As a CFO (outside of the bike industry), and a lifelong mountain biker, I've been following the current boom/bust cycle in the bike industry. I have...
As a CFO (outside of the bike industry), and a lifelong mountain biker, I've been following the current boom/bust cycle in the bike industry. I have very reliable sources at GG and banker friends who lend to multiple bike companies or their parent companies.
@whitesq comments on GG are basically correct, they sold a majority equity position to a private individual investor. Initially they believed that investor had a shared vision for the company which included developing high end bikes and ebikes, in addition to growing their in house domestic revved carbon manufacturing as a contract manufacturer to other bike companies and other companies outside the bike industry. When it came to investing in new bike development, including an ebike, the investor decided that the ROI on new bike sales didn't make sense. He unilaterally moved the company focus to contract manufacturing. The GG company still exists, they just stopped making bikes. The decision to not develop new bikes occurred during the height of the bike boom, way before they stopped selling their current models this year.
The 2020-2023 boom/bust cycle of the bike industry, (and all specialty/luxury consumer good industries), is a perfect example of Keynesian economics. Low interest rates (almost free money) drive increased consumer borrowing/spending. Which drive increased capital/inventory investment by companies. Which eventually drive an excess inventory induced recession when interest rates increase to curb inflation. The only difference was this time we had COVID manufacturing shutdowns combined with lockdown induced demand inflation. These factors only exacerbated the inventory build up across the industry.
Most smaller bike company owners (including GG) were smart and capitalized (literally) on the crazy investment demand across all outdoor product industries from VC, institutional investors and individual angel investors. They leveraged the extremally high market valuations (EBITDA multiples) by selling equity stakes and they got richer than was ever previously possible. Unfortunately, when the irrational exuberance by the investors ended, many bike companies could never keep up with their new owner's return expectations.
Most bike companies didn't over extend on the debt facilities during the pandemic induced bubble, but they are trying to borrow now from banks in order to fund their massive inventory levels (working capital) while they try to weather the current storm.
Yeti is running sales on some current model year bikes. Are they just clearing out certain build with components they don't want to keep around, or...
Yeti is running sales on some current model year bikes. Are they just clearing out certain build with components they don't want to keep around, or is there more to it? I would not expect that brand to be having significant issues.
Yeti's dealer base is shrinking due to Specialized and Trek buying all the big players in major markets. They have no choice but to sell direct. Any brand who doesn't sell direct is stupid. Dealers don't have any cash to buy inventory and bike brands need cash to pay bills to factories and suppliers. Yeti having a sale is smart. Clear out inventory and get cash in the bank. Brands with cash and no debt will win this battle.
Earnings Before Interest, Taxes, Depreciation Amortization
Yeti's 'sale' appears to just be limited to a few builds, those with cable actuated drivetrains. Given speculation of mechanical transmission coming, they may just be clearing out inventory of soon to be out of date drivetrains.
Earnings Before Interest, Taxes, Depreciation Amortization
Yeti's 'sale' appears to just be limited to a few builds, those with cable actuated drivetrains. Given speculation of mechanical...
Earnings Before Interest, Taxes, Depreciation Amortization
Yeti's 'sale' appears to just be limited to a few builds, those with cable actuated drivetrains. Given speculation of mechanical transmission coming, they may just be clearing out inventory of soon to be out of date drivetrains.
You couldn't have a mechanical transmisson, it would always force instant shifting where as transmission is slightly delayed to only shift when ready.
You couldn't have a mechanical transmisson, it would always force instant shifting where as transmission is slightly delayed to only shift when ready.
That's a fair point. I could see them going the route of eliminating the derailleur hanger and going the direct mount that Transmission utilizes. So maybe not full Transmission but some share components perhaps? It's just a guess.
With all this going on with Wiggle/crc and the company's they own, do you think there's a chance Nukeproof can be saved by someone else? They actually seem to have some forward momentum right now like they did in 2016 and I'm wondering if someones going to catch that. Their bikes are fantastic at the moment it seems.
As a CFO (outside of the bike industry), and a lifelong mountain biker, I've been following the current boom/bust cycle in the bike industry. I have...
As a CFO (outside of the bike industry), and a lifelong mountain biker, I've been following the current boom/bust cycle in the bike industry. I have very reliable sources at GG and banker friends who lend to multiple bike companies or their parent companies.
@whitesq comments on GG are basically correct, they sold a majority equity position to a private individual investor. Initially they believed that investor had a shared vision for the company which included developing high end bikes and ebikes, in addition to growing their in house domestic revved carbon manufacturing as a contract manufacturer to other bike companies and other companies outside the bike industry. When it came to investing in new bike development, including an ebike, the investor decided that the ROI on new bike sales didn't make sense. He unilaterally moved the company focus to contract manufacturing. The GG company still exists, they just stopped making bikes. The decision to not develop new bikes occurred during the height of the bike boom, way before they stopped selling their current models this year.
The 2020-2023 boom/bust cycle of the bike industry, (and all specialty/luxury consumer good industries), is a perfect example of Keynesian economics. Low interest rates (almost free money) drive increased consumer borrowing/spending. Which drive increased capital/inventory investment by companies. Which eventually drive an excess inventory induced recession when interest rates increase to curb inflation. The only difference was this time we had COVID manufacturing shutdowns combined with lockdown induced demand inflation. These factors only exacerbated the inventory build up across the industry.
