The business plan: resources and knowledge

Frame and Wheel has learned that consumers and independent bicycle stores want help selling their old bicycle gear and bikes on eBay.  Consequently, Frame and Wheel has learned a lot about eBay and the details and complexities of shipping items by UPS to international and domestic destintations. Frame and Wheel has also witnessed how a tremendous amount of bicycle commerce has moved onto eBay stores. Indeed, prices are not always lower, but selection is unlimited, there is the opportunity to make a "best offer" and shipping can be faster than ordering something from the independent bicycle store.  Frame and Wheel needs to learn more about the actual manufacturing process of carbon road frames. This will take some time. But Frame and Wheel has learned the basics by talking to people who know more about it, studying the safety requirements for bicycles and reading the instruction manuals and other promotional materials posted on bicycle websites. Frame and Wheel would like to obtain the old molds of the defunct Argus Bicycle Company to have for research and development, but the company does not have the resources for that at the moment. Frame and Wheel has enough resources to deliver sample frames procured in Asia, retain a lawyer to revive an abandoned trademark and provide eBay selling services. That is about it. But this blog is a rough draft for a comprehensive business plan that will allow the company to obtain outside finaning, and Frame and Wheel Serivces is a way for the company to learn about the Internet channel and learn more about the bicycle market. So far so good.

Frame and Wheel logos: consumer comments

Frame and Wheel is advised that every company needs an identity and that a logo is the best way to establish this. Frame and Wheel retained Dave Putt of Dave Putt Design to originate a logo for the company. Frame and Wheel explained that the name of the company refers to the two fundamental shapes of a bicycle (a diamond and a circle) and that the name was deliberately vague because the core business of the company was unknown at the time of its formation.

Mr. Putt recently provided the initial results of this exercise and Frame and Wheel is keen to obtain thoughts and comments on these logos from the consumer before beginning another round of changes (if that is required). Frame and Wheel wants the consumer to have a say in this adventure and may as well start with the logo. Also, the logo of Frame and Wheel might end up as the logo for the bicycle frame if the Austro-Daimler avenue does not work out. Frame and Wheel is not convinced that the name of the company is suitable for a carbon frame, but Frame and Wheel would like to know what the consumer thinks. Any changes or recommendations can be made at this point: color changes, repositioning the shapes, mixing and matching, with text or without text, etc. Thanks!
Version One

Version Two

Version Three

The business plan: what is the service

Through Frame and Wheel Services, Frame and Wheel provides eBay selling services for individual cyclists and independent bicycle stores in the Greater Portland, Maine area. The company handles all aspects of the listing for the client. This includes: cleaning the item and making minor repairs, creating images of the items, originating additional research about the item, originating the description of the item, uploading the information to eBay, monitoring the listing and providing updates to the client, fielding questions from potential buyers, packing the item and bringing the item to the shipping service. In exchange for its financing and execution services, the company charges a fee of 25% of the final value price of the listing.

Frame and Wheel embarked on this business to learn more about bicycles and their value, to see who sells what on eBay, to develop more experience selling on line and to observe how the market buys bicycles and cycling equipment. Frame and Wheel has completed five transactions since September, which demonstrates that there is demand for the service. The primary challenge for this business is obtaining items to sell: so far new business is word of mouth. Frame and Wheel is testing the idea of making "buyer of last resort" offers to people who are selling items on Craig's List. Frame and Wheel has learned that people selling items on Craig's List have very high and many times unrealistic ideas about what their items are worth. Consequently, they are not initially receptive, but their expectations are likely to adjust over time.

The business plan: what is the product

Frame and Wheels imports carbon fiber road frames from China and distributes them under the Austro-Daimler trademark in the United States and internationally. The company distributes the frames to independent bicycle stores using an agency model and uses the Internet to sell frames directly to consumers. Frame and Wheel is positioning the brand as a premium, heritage brand that independent bicycle stores can use to complement their Big Three selection without having to take additional financial or inventory risk.

