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Timberland CEO Helps Bike Manufacturer With Business Turnaround
Aired August 27, 2005 - 11:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, HOST (voice-over): Next, on the THE TURNAROUND, one company, 13 owners. Is this bike business just spinning its wheels?
MATTHEW BRACKEN, PRESIDENT, INDEPENDENT FABRICATION: Sometimes it's the situation of having too many cooks in a kitchen.
VELSHI: Can the CEO of a clothing and footwear giant get this company on track?
JEFF SWARTZ, PRESIDENT/CEO, THE TIMBERLAND CO.: I don't understand what your mission is.
VELSHI: THE TURNAROUND begins now.
Whether you ride a 10-speed bike to work or pedal a cruiser through the park on the weekend, biking is a favorite American past time. It's one that generates big business too. Eighteen million bikes were sold in 2004 in the United States at an average price of about $300. But for some people, cycling has become a specialty and some bikes can go for thousands of dollars a piece.
(on camera): Welcome to THE TURNAROUND. I'm Ali Velshi, just outside Boston in Somerville, Massachusetts. It's the home to Independent Fabrication, the makers of this $10,000 bike. Well, Independent is unusual not just because of the bikes that it makes, but because it's 13 employees also own and run the company. It's gone from being a struggling concern to a company that made a few bucks last year. But all 13 employees want to know what's next. So, over the course of the next three days, we'll help them find an answer to that question.
(voice-over): At the heart of every bicycle is its frame and Independent Fabrication or IF is one of just a handful of companies who make the very top end of bike frames. IF's Excess model was just named "Bicycling" magazine's 2005 Dream Bike of the Year. If this $15,000 bike is unusual, so is the way the company is run. The front office seems normal enough.
BRACKEN: My name is Matthew Bracken, the president of Independent Fabrication.
JOE INGRAM, CFO, INDEPENDENT FABRICATION: My name is Joe Ingram and I'm the financial officer here.
TYLER EVANS, INDEPENDENT FABRICATION: My name is Tyler Evans. I am the head of research and development.
LLOYD GRAVES, PRODUCTION MANAGER, INDEPENDENT FABRICATION: My name is Lloyd. I'm the production manager at Independent Fabrication.
VELSHI: But that's where normal ends at IF.
UNIDENTIFIED MALE: It's basically kind of like a social experiment.
VELSHI: Some might call the social experiment a collective. You see IF has 13 employees and each one of them is an owner of the company.
(on camera): You guys all run this company?
VELSHI: Does that strike anybody, other than me, a little odd?
UNIDENTIFIED MALE: No.
VELSHI (voice-over): Maybe they don't think it's odd, but the system doesn't always work.
BRACKEN: Sometimes the situation is having too many cooks in the kitchen.
GRAVES: We never have really come to blows or anything. Me and Chris are both working in the painting department but I'm also doubling as a production manager. Chris was kind of frustrated that I wasn't able to do a 100 percent for either job. It was traumatic when it happened, but we're still friends and everything.
VELSHI: IF was formed 10 years ago. Its owner/employees share a passion for biking and fine workmanship, but they don't seem to share a passion for making money.
UNIDENTIFIED MALE: We've tried our hardest for the last 10 years to sell higher end products and we've done it, but our goal really is to concentrate on making more money.
VELSHI: In 2004, IF sold 800 bike frames and took in just over a million dollars. That's about $1,400 a frame. But their expenses were more than a million dollars too. And after all was said and done, the company made just $50,000. The only goal they clearly all agree on is the pursuit of the perfect bike. It's a pursuit that hasn't paid very well.
(on camera): Are you making what you would make in a...
UNIDENTIFIED MALE: I'm making a third of what I would be making out of college.
GRAVES: It's not what you could make in a bike shop or something like that.
VELSHI: What would you like to be three years down the road?
UNIDENTIFIED MALE: I would like this company to produce maybe 10 percent more than what we're doing now. I don't want this company to become a 1,200 units a year company. I like being a small company.
VELSHI (voice-over): It won't be a small company for long. Growing by 10 percent annually, IF will be making 1,200 frames in less than five years. If they want to retain their small company vibe, they'll need help. And the man to help is Jeff Swartz the CEO of Timberland.
JEFF SWARTZ, PRESIDENT/CEO, THE TIMBERLAND CO.: I'm dying to meet these guys because they are first generation entrepreneurs. They are one inch from the well.
VELSHI: His grandfather founded Timberland in 1955. Two generations later, Swartz has helped turn the outdoor clothing and footwear company into a nearly $2.5 billion business. With close to 6,000 employees and hundreds of stores worldwide, "Fortune" magazine has repeatedly ranked Timberland as one of 100 best companies to work for in America. Swartz is recognized as a business leader who is also socially responsible. He's intrigued by IF's unusual business model but he's concerned about making a company operated by 13 owners work.