Most smaller bike company owners (including GG) were smart and capitalized (literally) on the crazy investment demand across all outdoor product industries from VC, institutional investors and individual angel investors. They leveraged the extremally high market valuations (EBITDA multiples) by selling equity stakes and they got richer than was ever previously possible. Unfortunately, when the irrational exuberance by the investors ended, many bike companies could never keep up with their new owner's return expectations.
Most bike companies didn't over extend on the debt facilities during the pandemic induced bubble, but they are trying to borrow now from banks in order to fund their massive inventory levels (working capital) while they try to weather the current storm.
This is a good synopsis of "how did we get here" if anyone doesn't want to parse through a bunch of other posts. I think the fun part is to look to the future being I can broadly agree with Dave's recap (few quibbles, but not important for this conversation).
Here are the keys to consider when peering into your crystal ball/magic 8 ball.
1) Mountain biking went through a phase of increased demand during COVID. This demand is better thought as "pulling future demand to the present". This means higher than average demand was followed by lower than average demand. This is a big negative for inventory.
2) Inventories could not have been more mismatched to this phenomena. When the supply chain shit the bed (COVID) and couldn't keep up, the demand was all time. When the supply chain caught up, that excess demand had all but come off. This is also a big negative for inventory turns.
3) I didn't really want to talk about interest rates & the impact of the fed & government stimulus (or as Dave puts it, Keynesian economics), being this is a mountain bike forum. However, he is right, interest rates & the role of the fed is arguably the most important single factor to pay attention to in the broader economy. When rates are low and the money printer goes "brrrr" it creates a very different economic environment than when rates are high, quantitative easing is over and the free money machine is shut down.
Its this last point that will really influence the future. Most of the smart buy & sell side guys I know expect interest rates to stay "higher for longer". J Powell remains super focused on inflation coming back to 2%, which still hasn't happened.
When rates do start to fall, most believe they will stabilize much higher than we saw through most of the 2010-2020 period, which the Fed has signaled.
What does this mean? It means there is a serious wet blanket over the industry (and broader economy) for awhile longer. When the blanket comes off, nobody is going to be stoking the flames like we once saw, and arguably got used to.
I'm guessing if Dave were to put on his CFO hat and give advice to any company reading this it would be "live within your cash flows", "get default alive" and "be smart with the capital you allocate into growth initiatives".
The companies that do this will survive. The ones that don't had better be developing the next ahhhhhmazing thing that we all cannot live without or they will fall on their face.
Pragmatism and old school operating common sense will prevail.
With all this going on with Wiggle/crc and the company's they own, do you think there's a chance Nukeproof can be saved by someone else? They...
With all this going on with Wiggle/crc and the company's they own, do you think there's a chance Nukeproof can be saved by someone else? They actually seem to have some forward momentum right now like they did in 2016 and I'm wondering if someones going to catch that. Their bikes are fantastic at the moment it seems.
I'd wager if Wiggle goes under what would happen is all the brands would be sold off in bankruptcy. It honestly could be a killer opportunity for the right private equity fund to pickup a good asset at pennies on the dollar, depending on what the balance sheet/income statement really looks like.
One thing we never can be certain of in the space is how a brand is really doing. Good product & meaningful profitability don't always go hand in hand.
I'd wager if Wiggle goes under what would happen is all the brands would be sold off in bankruptcy. It honestly could be a killer opportunity...
I'd wager if Wiggle goes under what would happen is all the brands would be sold off in bankruptcy. It honestly could be a killer opportunity for the right private equity fund to pickup a good asset at pennies on the dollar, depending on what the balance sheet/income statement really looks like.
One thing we never can be certain of in the space is how a brand is really doing. Good product & meaningful profitability don't always go hand in hand.
I'd wager if Wiggle goes under what would happen is all the brands would be sold off in bankruptcy. It honestly could be a killer opportunity...
I'd wager if Wiggle goes under what would happen is all the brands would be sold off in bankruptcy. It honestly could be a killer opportunity for the right private equity fund to pickup a good asset at pennies on the dollar, depending on what the balance sheet/income statement really looks like.
One thing we never can be certain of in the space is how a brand is really doing. Good product & meaningful profitability don't always go hand in hand.
LOL. Fair. But its better than the company ceasing to operate.
Plus, if you read between the lines here I'm obviously just hoping a google search brings this thread up and they reach out to hire me to run the portfolio of bike cos they are rolling up...
The "free money machine" is turned off, kinda, but it's not like it's business armageddon because the Fed raised the interest rate. The current Fed Rate is 5.5% and, historically, that's not crazy. For reference, Paul Volcker bumped the fed rate all the way up to 20% in the 80's, which really is rough. For anyone who cares, I've included a graph below of the fed rate since 1954. For about half of the graph the fed rate is at or above 5%. The fed interest rate has been bananas since 2008 when it dropped all the way down to 0. That's a great idea in the face of the Great Recession, but leaving it at or below 2.5% for 14 years is not a good idea. I do agree that Jerome Powell raised the rate pretty quickly in '22/23, but when you look at the graph, even that's pretty common when they raise rates.
I guess what I'm pointing out is that it's not business armageddon, but it might be the end of your business or your paycheck if your company thought the Covid boom would keep going forever. I was just talking with a friend in the industry whose bosses were chiding employees because they weren't hitting their sales numbers from 2020 and '21. That's just bad management, like the old joke "the beatings will continue until morale improves."
