By Matt Wiebe
SOMERVILLE, MA—Independent Fabrication’s pending move from Massachusetts to New Hampshire marks the end of the idealistic dreams of its founders, and closes a chapter in the life of the 15-year-old frame manufacturer.
In 1994, Fat City Cycles faced mounting debt with no clear way out. Staff members suggested an employee buyout to company owner Chris Chance. Instead, he sold to Archibald Cox Jr., who moved Fat City to South Glens Falls, New York, consolidating it with Serotta Sports, which he owned at the time.
Suddenly unemployed, Jeff Buchholz, Ben Cole, Steven Elmes, Mike Flanigan, Lloyd Graves and Sue Kirby hatched a plan for an employee-owned company where jobs were distributed in such a way the departure of no one employee could hurt the business.
It was not all L’Internationale, Phil Ochs and Billy Bragg on continuous loop in the eight-track player. But the six 20-somethings who had just lost their jobs envisioned a communal business model to safeguard their futures.
Independent of famous names and deep pockets and dedicated to sending quality products out the door, the founders named their now iconic brand Independent Fabrication.
“We felt jilted by Fat City, all of the sudden our future was gone,” said Jeff Buchholz, who left IF in ’02 to found Sputnik Tools. “We were in our early 20s, and we all had something we were good at: pushing a boom, writing checks, welding, painting and designing frames, so we formed IF.”
At the start, when it was just six employees, with some help from Somerville Community Corporation, running the business was fun. The hours were long but everyone was sweating together.
“My dad continually reminded me I was too young to run a company, but I didn’t care. The idea of employee ownership and profit sharing and our commitment was all that was needed,” said Steven Elmes, who left the company in ’01.
Tuesday meetings when everyone came together to look at the books and share in company decisions made for an exciting and rewarding business model.
“The amount of creativity contributed by all the company owners cannot be matched by a sole proprietor model. The decision making process is slow but the potential for novel solutions is there,” said Mike Flanigan, who left in ’03 and founded ANT Bicycles.
But the beauty of painters and welders making sales and marketing decisions was also the company’s weakness.
Problems started to erode the dream as the company grew and added employees. Many newcomers had less passion and knowledge of bikes than the founders. For them it was a job, not a lifestyle.
“The only people willing to work for the wages we paid ourselves were young. And they needed training and didn’t last very long,” Flanigan said.
“The high turnover was slowing production. So we decided to hire skilled workers but needed to pay them a competitive wage. An hourly wage a few dollars more than we were getting, and we also gave them shares in the company.”
The founders worked so hard, so long and for so little in part because they loved bikes and were excited to create a respected company, but they also hoped their shares would be worth something.
The reality was the founders worked shoulder to shoulder with people they were paying a higher hourly wage, and diluted their ownership shares.
“There was never enough profit left to give anything extra to all the employee-owners,” said Jane Hayes.
Hayes started at Fat City in ’89 in the back office, and was IF’s bookkeeper until ’01.
“Fat City had overleveraged themselves and the debt built up. While we organized ourselves differently at IF, and didn’t get big loans, we did leverage ourselves working for no or little pay to free up cash flow,” she said.
“In the end it was clear our stock in the company was never going to be very valuable when our cash flow depended on employee sacrifices at times.”
While their original vision was non-hierarchal, they realized someone needed to focus on the business side of things. They hired John Barmack as a consultant, but his role quickly transitioned into that of president. Still, Barmack was an employee owner like everyone else, and employee owners voted on big issues.
When Barmack left at the end of 2002, Matt Bracken, who had been IF’s vice president of sales, was asked to take over running the business.
“When I started, IF only offered stock size steel frames. By the time I left they offered custom frames in titanium, carbon and steel. We really grew and changed as a business during that period,” Bracken said, now Pedro’s vice president of development.
The quick expansion of IF into other frame materials, and international markets, put such strain on the company that it applied for CNN’s Turnaround show. The show pairs experienced mentors with small- to mid-sized businesses to help them reach the next level.
IF was paired with Gary Smith, then senior vice president of Timberland’s worldwide supply chain. Smith, an avid cyclist, laid out what he would do to help the struggling company.
In spite of his advice, cash flow continued to hold back the company. And competition from mainline brands like Giant, Specialized and Trek was increasing. They had large engineering staffs and had made huge strides in their graphics and paint quality—a big factor in IF’s success.
In 2007 Bracken started looking for investment capital, aware he would have to sell his ownership to an investor.
Bracken approached Smith, who bought into the company acquiring a two-thirds shares from Bracken, as well as other company owners who sold shares. Smith took over company leadership as the majority owner.
While Bracken laments relinquishing ownership in the business he gave so much to, he agrees with many of the changes Smith has implemented.
“There are aspects of employee ownership that make accountability difficult, as well as compromise professionalism,” Bracken said.
“Would I do it all over again? Heck yeah. The common struggle we shared producing world-class bikes is irreplaceable,” he added.
Most of the founders agree: they would love to do it over again.