A Bigger Wheel

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He hired his older brother, Ken, and gave him free rein to set up the premiums fulfillment system. "But remember," he cautioned him, "the product we deliver has to be perfect." Chris sent all premiums recipients a questionnaire asking for their inseam measurement, their height, and their style of riding, because "you can't send one size bike to everyone." When the bikes from Trek reached Zane's Cycles, they were assembled, checked for factory defects, test-ridden, then partially disassembled for shipping. Zane included with the bikes a detailed instruction sheet that guided the customer through a minimal amount of assembly (putting on the handlebars, seat, pedals, and front wheel), a special wrench for tightening pedals, and a toll-free number through which recipients could reach a mechanic who would help them with any difficulties. "Our first time out of the gate, we got 15 to 20 calls on an order of 125 bikes," says Zane. "We didn't have one dissatisfied recipient, and Chesebrough-Ponds hit 184% of its initial sales goal."

Chris Zane had always joked with his Trek representative Craig Seeger that life was much easier for manufacturers than for dealers. Manufacturers, he groused, might sell 100 bicycles to a single customer, whereas dealers were obliged to create 100 different relationships to sell just as many products. "If I could just find a way to sell 100 bicycles to one customer," he'd mused. Now he had.

Weighing options
Although the Chesebrough-Ponds deal had fallen into his lap, Zane didn't delude himself into thinking that the premiums business would be a snap. In fact, he refused to actively market himself to other companies until he'd done his homework on the industry. "I spent the next three years going to trade shows, talking to people in the industry, figuring out how the business worked, and thinking about what my point of difference would be," he recalls. From 1993 to 1996 he prowled the Premiums/Incentives Show in New York City, and he dragged a Trek representative to the Motivations Show in Chicago, so that he "could show him this was a viable opportunity." At the time, four other bicycle companies were in the premiums market, but Zane noted that they were requiring recipients to do the kind of complicated reassembly that "it takes me two years to teach my mechanics to do properly." Zane fancied himself an expert on customer relationships and knew intuitively that the premiums business was not just about handing out free merchandise. "When a recipient receives a gas grill on a Friday afternoon, say, and has to spend seven hours on Saturday assembling it, he's not going to like the company that gave it to him," he surmises. Zane's job, were he to enter the market, would be to help companies build and maintain good relationships with employees by giving them merchandise that would make them feel good, not irritated.

Preoccupied with what's working -- or what's not -- many CEOs see only linear paths to growth.

As he was exploring the premiums market, Zane also weighed other opportunities for making his company "larger, stronger, and faster." In 1997 his store posted a respectable $1.6 million in revenues on sales of 3,400 bikes and was solidly profitable. But Zane yearned for new challenges. He considered adding a line of exercise equipment, opening a cellular-phone retail outlet, and expanding his retail operation into other areas. He had, in fact, opened up a second store in 1986, only to lose his $100,000 investment in a mere 10 weeks. Granted, he was older, wiser, and more established now, but he still wasn't sure the numbers for opening additional stores were in his favor. "The best tip I got was from a friend in the Washington, D.C., area who owned a chain of bike shops," says Zane. "His revenues were probably $20 million, but in the end his take-home pay wasn't much more than mine, and he had a lot more headaches."

And so Zane continued on as a minor player in the premiums market. Trek passed on leads to him, and he accepted orders from corporations when they called, but he didn't aggressively pursue the business. He also learned, sometimes painfully, that the market could be far less predictable than he had expected. In 1996, for instance, General Mills contracted with Zane to ship bicycles to grocery stores that ordered a certain amount of cereal. The idea was for the stores to give the bicycles away in sweepstakes contests intended for customers. But a grocery chain in Ohio had something else in mind. It ordered enough cereal to earn 28 bicycles, then diverted them to another division of its company, an odd-lot retailer, where they were sold for $79 apiece. "Trek went crazy," recalls Zane. "They asked me what the hell was going on -- how could this store be selling a $260 bike for $79? It really screwed up the value of the product, and I had local dealers calling me." Zane managed to assuage the dealers and Trek, but he was forced to acknowledge that there were certain elements of the market that he just couldn't control.

He learned a similar lesson when he signed a deal with Tropicana, six months later. The company's "Juicy Rewards" program offered New York City-area consumers merchandise in exchange for the UPC codes, or bar codes, on orange-juice containers. Tropicana anticipated needing only 200 or so bicycles for the 18-month program, since 1,000 codes were required to earn a bike. But the company vastly underestimated New Yorkers' lust for free merchandise. Legions of sanitation workers in the five boroughs and at the city's two major airports armed themselves with box cutters and began hacking away at empty Tropicana containers, collecting enough UPC codes to claim one or more bicycles. Restaurant and bar owners who bought the juice in large quantities also cashed in. "We had one guy receive 14 bicycles from us," recalls Zane. "He was a New York City garbageman." Zane was shipping between 20 and 100 bicycles a week, and Tropicana "got their budget blown out of the water," he recalls. By the end of the program, more than 2,000 bicycles had been shipped -- a number that might have terrified him at the outset but that turned out to be manageable after all. After that experience it was clear that Zane could remain in the market as a sometime incentives player without straining his company or taking huge financial risks.

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Donna Fenn

Inc. contributing editor Donna Fenn is the author of Upstarts! How GenY Entrepreneurs are Rocking the World of Business and 8 Ways You Can Profit From Their Success (McGraw-Hill, 2009). Both this blog and the book examine the ways in which GenY is changing the entrepreneurial landscape with new approaches to starting, growing, and managing their companies. Learn more at http://www.upstartsrock.com/.

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