SWARTZ: How do 13 people who are right on top of each other run a company?
VELSHI: The guys at IF think that their attention to detail and precision is proof that they run their company just fine. But is being exacting enough? It's 11:20 a.m. on Day 1 of this turnaround and their mentor has arrived.
SWARTZ: I'm Jeff Schwartz from Timberland. How are you?
BRACKEN: Nice to meet you, Matt Bracken.
SWARTZ: Nice to meet you too.
UNIDENTIFIED MALE: I was a little unsure that it was going to work well. Big companies usually make just outfits and make a lot of money. And it's kind of different here.
VELSHI: Before Jeff starts helping these guys, he needs to understand their passion. He wants to know what drives them to work so hard for so little.
SWARTZ: I don't understand what your mission is.
UNIDENTIFIED MALE: That's the thing because a standard mission is to grow, expand, make money.
UNIDENTIFIED MALE: If we were here just to make money, we wouldn't be doing this job.
UNIDENTIFIED MALE: It's about an alter of the atmosphere, being able to do... UNIDENTIFIED MALE: Being self-employed.
VELSHI: Every one of IF's frames is custom fitted, designed and painted for each customer. The IF team takes obvious pride in the precision that they bring to each bike they produce.
UNIDENTIFIED MALE: When we get over to towards...
UNIDENTIFIED MALE: Checking it and alignment and all those kinds of things, we're shooting for within 10,000th of an inch.
SWARTZ: Ten thousands of an inch?
UNIDENTIFIED MALE: Yes.
UNIDENTIFIED MALE: Two and a half sheets of paper.
SWARTZ: That's cool. At Timberland, I mean we're in control of everything but that's precision. If that's how you're going to judge your product, that's how you have to judge your enterprise, right?
UNIDENTIFIED MALE: Right.
VELSHI: While the IF team is comfortable talking about the quality of their bikes, it takes some doing to get them to talk about the quality of life that they want.
UNIDENTIFIED MALE: A lot of this work needs to be very focused on what you do. And if you're stressing out about paying the rent, your work is going to suffer. In terms of money, I say the people here need to be paid what they're worth.
VELSHI: Jeff's finally got his head around IF's business and he's got some ideas for how the bike makers can keep their ideals and make more money.
(on camera): What do you want to set them to start with?
SWARTZ: Be clear of the spirit of this place in the way that defines our religion different than everybody else's. All they do is make bikes. We do more. Say what it is.
VELSHI: So that's mission one?
VELSHI: Mission two?
SWARTZ: You've got make sure that we are capitalized in terms of people and money.
VELSHI (voice-over): Coming up, Jeff brings in a top Timberland executive to make the link from the shop floor to the bottom line.
UNIDENTIFIED MALE: This notion of democracy, allowing everybody to have input, that's something I want to talk about.
VELSHI: And not everyone on this IF team is so sure about this turnaround.
UNIDENTIFIED MALE: It's just a really bad time of year for a bike company to be doing something where they can't be making bikes.
VELSHI (on camera): We're at the headquarters of Independent Fabrication, one of only a handful of companies that will build bike frames to fit your exact body measurements. And I'm about to find out firsthand what it takes to get your own custom made ride. This kind of engineering precision takes time. It's something IF's customers are used to. And while they may have tons of technical expertise, the 13 people who own and operate IF still have a lot to learn about running and growing a business.
After spending a few hours getting to know the IF employees, Timberland CEO Jeff Swartz has left the team in the hands of Gary Smith. As senior vice president of Timberland's worldwide supply chain, Gary directs the company's strategy.
GARY SMITH, SENIOR VICE PRESENT OF WORLDWIDE SUPPLY CHAIN, TIMBERLAND: My purpose is to help translate passion into purpose and get really specific.
VELSHI: Gary also brings a passion for biking to this turnaround.
SMTIH: For the better part of the last, you know, two or three years, I've been a pretty serious road cyclist.
VELSHI: Of IF's 13 owner/employees, only four of them act as managers, Matt, Joe, Tyler and Lloyd.
SMITH: What's different about the strategy versus a mission and a vision? A mission statement is basically an explanation of why you exist and from what I gather from your materials, it's to make the best bicycle frames into the industry. Vision, that sort of starts to really crystallize and bring together the why you exist into what you exist for, what's your principle purpose, to make the very best frames through a process of continuous improvement.
VELSHI: But vision is not enough. The company needs a strategic plan to put that vision into motion.
