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Wipeout

It might have been a great Minnesota success story. It might have made its founders rich. But Excelsior-Henderson crashed and burned, taking more than $100 million in investors’ money down with it. Ten years later, Dan Hanlon wants the story—and the brand—to endure.

Wipeout

“Still fighting the good fight.”

The line is from the Web site of the Excelsior-Henderson Motorcycle Manufacturing Company, a start-up maker of heavyweight cruisers that raced across the local investment scene in the 1990s, and hasn’t been in operation for a decade.

The words come from Dan Hanlon, a Belle Plaine native and self-described farm boy and gearhead. From out of nowhere, Hanlon, joined later by his brother, Dave, and other family members, set about building a niche competitor to Harley-Davidson. The Excelsior-Henderson brand, imbued with equal measures of romance and nostalgia, dates to the early 1900s, when bicycle makers including an E-H predecessor, Schwinn, began powering bikes with combustion engines. The Hanlons’ efforts at a revival were both wildly improbable and breathtaking.

On its face, the idea of launching a new motorcycle company belongs in the you’ve-got-to-be-kidding category. It would take too much capital, and present basic business problems like building adequate distribution. But somehow, call it marketing genius, the Hanlons raised almost $100 million in debt and equity from 1993 to 1999, including a $30 million IPO (Nasdaq: BIGX) in 1997. When 5,000 people showed up for the annual meeting in 1998 and 1999, it was clear that Excelsior-Henderson was more than a motorcycle company. It was a happening.

The media loved the story. Politicians did, too. In 1996, Governor Arne Carlson held a press conference astride a prototype Super X bike. A state agency kicked in a $7.1 million loan when Excelsior-Henderson built a manufacturing plant in the Hanlons’ hometown, 40 miles southwest of the Twin Cities.

Then in 1999, the “Local Boys Make Good” story ran off the road. The narrative flipped. No longer rebels with a cause, the Hanlons became, in the eyes of many, the ham-handed farm boys who blew away almost $100 million. Production and sales were lower than projected. Supply-chain problems contributed to a margin mess where every bike built was actually costing the company money. Convinced that there was a long waiting list of customers, management failed initially to build an adequate dealer network for bikes that at retail cost $18,000.

The company was burning through millions of dollars a month. The stock price was in a death spiral after a series of ever-more-dilutive convertible preferred offerings. Last-ditch efforts to raise operating cash failed.

After a Chapter 11 filing in December 1999, the company emerged from bankruptcy in mid-2000 under the aegis of EH Partners, a Florida investment group. But according to Hanlon, EH Partners never came through with the capital that was both promised and needed to kick-start the business.

Excelsior-Henderson filed for bankruptcy again in late 2001, having never restarted production. Liquidation followed in 2002. The most visible symbol of the Hanlons’ dream—the manufacturing plant on Highway 169 in Belle Plaine—sat idle for years, finally taken over by Cambria, the manufacturer of countertops.

When I sat down with Dan Hanlon at a coffee shop last April, I half expected a biker guy, the one who called attention to himself by doing a burnout at the Daytona Beach Bike Week in 1998. Instead, Hanlon is soft spoken, earnest. Marrying early business training with his love of mechanical things, he’s now a consultant to “pre-revenue and pre-profit” start-ups—“an accountant with a toolbox,” he says.

He’s still fighting the good fight, quietly. In 2003, he self-published a book, Riding the American Dream: The Official Story of Excelsior-Henderson Motorcycles. He maintains excelsior-henderson.com, a Web site that’s everything from trading post to social network to library of all things Excelsior-Henderson. Its “document warehouse” shows blueprints for the factory, a bill of materials for components, and a timeline of events in the history of the company. Hanlon wants the story to be told right. And through the 2,000 people who own Excelsior-Henderson bikes, he says, the brand endures.

His e-mails end with the tag line “onward and upward . . . .” Perhaps. But since Hanlon was so achingly close to building a lasting company, he hangs onto the dream.

 

Q: Eighteen years ago, when you started Excelsior-Henderson predecessor Hanlon Manufacturing, was the goal to be in the motorcycle business?