The molds used to produce the frames are designed and owned by More Choice Inc. They are produced in six sizes (47 cm, 50 cm, 53 cm, 56 cm, 59 cm and 62 cm) and include front fork, integrated headset and seat post. Options include integrated seat post, BB30, internal cabling for brakes and shifters and braze on front derailleur. The company also produces cyclocross frames. The founder of More Choice is a former employee of Kinesis Industry Co. and has many years of experience producing carbon fiber frames. The company produces frames for other brands including BH, Champion Sytems, Ritte Racing and Kyklos. 

The frame is made of unidirectional carbon fiber. The front triangle is monocoque and the rear triangle is tube to tube. Drop outs are full carbon, the derailleur hanger is replaceable and the weight of the frame is between 800 to 1000 grams depending on the size of the frame. The down tube and chain stays are oversized: the down tube is 5.4 cm in diameter. The head tube is tapered (1 1/8 to 1 1/4 inch) and the headset is integrated and FSA components. The front fork steer tube is carbon and the weight of the fork is about 350 grams. See more about the frame on earlier posts.

Some of the risks in this adventure include the following: Frame and Wheel may not be successful in obtaining the rights to the Austro-Daimler trademark. Although the trademark has lapsed and is "dead" to the United States Patent and Trademark Office, and is unused anywhere in the world to make racing bicycles, a third party with deeper pockets and the willingness to litigate Frame and Wheel's application could cause significant disruption and expense, causing Frame and Wheel to abandon the application ( another name needs to be in reserve).
Other risks include problems with the supplier: More Choice may suddenly find itself too busy to work with a small customer like Frame and Wheel, or they may accidentally produce and deliver a flawed batch of frames, resulting in product launch delays, recall headaches, etc. Perhaps a trade war with China breaks out, resulting in import tarriffs on Chinese made goods and or a stronger Yuan. More obvious is that consumer confidence in the United States could remain stagnant for many years such that demand for a premium carbon road frame remains weak. Larger bicycle companies could also change their business model to make their offering more attractive to Internet literate consumers and independent bicycle stores, such that a new brand never gets noticed.

The business plan: is there a product or service

Frame and Wheel notes that the five transactions through Frame and Wheel Services demonstrates that there is demand for ebay selling services that target cyclists. Clients observe that they don't like the hassle of setting up an eBay account, obtaining a Paypal account, listing the item, packaging the bicycle, paying the fees and dealing with the questions from buyers, as well as the follow up with buyers. Meanwhile, buyers want value and selection and they want a smooth and fast transaction; they do not want to deal with someone who is going to do a shoddy job on the packaging for example or "forget" to mail the item for a few days.  Frame and Wheel notes that buyers frequently ask for a "Buy It Now" price to be included in the auction which suggests that they want items fast, even if it means paying a premium. Below is a profile of Frame and Wheel Services buyers:

Item	Buyer transactions	Star	State	Country
2008 Felt B 12 frame	138	Turquoise	New Jersey	USA
Part Tool PRS-5 stand	126	Turquoise	Washington	USA
2003 Felt S 22	50	Blue	British Columbia	Canada
Race Face Next Carbon bars	33	Yellow	Illinois	USA
2007 Kona Major Jake	19	Yellow	North Carolina	USA
Inside Ride F Model Roller System	1	None	Quebec	Canada

All the buyers have 100% positive feed back scores. Two buyers have a turquoise star with 138 and 126 transactions; one buyer just moved from yellow to blue star status with 50 transactions; two buyers have yellow star status with 33 and 19 transactions and one buyer has no star color status given that his transaction with Frame and Wheel was his first. Buyers need more than ten transactions to obtain the color yellow. 

The significance in Frame and Wheel's view is that there are buyers who are just learning how to buy on eBay because of the promise of good vale, and there are buyers who buy their cycling gear primarily on eBay. For example, the buyer of the Felt B 12 went on to purchase shifters and cycling clothing after buying the frame. Previous to buying the frame, he bought a Rival front derailleur and numerous other items from eBay cycling stores and individuals. The remarkable thing to note is that this buyer is buying from eBay bicycle stores that have thousands of transactions to their name. This demonstrates that there is a lot of purchasing that is moving on-line. This is one reason why  Frame and Wheel is improving its eBay selling skills by selling bicycles for cyclists. 