SMITH: We're going to talk quickly about what are the components of a strategic plan. The first is aspirations, what do you guys really want to accomplish over a given time frame? I would encourage you to think about this in a three to five-year timeframe.
VELSHI: Strategy is crucial for any company, but Gary thinks that it's key that the 13 owner/employees of IF buy into one plan.
SMITH: Anchoring this whole thing is implementation planning, who's accountable for what and when, and who are you competing against? What's the market for your product? Where are the consumers that you want to access? That, in a nutshell, is a strategic plan as simple as I can sort of distill it down to.
VELSHI: Gary has hit the guys with his a lot and he knows it, but he's not finished. He gives the IF guys some assignments to complete ahead of a trip to Timberland's headquarters tomorrow.
SMITH: This is for us to sort of discuss tomorrow when we're back up at Timberland. Determine five goals you'd like to achieve by 2007. They don't have to all be our business goals in terms of revenue and profit. OK? And they can be other things, like creating employment opportunity for X number of people.
VELSHI: Part II of their assignment, never mind the 13-headed ownership structure. Who calls the shots?
SMITH: You know create a structure for mapping out roles and responsibilities. Who's going to really be responsible for developing the implementation plans, executing on those goals and then following up with them? Does that sound like something that's doable between now and tomorrow?
BRACKEN: It's going to be tough for us, I think, just in determining the goals.
VELSHI: Once the meeting is over, Gary meets the rest of the IF staff and sees the obvious pride they take in their work from piecing together the frames to alignment, to painting and decaling. Gary also gets the low down on titanium. Also used to build airplanes, titanium or ti offers the strength of old-fashioned steel at a much lighter weight.
BRACKEN: This bike here is for a larger rider. But you can see it's just over about 2.5 pounds.
SMITH: That's incredible.
BRACKEN: It's really light.
VELSHI: Serious riders will tell you that at half the weight of steel, titanium translates into a faster and smoother ride, two advantages that they're willing to pay good money for. While IF charges $1,900 for its Steel Crown Jewel model, the same frame made with titanium is priced at $3,100. It's a potential profit booster, but more on that later. Right now, Gary wants the guys to think about the big picture.
(on camera): Is this what you expected to see? The business challenges that they've got, is it what you expected? SMITH: Yes. If you compare and contrast Independent Fabrication with Timberland, our biggest challenge is how do you keep that entrepreneurial zeal and spirit and passion? Here, you know, it's the exact opposite. You know, how do you take all this passion and just focus it a little bit, don't suck the life out of it, but just focus it a little bit so that these guys can do all the great things that they want to do.
VELSHI (voice-over): Gary leaves for the day and the IF team gathers for a meeting.
(on camera): This whole issue of the turnaround and the mentor coming in, what do you think about the whole idea?
BRACKEN: I was pretty apprehensive in the beginning, I think, but I'm pretty psyched with the way things have turned out.
INGRAM: It's sometimes very difficult for 13 highly motivated, passionate, creating people to sit back and say, well maybe we shouldn't make that model anymore since we only sold five. I like that model. We make it good.
VELSHI (voice-over): Until now, IF's owners have avoided some tough decisions, including whether to focus on steel or titanium. But not all employees think this is a right time for a turnaround.
UNIDENTIFIED MALE: It's just a really bad time of year for a bike company to be doing something where they can't be making bikes. But obviously, not working for three days is going to really cut into that.
VELSHI: So in other words, these three days had better be useful for you?
UNIDENTIFIED MALE: Yes.
VELSHI: This had better -- you better come out of this thing...
(voice-over): As the IF staff heads back to work, the management team is already thinking about tonight's assignment.
INGRAM: It's going to be challenging. We're going to have to meet tonight and probably meet for quite a long time.
VELSHI: Coming up, the IF team gets a real education at Timberland headquarter.
SWARTZ: Today will be an intense day.
VELSHI: Plus, a visit to Timberland's top secret idea lab, Area 51, next on THE TURNAROUND.
VELSHI (on camera): Timberland is a company that's dedicated to innovation and quality, something it has in common with a small high- end bicycle maker about 40 miles south of here. Now, yesterday, the CEO of Timberland took a tour of the bike manufacturing plant to see how they do business. Today, the bike guys are here at Timberland to see how they do things.
(voice-over): Today, Jeff Swartz, CEO of Timberland, plans to show the Independent Fabrication or IF team the inner workings of his company.
(on camera): They've got this fear of being a big company.
SWARTZ: I want to scratch at that with these guys. Big is bad. I don't buy it.
VELSHI (voice-over): Yesterday, after meeting the 13 owners, Jeff's senior V.P., Gary Smith, gave the group some homework.
SMITH: Determine five measurable goals you'd like --I have to achieve by 2007, create a structure for mapping out roles and responsibilities.