A: It was always motorcycles. I was born with a wrench in my hand on the farm, and I always loved mechanical things. As a teenager, I loved cars and motorcycles. In the early 1990s, the planets were lining up to start a motorcycle company. The industry was extremely robust. The tea leaves all said it was good timing. In retrospect, it was.

Q: What’s the history of the motorcycle business?

A: The industry had contracted in the ’70s and ’80s. When we launched in the ’90s, Harley was building about 80,000 motorcycles a year. Today, they build over 200,000. At the time, I was in the market to buy a new Harley, but you couldn’t get one. There was a one- to two-year wait. And if you were looking for an American motorcycle, that was the only one.

 

Q: How did the investment climate play into your dream?

A: There was a new investment category on Wall Street: leisure, lifestyle, and recreation—companies like Harley-Davidson and Polaris. All of sudden, Harley went from being an old-line manufacturer to being a branded consumer-goods company. The very first business plan I wrote didn’t have this category, but I could see the landscape was changing.

 

Q: Did you contemplate a strategy where you would outsource manufacturing?

A: Outsource components, yes. We called ourselves a manufacturing company, and part of that was marketing and mystique. But what we really had was an assembly plant with proprietary components. Like the frame. If you’re building a motorcycle, everything bolts to the frame. If the frame is wrong, then everything else is going to be wrong.

 

Q: Looking back at the problems that emerged, manufacturing stands out.

A: In a few short years, we designed a motorcycle and got it into production. Part of me asks, ‘How did we do that so fast?’ I don’t think it could be done today. Having said that, we did commit to manufacturing by a certain date, and we missed it. By that time, we had lots of overhead and we started to lose the confidence of the marketplace. If we had been a private company, we might have weathered the storm, because it was wise to delay production as we were fine-tuning some components. But if you’re a public company and there is a delay, that is not good. As a start-up company, we saw cash as a looming issue, but our philosophy was always to live to fight another day.

Q: Why were you hit by manufacturing delays?

A: We had an overly aggressive start date. We simply had not had enough testing of components. They weren’t ready to come from our 100-plus suppliers. And on a motorcycle with about 1,000 parts, if you’re short one part, you just sit and wait. In most manufacturing businesses, 10 percent of vendors will change every year. But if you’re brand new, you don’t know which 10 they are, and you can’t afford to have back-ups to all 100 vendors.

 

Q: Your distribution network also fell short. It got as high as 130 dealers, but what was the goal?

A: We realized a little late that we needed more. Some of the dealers were too ambitious in terms of what they could actually sell.

Our business plan called for 100 to 150 dealers in the first year. If each dealer sold 30 to 40 bikes, that would have sold out our first-year production. Our goal was 4,000 bikes at about $14,000 to $15,000 [price to dealers], or starting to approach $60 million in revenue. From zero to $60 million in one year.

 

Q: Were there bikes in inventory when the plant shut down in December 1999?

A: Ninety-nine percent were at dealers. Everything we built was being shipped out. For lots of components, we were operating in a just-in-time mode. A component would come in on Tuesday, be on the bike on Wednesday, and the bike would be on its way to the dealer on Thursday. Part of the complexity when we ceased production is that there were not enough components to build more than five bikes.

 

Q: Is there more to the cost story?

A: We had reduced our component costs almost 30 percent in the 10 months since we started production. So, by the time we ceased production, we were almost to our production cost goal. It wasn’t volume that was going to drive down our costs. It was going to be redesign and re-sourcing of some components. If we had been a private company, we might have reduced production because we were losing money by producing more. We made the decision, however, to continue to produce; we had started late and didn’t want to miss the selling season.

 

Q: Starting in 1997, you and your brother were co-CEOs. Who was the Mr. Detail guy, counting every widget? Did you have a COO?

A: Never really did until late in the game. To some degree, I operated in that capacity with my background in finance and manufacturing at Honeywell and Ecolab. We rounded out the management team with four solid vice presidents, none of whom were young in their career. All in their mid-40s, been around the block. Whereas Dave and myself were younger. I was 36 when I started the company.

 

Q: Did you have the right people on what you called your ‘Road Crew’?

