The Orange Falling Knife Part 1

This man is clearly not happy.

For those who enjoy motorcycle industry news, a story of some significance is playing out. Back on October 21st KTM’s parent company, Pierer Mobility Group (PMG, stock symbol KTMPF) announced some fairly negative financial predictions for 2024 and into the foreseeable future. PMG had been on an absolute 10-year shred, but 2024 will have a decline in sales and profit, along with negative cash flow and excess inventory. These predictions were pessimistic enough for them to completely cancel their financial forecasts for 2024.  Speaking of "cancel", CEO Stefan Pierer also decided to "cancel" most of the board members, leaving just himself and a trusted friend.

Then, on November 12th PMG issued another press release that was considerably more negative. They describe needing to execute a "Far-reaching restructuring" and are seeking short term financing in the "three-digit million range". There are references to negotiations with their creditors - never a good sign - along with needing to "significantly" reduce production volume and overhead. The release is sparse but clear. They are in trouble.

PMGs stock had already dropped from $48.50 on January 1 to $13.05 on October 24th... But yesterday's news caused their stock to drop another 34% down to $8.50. Since January 2023 it has fallen from $82.10, a near 90% loss of value. I am not a stock analyst but those that make their living doing so seem to feel all this is quite bad.

The speed of this is stunning. PMG reported great news in January. Strong sales growth reported in March, although profitability dropped from 2023. Then PMGs June 14th  release sharply switched tone, saying they were adjusting 2024 guidance. A month later their CFO/Board Member Viktor Sigl got the axe. The August headline cites "volatile and difficult conditions".  As mentioned above, October and November releases are quite somber.  The company has added a huge amount of debt and is looking anything other than strong.

A very sharp turn in just 11 months. 

Internet reactions tracked as conversations about their quality and the general economy. Those are relevant ways to look at PMG's situation. However, I want to look at another aspect: PMG's aggressive and slightly unconventional product strategy. It is - only in my humble opinion of course - part of why they are where they are.  

Typically, product strategy is mostly a bottom up process, percolating through other layers of management. Product managers and planners look at where they and everyone else are strong, and try to find ways to either make 1. a unique product that fits into a new market space with little competition, 2. a superior product that out-performs the competition, enough to be compelling, or 3. product line fillers that they have to offer in order to be considered viable and/or to meet their dealers’ sales needs. There is a little bit of "The Art of War" thinking involved, you prefer battles you can win because you are either uncontested or stronger than the comp.

KTMs product strategy once looked like that typical model. But it has not been for almost a decade.

In my example, product management is an early component in the overall process of bringing bikes to market. Other things like sales, distribution, production, etc. are crucial, but the decisions of what bikes to make precede how to produce, promote, sell, or distribute them. I have met and spoken with hundreds of world class product people responsible for making that decision, with all sorts of backgrounds, ending up with amazing bikes and gear. Not one of them ever expressed the desire to acquire other brands, and figure out how to absorb them. (Ironically one of the more impressive product people I had a design meeting with was Gerald Kiska - head of design for KTM.)

Because it is not a product strategy, it is an acquisition management strategy. That is what I feel PMG has fallen into for the last several years. 

They started by buying Husaberg in 1995. This was a brilliant acquisition because it gave KTM the legendary RFS, which was the industry’s first high performance dual sport bike. It’s the motorcycle that built KTM. 

The RFS was an example of all three winning product strategies. They were unique and had little competition, they had vastly superior performance, and they filled KTM's line and dealerships with a much-needed hit. KTM sales from 2001 to 2007 exploded, largely built from that Husaberg acquisition.

But the Husaberg acquisition was about buying technology, not a brand. PMGs subsequent acquisitions were more ambitious but also less logical. After Husaberg, PMG bought Husqvarna, WP Suspension, Gas Gas, MV Agusta, Kiska Design, Felt Bicycles, R Raymon e-bikes (which they backed out of yet still sorta own), a share in CF Moto and a few other entities. Buying WP Suspension and Kiska Design are conventional vertical integration choices since both are suppliers. Buying MV Agusta made sense, as they are a boutique brand in a market space that would be expensive for a dirt bike brand to succeed in. Husqvarna seemed redundant even back in 2013 but they have great history and BMW was selling it for pennies on the Euro.  Buying Gas Gas was a head scratcher.

PMGs bicycle purchases are even more odd. They purchased US brand Felt Bicycles in 2021 from Rossignol. Felt is a solid brand and company but it was very hard to identify what upside PMG actually saw, that they could not create on their own. In 2023 they issued press releases stating they had sold Felt after owning it less than two years. Apparently that never happened as Felt is still listed as being one of their brands on their website. PMG also initiated then apparently backed out of the purchase of a barely known German mountain bike brand named R Raymon. PMG does currently sell bicycles under the Husqvarna and Gas Gas brands, but...not KTM. In case you missed that, PMG do not own their own KTM brand name in the bicycle industry. KTM Bicycles are owned by and sold by a completely separate company.

Unless made specifically for the target’s technology - like Husaberg - it may not have a positive effect on product integrity. It gives the product team a bunch of cool stuff to play with. But the complexities of a redundant acquisition are a real pain in the ass. With any acquisition, it is a massive time-suck dumped on mid-level management to sort through everything and everyone to identify what to share, what to divide, and what to eliminate. with the goal of reducing to the best and most efficient iteration. 

In my view, not only were PMGs acquisitions redundant, they were also inverse. In other words, successfully swallowing Husky and Gas Gas required PMG to expand or build out almost everything about them. Husky and Gas Gas were both failing. They had few dealers, no viable or hit products (the Gas Gas designs were sold to Rieju), and not much of anything else. What PMG bought was mostly just the names. Everything else had to be created. True, the two added brands could copy whatever the KTM brand had, but duplicating is creating, and combining is reducing. One is like climbing up a hill, the other like walking down.

Which brings me back to the product strategy. In my ex-product manager view of their brands, they don't have a product strategy. Instead, they have replaced it with an acquisition strategy likely handed down from the top of the company. Under those circumstances it would be extraordinarily difficult to create the brand and model differentiation needed to keep three brands efficient and interesting. This is not the only reason they went into the ditch. Certainly there is a spending and finance component, and a ton of hubris. I am either not qualified nor want to analyze those. Certainly they have had a lot of successes. But capitalism does not care about those, it is only concerned with your weaknesses. 

What I know is that getting back on track will require creating product clarity and discipline across 4 brands. 

Due to its length, I broke this commentary up into pieces. Part 2 will cover PMGs lines and models in more detail. That will be sent next week. 

Part 3 I get to play Product Planner, and give suggestions for streamlining and differentiating their brands, which models to make, positioning, etc. I would love to include your model suggestions for KTM, Husky, Gas Gas, and MV Agusta. Feel free to reply with them. 

NOTE: No one should should interpret this as Orange bashing. I have no ill will toward KTM the brand, the fans, the owners (I am one), or the bikes. This is a discussion about product strategy, NOT one of those incredibly stupid my-bike-brand-great-your-bike-brand-sucks scrums. No one should get their padded shorts in a bunch over it. 

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