Quality Bicycle Products CEO Steve Flagg built his $300 million business one part at a time.
Steve Flagg, an economics student at the University of Minnesota 40 years ago, started his entrepreneurial journey fixing bikes part-time at a West Bank bicycle cooperative.
The end of the trail is not yet in sight.
However, Flagg, president of Quality Bicycle Products since 1981, has started to slowly sell his seven-figure stake in the company to other senior managers.
“I’ve been gone for seven weeks already this year,” quipped Flagg, 62, who can remember working seven days a week in the early years. “I’m just not as involved in the operations anymore. I will remain involved in the vision and strategy.”
It’s tough to find fault with the financial performance or the CEO compensation at QBP, one of the nation’s biggest bike-parts distributors. Over the last five years, right through the recession, QPB profitably doubled in size to $300 million in revenue, and started manufacturing high-end bikes at its expanded, 225,000-square-foot Bloomington facility.
QBP also added about 200 jobs, including at its growing Pennsylvania and Utah distribution sites that can deliver parts to East Coast and West Coast bike shops within a day.
Flagg, a youthful 62 who walks or rides daily, recently gave himself a raise to $150,000, less than he pays his top managers and a ton less than most CEOs of such a large (650-employee) company.
“I know we’re going to have to pay whomever is my successor more,” observed Flagg, who makes more from the modest dividend he gets on his majority-share stock holdings.
Flagg, who also recently built a second home in the splendid cycling terrain of Sedona, Ariz., started his business out of passion and conviction more than any fast-money plan.
“Steve is one of the more authentic executives around,” said Uri Neren, who leads Minneapolis-based Innovators International, an association of 50 global companies that just signed up QBP as its smallest member.
“QBP basically invented the ‘fat-tire’ business model,’’ a reference to the wider tires used for off-road and winter riding, Neren said. “They expanded the market. We recently took 60 executives down there. A lot of our members were skeptical about this little company. They came out praising Steve and his people. They have an authentic dedication to a noble mission and corporate culture. And they have the financial performance to back it up.”
Flagg has a desk the size of everybody else at a company with no private offices. He also hired bike enthusiasts. Many company practices came from factory-floor workers who helped turn QBP into an ultraefficient parts warehouse and distributor to more than 5,000 bike shops nationally.
The turbocharger has been Flagg’s devotion to expanding the bike market for QBP. That’s partly through new products and bicycling advocacy through a separate nonprofit business QBP started years ago that works for things such as bike lanes and gives grants to communities that establish bike trails.
QBP also started making customized tires in Bloomington several years ago. That effort has evolved into a full-scale manufacturing division that this year will produce 7,000 Surly, Salsa and other thin- and-fat-tire bikes and components, including 70,000 wheels.
The Minnesota-made bikes, which range from $800 to $5,000 in price, are targeted at serious bike enthusiasts. But QBP sells tens of millions of dollars worth of parts annually to shops that fix $250 bikes.
Flagg and his wife, Mary Henrickson, started QBP in a St. Paul office with a desk, a phone and some shelves. Today, QBP operates in a climate-controlled space that boasts 36-foot-high ceilings and about 30,000 different bike parts in an energy-efficient building that borders Bloomington’s Hyland Park Reserve.
Recently, Flagg had more reason to extol biking and a health culture. His employee health care premiums have not risen in five years. Flagg attributes that to health-oriented employees, bicycling, $40,000 in annual incentives QBP pays to those who bike to work at least some of the time, and a cafeteria that serves healthy food.
QBP pays out up to 12 percent of wages annually in bonuses, reinvests up to 25 percent of gross profit in the business and contributes 6 percent to promote bicycling. It also supports a Minneapolis nonprofit shop called Full Cycle that teaches needy kids business skills and how to repair bikes.
Flagg recently became the majority investor in a small California “e-tailing” company that he envisions as a way for bicyclists anywhere to quickly get on the web and search for bikes and parts and immediately be directed to the closest independent retailers.
Neren says that’s a classic example of how Flagg is trying to expand the market in a way that will benefit QBP through additional business for his independent bicycle shop customers.
Neal St. Anthony • 612-673-7144