A: Success has a thousand fathers, and failure is an orphan. If I had to do it over again, we had the right team. It is somewhat difficult to get people to sign on to a company that has negative cash flow and a high probability of not succeeding. There had not been a successful car or motorcycle start-up as an OEM [original equipment manufacturer] in anyone’s lifetime. We went month after month with [the COO] position not getting filled and the company was getting weaker, which made the search even harder. We concluded if we can’t get an employee, we had to hire a consultant. That’s when we hired the Platinum Group [an Eden Prairie–based turnaround firm hired in August 1999].

 

Q: Stories circulated that the Harleys of the world didn’t play totally fair. Your view?

A: That is very accurate. I misjudged what they might do. I always thought business was tough, but I did not expect some of the blatant things, such as manipulation of vendors and dealers—sort of war strategy 101. You don’t always have to defeat the other army. Instead, choke off their supply line. I might be a farm kid, but it didn’t take a rocket scientist to figure that one out. We were pretty careful of our supply channel, to not use similar suppliers, because I felt that may happen. But there were some suppliers who were the only manufacturers of specialized components.

 

Q: Did you ever call anyone at Harley?

A: One time I did call the then-president and CEO of Harley and said, ‘I’ve been hearing this out in the marketplace.’ I told him that our dealers are having issues with this type of thing, your reps are coming out [to overlapping dealers]. I told him that I assumed he was unaware of all this. He shocked me when he responded, ‘We’re very aware of it, and they’re operating under the rules they should.’ We did start a file labeled ‘restraint of trade.’

Q: But you never actually sued them?

A: We didn’t have enough time. You have to have people willing to testify, to go on the record, which can hurt your own business. We did have several people on the supply side who said that they’d been ‘muscled around long enough. I’ve had it. I’m willing to do it.’ On the dealer side, as well.

 

Q: Did you or your brother sell stock after the IPO? Did you get any money out of business?

A: No, not really. A very little bit in 1999. A couple of hundred thousand. 1999 was a fun year. I started the year with a $20 million net worth and ended the year below zero.

 

Q: Below zero?

A: Like a lot of entrepreneurs, I had always planned on making it. So, I had leveraged my stock for other investments. I had bought a farm, for instance . . . . When things go down, it’s usually not just one thing. It’s a heading-for-the-door syndrome, especially when you’re on the front page of the newspaper. I had outstanding loans, and the banker is reading about things. All of a sudden, loans get called. It’s a spiral that you have to deal with.

My brother Dave and his wife took a big hit. I know I did. My family, we all lost. My mom and dad put in almost a third of their retirement savings from the farm.

People ask me how I feel about everything. I feel bad that things didn’t work out. I was an entrepreneur and I was following my dream. I disclosed all the risks up front, so everyone getting into it knew it was going to be a challenge.

When things got tough, I didn’t cut and run. I stayed in there through all the tough times.

 

Q: Did anyone make money on the deal?

A: From the time of the early shareholders to when we went public, there was a 10 to 15 times return. At the high water mark, after the IPO, there [was opportunity for] a 15 to 20 times return. I run into people and when I hear that they were former shareholders, I say, ‘Sorry you lost out.’ Many times, I’ve been told, ‘I didn’t lose out. I made money on that deal.’

Q: When you look back now, is there an emotion that trumps the other emotions?

A: I just feel real glad to have been a part of it—building it out, and working with a lot of people that were some of the best people I’ve had a chance to meet with in my lifetime. It continues today, as people are still riding our bikes. I’m proud of it, and our riders are proud to be part of it.

I feel very proud, because whether people like it or not, the Excelsior-Henderson brand, even though they are not being made today, has the ability to be in the marketplace for the next 100 years.

 

Q: How many bikes do you personally have right now?

A: I adopted a philosophy that I quit counting after 10.

 

Q: Ten?

A: I repeat my statement—I quit counting after 10. That said, they float in and out. I buy and sell. When the company went into bankruptcy, it owned serial number 001. That bike ended up being sold. Well, last year I bought serial number 001 back. I plan to keep that one forever and it will be willed to my kids and hopefully my grandkids.

 

Q: What is your brother Dave doing?

A: He bought a kitchen-countertop business in Arizona and is doing well.

 

Q: You had quite a ride.

A: Yeah, it was a lot of fun. I’d do it again. I was 36 years old and full of lots of optimism. But today there is not a need for a motorcycle like that. Then, it was the right product for the right time. Everything was lining up.

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