Also, I take issue with a comment further up the thread that "Most smaller bike company owners were smart and capitalized on the crazy investment demand across all outdoor product industries from VC, institutional investors and individual angel investors. They leveraged the extremely high market valuations by selling equity stakes and they got richer than was ever previously possible. Unfortunately, when the irrational exuberance by the investors ended, many bike companies could never keep up with their new owner's return expectations."
That only sounds smart if you're an asshole who's selling out and moving to Fiji. If you're sticking around and you have to actually work with your new equity owners, that sounds like a nightmare when you have to explain why you'll literally never hit the targets they expected. Oh, by the way, your new owners don't give two shits about bikes or the scene or warranties or quality, and they certainly don't care about "investing in the bicycle ecosystem" to keep the stoke alive. To me, selling high to investors during the Covid boom and then trying to run a business together sounds like taking a dump in a sandwich that you have to eat.
TLDR: like Jeff said, being a normal, profitable, healthy business with a reasonable inventory and no overly ambitious plans for 3x or 10x growth year-to-year is probably a good long-term plan.
The "free money machine" is turned off, kinda, but it's not like it's business armageddon because the Fed raised the interest rate. The current Fed Rate...
The "free money machine" is turned off, kinda, but it's not like it's business armageddon because the Fed raised the interest rate. The current Fed Rate is 5.5% and, historically, that's not crazy. For reference, Paul Volcker bumped the fed rate all the way up to 20% in the 80's, which really is rough. For anyone who cares, I've included a graph below of the fed rate since 1954. For about half of the graph the fed rate is at or above 5%. The fed interest rate has been bananas since 2008 when it dropped all the way down to 0. That's a great idea in the face of the Great Recession, but leaving it at or below 2.5% for 14 years is not a good idea. I do agree that Jerome Powell raised the rate pretty quickly in '22/23, but when you look at the graph, even that's pretty common when they raise rates.
I guess what I'm pointing out is that it's not business armageddon, but it might be the end of your business or your paycheck if your company thought the Covid boom would keep going forever. I was just talking with a friend in the industry whose bosses were chiding employees because they weren't hitting their sales numbers from 2020 and '21. That's just bad management, like the old joke "the beatings will continue until morale improves."
Also, I take issue with a comment further up the thread that "Most smaller bike company owners were smart and capitalized on the crazy investment demand across all outdoor product industries from VC, institutional investors and individual angel investors. They leveraged the extremely high market valuations by selling equity stakes and they got richer than was ever previously possible. Unfortunately, when the irrational exuberance by the investors ended, many bike companies could never keep up with their new owner's return expectations."
That only sounds smart if you're an asshole who's selling out and moving to Fiji. If you're sticking around and you have to actually work with your new equity owners, that sounds like a nightmare when you have to explain why you'll literally never hit the targets they expected. Oh, by the way, your new owners don't give two shits about bikes or the scene or warranties or quality, and they certainly don't care about "investing in the bicycle ecosystem" to keep the stoke alive. To me, selling high to investors during the Covid boom and then trying to run a business together sounds like taking a dump in a sandwich that you have to eat.
TLDR: like Jeff said, being a normal, profitable, healthy business with a reasonable inventory and no overly ambitious plans for 3x or 10x growth year-to-year is probably a good long-term plan.
We have a very different economy than what existed in the 80s. The stock market is much larger piece of the overall pie, manufacturing jobs have largely moved over seas, and many like myself are reliant on service industry jobs that are all seeing a downturn in business as people’s budgets tighten.
I agree bad management (in government and companies) is the issue and the answer isn’t low interest rates to banks who will use those loans for the betterment of stock holders and big business rather than normal people. But those hikes are going to hurt in the short term even if in the long term they are necessary. And one would hope people elect congressman who are going to act to lessen the pain on everyday people at the expense of those who profited most from the easy money years which benefited the few at the expense of the many.
The "free money machine" is turned off, kinda, but it's not like it's business armageddon because the Fed raised the interest rate. The current Fed Rate...
The "free money machine" is turned off, kinda, but it's not like it's business armageddon because the Fed raised the interest rate. The current Fed Rate is 5.5% and, historically, that's not crazy. For reference, Paul Volcker bumped the fed rate all the way up to 20% in the 80's, which really is rough. For anyone who cares, I've included a graph below of the fed rate since 1954. For about half of the graph the fed rate is at or above 5%. The fed interest rate has been bananas since 2008 when it dropped all the way down to 0. That's a great idea in the face of the Great Recession, but leaving it at or below 2.5% for 14 years is not a good idea. I do agree that Jerome Powell raised the rate pretty quickly in '22/23, but when you look at the graph, even that's pretty common when they raise rates.
I guess what I'm pointing out is that it's not business armageddon, but it might be the end of your business or your paycheck if your company thought the Covid boom would keep going forever. I was just talking with a friend in the industry whose bosses were chiding employees because they weren't hitting their sales numbers from 2020 and '21. That's just bad management, like the old joke "the beatings will continue until morale improves."
