COMMENT: Has Derby done anything wrong?

[Uploaded to BikeBiz.co.uk on 4th October]

Lets get real. You cant run a business on nostaligia or warm feelings.

Shareholders need to see profits. Banks such as Chase Manhattan, who brokered Derbys re-financing in 1997 need to see quarterly profit targets being met. Or else.

Sturmey Archer was under performing (ie profitable but not profitable enough) so had to change. Expensive consultants were brought in to advise on what changes to make.

But why pay consultants, it was always obvious what was needed from a purely financial point of view: halve the workforce, outsource much of the manufacturing, sell the freehold on the property and move to a nondescript industrial unit.

Thats what Sturmey was doing when the rug was pulled from under it.

Had Sturmey been an independent agent it could have used the £4m from the sale of its freehold to pay for the site clean-up, pay off 100 workers, buy its industrial unit and chug along happily employing 200 people and making small profits.

Or, two years down the line, it could have cashed out and sold all its patents to Shimano who could snazz up the product and ramp up production.

None of that came to pass because Derby pocketed the dosh. Perhaps it had every right to do so, Derby could say it has been carrying Sturmey for years.

The global bike industry is now run by a decreasing number of players. Some of the biggest concerns such as Derby and Accell are run by professional CEOs with backgrounds in big business (such as the sugared water trade). The accumulation of formerly independent brands under just a handful of big corporations means the bike industry HAS to have CEOs with mainstream corporate experience. Theres sometimes more money to be made in bond juggling than actually making bikes. Its not a gentlemens club any more.

It wasnt unusual for Derby to sell Sturmey Archer for thirty quid and pocket the £4m. For many corporations, thats just sound business (that is, if you take people out of the equation, more of that in a moment).

But for Sturmey to collapse just 14 weeks after Derby sold it to Lenark, smacks of a sale made in haste. And this sale is looking flakier by the day. Why go with Lenark when your buy-sell intermediary (an outfit called Oasis Europe) was said to have done due diligence (and if it did, surely it produced a report peppered with warning clauses)?

If Derby had pocketed the £4m but sold Sturmey to Shimano or some other big bike trade entity, eyebrows would have stayed horizontal. But pocket the £4m, sell to a complete outsider with no track record in the bike trade and no traceable assets and eyebrows freeze in a V-shape.

Why didnt Derby use half of the £4m to move Sturmey to new premises, get the company on its feet and then sell?

People all over the world lose their jobs when faceless corporations decide to right size. But Derby has no interests other than bike interests. Sturmey Archer going down and especially the manner of the failure reverberates around the other companies in the Derby group. None of them will admit it, but execs in Raleigh, Gazelle, Musing and others must be spitting blood. If Stumery Archer can be sold down the river, shop-floor workers of Derby-owned companies may be thinking are we next?

Managers have to motivate but its hard to keep spirits high when a parent company is involved in the kind of mess Derby finds itself in, even if it is projecting itself as a victim not a villain.

Quite apart from the pressure of knowing some innermost secrets may be revealed should a DTI investigation be launched into the Derby/Lenark deal, Gary Matthews has to convince the troops in his empire that hes a leader worth following.

And thats why all eyes are on a leader that Standard & Poor believe is still wet behind the ears in bike trade terms.

Gary Matthews clearly has fantastic financial juggling skills (he’s a Harvard MBA after all), but does he have the man- and crisis-management skills to get him out of this particularly sticky situation?

If motivation drops, so does productivity and quality-control. Key staff may decide to jump ship. The Department of Timidity and Inaction may eventually – be openly critical of Derbys business practices. All that impacts on profits, and shareholder confidence. Pocketing £14m for the Sturmey and Raleigh factory sites may soon seem like very poor economics indeed.