SRAM Corporation

1987–2002

SRAM Corporation is a leading producer of bicycle components. Started around a single product--the Grip Shift gear shifter--the company, through acquisitions and research and development, has extended its product line to more than 100 different items. (The Grip Shift name has since been dropped.) Two notable recent acquisitions have been Sach Bicycle Components (1997) and RockShox, Inc. (2002). SRAM has several factories in Europe, North America, and Asia.

Origins

SRAM Corporation was started in Chicago in 1987 by Stanley R. Day, who hated fumbling for the gearshift on his bike while training for triathlons on weekends. Day came from an entrepreneurial family; his father was chairman of Champion Home Builders. After earning his M.B.A., Day worked three years at Molex Inc., a maker of electronic components. He serendipitously met Sam Patterson on a 1987 ski trip in Park City, Utah. As the Chicago Sun-Times reported, Day had attended business school at Northwestern University with Sam's brother, Art.

Most gear shifters until then used little levers that required the rider to momentarily move one hand away from the handlebars to change gears. This was an extra nuisance while bike racing or negotiating treacherous mountain trails, when the rider often was holding on for dear life with both hands.

Sam Patterson, then living in San Diego and working for an engine manufacturer, was a precociously talented designer. A native of Erie, Pennsylvania, he graduated from an accelerated program at the University of South Carolina's engineering school. Within weeks of the fateful ski trip, Patterson designed a new gear shifter, one that wrapped around the handlebars. Although this configuration was not an entirely new innovation in itself, Patterson's design was indexed, meaning it easily clicked to numbered positions corresponding with specific gears.

Day assembled a group of investors in the summer of 1987 and set up an office in the Fulton-Carroll entrepreneurial incubator building run by the Industrial Council of Northwest Chicago. The company ended 1988 with about a dozen enthusiastic employees, some culled from Day's former employer Molex.

Day became the company's president while Patterson served as head of research and development. The name SRAM was reportedly made up of letters from the names of its founders, including attorney Scott Ray King. (The company was originally incorporated as OLLO Bicycle Components, Inc., then renamed a couple of months later, according to filings with the Illinois secretary of state.)

Based in California, Sachs had 1,250 employees and annual revenues of more than $125 million.

1988–1994

Scott Molina, 1988 Ironman champion, was among the triathletes who enthusiastically embraced the product, originally called the DB shifter. Its location at the end of the handlebars proved troublesome, however, and it was repositioned between the grips and the center of the handlebars. The DB shifter originally was packaged as an aftermarket accessory kit and priced at about $120. The product later evolved into the Grip Shift.

Taking on the World in the 1990s

Cannondale began using the CX model of the shifter on its mountain bikes in 1989. A couple of years later, after being hounded by SRAM for years at trade shows, Trek and Specialized Bicycle Components finally introduced Grip Shift as standard equipment on their hybrid bikes, a smaller market.

The bike components business was then dominated by Japan's Shimano Inc., which had an 85 percent market share. Shimano sold its shifters and derailleurs to bike manufacturers as complete sets until a California antitrust lawsuit by SRAM, which was settled in 1991 for an estimated $3 million to $5 million.

SRAM opened a plant in Taiwan in 1991, and the Chicago operation grew to 60 people. The company shipped more than 300,000 of its SRT 300 shifter sets to leading bike brands. An office opened in Dortmund, Germany, in 1992 and moved to The Netherlands the next year.

Revenues were about $25 million in 1994. The company shipped two million shifters for the 1994 model year, reported Crain's Chicago Business, and five million for the next.

By the mid-1990s, Grip Shifts were specified on half of the bicycles sold at independent bike shops in the United States and dominated the U.S. cross-country racing circuit. SRAM also had made substantial progress in the European market, attaining a 30 percent market share for nonmass-market bikes.

