Think about the last time you were watching the weather and the weatherman was talking about a hurricane about to pummel some coastline. Be it Louisiana, Texas, Florida, New Jersey or North Carolina, your reaction was very likely, “Those poor SOBs.”
This is the reaction I’ve been having for nearly everyone involved in what was briefly known as Divine Cycling Group. If there’s been an uglier yard sale of emotions, unpaid invoices and lawyer paper in cycling, I haven’t seen it. I’ve been digging around for all the information I can. And while I don’t typically use the term “digging” to describe the work I do, several people have used that term in asking me about what I’ve been up to, what I’ve learned. Some have used the term with excitement and curiosity. Others have used it cautiously, nervously.
What I’ve learned is that the number of people in financial hardship as a result of the failed merger of Divine Cycling Group can’t easily be totaled. What I’ve learned is that absolutely everyone I’ve talked to have something in common: they all wonder what the future holds. They are all scared that their careers or bank accounts may take a significant hit. For some, that hit has already arrived. They also share a fear of the lawyers involved in these transactions.
I’ve talked to vendors and former contractors for Serotta. Everyone I talked to has an outstanding, unpaid balance. So far as I’ve been able to find out, these amounts range from the low four figures to the high five figures. In aggregate, it appears to be an ugly, crippling sum. And no one owed this money will go on the record to say they haven’t been paid. To a person, they are afraid that any public declaration that they have an unpaid invoice could result in punitive action from the lawyers working on behalf of Bradway Capital and others.
I contacted Brian Case, CEO of Bradway Capital. He wasn’t willing to say much for the record due to “lots of legalities,” but he did say there was likely to be some news forthcoming in 10 days to two weeks. He cautioned me that only one side of the story was circulating, indirectly alluding to Ben Serotta’s open letter to the industry. He admitted he’d been frustrated to be on the sidelines unable to tell his side of the story and was eager to do so once all the paperwork was complete.
I’ve had a couple of people who have been close to these events suggest that the morass of legal wranglings is far deeper and murkier than most would suspect. For them the smoking gun is the fact that what was Serotta is now operating as Saratoga Frameworks. They each independently noted that not only was Serotta’s intellectual property split from the real estate and the labor force, but that in Case lost control of the Serotta intellectual property in his dealings with Bill Overbay, hence the need for the Saratoga Frameworks brand, complete with logo and website. Case even told Bicycle Retailer and Industry news that Divine Cycling Group owned the Serotta brand and that while there was a chance that brand would be commercialized again at some point in the future, for now it needed to “cool off.”
It’s worth noting that Bradway Capital retains the tooling and the labor force while another company Case controls owns the real estate in which the operation is based. When I asked Case about the disposition of the Serotta name and intellectual property he cited confidentiality due to the legal proceedings and was hopeful that he’d be able to say something on the record about it in a couple of weeks, the point at which he is hopeful that the paperwork will be finalized.
Case is clearly bullish on Saratoga Frameworks. He aims to have as many as 40 employees in 2014 and to be producing as many as 2500 frames over the course of the year. However, when I asked about the people who told me had gone unpaid he began saying, “A lot of promises were made by Ben and the previous management.”
I then told him that the people I had spoken with all asserted that they had signed agreements with Bradway, not verbal agreements with Ben Serotta. Worse, each of them told me that Case had used exactly that excuse for not paying them. When pressed, he said, “We have every intention of paying our legal obligations.” Moments later he added, “Once we have a sustainable business in Saratoga we can meet those obligations.”
The questions I didn’t ask were, “What if you don’t have a viable business going forward? Does that mean you won’t pay?”
My final questions to Case regarded Mad Fiber and what would happen with that company. Currently, the web site has a single page asking visitors to check back later and the phone isn’t being answered. He admitted that production had been shut down and operations had been suspended in the short term. Again, he asked me to wait a couple of weeks when he said paperwork should be finalized and he was hopeful Mad Fiber would be up and running once again.
The assets of Blue Competition Cycles are on the block. The entire workforce has been laid off. To give you some idea of how far suspended operations can inflict pain, there’s $1 million in bicycles for which the factory that produced them hasn’t been paid. There’s a team that placed deposits on bikes to race on this year that has been stiffed. No bikes.