SWARTZ: We pushed hard for delivery of those tasks and come back with five measurable outcomes. That's not like sit around and have a beer stuff. That's hard work. To tell you the truth, I'm dying to see what came of it.
VELSHI: Jeff welcomes IF's four managers, Tyler, Joe, Matt and Lloyd. The group heads upstairs where they're joined by Gary and Timberland's controller, Beth Ambargus. But before this turnaround goes any further, Jeff begins with the question he still can't get an answer to. With 13 owners, who's running the shop?
SWARTZ: Thirteen partners makes for a messy cake. I'm just trying to understand that because I don't. To hire just 13 people, no, that isn't it. Then I heard it was four people. It may not be that. Then I heard it was three people with the advice and consent of the finance team. And so, I'm being a hump semi on purpose. I'm just trying to stress the well to see OK, how do you make choices.
INGRAM: It depends on the choices.
VELSHI: Decisions about specific steps in the bike making process are made by individual employees on the shop floor. But when it comes to the big picture, it goes to a group vote. But this whole notion of joint decision-making is beginning to sound like a broken record to Jeff.
SWARTZ: When you have a decision paradigm, it allows people to make choices. It makes the welder know what he's supposed to do, the painter knows what she's supposed to. You're aligned against our mission. If you go out to the 6,000th person at Timberland, you know, Singapore, and ask them, what do we stand for, and they don't know, that's a -- that's my failure. VELSHI: And what does IF stand for? Gary takes another stab at that question.
SMITH: What were the five goals that you came up with?
BRACKEN: I had to be fair because I added one little extra, which is what I considered a little easier to do.
SWARTZ: A sixth one?
BRACKEN: Yes, I snuck in another one in. Raise wages by 25 percent for all IF employees. Two is personal time off. Three is to manage growth. Four is to find alternative streams of revenue besides frames and forks. Five is to open new markets to help level out the seasonality of our business. Six is investment planning for all IF employees. And I like the sixth one because I know we're young and crazy and make bikes, but we have a responsibility that as we grow older we have something to -- have a little nest egg.
VELSHI (on camera): One of the first things you said to me when we first met, you want people to be paid what they're worth, you want people to enjoy their experience. So it's not surprising that three out of these things are about human capital feeding people better.
GRAVES: That's the whole reason the company exists.
BRACKEN: The company is people.
VELSHI (voice-over): Timberland's controller now turns the discussion toward the company's financial situation.
BETH AMBARGUS, CONTROLLER, TIMBERLAND: I went through your financials and I think there's some good news in there. You turn a profit for the last couple of years. Your margins look pretty good overall.
VELSHI: Beth now shifts gears to the difference between steel and titanium or ti.
AMBARGUS: I don't know how much labor it takes to do ti than it takes to do steel, but my sense is that you're going to see that your gross profits are significantly higher on ti than steel.
VELSHI: The whole debate of steel versus titanium is symbolic of the problems IF has in making decisions. Even if steel bikes are less profitable than ti, Lloyd and Tyler favor keeping the line because bike traditionalists like it. But Matt and Joe know how much more money the company can make selling ti bikes. It's a struggle many businesses face but it doesn't have to be one or the other.
SMITH: We're not saying walkway from steel. What we're saying is recognize that you make less money off the steel. So there's one of two things you can do, you can sell less steel or you can raise the price on steel.
VELSHI: Later, Gary explains how Timberland does it. (on camera): Here, we have two sets of boots. They cost about $120 either one of those.
VELSHI: Which one would you prefer the customers buy more of?
SMITH: Well, if I did it purely on a profitability basis, right...
SMITH: ...I would choose this shoe. It costs me less to make it but again these two shoes appeal to different customers for different reasons. By offering this shoe, you can serve a broader array of consumers for a broader array of needs or usage occasions.
VELSHI (voice-over): Even if the company agrees to shift its focus to titanium, supply remains an issue.
GRAVES: We've been drawn to do more ti and everything. One of the things that's holding us up on that is titanium is incredibly expensive.
SWARTZ: And hard to get a hold of too.
INGRAM: Correct. There's not a lot of places you can get the titanium that we need from.
SWARTZ: If titanium is where we mark our mark, titanium is the root of our passion, then instead of telling me how hard it is to do, tell me how you're going to do it.
VELSHI: Coming up, will one reluctant IF member put an end to this turnaround?
GRAVES: We would have to quit making bikes.
VELSHI: And later, the managers try to keep the staff united.
BRACKEN: We can really tear each other apart sometimes.
VELSHI: Next on THE TURNAROUND.
