What happened to Klein Bikes?

[SF Klein]

Would that be the Horst link ?, i'm sure i read somewhere Specialized crucified GT for using (stealing) the design for the LTS back in the 90's.

Could be. But I know they basically sued the crap out of everyone to show that the friendly times of MTB'ing and sharing ideas were over. Specialized bought the patent on the frame design that mounts the rear shock about mid-way along the top tube. I think their patent also includes how the rear triangle mates with the bottom bracket but I'm not sure. I thought the Horst link was pioneered by AMP.

 

[Anthony]

It doesn't look like a very wise move for Trek to have bought Klein, but why did Klein need to be bought? Put it another way, what would have happened to Klein if Trek hadn't bought the business?
I suspect it would have just gone out of business. The fact is that the business model that sustained the jewel frame builders was toast once suspension came along. Once the fork became more important (and more expensive) than the frame, and factory-built aluminium became more and more competent, not many would pay that much for a Klein frame.

Reason for Trek to buy them? Intellectual Property. Trek bought Klein and gained access to all their patents as well. Even today, Trek earns a license fee from any mfg that seeks to use one of the patents that Trek got from Klein (for example, internal cable routing). Similarly, I forget who it was that originally owned the patent for the rear shock mounting point that you see on the high end Specialized, but Specialized bought that company out and earns a license fee for every full suspension bike that uses it's patented design (and there are a lot of bikes today that use it's design).
Given how Trek has suppressed the Klein, LeMond and Bontrager brands, it's easy to argue that perhaps this was Trek's motive all along - remove a competitor from selling its bikes alongside Trek's models at the local LBS and charge other mfg's fees for the design patents that Trek got when it acquired each of those brands. It's one theory anyway....

I'm not sure I see a lot of IP value in Klein. I think it's more likely there was a change of heart/membership in Trek senior management, or simply that they realised that commercially it wasn't such a good idea as they had thought.

But my point wasn't about Trek, it was about Klein. What would have happened to Klein if Trek hadn't come along?

 

[SF Klein]

But my point wasn't about Trek, it was about Klein. What would have happened to Klein if Trek hadn't come along?

My personal opinion:

Assuming Klein solved some of its quality control (see my other threads on my own bikes) and customer service issues, I believe they would have transformed from a leading edge maker of aluminum bikes, to a leading edge maker of carbon bikes, or perhaps aluminum/carbon fiber blend bikes. Klein had already been using CF with aluminum on the Adroit back in 1992. If you read some of the material on speeches Gary gave back in the day about frame building materials, he expressed a certain amount of respect for CF. Klein also had a very strong relationship with Markus Storck who is now one of the best mfg's of carbon fiber bikes. Given Klein's infatuation with lightness, it's easy to make a case that Gary would have at least experimented with a full CF bike. Perhaps he would have used CF for the high end bikes and aluminum for the lower end bikes.

 

[Anthony]

I agree that it's a plausible proposition that he might have wanted to do that, but why didn't he? Would it have been a commercial success marketing carbon frames built in the USA at built in the USA prices, when carbon frames are already hugely expensive even when built in the far East?

I'm not denigrating Gary Klein in any way, but I just don't know whether he had a successful company with good prospects and Trek made him an offer he couldn't refuse, or whether he had a company that was beginning to fail commercially and he was grateful if anybody would take it off his hands.

 

[SF Klein]

Would it have been a commercial success marketing carbon frames built in the USA at built in the USA prices, when carbon frames are already hugely expensive even when built in the far East?

Why couldn't it have been successful at producing in the US and pricing high? Klein had already demonstrated that it was VERY successful at coaching $$ out of its target customers' wallets. $3,800 for a 1993 Adroit for example, and customers were willing to wait the few months for delivery.

I'm not denigrating Gary Klein in any way, but I just don't know whether he had a successful company with good prospects and Trek made him an offer he couldn't refuse, or whether he had a company that was beginning to fail commercially and he was grateful if anybody would take it off his hands.

Hard to answer this without knowing how you define "success". If his company wasn't "successful", why would Trek have wanted to buy it? There must have been something that was appealing to Trek, no? Who knows, except for Gary, what was in his head in 1995 when Trek came calling? Maybe Gary had had enough of the bike business - he'd been doing it for 20 years already - and maybe he was ready to do something else entirely. His entry into the telescopes business would seem to make this theory somewhat plausible since telescopes have nothing at all to do with bikes.

 

[Anthony]

I guess people define successful as revenues growing and solidly in profit. You might buy a company like that for a multiple of earnings, and you would probably want to retain the existing leadership and designers and production process to keep the success going.

Another model is like Ford buying Jaguar, where Jaguar was not in profit and had current problems that were undermining its prestigious name. Ford were buying the Jaguar name and planning to use their own R&D to build cars that would have higher prestige than Fords and greater reliability than existing Jaguars. This model can include asset-stripping, where you actually close the existing operation, sell off its assets and transfer design and production under that brand name to your own factory.

The hatred towards Trek implies that this takeover was more along the lines of the second model, but that implies that Klein was not financially successful at that point nor looking forward. If it was successful, you would expect them to have followed the first model.