Also, I take issue with a comment further up the thread that "Most smaller bike company owners were smart and capitalized on the crazy investment demand across all outdoor product industries from VC, institutional investors and individual angel investors. They leveraged the extremely high market valuations by selling equity stakes and they got richer than was ever previously possible. Unfortunately, when the irrational exuberance by the investors ended, many bike companies could never keep up with their new owner's return expectations."
That only sounds smart if you're an asshole who's selling out and moving to Fiji. If you're sticking around and you have to actually work with your new equity owners, that sounds like a nightmare when you have to explain why you'll literally never hit the targets they expected. Oh, by the way, your new owners don't give two shits about bikes or the scene or warranties or quality, and they certainly don't care about "investing in the bicycle ecosystem" to keep the stoke alive. To me, selling high to investors during the Covid boom and then trying to run a business together sounds like taking a dump in a sandwich that you have to eat.
TLDR: like Jeff said, being a normal, profitable, healthy business with a reasonable inventory and no overly ambitious plans for 3x or 10x growth year-to-year is probably a good long-term plan.
I'll be damned, cause I never thought I'd see an historical fed funds rate chart in a mtb forum. The point is spot on. Rates aren't "high," they've just returned to historical norms after being suppressed for way too long. Or put another way, and not to minimize anyone's individual economic struggles, the cost of borrowing money isn't anything to get upset about - it's about what it's always been, setting aside the insanity of continuing Great Recession policy way too long.
This is a good synopsis of "how did we get here" if anyone doesn't want to parse through a bunch of other posts. I think the...
This is a good synopsis of "how did we get here" if anyone doesn't want to parse through a bunch of other posts. I think the fun part is to look to the future being I can broadly agree with Dave's recap (few quibbles, but not important for this conversation).
Here are the keys to consider when peering into your crystal ball/magic 8 ball.
1) Mountain biking went through a phase of increased demand during COVID. This demand is better thought as "pulling future demand to the present". This means higher than average demand was followed by lower than average demand. This is a big negative for inventory.
2) Inventories could not have been more mismatched to this phenomena. When the supply chain shit the bed (COVID) and couldn't keep up, the demand was all time. When the supply chain caught up, that excess demand had all but come off. This is also a big negative for inventory turns.
3) I didn't really want to talk about interest rates & the impact of the fed & government stimulus (or as Dave puts it, Keynesian economics), being this is a mountain bike forum. However, he is right, interest rates & the role of the fed is arguably the most important single factor to pay attention to in the broader economy. When rates are low and the money printer goes "brrrr" it creates a very different economic environment than when rates are high, quantitative easing is over and the free money machine is shut down.
Its this last point that will really influence the future. Most of the smart buy & sell side guys I know expect interest rates to stay "higher for longer". J Powell remains super focused on inflation coming back to 2%, which still hasn't happened.
When rates do start to fall, most believe they will stabilize much higher than we saw through most of the 2010-2020 period, which the Fed has signaled.
What does this mean? It means there is a serious wet blanket over the industry (and broader economy) for awhile longer. When the blanket comes off, nobody is going to be stoking the flames like we once saw, and arguably got used to.
I'm guessing if Dave were to put on his CFO hat and give advice to any company reading this it would be "live within your cash flows", "get default alive" and "be smart with the capital you allocate into growth initiatives".
The companies that do this will survive. The ones that don't had better be developing the next ahhhhhmazing thing that we all cannot live without or they will fall on their face.
Pragmatism and old school operating common sense will prevail.
As someone who just took out a 7% mortgage I really hope these rate predictions are wrong!!
The "free money machine" is turned off, kinda, but it's not like it's business armageddon because the Fed raised the interest rate. The current Fed Rate...
The "free money machine" is turned off, kinda, but it's not like it's business armageddon because the Fed raised the interest rate. The current Fed Rate is 5.5% and, historically, that's not crazy. For reference, Paul Volcker bumped the fed rate all the way up to 20% in the 80's, which really is rough. For anyone who cares, I've included a graph below of the fed rate since 1954. For about half of the graph the fed rate is at or above 5%. The fed interest rate has been bananas since 2008 when it dropped all the way down to 0. That's a great idea in the face of the Great Recession, but leaving it at or below 2.5% for 14 years is not a good idea. I do agree that Jerome Powell raised the rate pretty quickly in '22/23, but when you look at the graph, even that's pretty common when they raise rates.
I guess what I'm pointing out is that it's not business armageddon, but it might be the end of your business or your paycheck if your company thought the Covid boom would keep going forever. I was just talking with a friend in the industry whose bosses were chiding employees because they weren't hitting their sales numbers from 2020 and '21. That's just bad management, like the old joke "the beatings will continue until morale improves."
Also, I take issue with a comment further up the thread that "Most smaller bike company owners were smart and capitalized on the crazy investment demand across all outdoor product industries from VC, institutional investors and individual angel investors. They leveraged the extremely high market valuations by selling equity stakes and they got richer than was ever previously possible. Unfortunately, when the irrational exuberance by the investors ended, many bike companies could never keep up with their new owner's return expectations."
That only sounds smart if you're an asshole who's selling out and moving to Fiji. If you're sticking around and you have to actually work with your new equity owners, that sounds like a nightmare when you have to explain why you'll literally never hit the targets they expected. Oh, by the way, your new owners don't give two shits about bikes or the scene or warranties or quality, and they certainly don't care about "investing in the bicycle ecosystem" to keep the stoke alive. To me, selling high to investors during the Covid boom and then trying to run a business together sounds like taking a dump in a sandwich that you have to eat.
