After years of quietly building Quality Bicycle Products, the parts company's sales are on a huge roll.
There's some consolation in knowing that, even with the wheels coming off Wall Street, Steve Flagg's Quality Bicycle Products (QBP) has helped keep Main Street rolling.
"We are a long-term-focused, high-performance company," said Flagg, in what is as close to a boast as the 57-year-old founder likely will ever utter.
"We focus on our customers: 5,000 bike dealers. We are bike enthusiasts and a sustainable, values-based enterprise."
Flagg, an economics graduate of the University of Minnesota, has had a yen for cycling since he was a teenager. And he has built one heck of an operation since 1981, albeit quietly. No roaring engines. No PR machines. Just pedal power. The company -- the largest bike parts and accessories wholesaler in the country -- soon will break ground on a new distribution center in Utah, a short haul from its two biggest sales states of California and Colorado.
"QBP is flat-out one of the best bicycle parts distributors in the world," said Frederick Day, executive vice president of SRAM Corp. of Chicago, a bike-component manufacturer.
"Steve holds customer service as the beacon. Great customer service, motivated employees, strong supplier relations and deep community involvement."
From its 135,000-square-foot, energy-efficient headquarters and warehouse that border Bloomington's Hyland Park Reserve, QBP employs 450 people and expects another year of profitability on revenue of $150 million, up 20 percent from 2007. If it were publicly held, QBP would rank at No. 71 on the Star Tribune 100 list of the state's biggest public companies.
QBP seems to gain a little market share each year, Flagg said. "And people are riding bikes more," said Mary Henrickson, QBP co-founder and Flagg's wife of more than 30 years. "The recession? Gas prices? Health and fitness? [People] are taking out their 10-year-old bikes and getting them fixed and riding."
Flagg pays himself a modest $126,000 annually. He also receives an unspecified dividend check every year. He said most of that pays taxes on the company's profit or is reinvested in QBP.
"Mary came from a working-poor background and doesn't have much interest in spending money," Flagg said. "Neither do I. We have enough. At the end of the day, we have a great business with dedicated hardworking employees and great customers."
QBP pays out as much as 12 percent of wages annually in bonuses, reinvests at least 25 percent of gross profit and contributes 6 percent to promote bicycling and trails and to a shop that teaches needy kids business skills and how to repair bikes. Flagg said entry-level employees are paid a "living wage" of about $11 per hour, and that there are executives paid more than he is. The owners also are exploring how to sell the company to employees through an employee stock ownership plan. The books also are open to employees.
"We don't want any mysteries about the gold box under the bed around here," Flagg said.
"We treat people with a great deal of trust and respect and we expect a lot out of them," Henrickson added. Their two grown children have pursued other careers, one as a midwife and the other at an ad agency. "I think we burned them out on the bike business when they were kids," Flagg said.
A cooperative start
Steve and Mary, students at the university in the early 1970s, met as employee/founders of the Freewheel bike cooperative on the West Bank. Together with several other owners, they learned the business. Within several years, the original founders started to peel off. One went to Harvard for an MBA, another became a diplomat, another a home builder.
"Mary gave me permission to start a wholesale bicycle-parts distribution business," Flagg said.
Dave Cleveland, the retired president of the old Riverside Bank, had worked with the Freewheel business and in 1977 made Steve and Mary a loan of $10,500 on their house. Cleveland, a veteran small-business banker who has backed a lot of successful grass-roots entrepreneurs, watched Steve and Mary roof the house, sand the floors and replace plumbing between the births of their two kids, and add about $35,000 in value in a couple of years.
Flagg put down $4,000, Cleveland provided credit backed by their house and QBP was born with about $30,000 in inventory.
Flagg, who initially focused on parts for high-quality Japanese bikes that were just hitting the market, had commitments from his small network of dealers to buy his inventory if he failed, leaving him only on the hook for a dingy, one-person office in St. Paul. He brought his dog to work to occupy himself if the phone didn't ring.
By 1985, the company hit $1 million in revenue and Flagg added a couple of workers to help with sales, order-picking and invoices. They are still with the company.
Flagg added simple touches, such as publishing prices alongside parts and pictures, instead of referring dealers to code numbers that linked to prices in the back of the catalog.
In 2005, after 20 years and three locations, QBP finished the third phase of its Bloomington complex. After spending the first 15 years of business in cramped, hot-or-cold warehouses, QBP now operates a spacious, climate-controlled warehouse that boasts 36-foot-high ceilings and 27,000 types of parts and a comfortable, modern office of open work stations. Nobody gets a corner office. But there are employee showers, a building that exceeds the state energy code by 30 percent, one of the biggest solar panels in the Upper Midwest and a large amount of recycled content.
The company last year won the governor's award for environmentalism. And in 2008, Flagg & Co. won Ernst & Young's entrepreneur competition among Upper Midwest distributors.
"Steve is such a quality individual, and he's hired quality people and they've built a great company," said Bill Miller, the Ernst & Young partner who is in charge of the entrepreneur competition program.
"He's sure no quick-buck artist. He's invested and expanded in Minnesota, and he's in it for the long haul and multiple generations of employees."