The business plan: is there a product or service

Frame and Wheel is informed that the sample frames are ordered and delivery is November or December of this year.  The delivery date may change, and Frame and Wheel will not be surprised if it does, given the small size of the order. Nevertheless, the deal is done and Frame and Wheel is on its way to having an actual product to offer to the market. Frame and Wheel modified the order so that the frames will have internal cabling throughout for aesthetic reasons, and also added an Austro-Daimler logo to the tops of the seat stays (The Puch on the top of the seat stay in the image is not going to be used). Also, the front derailleur will be braze on. The artwork is  simple (a white finish), relative to today's elaborate finishes, but that is consistent with the 80s spirit of the frame. Indeed, Frame and Wheel plans to obtain the computer software that will allow the company to do a bit more with the artwork and reduce the risk of a misunderstanding between the company and the manufacturer. 

The business plan: other items for target market

Frame and Wheel recognizes that there are other products for its target market. This includes of course wheels, which Frame and Wheel is in a position to obtain from its partner in Asia. Other items include apparel, food and specialty products. Frame and Wheel will concentrate its efforts on frames for now, but will not rule out introducing any of these products in the future. Frame and Wheel will test the market for an aftershave for cyclists later this year.

Speech function on the Mac

Frame and Wheel appreciates that the postings can be a lot to read and recommends that readers who have Mac computers experiment with the speech function to make getting through the postings a little bit easier: One highlights the text on the blog, clicks on the Apple icon and scrolls down to the Services menu and from there selects Speech. Frame and Wheel was impressed with the results.

Frame and Wheel Services transactions

Through Frame and Wheel Services, Frame and Wheel sold three bicycles, a set of rollers and a bike stand over the past two weeks for two clients. The auctions were orderly and smooth. The Kona Major Jake transaction was just below expectations perhaps because Frame and Wheel was too conservative in its description of the condition of the bike, or perhaps because another Major Jake that was a later year had just sold that week. Regardless, buyer and client were satisfied. Elsewhere, the Felt B-12 transaction was way ahead of expectations. The market seeks time trial bikes even in advance of winter, perhaps because some people who live in the northern hemisphere train for triathlons in the southern hemisphere during winter months. Indeed, Frame and Wheel received two enquiries about the bike from buyers in Australia and New Zealand, where summer is just beginning. Other enquiries came from Brazil, Peru and Switzerland. 

The most notable feature of the exercise was that the S-22 and the "F" Model Inside Ride Rollers were bought by buyers in Canada. Frame and Wheel is not surprised given the strong tradition of cycling in Canada and the weakness of the U.S. dollar against the "Looney". Indeed, the weakness of the U.S. dollar relative to all other global currencies, the popularity of shopping for cycling equipment on line and on eBay and the shaky economic conditions in Western economies explains why Frame and Wheel experienced strong demand for the items. An article in the Wall Street Journal titled Dollar's Fall Roils World provides good insight on the situation.

Frame and Wheel believes that international demand for used cycling items will remain strong because of the currency factor, but also because consumers want selection, value and convenience. EBay can deliver this. Frame and Wheel is not completely convinced that a stronger yuan will mean substantially higher costs of cycling equipment for the U.S. market because labor costs in China, although clearly on the way up, are still much lower than most places. Additionally, the market is competitive and price increases will be hard to pass along to consumers. Nevertheless, there is the risk of import tariffs being put in place by a Congress that seeks to please its angry constituents or worse, a wild rush by major countries to devalue their currencies so that their exports remain cheap, The hazards of this approach are described in the context of the Great Depression in Goodbye, Free Trade. Clearly, politicians and central bankers are not spending enough time on their bikes.