TLDR: like Jeff said, being a normal, profitable, healthy business with a reasonable inventory and no overly ambitious plans for 3x or 10x growth year-to-year is probably a good long-term plan.
I never thought I'd get to talk about the interest rate environment, capital allocation & what the past can teach us about the present/future in a mountain bike forum.
First, Robot is right in the big picture that its not business Armageddon and rates have certainly been higher most of history. Funny enough, I think BofA released a chart showing the history of interest rates from ~3,000 BC to now (or at least it was circulating on Twitter/X recently). Turns out, for most of the period following the time of Jesus & the Roman Empire to now rates were somewhere between 4-15%. The Volcker era was in fact an anomaly historically speaking and you have to go all the way back to Mesopotamia to see rates at that level.
Nerdy financial history aside, what this sort of assessment ignores is just how impactful this change is from a culture and "what we are used to" perspective. There are CEOs, CFOs, fund managers & capital allocators that have built their entire career on a net-zero interest rate environment (and the broader beta this has provided the equity/venture markets). As we shift away from this, the entire playbook you were operating under needs to be rewritten. TL;DR, this is a monumental shift from a culture & strategy perspective that cannot be overlooked despite the underlying rate environment being very palatable from a long term perspective.
The next part of what Robot said is very important IMO. Most of the founders who took on any sort of capital in the form of selling equity in the COVID era did not jet to the beach somewhere but are now trying to get the business to catch up to the valuation that it was given during the latest round.
In essence, the value given to your company when rates were near zero & every allocator was willing to go way out on a limb from a risk perspective to gain any sort of return is now upside down with the risk free rate now up so much.
This means your business is valued at a much lower mark an the likelihood of a current equity holder (who is likely upside down) allocating more capital into your business basically 0.
This is the underlying short term problem most of these companies are going to have. If they aren't profitable now, they can't raise money. If they haven't managed their runway appropriately, can't figure out how to become breakeven (default alive) beforehand that is it. Game over.
Considering the demand backdrop, its a crappy time to be in that situation. Not a lot of bullets in the chamber when rates are relatively high, your valuation shit the bed, you can't raise equity and its all but certain you won't be able to borrow.
I'm frankly shocked we haven't seen more GG like companies throw up the white flag...
I never thought I'd get to talk about the interest rate environment, capital allocation & what the past can teach us about the present/future in a...
I never thought I'd get to talk about the interest rate environment, capital allocation & what the past can teach us about the present/future in a mountain bike forum.
First, Robot is right in the big picture that its not business Armageddon and rates have certainly been higher most of history. Funny enough, I think BofA released a chart showing the history of interest rates from ~3,000 BC to now (or at least it was circulating on Twitter/X recently). Turns out, for most of the period following the time of Jesus & the Roman Empire to now rates were somewhere between 4-15%. The Volcker era was in fact an anomaly historically speaking and you have to go all the way back to Mesopotamia to see rates at that level.
Nerdy financial history aside, what this sort of assessment ignores is just how impactful this change is from a culture and "what we are used to" perspective. There are CEOs, CFOs, fund managers & capital allocators that have built their entire career on a net-zero interest rate environment (and the broader beta this has provided the equity/venture markets). As we shift away from this, the entire playbook you were operating under needs to be rewritten. TL;DR, this is a monumental shift from a culture & strategy perspective that cannot be overlooked despite the underlying rate environment being very palatable from a long term perspective.
The next part of what Robot said is very important IMO. Most of the founders who took on any sort of capital in the form of selling equity in the COVID era did not jet to the beach somewhere but are now trying to get the business to catch up to the valuation that it was given during the latest round.
In essence, the value given to your company when rates were near zero & every allocator was willing to go way out on a limb from a risk perspective to gain any sort of return is now upside down with the risk free rate now up so much.
This means your business is valued at a much lower mark an the likelihood of a current equity holder (who is likely upside down) allocating more capital into your business basically 0.
This is the underlying short term problem most of these companies are going to have. If they aren't profitable now, they can't raise money. If they haven't managed their runway appropriately, can't figure out how to become breakeven (default alive) beforehand that is it. Game over.
Considering the demand backdrop, its a crappy time to be in that situation. Not a lot of bullets in the chamber when rates are relatively high, your valuation shit the bed, you can't raise equity and its all but certain you won't be able to borrow.
I'm frankly shocked we haven't seen more GG like companies throw up the white flag...
"There are CEOs, CFOs, fund managers & capital allocators that have built their entire career on a net-zero interest rate environment."
This is well said, and pretty scary to think about. People who have only ever thought in terms of high risk, long-runway projects and now have to learn to live within their means and make money the boring, slow, old fashioned way- selling physical products to actual customers. Makes me think about Silicon Valley, where seemingly any and every idea was getting funded and the revenue model was "sometime we'll make tons of money, somehow, in the future." I happen to think that coming back down to reality is a net positive shift for the business climate, but you're absolutely right that it's going to be a painful adjustment for a lot of people and organizations.
Just got an interesting email from Gurerrilla Gravity.
SERVICE PARTS NOW AVAILABLE
We've got some good news!
We've worked with our friends at fellow Colorado bike company, Canfield Bikes, to make sure frame and service parts are available while supplies last. They won’t be selling GG bikes, but hopefully you’ll be able to get what you need to keep rolling as long as possible.