BONNIE SCHNEIDER, CNN METEROLOGIST: Hi, I'm meteorologist Bonnie Schneider in the CNN Weather Center. We are tracking Hurricane Katrina, still a Category 3 storm with maximum winds at 115 miles per hour. This is a pretty large storm as well. We have hurricane force winds that extend outward of 40 miles from the storm's center.
A new updated track just came in, and this is the latest. Right now, the storm is still expected to make landfall somewhere in the Central Gulf Coast on Monday. But what has changed? The intensity. We were expecting this would be a Category 4 at landfall. But now according to the latest track, the maximum winds could get as high as 145 miles per hour before landfall. So knowing this and how strong and how powerful this hurricane will be, the National Hurricane Center has issued a hurricane watch in effect from Morgan City -- that's in St. Mary (UNINTELLIGIBLE), Louisiana, to the Pearl River, which divides Mississippi and Louisiana. And a hurricane watch, incidentally, means that we may see hurricane-like conditions within the next 36 hours. That's when we can expect that on the coastline, meaning those strong winds. So be prepared and be ready.
Here at CNN, we are your hurricane headquarters. We'll keep you up to date with the latest information on Hurricane Katrina.
VELSHI (on camera): Welcome back to THE TURNAROUND. I'm Ali Velshi in New Hampshire at the headquarters of Timberland. The CEO of this company is working with a small specialty, high-end bike owner just outside of Boston. Well, one of the owners of that company has described its structure as a social experiment. You see it's owned and operated by all 13 of its employees. Well, the bike makers have spent the last couple of days looking at their specific strengths and weaknesses. Today, though, they're looking at the bigger picture.
(voice-over): It's 2:30 p.m., John Healy, director of Timberland's invention factory, gives the IF guys a tour of the research lab, known as Area 51.
JOHN HEALY, DIRECTOR, TIMBERLAND INVENTION FACTORY: This is a Timberland designed treadmill. We can put somebody on there and you know, get them standing in one place while they're exercising so you can actually take some measurements.
This machine over here is about testing the flexibility of shoes. What I thought we would do next is just sit down, have a conversation in the lab about product development.
I have been a cyclist for 25 years and so I know a little bit about the sport. And you know I think there's some really good news when it comes to Independent Fabrication, is that you have really good brand recognition. So I'd like to hear a little bit about your thoughts about what your interests are from a product development standpoint.
EVANS: We've just been trying to incorporate the new materials and work with them. And it may seem like we're, you know, a little bit slower than most at adapting to this new technology. We have 13 people to come to a consensus with.
VELSHI: John now introduces a four-step process he uses when trying to come up with new products for Timberland.
HEALY: So the first thing that we do is talk about identifying opportunity, you know, or understanding.
VELSHI: For this, John uses an s-curve graph.
HEALY: And each one of those lines on that graph are different products. If we look at our boot business, it might be the one that's shaped like an s. It represents the fact that as time goes on we start to sell more, all right. Then something happens and it starts to tail off and then something happens and it starts to go up. Other products take a really long time to be adopted and they -- and then, all of a sudden, they really start going up. And then there are some products that go up fairly quickly, but then they start to tail off, you know, very slowly.
VELSHI: Step two, observe trends.
HEALY: Is there a difference between what's going on in the city and what's going on in the country?
VELSHI: Step three, evaluate the design.
HEALY: How do you convince somebody that your product is better than the next product down the line?
EVANS: Does it provide the stiffness that the customer wants? Does it provide the shock absorbing abilities? Things along those lines.
VELSHI: The final step is knowing how to move the idea off the drawing board and into the production line.
HEALY: You got to have materials. You got to have the processes to join things together. And it's -- you know, it's got to hit, you know, your pre-defined goals for cost margins and things like that so that you're making money, you know, off of doing this.
VELSHI: John encourages Lloyd, Joe, Matt and Tyler to brainstorm.
EVANS: Maybe we could use our resources at Laser Services to create -- use all that scrap and make laser cut items. It will take time to...
INGRAM: But how much money can we possibly charge for a product like that?
EVANS: As it stands, we're stretched with manpower. People are working overtime as it is.
GRAVES: As far as making an additional thing, I mean would it -- I think we're pretty tapped. I mean we'll have to quit making bikes, which might be good if we quit making bikes.
INGRAM: But then everybody would leave.
VELSHI: Joe switches the discussion back to titanium, which the mentors have encouraged IF to focus on.
INGRAM: I think they're 100 percent right when they say that we need to focus more attention on building ti and taking that a step further and moving on to the excess.
EVANS: Steel is real though. I mean it...
GRAVES: We can't go away from it.
BRACKEN: Well, we're always looking for new trends. And if you look at what happened, steel is going to make a comeback someday.