I respect that everyone wants a bottom line; this is very much a work in progress. The challenge here is that emotions are running high and I can’t find anyone willing to take Case at his word. It would be easy to go after Case and harp on all those unpaid bills. It would be easy to look at the firing of Ben Serotta and draw parallels to Fat City and the awful turn of events that ultimately saw Chris Chance leave the bike industry. But the bright side of that chapter of the New England bike industry includes the almost necessary rise of Independent Fabrication.
While no one will say it publicly, there are plenty of people who are whispering that Case and Overbay haven’t treated people ethically or honorably. It’s easy to point to the guy at the top and label him the villain. The challenge here is that Case believes in the workforce behind Serotta/Saratoga and under the right circumstances he may have the ability to keep those craftsmen employed. Should Saratoga go under there’s a very high likelihood that not only will the bike industry lose the opportunity to revive a great brand, the industry will lose a number of talented individuals for the simple reason that most of them won’t be able to find jobs elsewhere.
There’s an additional challenge Case and Saratoga face. They need dealers. While some dealers will likely take Saratoga as a placeholder for Serotta, I’ve spoken with several dealers who want nothing more to do with Serotta, let alone Saratoga. It’s one thing to make 2500 frames in a year; it’s another to sell them.
What happens next really rides on Brian Case. If he pulls this out and revives the Serotta brand, he’ll be a hero. If Serotta goes away but he makes a going concern of Saratoga, he’ll still be a kind of hero, just smaller scale. However, if he is unable to secure the Serotta intellectual property and both it and Saratoga Frameworks go Pan Am, then Case will be served up for all and sundry to be remembered as the black-hat-wearing evil-doer; he’ll be such an obvious a target for blame that any other storyline about Serotta’s years of questionable management will be obliterated by his inability to pull the operation out of the dive.
A couple of years ago a friend forwarded a video of a NorCal road race, one of those early-season shindigs where everyone hopes to blow the cobwebs out of the legs and get the first indications of how the season might shake out. The video in question was shot from the finish line and showed the bunch screaming into the finish over rollers when suddenly—as you guessed—there was a crash. This wasn’t one of those one guy goes down and takes two others with him. No, this was one of those body shrapnel explosions wherein the crash gets bigger and bigger, taking down ever more bicycles and guys escape one bit of carnage by running off the road only to go over the bar when their front wheel augers into a gopher hole. The crash lasted more than 30 seconds.
You’ll pardon me if I summon that image as a means of comparison for what’s been happening with Serotta over the last year. Or depending on your outlook, for the last 24 years. If you’re wondering just what I’m talking about (and I respect that not everyone reads Bicycle Retailer and Industry News or spends all their waking hours on the Serotta forum), Ben Serotta has been fired from Serotta.
No, that wasn’t a massive, gravity-generating typo.
Ben Serotta, the man with one of the most admired names in bicycle construction, has been fired from the company he has led for 41 years. It’s probably fair to say that things aren’t so heavenly at Divine Cycling Group, the latest owners of Serotta. It’s also worth noting that while Serotta says he and CEO Bill Watkins were fired, Brian Case, the chairman of Serotta and one of the directors of Divine, says the pair left the company.
The way I keep score is that any time there are competing narratives I award the point to ugly back-room dialog. This one ain’t pretty.
By “this one” I mean this version of Serotta. Serotta was sold back in ’89 to Archibald Cox, Jr. who went on to purchase Fat City Cycles in ’94. He consolidated the whole thing in Serotta’s factory in South Glens Falls, New York, only to learn that there were going to be few, if any, economies of scale. The Serotta/Fat City, LLC, merger became a classic money pit and management flail-fest. The company went through five CEOs in six years. Ben Serotta was able to buy the company back in ’97, while Fat City would survive on life support for three more years. The experience so demoralized Chris Chance, he left the industry.
Things seemed to be going well for Serotta post buy-back. He seemed to have climbed out of the problem that consumes so many businesses: the founder’s trap. Simply put, founder’s trap is where the entrepreneurial zeal of a founder cannot match the necessary management skills needed to grow a company. The Pon Holdings purchase of Cervelo suggests that they might have suffered a dollop of that as well. But Serotta had been running well for nearly 15 years when word began filtering through the industry that delivery on bikes was getting slow and erratic. Events escalated quickly.