1895–2000

SRAM's factories in Taiwan and China were going full tilt. The company opened a 43,560-square-foot manufacturing plant near Chicago in 1994. In 1995, SRAM set up its first European plant in Carrick-on-Suir, County Tipperary, Ireland. The Irish government provided incentives for building the IEP 5 million factory there. After opening the new factory, SRAM had 600 employees, half of them in Asia.

SRAM began selling its own derailleur--the device that moves the change between the different cogs--in the spring of 1995, intensifying its competition with Shimano in the upper end of the market (SRAM's was priced at $200).

Acquiring Sachs in 1997

SRAM bought Sachs Bicycle Components from Mannesmann Sachs AG, a unit of German telecommunications group Mannesmann AG, in November 1997. It specialized in internal gear hubs and bicycle chains, both new product lines for SRAM. Based in California, Sachs had 1,250 employees and annual revenues of more than $125 million. The acquisition made SRAM the world's second largest bicycle components company, and a leader in the European market for comfort (or "trekking") bicycles.

Sachs had been founded in Germany in 1895 as Schweinfurter Praezisions Kugellagerwerke Fichtel und Sachs. The firm was a pioneer in ball bearings as well as bicycle wheel hubs, including the legendary Torpedo freewheel hub. Mannesmann had acquired control of Sachs in 1987.

Globalization After 2000

By 2000, reported the Chicago Sun-Times, SRAM had 1,000 employees around the world and facilities in Taiwan, China, The Netherlands, Portugal, Germany, Ireland, and Mexico (opened in Chihuahua in 1997). New offerings included sprocket cassettes and the SPARC electrical assist system. Products in development included an integrated handlebar system for leisure bikes called SmartBar (designed by Inspire Design Group, LLC of Wisconsin). A new internal gear hub factory opened in Schweinfurt, Germany, in 1999.

1989–2003

In 2001, SRAM's German subsidiary filed an anti-dumping complaint with the European Union against rival Shimano. At the time, SRAM Deutschland GmbH accounted for 85 percent of the EU's production of gear hubs and employed 1,200 people in Europe, according to European Report.

SRAM moved into a new 100,000-square-foot manufacturing and headquarters complex in Chicago's near north side in 2001. By this time, its product line had expanded into brakes, handlebars, and battery-powered motors.

Acquiring RockShox in 2002

SRAM bought RockShox, Inc. for $5.6 million in March 2002. RockShox of Colorado was known for the shock absorber-equipped front forks it supplied to the mountain bike industry. Sales were $65 million in 2002. RockShox' line of mountain bike suspension products was well respected in the market and complementary to SRAM's other components.

RockShox went public in 1996 in an offering that raised $72 million. Its shares were traded on the NASDAQ exchange and later over the counter under the ticker symbol RSHX. The company had become the undisputed leader in bike suspensions, with a 60 percent market share. RockShox rode the mountain bike boom to sales of $106 million for the fiscal year ending March 1997. Then, according to Business Week, fewer than one in five mountain bikes was equipped with shocks, leaving room to grow. The mountain bike market crashed, however, in the late 1990s.

RockShox had been started by two motorcycle aficionados. Paul Turner was an employee of Honda R&D North America Inc. and Stephen Simons had his own motorbike suspension business, reported Business Week. RockShox was formed in North Carolina in 1989 and moved to California three years later. Its June 2000 move to Colorado saved it an estimated $5 million a year. RockShox had about 300 employees at its Colorado Springs plant at the time of the acquisition. The company had lost more than $10 million in 2001, and its manufacturing operations were moved to Taichung, Taiwan, in 2002 to take advantage of lower labor costs and to be closer to the host of American bike brands that had set up plants there. (RockShox retained a small base in Colorado Springs for testing mountain bikes.) In less than ten years, the annual U.S. output of finished bikes had fallen from five million to 500,000. SRAM had opened its first plant in Taiwan in 1991 and also had two factories in the People's Republic of China.

SRAM entered the road bike market in 2003 with cassettes and chains. Sales were about $150 million for the year; the company's catalog included 100 different products. The company dropped the Grip Shift name from its shifters, focusing on the SRAM brand.