Sorta Cutting Edge News - No. 15

Bike: What changes will Cannondale eventually undergo under new ownership?

Armstrong: There are likely to be some changes down the road and that’s likely to be a good thing. We could stand to be a little more disciplined in some of our underlying operations. Cannondale has always been and continues to be a very entrepreneurial company. Clearly, that has its blessings, but it also has its shortcomings. One of the things that will probably change is that some of our processes and procedures will become a little more disciplined and efficient.

Bike: What’s going to happen to the motorsports division? A recent Cannondale press release implied that Pegasus purchased that division as well, but clearly stated that Pegasus does not plan on operating that division.

Armstrong: Pegasus did, in fact, buy the motorsports division. They put in a stalking horse bid for both divisions. Pegasus has also said that they have no intention of running the motorsports division. What is likely to happen is that they will either sell the division or liquidate the holdings.

Bike: You guys not only designed and built motorcycles from the ground up—you also built the motorcycle factory, itself, from the ground up. How much did Cannondale invest in the motorcycle factory?

Armstrong: We invested something like $80 million in the entire motorsports project.

Bike: What will happen to the management structure at Cannondale? Will there be radical changes there?

Armstrong: Not really. Pegasus may want to be involved in some of our business decisions, so at the top tier of the company, there may be some evolution of roles.  It’s not unreasonable to expect some changes, but Pegasus has said they don’t want to come in and wipe out upper-level management, because that team has been very successful with bicycles for a long time.

I suppose you could look at us and say, “You guys really screwed up bad on motorsports.” And the case could certainly be made that we made a lot of mistakes with that division due to our inexperience, but at the same time you have to give the same management team lots of credit because they’re the same guys who started the bicycle division from scratch and built it up from nothing into a successful company with $130 to $140 million worth of sales.

Bike: Well, that’s an interesting point. I suppose a lot of riders don’t realize that Cannondale didn’t start out making bicycles—that at some point, the company took the same kind of risks and succeeded when they entered the bike business.

Armstrong: Very much so. We started out in the bike business with very little credibility or background. I honestly think—and in hindsight, the evidence disagrees with me here—but I honestly think that if I were looking at a piece of paper that laid out both ventures, I would say that the move into the bike business was riskier than the move into the motorcycle business. We may not have had any experience when we jumped into motorcycles, but we had no experience, no capital and no reputation for innovation when we started out with bikes. If I were reading a case study of the two situations in a textbook, I’d say the bike business was a bigger gamble. With motorsports we had a much better brand name, we had funding and we had a much more sophisticated manufacturing system in place. It’s sort of ironic that the entry into motorsports was as difficult at it proved to be.