We're handing our remaining inventory off to them and it’s available for purchase now at CanfieldBikes.com (sounds like they will be shipping starting mid-December).
Our very own Tyler joined their team back in September in a sales/customer service role as well, so you’ll be in good hands with someone who knows the GG brand and products.
Canfield’s been in the game building rad bikes since the late ‘90s, so when the time comes to retire your beloved GG (hopefully not too soon), they are definitely worth a look for your next ride!
Thanks to everyone who has ridden our bikes or supported us in any way. You’ve made this journey an unforgettable experience and we appreciate you all.
Just got an interesting email from Gurerrilla Gravity.
SERVICE PARTS NOW AVAILABLE
We've got some good news!
We've worked with our friends at fellow Colorado...
Just got an interesting email from Gurerrilla Gravity.
SERVICE PARTS NOW AVAILABLE
We've got some good news!
We've worked with our friends at fellow Colorado bike company, Canfield Bikes, to make sure frame and service parts are available while supplies last. They won’t be selling GG bikes, but hopefully you’ll be able to get what you need to keep rolling as long as possible.
We're handing our remaining inventory off to them and it’s available for purchase now at CanfieldBikes.com (sounds like they will be shipping starting mid-December).
Our very own Tyler joined their team back in September in a sales/customer service role as well, so you’ll be in good hands with someone who knows the GG brand and products.
Canfield’s been in the game building rad bikes since the late ‘90s, so when the time comes to retire your beloved GG (hopefully not too soon), they are definitely worth a look for your next ride!
Thanks to everyone who has ridden our bikes or supported us in any way. You’ve made this journey an unforgettable experience and we appreciate you all.
Sincerely,
-Guerrilla Gravity
Thats cool stuff.
Man, I hate that they had to go. This is just more evidence of what cool guys/gals ran that place. Their modular frame design wasn't perfect, but man for a first gen product their bikes rode really well.
The moto side of Cush Core (Kreft Moto - suspension tuner) has announced they are closing effective immediately. Fortunately, it looks like Cush Core is unaffected. I would guess the MTB side more profitable and less overhead. I'd guess a hard decision was made to save the company by letting go of one division.
this is a few days old, but crc/wiggle went UK-only for purchases. has to be great news for u.s.-based retailers but possibly a sting for brands that sold a lot internationally through crc
The moto side of Cush Core (Kreft Moto - suspension tuner) has announced they are closing effective immediately. Fortunately, it looks like Cush Core is unaffected...
The moto side of Cush Core (Kreft Moto - suspension tuner) has announced they are closing effective immediately. Fortunately, it looks like Cush Core is unaffected. I would guess the MTB side more profitable and less overhead. I'd guess a hard decision was made to save the company by letting go of one division.
The way this went down it feels very much like a lawsuit was levied, but I have no idea. Kreft was always well respected and looked on very favorably in the space. I can't imagine it was a losing endeavor, but what do I know.
The way this went down it feels very much like a lawsuit was levied, but I have no idea. Kreft was always well respected and looked...
The way this went down it feels very much like a lawsuit was levied, but I have no idea. Kreft was always well respected and looked on very favorably in the space. I can't imagine it was a losing endeavor, but what do I know.
That's a fair point. I see what you mean now based on re-reading the statement. Definitely bummed as I really like my Kreft stuff on two of my motos. May buy up a few parts as they are selling off remaining stock.
Good find but damn, it's always sad browsing through a large auction listing like that
It totally sucks to see. GG is/was a great bunch of people with some very cool ideas. They brought a ton of fun and a great following to the sport. Really bummed to see.
EBITDA......Eat Breakfast In The Downstairs Area.
Yeti's dealer base is shrinking due to Specialized and Trek buying all the big players in major markets. They have no choice but to sell direct. Any brand who doesn't sell direct is stupid. Dealers don't have any cash to buy inventory and bike brands need cash to pay bills to factories and suppliers. Yeti having a sale is smart. Clear out inventory and get cash in the bank. Brands with cash and no debt will win this battle.
Earnings Before Interest, Taxes, Depreciation Amortization
Yeti's 'sale' appears to just be limited to a few builds, those with cable actuated drivetrains. Given speculation of mechanical transmission coming, they may just be clearing out inventory of soon to be out of date drivetrains.
You couldn't have a mechanical transmisson, it would always force instant shifting where as transmission is slightly delayed to only shift when ready.
That's a fair point. I could see them going the route of eliminating the derailleur hanger and going the direct mount that Transmission utilizes. So maybe not full Transmission but some share components perhaps? It's just a guess.
Sorry for detracting from the topic at hand.
With all this going on with Wiggle/crc and the company's they own, do you think there's a chance Nukeproof can be saved by someone else? They actually seem to have some forward momentum right now like they did in 2016 and I'm wondering if someones going to catch that. Their bikes are fantastic at the moment it seems.
This is a good synopsis of "how did we get here" if anyone doesn't want to parse through a bunch of other posts. I think the fun part is to look to the future being I can broadly agree with Dave's recap (few quibbles, but not important for this conversation).
Here are the keys to consider when peering into your crystal ball/magic 8 ball.
