Last week at CX practice, and again this week, the premise that if you sell cycling related stuff, you need to have a legit team came up. If I call our team anything but incredibly legit certain people would take serious umbrage, but a team of mostly cat 3s who race an average of about 8x/season isn't exactly feeding the ProTour ranks. We do have seriously pretty costumes, though.
Let's look at a couple of different scenarios. First and most regular is the "discount in exchange for logos on a club team's jerseys" model. This is ostensibly to drive awareness, and to get people from race teams onto your gear. I haven't been on all that many teams but typically you get a pretty small buy-in rate since unless you give people gear, they're going to use what they already have, or find something less expensive, or whatever. So then you have your logo all over a uniform and some people on the gear. To us, that's worse than having not having logo on uniform. To alleviate that, you might just GIVE gear to a team. But then you are giving gear to amateurs and seriously has anyone ever gotten any ROI out of that?
So then move up a step to a regional elite team. These pitch to us all the time. Let's say there are 10 riders on the team, and if this is going to work for you at all they need to be on your gear every minute they are on their bikes. That means at the very least a set of race wheels and training wheels for each rider, plus a few spare sets because accidents and flats happen. If you're going to do anything with that, you have to build a bunch of media around it (the job you want done is beyond the team's means to get done), so you're investing a bunch of time and cash into that. In our case, say we're into it for 25 sets of wheels plus some bare bones media, plus our time. Without giving too much away we've got to sell, at the absolute very least, 80 incremental sets of wheels that would otherwise not have come in in order to come out even. And so all of that time that you've spent on the team, plus all the time and opportunity cost and working capital to sell those 90 sets just digging yourself out of the hole. Are you going to be able to make that work? Has any 10 person regional team ever been solely and directly accountable for selling 80 sets of wheels?
Then you could go big time, and sponsor a Pro Continental team or something like that. The math doesn't change at all with these, it just gets a lot bigger. Your media needs to be bigger, your bequest of product needs to be bigger, and of course the time, effort, and cost of digging yourself back into the black gets bigger. If this causes you to tip and really go big, that's great. But if there's one guy who I'd support as a team director, it's Michael Creed. His team has been punching many many classes above its weight all year, but has their wheel sponsor tipped? Do they seem like they're about to? To me they don't.
To us, a Cat 1 or Cat 2 who pays full price to buy a set of wheels from us (and if you see a Cat 1 or Cat 2 on our wheels, they bought them just the same as you did or would) will always mean a heck of a lot more than a pro who got wheels for free. And quite honestly the Cat 4 or Cat 6 who makes a buying decision with his/her own money carries a lot more water to us than a Cat anything who's riding free wheels.
When in this conversation I was asked what the big things I've learned in running the business are, I responded with a two-pronged thing: that you ALWAYS have to make money, which is to say that starting off losing a ton of money isn't the way to make money (see also NASDAQ ca 1999), and that you must be willing to make money slowly. When you are new and small, that kind of growth feels like you aren't getting anywhere at all, but like the miracle of compound interest, once you get a little leverage it starts to feel like something very, very real. There are a LOT of people who are probably amazed that we're still around, but tho only hurry were in is to do things the way we set out to do them, and that's provided us with a very stable framework.
5 comments
Dave is 100% correct. I am glad November does not give away free stuff, that would increase my price. Dave that probably means I am coming around to the dark side, clinchers. I know who would think it. Well traditions die hard, but I am getting there. Rail 34 here I come!
I've agreed with everything you say for a long, long time, but still I appreciate the explanation. Every regional team director that thinks their team should get big time sponsorship should read this closely. I have been in bike racing at different levels since I was 12, and I am 37 now. I have run regional elite teams, raced NRC…blah, blah. This is what I have learned: Sponsoring a cycling team with equipment or sponsorship is…generally…a terrible investment. Terrible. There is simply no return on investment to most equipment (or, for that matter, title) sponsors unless you have real volume and margins and are able to get product onto a ProTour team. But for the most part, investing into a regional team is a labor of love, and the only sponsors that stay in it for a long time are the ones who sponsor teams because they love cycling (a business owner who races, or was a racer).You guys do not have the margins on your product to be able to absorb the cost of giving away free equipment or even steeply discounted items. The big manufacturers, whose volumes are high and whose premiums are increasingly insane (2015 S-Works Epic MTB frame for 6K, anyone?) can absorb giving away those units because their pricing structure is unrelated to reality.Keep doing what you're doing. It's awesome.Jay
Wow, Peter, I'm excited. That's really cool.Jay, thanks. The other bit of the deal there is that the big names have more layers – so if a team gets bikes, then there are more layers of margin to get squashed or cut out entirely "for marketing purposes." We love bike racing, can't get enough of it really, try to help out at races as often as possible, help out with the cx practice series, and if you've got a problem with your bike at a race and within earshot there's nothing I won't lend to anyone to get him/her on the line, but you nailed our perspective quite well.
My heuristic for thinking about how different pros are than amateurs is that your category/ranking has an exponential relationship to the ability/talent/amount of work involved. So going from Cat 2 to Cat 1 is way harder than going from 4 to 3 or 3 to 2. Going from 1 to pro is even harder. I conjecture that most amateurs think of this thing as something closer to linear. I think a lot of folks like to carry around an internal narrative of "well I did X to go from 4 to 3, if I just did a a little more of X again I could go to 2 and then ….". This narrative is part of why I think amateurs aren't totally embarrassed to be soliciting sponsorship – they don't really grasp just how far away they are from the pros (both in terms of ability, and in terms of impact on the marketplace from a logo being on their jersey or wheels being on their bike). TLDR – amateurs kid themselves into thinking they're almost pro and therefore aren't totally embarrassed to ask for free stuff
Jared – Yup, each step is exponentially bigger than the last. So true.