Steedman Bass and his partner run an entire bicycle company on their own. With all main functions outsourced, Strida is about as ethereal as a firm can get. Malcolm Wheatley reports.
Birmingham-based Strida designs, manufactures and sells hi-tech folding bicycles. Sales revenues are just short of pounds 750,000, and 90% of the bikes that the company sells are exported. Total number of employees? Two. There's the American managing director Steedman Bass and his backer and mentor Bill Bennet. Everything else - design, manufacturing, customer service, logistics, accounting - is outsourced, making Strida just about as virtual a company as it's possible to be.
Strida is an object lesson in just how far it is possible to take outsourcing - literally as well as figuratively: the pounds 350 aluminium-framed bicycles, once manufactured in sleepy Wickham Market, Suffolk, are now assembled in Taiwan from parts produced mainly in China. But Strida also offers an insight into how far determination and lateral thinking can propel a company when faced with a clever engineering idea that turns out to be a manufacturing nightmare.
The story begins in 1996, when Bass, an avid cycle enthusiast, quit his job with a Massachusetts cycle company to help out in the family egg-distribution business. But he wanted to create a bicycle leasing business to serve the 300,000 student population in nearby Boston and began researching the market in folding bikes.
'The Strida design was intriguing, but you couldn't buy one in the US. I had one shipped over from England, rode it hard for two months, and decided it was the one,' says Bass. The leasing business was still under consideration, but in the meantime, he offered to become Strida's US distributor, signed the contract in April '98 and placed an order for 50 cycles at a landed cost of dollars 21,000.
Their arrival was a shock: of the 50 bikes, none was in saleable condition. And slowly, a torrid tale emerged: conceived by an inventor who had sold the idea to a company set up to exploit it, Strida bicycles were extremely difficult to manufacture. The bike that Bass had tested so extensively, it transpired, was only the 21st that the company had built - little more than a hand-tuned sample.
The final straw came when an order that had been delayed in manufacture for 11 months arrived in Boston just too late for the Christmas rush. 'To say that we were angry would be an understatement,' says Bass. 'We had to either get out or get control.' He put in an offer to buy the business, and it was accepted. The price? 'Under a million pounds' is all Bass will reveal.
Outsourcing began quickly, when Bass handed the production engineering and product development to an American bicycle engineering guru, who communicated with the factory using web-based collaborative engineering software. 'We needed a way to shortcut all the dialogue about who had the latest release of number, and on which CD were the current drawings,' says Bass.
The outsourcing idea gathered further impetus when a management consultant friend warned him that the business 'was in danger of going over a cliff', because Bass and backer Bennet were trying to do too much themselves. Bass acknowledged the danger signs: owning the company had forced him to recognise how difficult the bicycles were to manufacture.
With this warning and a large prospective order from Italy as incentives, Bass and Bennet flew out to the Taipei Bicycle Show in April 2001 in search of an East Asian manufacturer. The Italian order would require manufacturing costs substantially below what Strida could achieve with a British manufacturing base - even when using, as it did, seats, brake levers, cables, tyres, cranks and pedals that were already sourced from the Far East. The appeal of Far Eastern assembly was obvious.
A deal was forged with the Ming Cycle Company of Taichung, Taiwan, which in turn sources parts from mainland China and from Taiwanese manufacturers. At a stroke, says Bass, it solved the manufacturing problem. 'We were struggling to make 1,500 bikes a year, and this was a company making two million a year.' Better still, it provided a revenue boost: Ming was so intrigued by the design that it bought a licence to sell Strida cycles across Asia.
The next step was a further outsourcing deal that completed the move to corporate virtuality: tasking a company in Birmingham to take over everything apart from manufacturing - direct and indirect marketing, logistics support, wholesale and retail distribution, and accounting. 'It leaves me free to do what I ought to be doing: liaising with engineers to develop the product, and negotiating licence deals,' says Bass. 'This is a product with a lot of potential, but it won't be realised if we're swamped with detail.'