INGRAM: We don't have to focus on marketing on it.
GRAVES: But when they're talking about -- when they were talking about, you know, we're not known as a steel company, I think that's a problem.
EVANS: It's good to have these conversations because we don't usually have the time for them.
VELSHI: Four thirty p.m., Lloyd, Tyler, Matt and Joe end their meeting but nothing has been resolved. And after all, they've got to go back to the shop and consult the other nine members. Some of whom are hard at work assembling the custom made bike frame that I've ordered.
(on camera): Oh, look at that. That's pretty nice.
Coming up, the IF managers bring a message of change back to the other owners.
BRACKEN: Sometimes we haven't positioned ourselves as best we can as a small business.
VELSHI: Will the rest of the Independent Fabrication team buy into this turnaround?
GRAVES: I don't want to have a hundred person company really.
VELSHI: Find out next.
VELSHI (on camera): This is one of those precision-measuring instruments they use here at Independent Fabrication. It's a small specialty, high-end bike manufacturer located just outside of Boston.
Welcome back to THE TURNAROUND. I'm Ali Velshi. And we have brought in the CEO of Timberland to talk to the owners of this company and see if they can't apply the precision from the shop floor to the way they run their business.
(voice-over): It's the start of a work day that will be anything but ordinary for the 13 people who own and operate Independent Fabrication. But despite the distraction of this turnaround, work continues, including the creation of the nicest bike I'll ever own.
UNIDENTIFIED MALE: You want to make sure it fits.
VELSHI (on camera): That's some serious cutting.
UNIDENTIFIED MALE: We have to replace them pretty frequently because they get dull.
VELSHI: Yes, OK. And how are you measuring that? What's giving you that measurement?
UNIDENTIFIED MALE: Well, I sort of know from doing it.
VELSHI: Oh, I see.
(voice-over): Joel takes a break from working on my bike to get an update on yesterday's visit to Timberland.
BRACKEN: Well, we're going to talk today about our adventure yesterday up to Timberland. Things came up that we want everyone here to understand and get your reactions and help us in the future.
VELSHI: IF president, Matt Bracken begins by listing the six company goals he and the other managers laid out to Timberland executives on Day 2.
BRACKEN: To increase employee compensation, personal time off. The third goal that we talked about was a well-managed growth. We don't want this great brand we've all worked hard to establish and create and grow become a monster that we don't all want to come to work anymore.
VELSHI: IF's managers go over the final three goals, finding alternative revenue streams.
INGRAM: For example, you know, taking used or leftover ti pieces and make bottle openers out of them or something like that, which could be cool.
VELSHI: The fifth goal is identifying and opening new markets for their products, and finally, investment planning for the staff's future. To achieve those objectives, it's obvious to everyone here that IF will have to change its fundamental structure.
INGRAM: And if we're moving at a 10% growth, we're going to be a big company probably within four or five years. And you know -- and that's something that we need, as a group, to seriously take a look at, whether it, you know, means training people from the inside up, hiring from the outside.
VELSHI: It's an idea that makes Lloyd, IF's only remaining founder, nervous.
GRAVES: You know I don't want to have a hundred person company really. We make bikes slow enough now where I feel like each bike like gets the love. If we just start slamming them out, like 20,000 bikes a year or something like that, then that's going to go away.
BRACKEN: I think your point is excellent. We don't want to lose quality and we don't want to lose our composure or our skills.
UNIDENTIFIED MALE: There's nothing better than a good bike.
BRACKEN: But sometimes we haven't positioned ourself the best we can as a small business.
EVANS: To a certain degree, it's not necessarily about the money. It's about the love. It's about the bikes. It's about being together and working as a team and to get something done. And I think we have something really magical here.
BRACKEN: Because we're employee-owned and managed, we can really also tear each other apart sometimes. But together people have really helped make this truly a great place to work. We still need to keep working at it.
VELSHI: Matt brings up one more change that Timberland is suggesting, shifting IF's production and marketing focus from steel to titanium bike frames. The lighter, high-end material is tougher to work with, but customers will pay a lot more for it.
BRACKEN: Although we do well with the ti bike and it's helped grow and make the company more healthy, still, a lot of people don't know about our ti bikes.
VELSHI: Once again, the IF team can't agree on strategy. The difference this time, a decision will be made.
BRACKEN: All right, it's like (UNINTELLIGIBLE) busted back to work, you know.
UNIDENTIFIED MALE: Let's build some bikes.
BRACKEN: Do something. Go make bikes. Get at it.
VELSHI: As the factory floor starts buzzing again, the vice president of Timberland's worldwide supply chain, Gary Smith, arrives for a final discussion with the IF management team.