Pay a deposit on frames

Frame and Wheel notes that more viewers of the blog are voting on the various polls. This is of great excitement for Frame and Wheel. One respondent expressed a preference for the idea of paying a deposit when purchasing a frame and receiving cash back from the manufacturer when done with the frame. This idea has its origins in the program used by Staples to encourage consumers to return their ink cartridges (the arrangement is not much different than the familiar bottle refund program).
First, the consumer joins a "rewards program" by providing name, address, telephone number and email. In return, the consumer receives a card with an identification code on it. Next, the consumer brings in the used cartridges and obtains a cash credit for them after providing their rewards card. Frame and Wheel brought in seven cartridges three weeks ago and received a promise from the cashier that a check for $14.00 would be sent ($2.00 per cartridge). The check has yet to arrive, but Frame and Wheel is optimistic that it is in the mail. Working off the numbers from the Staple transaction implies that the deposit would be about 14% of the retail price of the frame ($280 on a $2,000 frame).

The program seems like it could be applied to the company's sustainability strategy: the consumer purchases the frame, provides contact information and becomes a member of the "team". The consumer uses the frame and after two years tires of it. The consumer sends the frame back to the company and receives a check or a credit towards a new frame. Frame and Wheel sends the old frames to a third party organization that recycles the carbon fiber into carbon fiber threads. One such organization is Recycled Carbon Fibre Ltd, which is based in the U.K, but planning a U.S. facility soon.
There are many details that need to be sorted out with this strategy and any ideas on it are welcomed. Frame and Wheel can think of a few hurdles: First, the credit or cash can only apply to the original owner, and verifying that may be tricky. Second, processing the old frames will require a lot of the company's resources. Third, it is not clear that any third party will buy old carbon fiber frames for their recycling input, especially at such low volumes, and the price they pay may be less than a reasonable deposit. Finally, does the consumer really want to strip all of the components off the frame?  Nevertheless, Frame and Wheel believes that if the consumer seeks this kind of program, then the company should think of ways to provide it or something like it.

The business plan: Pricing

Frame and Wheel would like to price the frames somewhere between $2,000 and $2,500 per frame. This is pretty cheeky and perhaps unrealistic given that two of the four votes on the matter suggest that consumers are only willing to pay $500 to $1,000 for a 1000g unbranded frame (one voter is willing to pay $1,000 to $1,500 and one is willing to pay more than $2,000). Frame and Wheel beleives that using a revived brand that has some lingering glamor to it will allow the company to obtain a premium price; starting up a new brand will mean a lower price at the outset and high promotion expenses. Frame and Wheel notes that new entrant Ritte Racing (which is using the same basic frame as Frame and Wheel) retails their frame for $1,600 per frame: this is clearly good value and it is suitable for that company's younger target market). The fact is Frame and Wheel has no idea what the market will pay for its frames and given all of the economic uncertainty and competition, Frame and Wheel is certain that the achievable price will be lower than $2,000 to $2,500 range. Hence, the operations of Frame and Wheel Services.

Frame and Wheel Services is the trading division of Frame and Wheel, Inc.: this business provides ebay selling services for cyclists and independent bicycle stores who do not have the infrastructure, patience, time or the interest in selling their unwanted gear and bicycles on ebay. In addition to keeping Frame and Wheel busy, the business is an excellent way for Frame and Wheel to build its ebay presence and to research how much the market is willing to pay for a bicycle or a frame.

One observation so far is that the traditional auction is a very effective way to sell bicycles and equipment on ebay. Many sellers put high reserve prices or "buy it now" prices on their items because they are holding out for a price that will cover their cost or generate a profit. Many of these items languish unsold for months because used frames and bicycles lose their value as quickly as cars (or faster).

Another observation is that the market pays for a brand: there are hundreds of new unbranded carbon fiber frames on ebay that are being sold by trading houses or factories in Asia for about $300-$400 per frame. Very few appear to be selling. Meanwhile, Frame and Wheel sold a battered, but still rideable 2008 Cervelo Soloist frame (everything but the wheels) for about $1,800 in 2009. The point is that the market will pay for a used branded frame before it goes for a new unbranded frame.