 

[SF Klein]

I think that it's somewhat simplistic to suggest that it's a case of either X or Y. Even in your own examples there are 2 cases of success:

1. In your first, the success is measured by revenues and growth (which Klein had by the way. Profits? Who knows except for Gary & Trek since it wasn't a public company)

2. In your second, you mention that Jaguar was successful at maintaining a premium brand image (despite dwindling sales, quality issues, etc.)

There's a lot of gray area in the middle and again, only Gary knows why he sold out. Perhaps he measured his success at how much he contributed to the MTB world and certainly, his reputation and his patent portfolio would suggest that if that's how he looked at his business, then he was very successful. Success, especially among privately held companies, is not always measured in profits and expansion. As a matter of fact, there are strong reasons why privately held companies resist the temptation to go public because then the pressure is on to please Wall Street every 3 months when you announce your numbers vs. being able to run your business the way you want to. I'm sure you've heard of Facebook? Their success isn't measured by revenues & profits is it? (privately held by the way )

 

[Anthony]

You surprise me Jeff. Other than having a general liking for Klein and none for Trek, I have no background in this discussion and know nothing about the circumstances of the takeover. But as others are so certain in their disgust with Trek, I assumed that the circumstances and in particular the business alternatives that Klein might have had were well known. From what you say, it seems that they aren't.

I'd be interested to know how much Trek paid. If it was a lot, perhaps we should be sorry for them rather than disgusted with them. But maybe they just dug their own grave. If they were following the Ford/Jaguar or VW/Bentley model, it seems to me that they were fundamentally mistaken, as the only future for Klein that preserved the value in the name was in Chehalis and under GK's direction.

 

[SF Klein]

Surprise you? How so? Keep in mind, all the stuff I'm posting here is simply my opinion and my synthesis of the situation at the time, from a customer's point of view and from what I've read off the web (Gary's speeches, RetroBike, various magazines, etc.). I also posted a photo essay on RB comparing Klein frames over the years because, to me, Klein had already begun to remove some of the nicer details and workmanship from their frames even before the Trek buyout. Presumably these changes were done to simplify manufacturing, improve durability and reduce costs (at least that's why most businesses opt to change their products).

Just looking at Klein's product line and pricing strategy, it's clear that he intended his bikes to occupy the "Ferrari" end of the bike spectrum. Klein is also quoted saying that his business only really took off in the 70's/early 80's when he doubled the prices of his new fangled aluminum frames. I think when Trek took over and started reducing Klein's prices, this confused customers. Imagine you went to shop for a Ferrari expecting to spend $150K and suddenly, there's a new model on the sales floor for $100K. Some folks are sure to wonder "what's wrong with it that it 'only' costs $100K?" This is one mistake I think Trek made with Klein.

My point for this discussion though, on what would have become of Klein had Trek not bought him out, is that I don't believe Klein was destined to remain a 100% aluminum-only bike maker - he was dedicated to being a high quality, leading technology, aspirational branded bike company. And if so, then carbon and full suspension would have to have figured into his products in some way because the market moved in that direction.

But, make no mistake, I'm certainly not saying that I have it figured out 100% (or even 20%) But, I am certain that Gary Klein knows why he sold out and he knows the price Trek paid. I'm not one of the Trek haters. They did what many businesses in the US do:

1. Buy out your competitor to strip out the good parts and then discontinue that brand because it strengthens your own brand position in the marketplace, creates additional shelf space opportunity for your primary brand's products, etc. (The Dept of Justice only gets in the way if they think a buyout will hurt consumers.)

And/Or

2. Buy out your competitor, or a company that has technology/patents that can be fused with your products to make them more differentiated and popular in the marketplace. I'm a high-tech industry guy so I happen to notice this all the time with Google, Apple, Microsoft among others. The reasons that the owners agree to sell out to these big guys doesn't mean that they're trying to find a white knight to salvage their badly run small business (which is what I thought you were wondering about Klein). Size & scale still matters unfortunately in the US business world and perhaps Klein thought he'd have access to more resources under the umbrella of a big corporate parent.

I too wonder how much Trek offered Gary for the company. Whatever the amount, it was obviously enough for Gary to sell out. I don't have any pity for Trek, though, that it may have overpaid for Klein given how everything panned out. It's just too coincidental that Trek also bought out other brands who ended up going the same way Klein did. Either Trek is just REALLY bad at corporate acquisitions (Fisher, LeMond, Klein, Bontrager) OR Trek had strategized at the start to do what it did with each of these brands. Since Trek is still in business to this day, they must have at least a few smart guys running things, so I think it's the latter. My $.02

 

[Anthony]

I guess the really surprising thing is that Trek can charge $7,350 for a bike and they sell. Why does anybody with that amount of cash buy a Trek? I certainly wouldn't. If they had found that their brand couldn't sustain sales of top models, then maybe they would have branded them as Kleins and maybe that's why they bought the name. Then they found they didn't need it.

But some people just like that plain old middle of the roadness I guess.