Each week, we seek expert advice to help a small or medium-sized business overcome a key issue.
Rainer Udala has a torn tendon in his left leg, but he isn’t slowing down. That’s because he also has a StreetStepper, a seatless bicycle ridden with a stepping motion that can be adjusted to accommodate physical challenges. It also helps strengthen core muscles.
He wants lots of other people to have one, too.
Mr. Udala, president of StreetStepper North America, also owns Beach Ride Rentals Co., which rents bikes, kayaks and paddleboards in Peachland, B.C. He first heard about the StreetStepper when his accountant rented one several years ago in Austria and fell in love with it.
“‘You gotta get these bikes in,’ he said, and would not take no for an answer,” Mr. Udala recounts. “I was cautious, but we looked at them online and my wife Jan said, ‘Absolutely, we’ve got to get these bikes in.’ It took a while for the bike’s designer to consider sending his product to North America because he was still perfecting it.”
Soon he began shipping the linear-drive bikes by air to the Udalas. They received a great response from people who tried them at their shop, and they sold 18 in 2014. They plan to bring in larger shipments, starting with a load of 70 bikes.
Mr. Udala is convinced of the bikes’ potential, for fitness buffs who want a better core workout than a regular bike provides, and for those in rehab for leg, joint or back injuries, and for triathletes and runners looking to save their knees. Other so-called “stand-up bikes” are sold in North America, but Mr. Udala is confident the StreetStepper’s compact design and performance will make it a viable competitor.
The Udalas have spent $80,000 of their own capital, spreading the word at bike shows and through advertising, websites and YouTube videos. While they are looking for sales reps in Canada, they also think that the warmer weather and bigger market south of the border would bring them even greater profit.
They already have representatives in Malibu, Calif., and Colorado Springs, Colo. The bikes are manufactured in Germany with the main parts made there; the frames are made in Taiwan. The nine-speed RS20, designed for city streets and trails, sells for $3,495. The MTS26, more of a mountain bike, sells for $4,900. Distributors make a commission of 10 per cent.
The Udalas are considering building an assembly facility, possibly in San Diego, to avoid the 13-per-cent duty for shipping from Canada and to fill future orders without delay. If it is successful, they would like to start a second assembly operation in Vancouver.
Mr. Udala has been pitching to venture capitalists and is working with the Business Development Bank of Canada. His Web efforts have been successful in generating interest in the United States.
“We’ve been at it for 2½ years, and there’s still a lot to do,” he says. “We want to lay a solid ground for expansion.”
THE CHALLENGE: What is the best way for StreetStepper Canada to set up its business and go about manufacturing in the U.S.?
THE EXPERTS WEIGH IN
Charlene Zietsma, director of entrepreneurial studies at Schulich School of Business, York University, Toronto
The Udalas should be cautious about their agreement with StreetStepper to ensure they have at least some measure of exclusivity. While the StreetStepper may have a good design, there is nothing to stop others from entering the market. Competitors already exist. The Udalas need to have a long-term business arrangement that would enable them to pay off their investments.
In this unprotectable market, speed in establishing a brand is the most likely path to success. Investing in marketing is much more important than investing in U.S. assembly operations. Financing marketing investments may be difficult, however. It is unlikely that venture capitalists will want to participate in this venture, because of the unprotectable nature of the market. The business may have to be bootstrapped, reducing the much-needed speed.
A faster and less risky approach might be to leverage partnerships with others who will be as invested as the Udalas in building the brand. For example, other bike rental places or resorts in North America may be interested in purchasing some StreetSteppers for the novelty of them. Make them “instant distributors” by providing them with a commission on any units they sell.
The decision regarding which partnerships to pursue, however, requires research into which is the best target market. Is this a cross-training tool for athletes? A therapeutic tool for rehabilitation professionals and their clients? Or a novelty item for leisure enthusiasts? Each market requires a different strategy and different partnerships. The Udalas should pick one, to avoid diluting their resources. To choose a market, they should talk to some of the more experienced StreetStepper dealers in Europe.
Richard Truscott, director in Alberta for the Canadian Federation of Independent Business, Calgary
StreetStepper is already taking a lot of steps in the right direction. For instance, creating online buzz by investing in strong Web-based sales and promotion is a must for any company looking to bring an innovative new fitness product to market.
Ultimately, a decentralized sales and distribution system would likely be best. They should allow distributors and their customers to experience the product firsthand. An experiential marketing and promotional campaign focused on events in key markets would be wise.
A complementary strategy would be to engage outdoor-equipment rental businesses in those key markets that might be interested in buying larger numbers of bikes. Also, reach out to potential product evangelists, like physiotherapists, who can serve as a source of referrals and sales leads.
Focusing on an assembly operation in the U.S. to start, with an eye to then expanding to Canada, makes good sense. Labour costs will likely be lower in the U.S. and employee recruiting should be easier. Obtaining the product manufacturing rights in North America would be a natural next step.
Tracy Baker, chief operating officer of DIRTT Environmental Solutions, which manufactures customizable architectural interiors, Calgary
For us it has been a huge advantage to set up manufacturing facilities in Savannah, Ga., and Phoenix. Our business model when we started 10 years ago was to have distributed manufacturing, and one of the main reasons was to be closer to our markets, which would allow a reduction in shipping time.
Getting outside of Calgary put us closer to the raw materials and offset added duty costs. It also allowed us to tap in to good markets for skilled labour.
But the Udalas should watch the California market. We considered California, but there is a fairly large cost to doing business there. We chose Phoenix, which considers itself like a suburb to California, but without all the regulatory constraints and challenges. There are also different tax structures to consider.
Another thing to watch for are tax incentives – the U.S. is really good about tax incentives to bring people in. We located where there is good access for trucks for delivering and shipping, and we were also looking at the commute time for the people who would be in our factories.
THREE THINGS THE COMPANY COULD DO NOW
Decide on a target market
Is this a cross-training tool for athletes? A therapeutic tool for rehabilitation professionals? Each market requires a different strategy.
Look for product evangelists
Reach out to physiotherapists who can serve as a source of referrals and sales leads.
Check out tax incentives
States and cities in the United States often offer incentives to bring new business in.
Facing a challenge? If your company could use expert help, please contact us at smallbusiness@globeandmail.com.
Follow us @GlobeSmallBiz, on Pinterest and Instagram
Join our Small Business LinkedIn group
Add us to your circles
Sign up for our weekly newsletter
Interviews have been edited and condensed.