-based consulting firm that advised the Hanlons.

Among the most alluring offers:

  • Twin carrots from North Dakota and the city of Minot, including a $4.4-million grant for job training and other purposes, plus $1.7 million in tax credits and abatements and up to $6.7 million in financing.
  • An Ohio package featuring $3.2 million in job-training grants and tax abatements, as well as up to $10 million in state financing.
  • A Kansas sweetener of up to $2.3 million in job-training funds and loans, up to $3.9 million in tax abatements and enterprise-zone tax credits, and up to $7 million in state and local financing.

The ardent courtship of a fledgling motorcycle manufacturer reflects not just the aggressiveness of economic-development agencies, says Lee Peterson, president of the Minot Area Development Corp. It also has much to do with the kind of jobs Excelsior-Henderson is creating, jobs for "machinists and the like, the kind of positions everybody's looking for today," he explains.

The Hanlons visited 20 sites in 12 states before deciding on what at first they had vowed not to do. They picked their sentimental favorite: their hometown of Belle Plaine, Minn. (population 3,300), which offered a $2.3-million grant and a $40,000 low-interest loan, with the state of Minnesota kicking in an additional $7-million low-interest loan and $200,000 for job training. "Every other place was better," Dave Hanlon says, "but Belle Plaine won our hearts."


Feedback: What the Experts Say

THE FINANCIALS
Shawn Milne, a research analyst at Hambrecht & Quist LLC in San Francisco, who covers Harley-Davidson

The Hanlons are going to spend in excess of $50 million before rolling a bike out the door. That gives you an idea of just how capital intensive the business is. They have little margin for error. If there is a major glitch as they ramp up, they don't have a lot of capital to fall back on. And it could become far more difficult for them to raise money in the future. The stars may need to be all aligned for them to pull this off. Still, they've persuaded people to ante up $28 million in the IPO without having sold a bike. Certainly, that's how great companies can begin--by getting investors to believe in them and share their passion.

THE MARKET
Bob Moffit, a vice-president at Kawasaki Motors Corp. USA, who met with the Hanlon brothers in 1994

The market is growing. There is room in it for a new player such as Excelsior. But these guys have a rough row to hoe. The Hanlons' central assumption was that Harley was leaving a lot of business on the table. But Harley has recently expanded production and is getting ready to significantly increase its manufacturing capacity. Furthermore, the introduction by Polaris of its new motorcycle is probably the largest single obstacle that will confront Excelsior. Polaris will very likely clothe itself in the made-in-the-USA label, and that means Excelsior will no longer be the only so-called American alternative to Harley. I question whether Excelsior can sell 20,000 bikes a year, but I wish the company luck.

THE FOUNDERS
Robert Evans, a senior research analyst for Minneapolis-based Miller, Johnson & Kuehn Inc., who covers Excelsior-Henderson's stock, which he recently gave a "Buy" rating

With any start-up, the heart and soul and energy of the company come from the founders. If you spend any time with Dave and Dan Hanlon, you quickly realize just how passionate they are. They strongly believe in what they're doing. To succeed, you need to have people who can somehow find a way to get the job done if they hit a roadblock. I've been around Dave and Dan Hanlon for about three years now. They've hit their milestones every step of the way. That's rare for development-stage companies. The Hanlons do what they say they're going to do.

THE COMPETITION
Howard Kelly, editor of Hot Bike magazine, a publication for Harley enthusiasts

It seems impossible to compete against Harley. The media and Hollywood have glamorized Harley. It's become hip to have a Harley. If you watch a television show or a movie, and a motorcycle appears in it, it's always a Harley. It's become a part of the American culture. How can you compete against that? Rather, the Hanlons have to create a hook, a compelling reason why people would want to own their motorcycle.

Last updated: Nov 1, 1997




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