As part of this deal, Bass and Bennet get an office, in which they spend four days a week - not that Strida is a four-days-a-week kind of venture, sighs Bass: 'It's full-time, 24-by-7.' And when, in July, the last vestiges of the former Wickham Market factory moved to Birmingham, Bass spent a week shifting boxes and driving vans. 'It's not an ideal use of time, but we're a small company and everybody pitches in.'
Inspiring though the Strida story is, it runs counter to some of the received wisdom regarding outsourcing - especially as it applies to smaller businesses. For example, for outsourcing to be most effective, argues Martyn Hart, chairman of the UK's National Outsourcing Association, a body that represents such corpor- ate users of outsourcing services as Boots, J Sainsbury, Barclays Bank and American Express, businesses must first precisely define the processes that are to be outsourced, so that the effectiveness of the outsourcing can be monitored. 'Office cleaning and vehicle maintenance are relatively straightforward to outsource - it's simple to define and easy to tell whether it's been done satisfactorily. But processes such as customer service are far more difficult to define, and a much greater degree of trust is required.'
And as smaller businesses are less prepared to invest in documenting and defining their processes, they miss out on the wealth-generation that effective outsourcing yields. 'If you can't outsource, you can't outsource offshore - and so you can't get the full benefits of having PhDs in India working on your problem. Just like the 'digital divide' between rich and poor, a growing outsourcing divide is opening up between smaller firms and larger ones.'
Another common pitfall, points out Tony Vadasz, a practice director with the London office of US consulting firm Parson Consulting, lies in outsourcing a process before de-bugging it. 'Once you've outsourced, you've stabilised your cost base but you've also given away the opportunity to achieve cost reductions through generating efficiency improvements,' he argues. 'The efficiency of the operation is owned by the company that is taking it on, and if they can make it more efficient, then they will get the benefits.'
It's not an argument that greatly perturbs David Horwood, managing director of ihotdesk, a hot-desking provider based in ... well, not based anywhere, really. The 26 employees at ihotdesk - turning over pounds 1.3 million in sales last year and heading for pounds 1.5 million this year - work wherever it suits them: client premises, homes, casually rented offices, and 'anywhere with an internet connection', says Horwood. Horwood himself floats between a hot desk in Worthing, client premises, and the nearest Starbucks coffee shop - 'for the internet connectivity,' he explains.
The absence of fixed premises is possible because ihotdesk has moved most of those core business processes that require a fixed base to outsourcing providers. Finance, legal, telemarketing and office rental have already gone, marketing and sales will be going shortly, and human resources is under active consideration.
And it's this ability to work without key business processes close at hand that marks out those entrepreneurs most suited to outsourcing, to the extent of going virtual, believes John Horne, manager of a team of West Country Department of Trade and Industry business advisers. 'It's a culture thing, and you need to have the right background to see it,' he says. 'You almost need to have worked for a large multinational and seen what it's like to have important information held remotely. There's often a real fear that things will fall apart if you don't have everything close at hand.'
For his part, Strida's Bass urges careful negotiation beforehand. 'Good contracts are important,' he says. 'It may be tedious and time-consuming, but taking the time to write and negotiate good contracts that work for both parties is essential. You're placing a lot of reliance on people, and it has to work. We did our homework upfront, thinking through how we wanted the relationships to work, and that has probably eliminated 98% of the potential misunderstandings on either our part or theirs.'
Marriage, he believes, is a good analogy. 'You need to find partners who are headed in the same direction, share the same goals, have a sense of humour, and are willing to stick it out in the difficult patches.' That isn't necessarily easy. But it's always rewarding.
- Don't aim to outsource everything all at once: arrange outsourcing at a pace that is comfortable and avoids the risk of upsetting customers and employees unnecessarily.
- Be very clear as to why you're outsourcing, and what you want to get from it.
- Outsource in substantial chunks. It's easier to deal with a couple of large suppliers than several smaller companies.
- Be aware of the pluses and minuses of outsourcing without first tweaking and tuning the operation: letting the company to whom you're outsourcing do this eases the burden, but also leaves them with the benefits.
- Make sure that the companies to which you outsource fully understand what you want them to deliver, the performance targets they must meet, and what sanctions you will apply if they fail.
- Have a back-up plan. If it all goes pear-shaped, what will you do then?