1) Mountain biking went through a phase of increased demand during COVID. This demand is better thought as "pulling future demand to the present". This means higher than average demand was followed by lower than average demand. This is a big negative for inventory.
2) Inventories could not have been more mismatched to this phenomena. When the supply chain shit the bed (COVID) and couldn't keep up, the demand was all time. When the supply chain caught up, that excess demand had all but come off. This is also a big negative for inventory turns.
3) I didn't really want to talk about interest rates & the impact of the fed & government stimulus (or as Dave puts it, Keynesian economics), being this is a mountain bike forum. However, he is right, interest rates & the role of the fed is arguably the most important single factor to pay attention to in the broader economy. When rates are low and the money printer goes "brrrr" it creates a very different economic environment than when rates are high, quantitative easing is over and the free money machine is shut down.
Its this last point that will really influence the future. Most of the smart buy & sell side guys I know expect interest rates to stay "higher for longer". J Powell remains super focused on inflation coming back to 2%, which still hasn't happened.
When rates do start to fall, most believe they will stabilize much higher than we saw through most of the 2010-2020 period, which the Fed has signaled.
What does this mean? It means there is a serious wet blanket over the industry (and broader economy) for awhile longer. When the blanket comes off, nobody is going to be stoking the flames like we once saw, and arguably got used to.
I'm guessing if Dave were to put on his CFO hat and give advice to any company reading this it would be "live within your cash flows", "get default alive" and "be smart with the capital you allocate into growth initiatives".
The companies that do this will survive. The ones that don't had better be developing the next ahhhhhmazing thing that we all cannot live without or they will fall on their face.
Pragmatism and old school operating common sense will prevail.
I'd wager if Wiggle goes under what would happen is all the brands would be sold off in bankruptcy. It honestly could be a killer opportunity for the right private equity fund to pickup a good asset at pennies on the dollar, depending on what the balance sheet/income statement really looks like.
One thing we never can be certain of in the space is how a brand is really doing. Good product & meaningful profitability don't always go hand in hand.
Becaue that always works out well...........
Fingers crossed Mike Ashley doesn't get his fingers on any of crc/wiggle/nuke etc
"Save" probably wouldn't be the correct term if he's involved.
LOL. Fair. But its better than the company ceasing to operate.
Plus, if you read between the lines here I'm obviously just hoping a google search brings this thread up and they reach out to hire me to run the portfolio of bike cos they are rolling up...
The "free money machine" is turned off, kinda, but it's not like it's business armageddon because the Fed raised the interest rate. The current Fed Rate is 5.5% and, historically, that's not crazy. For reference, Paul Volcker bumped the fed rate all the way up to 20% in the 80's, which really is rough. For anyone who cares, I've included a graph below of the fed rate since 1954. For about half of the graph the fed rate is at or above 5%. The fed interest rate has been bananas since 2008 when it dropped all the way down to 0. That's a great idea in the face of the Great Recession, but leaving it at or below 2.5% for 14 years is not a good idea. I do agree that Jerome Powell raised the rate pretty quickly in '22/23, but when you look at the graph, even that's pretty common when they raise rates.
I guess what I'm pointing out is that it's not business armageddon, but it might be the end of your business or your paycheck if your company thought the Covid boom would keep going forever. I was just talking with a friend in the industry whose bosses were chiding employees because they weren't hitting their sales numbers from 2020 and '21. That's just bad management, like the old joke "the beatings will continue until morale improves."
Also, I take issue with a comment further up the thread that "Most smaller bike company owners were smart and capitalized on the crazy investment demand across all outdoor product industries from VC, institutional investors and individual angel investors. They leveraged the extremely high market valuations by selling equity stakes and they got richer than was ever previously possible. Unfortunately, when the irrational exuberance by the investors ended, many bike companies could never keep up with their new owner's return expectations."
That only sounds smart if you're an asshole who's selling out and moving to Fiji. If you're sticking around and you have to actually work with your new equity owners, that sounds like a nightmare when you have to explain why you'll literally never hit the targets they expected. Oh, by the way, your new owners don't give two shits about bikes or the scene or warranties or quality, and they certainly don't care about "investing in the bicycle ecosystem" to keep the stoke alive. To me, selling high to investors during the Covid boom and then trying to run a business together sounds like taking a dump in a sandwich that you have to eat.
TLDR: like Jeff said, being a normal, profitable, healthy business with a reasonable inventory and no overly ambitious plans for 3x or 10x growth year-to-year is probably a good long-term plan.
We have a very different economy than what existed in the 80s. The stock market is much larger piece of the overall pie, manufacturing jobs have largely moved over seas, and many like myself are reliant on service industry jobs that are all seeing a downturn in business as people’s budgets tighten.
I agree bad management (in government and companies) is the issue and the answer isn’t low interest rates to banks who will use those loans for the betterment of stock holders and big business rather than normal people. But those hikes are going to hurt in the short term even if in the long term they are necessary. And one would hope people elect congressman who are going to act to lessen the pain on everyday people at the expense of those who profited most from the easy money years which benefited the few at the expense of the many.
I'll be damned, cause I never thought I'd see an historical fed funds rate chart in a mtb forum. The point is spot on. Rates aren't "high," they've just returned to historical norms after being suppressed for way too long. Or put another way, and not to minimize anyone's individual economic struggles, the cost of borrowing money isn't anything to get upset about - it's about what it's always been, setting aside the insanity of continuing Great Recession policy way too long.