I think it’s worth going over the timeline of what’s taken place:
- June 2012, Serotta sells building tooling and brand to Bradway Capital
- Mar. 28, 2013, Serotta lowered prices
- June 2013, consolidated under Divine Cycling Group with Mad Fiber and Blue Competition Cycles
- July 31, 2013, Serotta lays of 40 percent of workforce
- August 6, 2013, Serotta fired
As I mentioned, there was some disagreement between Divine’s announcement and Ben Serotta’s version of events. Bicycle Retailer and Industry News ran a letter he penned in the wake of his departure. While the entire letter is fascinating, I think his version of events is worth reprinting:
“Early last Sunday evening while stopped at the side of the road looking at a paper map with Marcie, thinking about where we should head to enjoy the remaining hours of a beautiful sunny, mid-summer evening, my cell phone rang and I instinctively answered it. One of the current company owners was on the other end and he coldly started, ‘I am terminating you. Your email password has been changed and your building access code has been deleted. You can arrange to get your personal things on Tuesday.’ And with that (no cause was given, aka terminated without cause) my life at Serotta the company, came to an abrupt end.”
Serotta’s letter revealed that Bill Watkins, Serotta’s CEO, had received the same treatment. Of Watkins Serotta wrote, “I’ve viewed as the company’s long missing link—someone who had the skills to lead the business end of the business, while I focused on brand and product.” It was a telling comment less for Watkins treatment than for Serotta’s explicit acknowledgement of where his strengths are and the company’s recurring issues with management.
CEOs get replaced in company purchases the way people put gas in cars. That Watkins might be tossed aside, despite having the confidence of the founder, is more surprising than it ought to be. However, tossing Ben Serotta aside strikes me as being as silly as the Dave Matthews Band touring … without Dave Matthews.
Divine’s Case says that Serotta should be back in full production shortly. The press release did contain a second bombshell, though. Case revealed plans to open Serotta to contract work.
Here’s where it’s useful to go back over the facts at hand. Serotta has had trouble delivering bicycles on time. Before waiting to get the company back on a firm foundation in capital and production, they announce they are going to … make even more bikes. That alone was pretty silly, but when you really consider his statement, it seems a bit ludicrous. How many companies are out there that need American-made frames produced on contract? The only name that comes to mind currently is Rivendell, and I think Grant Peterson has his thing running pretty well. Likely candidates aside, just which bikes are we talking about? Well, it would seem that we’re talking about steel, titanium and hybrid ti/carbon bikes. I don’t think anyone would want to stick another company’s decal on a Meivici, due to its distinctive look.
Case may have had what he believes are good reasons to jettison Serotta. A portion of his statement, which was obtained like the previous quotes from Bicycle Retailer and Industry News, suggests that he has some awareness of the importance of Ben Serotta to Serotta.
Who wants a Serotta with which Ben was not affiliated?
It would be different if he were dead and the staff was carrying on his legacy. That’s not the case. It would also be different if Serotta had been a serial entrepreneur and his departure was just him moving on to his next thing. But the name Serotta conjures high-quality bicycle frames, and his departure comes at the end of some ugly dealings, the PR battle over which Serotta has taken a decisive lead. The trouble for Divine is that Serotta’s personal DNA and the company’s are nearly impossible to tell apart. That’s part of what has given the company its caché. This isn’t Pete Best being dumped for Ringo Starr, this is Apple firing Steve Jobs.
So what of Divine Cycling Group’s other properties, Mad Fiber and Blue Competition Cycles? Well, Mad Fiber reports that all is well, nothing to see here. Maybe things are fine, but it’s hard to take that statement on face value once you read what Steven Harad, CEO of Blue, wrote in the comments following Serotta’s letter to the cycling community.
“Here’s hoping we aren’t next but it looks like we are. Lets catch up Ben Serotta.”
Word in the industry is that Blue has a shipping container full of bikes that they can’t pay for, which brings us back to one of the initial reports about just how bad things were at Serotta. Serotta said he had no operating capital for the company. An injection of capital which was to have materialized, did not.
My money says that customer interest will track in line with Ben Serotta’s location. If he extricates the name, people will be happy to continue buying Serottas, but if not, I suspect there will be far more interest in a line called “BEN” than one we all used to lust after. I’ll go a step further and say that I think Divine has badly miscalculated Ben Serotta’s value and the likelihood of this ugly breakdown to go public and not just tarnish, but ruin Serotta’s reputation. I’m aware that several of Serotta’s competitors have received a number of new orders because dealers lost faith that they will receive the custom bikes currently on order.
In almost any other circumstance, I’d be arguing for all life-support measures for Serotta, but this time I say leave the paddles in the crash cart.
Image: pilfered from Ben Serotta’s Facebook page.