(on camera): What have you identified? What's the problem in the way they set their business up?
SMITH: I think the fundamental problem is that they haven't set their business up. They need to make choices about who is going to do what. They have to accept the fact that, you know, not every single individual is going to be able to control every aspect.
VELSHI (voice-over): One of the variables IF needs to control is titanium supply, especially if the company is going to put a bigger focus on titanium bikes.
(on camera): This is the titanium guy?
UNIDENTIFIED MALE: Yes. This is our titanium supplier.
VELSHI: Do you mind if I ask you what you thought -- I mean they do look like pretty round pipes, but what is that?
KEITH NORONHA, TUBING SUPPLIER: Now, basically, in fact, we were just going to present these to these guys. We have a combination. For example, we've got what's called a very high-end titanium called 6-4 titanium, (UNINTELLIGIBLE), top of the range, seamless, made in England. And the guys at IF, because they're always into the highest strength stuff, this is the kind of stuff they would actually use here. So they're not just interested in what's available to everybody else. They want the special stuff, the lightest stuff.
EVANS: We're passionate about bicycles. They're passionate about tubing...
NORONHA: That's right.
EVANS: ...and we work together.
VELSHI (voice-over): The discussion moves inside and once again, Independent Fabrication's only remaining founder reveals his reluctance to embrace change.
GRAVES: I (UNINTELLIGIBLE) standards (UNINTELLIGIBLE) steel bikes.
NORONHA: OK, that's fine.
GRAVES: But we all -- I mean I ride steel bikes.
NORONHA: It's not the danger. It's because it's been around so long, steel, in a way, it doesn't have a novelty value.
VELSHI: It's 12:30. The titanium supplier takes off. Two of the Timberland executives the IF guys met with yesterday arrive. They're here to find out if the team is really serious about channeling its passion for bike frames into a business plan.
BRACKEN: Thank you for coming back down here.
VELSHI: The mentors sit down and right away, the IF team makes an announcement that proves, without a doubt, they are serious about this turnaround.
INGRAM: John talked about in the invention factory pushing ti harder. Well, we have to do that.
BRACKEN: We haven't really worked hard to sell the story of titanium.
INGRAM: But we are going to work a little more strongly.
GRAVES: I was a little frustrated with that because I felt like there wasn't enough understanding in a three-day period to, you know, analyze our products. There is room for some of that stuff. VELSHI: The team is learning that better decision making sometimes doesn't make everyone happy.
SMITH: It's this issue of control. How do you manage the business, OK, if it's going to grow and still retain what you all value, which is the sense of camaraderie and democracy?
VELSHI: But they aren't sure it's possible.
INGRAM: If this company was spearheaded by one person saying we're going this direction, I think we would lose a lot of people here.
SMITH: I think in some sense, I think you're all yearning for a sense of direction, OK? So, you can still have 12 people or 13 people or 200 people input to that.
AMBARGUS: Listening to everybody is key but then getting together the four of you and really making decisions and going forward.
SMITH: I would love to, you know, kind of some day wake up and see you guys be a billion dollar company as long as the spirit felt in this place was still alive.
VELSHI: But the comfort level with that idea just isn't there. To Tyler and others, big remains synonymous with evil.
EVANS: And, if, you know -- and if the choice is to be a billion dollar company or to maintain that passion, I think we're going to stick with the passion.
VELSHI (on camera): It sounds like you don't want to take away from the fact that people feel ownership in this business, but it does need to evolve.
EVANS: It does need to evolve. We were talking earlier with somebody about a metaphor for this company being the actual bicycle frame itself. There's a number of tubes. There's a number of people. They all come together to form this one amazing thing. It's very important that we all work together in unison, just like the things that we make.
GRAVES: I think we need to start working on our plans for the future more.
VELSHI (voice-over): Independent Fabrication is almost there. Coming up, will a final push from Jeff make this turnaround a success?
SWARTZ: When you add decision to the way you build your business, it doesn't mean you turn into some kind of corporate monster.
(END VIDEOTAPE) (COMMERCIAL BREAK)
VELSHI (voice-over): This turnaround is just about over. The work on my bike continues. The challenge, to apply the precision used in building my bike to the way IF runs its business. For the past three days, their mentor, Timberland's CEO, Jeff Swartz, has put a lot of energy into fine tuning IF's strategy and structure.
SWARTZ: How are you guys doing?
UNIDENTIFIED MALE: Good.
UNIDENTIFIED MALE: Real good.
SWARTZ: It's only been a couple of days.
UNIDENTIFIED MALE: We're hanging in there.
UNIDENTIFIED MALE: Business is staying afloat.
SWARTZ: Are we still making bikes?
BRACKEN: Bikes are shipping.
