Phil White Matriculates
In the middle of the dotcom boom, two engineers got together and decided to do something contrary to the zeitgeist of the nineties: they decided to produce a physical product. A thing you could touch. That thing they made started to get popular in triathlon, and then it really caught fire in 2002, when Laurent Jalabert borrowed a bike teammate Tyler Hamilton decided to discard—a Cervelo P3SL—and powered it to a virtual dead heat in the Tour de France Prologue.
Cervelo eventually took over the CSC team sponsorship and it's debatable whether Tyler Hamilton, Dave Zabriskie, Fabian Cancellara, Carlos Sastre, Thor Hushovd rode Cervelos to the top places on the podium, or whether Cervelo jumped aboard the team and rode it to victory. The success of the sponsorship has few equals in the history of cycling, at least rivaling Trek's successful partnership with Lance Armstrong.
Gerard Vroomen moved to Europe three years ago, handing the day-to-day operations to partner Phil White. The company hit hard financial times when it gambled on owning its own continental team—the Cervelo Test Team—just before a worldwide economic crisis dried up the sorts of sponsor dollars telecom and financial services firms pony up for grand tour teams.
But Cervelo soldiered on, through a rough patch made rougher by the lukewarm reception toward its P4. But the road race bikes are still popular, and the three most recent launches—the reworked R3, the S5, and the P5—have all gotten rave reviews.
But the Test Team gambit continued to make its presence felt, through continued tight cash flow. What it needed was a white knight, and that's what it got in PON, a Dutch industrial and financial conglomerate busily assembling a suite of bike brands that, with Cervelo, make it one of the top few, if measured by annual revenue.
The friendly investor relationship has blossomed into a purchase. It's the end of one era and the beginning of another. Slowtwitch sat with Cervelo president Phil White to ask him about the sale, which is expected to close today, Friday, the 17th of February.
Slowtwitch: This has been an 18-year odyssey, if memory serves, which doubles the time I spent in my purgatory before I sold my bike company. Phil, I'll ask you the same question the old, grizzled mountain man asked Jeremiah Johnson, in the movie of the same name. Were it worth the trouble?
Phil White: It was a 16-year odyssey, only it feels longer. Were it worth the trouble? It's a good thing the mind and body have bad memories of pain. You can never imagine it being as bad as it is at some points. And as good. Running a business is the ultimate high and the ultimate low. Back in the early days, I remember sitting in bed almost crying. No money. Nobody's going to give it to you. The constant struggles from the word go about financing. Gerard and I used to ask each other, "Why didn't we do better this year?" Because we didn't get the product on time. "Why?" Because we didn't get the forks on time. "Why?" Because we didn't pay the bill on time. All this talk about financing for small business. That's a crock. There's no money for small business. It was worse yet, because we grew up in the dotcom era. We're a company that's making a high tech, leading edge, physical product. And we were making money at it. Just exactly the opposite of what the money people wanted.
ST: It seems to me that bike companies can do fine when they're under $10 million in sales, and also when they're over $100 million in sales. It's that $90 million in between that seems like a hot, dry desert, as you're trying to make that jump in size. Is this just a fanciful view? Or is $30 million or $50 million in revenues a very hard no man's land in which to exist?
Phil: I think it's tough the whole way. We were two engineers, sub-contracting to a virtual manufacturer, and nobody knew how to loan against that. There were different stages all along the way. Five-million, ten, thirty, fifty, maybe the stages aren't money thresholds, though. Maybe it's more about the numbers of employees—stages that are numbers of employees, maybe that's the issue. Even then, the questions remain the same but the answers change. Should we have independent reps? Company reps? The right answer now might be the wrong answer in a year. It takes a different breed of person to be an entrepreneur. But it also takes a different breed of employee to work at a company like that. It takes a special employee to put up with that.
ST: I found myself very light-hearted, but somewhat at a loss at what to do, the day after I sold Quintana Roo. This, even though I still worked at the company. Phil, have you found yourself feeling dispossessed? Or have you not gotten to that point in the 12-step process experienced by those who've had the "liquidating event?"
Phil: I don't think I've even got to the first of the twelve steps yet, because we haven't actually closed it yet. I haven't even sat down to think, maybe I will Saturday morning. I haven't thought through it yet. It's going to be a bit different, but I've worked as an employee and project manager before this. And, I'm not a serial entrepreneur. I got into this because I just wanted to make very fast bikes. But there will be times I'm going to have to zip the lips, because I'm an employee. At the same time, the guys at PON will let the brand speak for itself. Each brand brings its own culture to the mix. So the fact that I have a boss will be a change, but the boss is going to be six hours a way, in Amsterdam. So I have to find a way to keep them informed. They have a very good track record of keeping people at the companies they've acquired.
ST: Every time I cover an acquisition, what I always hear from the acquirer is, "We're not going to change anything, that would just tarnish the brand." Then, after a few months of honeymoon, all the changes commence. So, knowing that I'm going to hear what you say with a bit of a jaundiced ear, what will change at Cervelo? Who stays with the company, and who goes? Who relocates? In the world of musical chairs, who's going to be sitting where?
Phil: That was one of the first things we talked about when we first met. They said, "We're not interested in doing this if you're not sticking around." So, yes, I hear your point, but, statistically, with these guys, they break the rules. When the owners of companies they bought stick around, that's comforting. PON is [as acquirers go] the exception to the rule.