As someone who just took out a 7% mortgage I really hope these rate predictions are wrong!!
Same here. 😵💫
I never thought I'd get to talk about the interest rate environment, capital allocation & what the past can teach us about the present/future in a mountain bike forum.
First, Robot is right in the big picture that its not business Armageddon and rates have certainly been higher most of history. Funny enough, I think BofA released a chart showing the history of interest rates from ~3,000 BC to now (or at least it was circulating on Twitter/X recently). Turns out, for most of the period following the time of Jesus & the Roman Empire to now rates were somewhere between 4-15%. The Volcker era was in fact an anomaly historically speaking and you have to go all the way back to Mesopotamia to see rates at that level.
Nerdy financial history aside, what this sort of assessment ignores is just how impactful this change is from a culture and "what we are used to" perspective. There are CEOs, CFOs, fund managers & capital allocators that have built their entire career on a net-zero interest rate environment (and the broader beta this has provided the equity/venture markets). As we shift away from this, the entire playbook you were operating under needs to be rewritten. TL;DR, this is a monumental shift from a culture & strategy perspective that cannot be overlooked despite the underlying rate environment being very palatable from a long term perspective.
The next part of what Robot said is very important IMO. Most of the founders who took on any sort of capital in the form of selling equity in the COVID era did not jet to the beach somewhere but are now trying to get the business to catch up to the valuation that it was given during the latest round.
In essence, the value given to your company when rates were near zero & every allocator was willing to go way out on a limb from a risk perspective to gain any sort of return is now upside down with the risk free rate now up so much.
This means your business is valued at a much lower mark an the likelihood of a current equity holder (who is likely upside down) allocating more capital into your business basically 0.
This is the underlying short term problem most of these companies are going to have. If they aren't profitable now, they can't raise money. If they haven't managed their runway appropriately, can't figure out how to become breakeven (default alive) beforehand that is it. Game over.
Considering the demand backdrop, its a crappy time to be in that situation. Not a lot of bullets in the chamber when rates are relatively high, your valuation shit the bed, you can't raise equity and its all but certain you won't be able to borrow.
I'm frankly shocked we haven't seen more GG like companies throw up the white flag...
"There are CEOs, CFOs, fund managers & capital allocators that have built their entire career on a net-zero interest rate environment."
This is well said, and pretty scary to think about. People who have only ever thought in terms of high risk, long-runway projects and now have to learn to live within their means and make money the boring, slow, old fashioned way- selling physical products to actual customers. Makes me think about Silicon Valley, where seemingly any and every idea was getting funded and the revenue model was "sometime we'll make tons of money, somehow, in the future." I happen to think that coming back down to reality is a net positive shift for the business climate, but you're absolutely right that it's going to be a painful adjustment for a lot of people and organizations.
Just got an interesting email from Gurerrilla Gravity.
SERVICE PARTS NOW AVAILABLE
We've got some good news!
We've worked with our friends at fellow Colorado bike company, Canfield Bikes, to make sure frame and service parts are available while supplies last. They won’t be selling GG bikes, but hopefully you’ll be able to get what you need to keep rolling as long as possible.
We're handing our remaining inventory off to them and it’s available for purchase now at CanfieldBikes.com (sounds like they will be shipping starting mid-December).
Our very own Tyler joined their team back in September in a sales/customer service role as well, so you’ll be in good hands with someone who knows the GG brand and products.
You can reach him at RideGG@CanfieldBikes.com.
Canfield’s been in the game building rad bikes since the late ‘90s, so when the time comes to retire your beloved GG (hopefully not too soon), they are definitely worth a look for your next ride!
Thanks to everyone who has ridden our bikes or supported us in any way. You’ve made this journey an unforgettable experience and we appreciate you all.
Sincerely,
-Guerrilla Gravity
Thats cool stuff.
Man, I hate that they had to go. This is just more evidence of what cool guys/gals ran that place. Their modular frame design wasn't perfect, but man for a first gen product their bikes rode really well.
I just cracked my rear Mainline. How much?
Just sent PM
The moto side of Cush Core (Kreft Moto - suspension tuner) has announced they are closing effective immediately. Fortunately, it looks like Cush Core is unaffected. I would guess the MTB side more profitable and less overhead. I'd guess a hard decision was made to save the company by letting go of one division.
Kreft Moto
this is a few days old, but crc/wiggle went UK-only for purchases. has to be great news for u.s.-based retailers but possibly a sting for brands that sold a lot internationally through crc
https://road.cc/content/news/wiggle-crc-ditches-international-sites-foc…
The way this went down it feels very much like a lawsuit was levied, but I have no idea. Kreft was always well respected and looked on very favorably in the space. I can't imagine it was a losing endeavor, but what do I know.
That's a fair point. I see what you mean now based on re-reading the statement. Definitely bummed as I really like my Kreft stuff on two of my motos. May buy up a few parts as they are selling off remaining stock.
Public Auction of Thermoplastic Carbon Fiber Bike Manufacturer (360assetadvisors.com)
Revved/GG sell off of manufacturing tools via public auction by order of the state court receivership
Good find but damn, it's always sad browsing through a large auction listing like that
It totally sucks to see. GG is/was a great bunch of people with some very cool ideas. They brought a ton of fun and a great following to the sport. Really bummed to see.
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