SWARTZ: Bikes are shipping, that's proof that we got an enterprise here.
GRAVES: He's very enthusiastic so it kind of rubs off on you that he's, you know, so pumped up, you know, even though he's been in business so long.
VELSHI: In fact, it's Jeff's family's longevity in the business that allows Tyler to find some common ground with him.
EVANS: And I would like to say I would also have really liked to have met your grandfather who started your company. And his passion for boots is probably about the same kind of passion that we have for building bicycles.
SWARTZ: I really did appreciate the line about my grandfather. He would certainly have understood Tyler's compulsion for doing it. Absolutely right. It's a poignant thing. My grandfather would have loved you guys because he would have had -- in some ways, he'd have much more in common with you than not. He was an immigrant who didn't speak the language. He started the business and he failed. He started another business and failed. When you think, like, why did you -- you know why not just take a job? He was a really good craftsman. He was great with his hands and he got his fingers torn off on a machine too. He was a craftsman that relied on his hands to do it. But he just -- he went... EVANS: It didn't stop him.
SWARTZ: It didn't stop him.
VELSHI: While a lot has happened in the last three days, Jeff comes right back to the first problem he identified.
SWARTZ: OK, 13 owners doesn't mean 13 decision makers.
VELSHI: Even Lloyd and Tyler, the IF owners who have been most concerned about messing with the company's decision making collective, recognize the truth in Jeff's words.
GRAVES: It's not about ramming decisions down anyone's throat but it is about alignment and...
GRAVES: ...I think it's just having a direction where they go, you know, what's the general plan.
EVANS: We want to make bikes for a living and we want to find a viable way of doing it and a profitable way, a way that makes our lives better. And we're ready for it.
VELSHI (on camera): Do you need to change the unusual structure of your business or can you...
EVANS: We need to define it.
SWARTZ: I think that's true. I think that the conventional wisdom is going to be, there's one CEO and she makes all the choices. That's one guy's model, right? That doesn't have to be your model.
VELSHI (voice-over): Jeff's message, choose whatever structure you want, but make sure everyone understands how it works.
SWARTZ: It can't be secret. It's got to be transparent. People have got to understand, right, how do these choices get made. And if we turn on the light and hold hands and sing, it's not my way of doing things, but if that's your way of doing things, just be clear about it.
VELSHI: So IF's president, Matt Bracken, decides to be clear.
BRACKEN: The first thing we have to do is agree on a date where everyone will get together and away from the bike language, or every day production or managing the company and talk about the dreams of all these separate people.
BRACKEN: We need to look at our existing product line up and decide, you know, what's worth continuing with and what are we worth, you know, slowing down or changing price or losing.
GRAVES: There is room for some of that stuff, probably raising the price of some of the marginal products.
BRACKEN: The third thing is we need to marry our venders closer because we haven't had strong conversations with strategy with some of our venders. And it wouldn't hurt to give them our two-year sales projections.
VELSHI: And Jeff tries once more to ease IF's concerns about getting bigger.
SWARTZ: When you add your own ethic of precision and engineering and passion to the way you build your business, it doesn't mean you turn into some kind of corporate monster and all of a sudden, you know, you'll be the boys in the suits. But you can be absolutely on principle and as big an enterprise as that feels like it should be.
GRAVES: It's a pretty good shot and a lot of optimism. We've had a lot of people tell us you can't do this. You can't do it, you know, it's not going to happen, you know. You can't make it work with this kind of business model or anything like that. Now, people are saying, oh, you are doing it and it's like you're cool.
SWARTZ: I'm glad to see the history that you'll create. It'll be really cool. My mother once said this to me when I was complaining about something, and she said, "These are the good old days. Be smart enough to realize that." So I hope you enjoyed them.
UNIDENTIFIED MALE: Thank you.
SWARTZ: Thank you. I've enjoyed this.
UNIDENTIFIED MALE: Thanks.
GRAVES: I don't necessarily know if we want to be like Timberland, you know, and put aspects of Timberland into a well-run business. So, you know, it's a good experience.
BRACKEN: We want to prove we're capable in lots of different ways not just our great talents of building bikes, designing bikes, selling bikes, marketing bikes, but running a successful business so we have it in the future for not just for ourselves but maybe -- I don't know. Maybe we'll have some children who will want to run this crazy company. We don't know.
VELSHI (on camera): This turnaround is over. My bike is still a work in process. When we got here three days ago, the owners of Independent Fabrication wanted to know what was next for their business. Well, they seem to have figured out they can grow the business without sacrificing their principles but quality takes time. And these guys want to do it right.
From Somerville, Massachusetts, I'm Ali Velshi. We'll see you next time on THE TURNAROUND.
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