Items that are put on auction invariably have more bids from more bidders and more successful sales. Auctions that have a high rate of success with good selling prices are the branded frames or bicycles that are lighly used or have been demonstration models. For example, Frame and Wheel saw a 2010 Scott CR1 sell for $940 or about 40% of its MSRP: it was a demonstration frame that sat in a window for most of the year (this frame sells for $2,300 new at the beginning of the year and it gets lowered to about $1,800 or less at the end of the year). Frame and Wheel believes that auctioning a new, branded frame with all of the benefits attributed to a new product (warranty, crash replacement, customer service, etc.) will yield a fair price and Frame and Wheel is likely to use this method to find out just what the price for the frames should be.

The attraction of this pricing approach is that it allows the market to decide the price without sacrificing benefits; it uses existing infrastructure, it matches supply and demand more effectively, it is clearly different and adds a promotional element; and, it encourages consumers to plan their bicycle buying activities more carefully. It also does away with the year end discounting that occurs each year at retailers. The downside is that it can be a pain to enter an auction in order to buy a frame, but Frame and Wheel cannot help noticing from its services business that there are a lot of people who are willing to do just that. Also, how this model can be reconciled with an agent is still a bit hazy. Finally, an auction model can create a negative perception about the brand.

The alternative is to simply price the frame at the desired price, develop a dealer network and support the brand with lots of marketing and discount the frame and the end of the year as the new models come rolling in. This is the traditional model and not very frugal, and certainly not any easier or less risky than something new.  

The business plan: promtional techniques

Frame and Wheel realizes that the Big Three promote their brands by convincing professional teams to ride them. Consumers see the brand ridden by a pro and it becomes desirable. This is the most expensive way to promote the brand. The least expensive way to promote the brand and the most effective is to ride the bike at the local races; this also could include setting up a tent with samples available for inspection and demonstration. This is time consuming and a not so inexpensive proposition (and it makes it hard to race): Frame and Wheel notes that Williams Cycling hired a representitive to staff a tent full of wheels at a cyclocross race in Massachusetts.
Another method is to attend the trade shows in the US and Europe and Asia. Trade shows are very good for promoting the brand with the trade and the immediate public, but they are very costly, and there must be something to show. Frame and Wheel admires the way Ritte Racing uses Internet video extensively to promote its brand: clearly, these guys have extensive cycling culture knowledge, video production expertise in addition to a very fine sense of humour. Their videos include commercials for an energy product and the surreal text to video clips (these are Frame and Wheel's favorites). Internet video must be less expensive than many alternatives and it is highly effective, and Frame and Wheel will certainly use the medium before flying off to Asia, Europe or Nevada for a week (or two).
Another alterntaive is one used increasingly in the fashion industry: it invovles collaborating with another brand. The Wall Street Journal has an article titled Is L.L. Bean Driving the Runway? This article describes how the nostalgia and iconic brands are being rediscovered by consumers for their durability and increasingly emulated by newer designers (so called new-heritiage brands). The main point of the article is that the "classic" brands are forming partnerships with these new-heritage designers to introduce new products inspired by some of the original products from years ago. The example that sticks in Frame and Wheel's mind is the partnership between Woolich and a Japanese designer to produce a wildly more posh version of the heavy cotton shirts Frame and Wheel remembers from years ago. The collaboration alternative is compelling to Frame and Wheel, and something that makes sense if Frame and Wheel is ever to design its own frame (or wheel).
Finally, Frame and Wheel beleives that the most effective and perhaps the cheapest way to promote the brand is to invite all stakeholders (the consumer, independent bike shops, etc.) to submit their ideas for how it should be done. An inclusive open approach is more likely to result in some good ideas (also known as the adjacent possible) than Frame and Wheel pecking away at the computer individually. Perhaps a Facebook account is in order.