THE INSIDER PARTII

KS: So coming back to the editorial on your website. What went through my mind is that, "How can you as a manufacturer that claims 50% world market share decide not to send your product to such an important test program, where finally, the users, the consumers, from 17 to 70 year of age, representing all skill levels, have an opportunity to give you honest feedback." I don't just call it a test, I call it feedback, which most manufacturers never ask for. When I worked with Mistral over the years I often asked."Have you ever asked your customers in a structured way, what they want? 'No, we know better!'" Now here is an opportunity for 5 weeks to have such a diverse group of consumers testing your products, giving you the feedback, and that is the operative word 'feedback'. And you decide that you want to get paid for that...call it stupid. It's, it's...for a lack of a better word, it is stupid. It is just like shooting yourselves in the foot with a six shooter and pulling the trigger over and over again. It just started. After all these years in the business, it just started to boil up inside me. It was like a ground swell. I just couldn't stop myself from sitting on the computer and replying. It's like. "Listen this has to stop and it has to stop now!"

We are at a crossroad for the industry. The crossroad being that for the last 10-15 years we've built for a ever decreasing number of select few. The crossroad is that the industry has got so much structural and fundamental problems that need to be addressed. From the way products are designed, built, costed, distributed, sold to the user, support to the user. We have now entered a new Millennium, and I remember that windsurfing was so much fun in the 70s and early 80s, it was a culture, it was a lifestyle, it was a belief system, it was fun! It was the quintessential fun! And it deteriorated so into this high performance, money chasing undertaking, where big corporations that had no idea what this lifestyle was all about, determined what the customer should have

You cannot sit in an ivory tower in a corporate head office looking at your billions of totally unrelated investments and then claim to understand what windsurfing and the industry is all about. You can't do that.
On the other hand, and this is where I have hopes for the industry, there are individuals like Svein Rasmussen from STARBOARD. To me he is a saint. Svein has single-handedly created probably the most important product in the last 15 years in the form of the Go board. He has single-handedly, blood, sweat and tears, put a product and the lifestyle back together, and I said "Listen this is finally addressing the families, it is a product that the kids, the grandfather, the mother, the girlfriends can take out and have an experience that is satisfying. They may not be looping in Hookipa, they may not be doing fancy stuff in the Gorge, but they go down to a lake and have a chance at becoming a windsurfer.”
AW: Tell me the story about Svein's car.
KS: [Chuckles] I visit Svein probably every two months and every time I arrive in Bangkok, Svein picks me up in his old Volvo. This Volvo has a shot suspension, the transmission sucks and sometimes the electrical system shorts out and the windows can't be opened. Every time I ask Svein, "Now you have sold thousands of boards, commercially, Starboards is I think doing better, why don't you buy a new car?" And every time I ask, Svein tells me. "Well, if I buy a new car I always think how much advertising I could do rather than buying a car." That humbles me. That really humbles me because, someone makes a sacrifice that is so significant, because this car is a piece of junk and one day I will probably buy him a new one.

It humbles me that someone can say that I believe in the product, I believe in the industry and I will spend the money that I would otherwise spend on a new car to advertise my product, the sport, the lifestyle, the feeling. That is something that is so different to what you see from other manufacters. He is a very exceptional individual.

On the other hand you have people like Mistral that don't want to spend the money to ship a few boards to a test where you meet the user. The sharp end, the moment of truth. These are moments of truth. Right? Where you make a honest assessment with the people that buy your 12,000 boards or 15,000 boards or whatever it might be. And look at yourself and ask. "Are we addressing the needs of the consumer? Are we adding value?" Three or four times a year I take a group of ten people to Thailand. Average surfers from Malaysia. I call Svein and say. "Svein I'm coming with 8-10 people, could you give us a few boards? We'd like to try them out." Svein ships boards down to Pattaya 10, 12, 15 boards, he comes down. He sits with us the whole day. We try the board, we come back, he says. "How is it? How do you feel? Oh should we try this? Ok, let me change that." He runs around with his tool box adjusting footstraps, fins and listens to what your average Tom, Dick and Harry have to say. This is the owner of the company. This is the guy who designed it. It is the guy who has been a world champion. Unheard of from the F2s, the Mistrals and the AHD's of this world. That makes the difference. That is where you think, "I'm part of an industry, I'm going to spend money and resources on what the customer wants, I listen to what the customer wants. It is high time that the industry, that the big boys start to look at it in the same manner.
AW: Let's get back to your relationship with Mistral and I'd like you to comment on the recent resignation of the top two executives at the North/Mistral group.
KS: Ok. As I said to you before, we started negotiations for Mistral in February 1998. I engaged a group of lawyers and auditors to do the due-diligence. Jacobs had put a price on the table for the Mistral group which, in my opinion and also the opinion of my financial advisors, just far too high. Mistral, and this is an open secret, had accumulated losses that were substantial. Mistral had structural problems in the sense that it was focused so much on the high end of the market that it had not developed a succession for the windsurfers which were now in the late 30s. There were no products that would have addressed children, [Windglider??] there were no products that would address the other half of the world population which are women. Women do windsurf. It is not a domain for the men only, right? We are not that chauvinistic anymore. Anyway, the due-diligence was done and after some very extensive and intense negotiations we arrived at a price that would have been acceptable given the forecasts contained in the information memorandum and all the documents that were shown to me, would materialize.

Of course, when I looked at the price that I was willing to pay for Mistral, I looked at their budgets for their next one, two and three years and based on that, with my investment bankers we said "Yes it is a bit of a stretch but ok, let's close our eyes." Naturally there were some financial commitments with the bankers of Mistral, certain guarantees provided by Jacobs for credit lines etc. As a buyer, I would have to make up for that as well which would have significantly raised the purchase consideration.
AW: Without getting too technical. Uh, you basically wanted to buy but the price was too high...
KS: Yup, I wanted to buy and I was ready to sell home and farm and everything to make this happen because I believe with a passion into this sport and into the industry and I see the potential to make windsurfing a big fun lifestyle again. At the end of the day, the negotiations collapsed because the price gap was just to wide. There was just no way that my partners, the bankers and investors would pay this price.
But at the time I negotiated with Mistral, I had formulated a strategic plan how I wanted to develop the company after the acquisition, how I wanted to develop the industry.
AW: This was a plan for the future.
KS: Yes. Part of this strategic plan was of course to consolidate the manufacturing, the distribution facilities and resources in strategic locations. Malaysia would have been a manufacturing center because I had built a factory investing some 26 million Malaysian Ringgit (US$ 8 million) that had the capacity to produce between 25 to 30 thousand boards. A factory that was using  very new materials with new and improved manufacturing processes. Of course with this capacity, we would have been able to manufacturer a second brand and other products.

The strategic plan would have been, the consolidation of manufacturing, distribution channels and marketing. During the time I negotiated with Mistral, I had already started the first of conversations with a second brand. My strategic plan included the acquisition of a second and, possibly, a third brand.
AW: Sounds very familiar.
KS: Yeah, it is an open secret now because Mistral, after the breakdown of our negotiations, appeared to go ahead with this plan. The brands that I looked at were F2 and Fanatic. Specially, F2 as step one. I had been to Austria, I had conversations with the owners of F2, Unitech. We already were at a stage where we put some numbers on the table that would have been a purchase consideration.

So all this was going on at the time I negotiated with Mistral. Of course after the aborted acquisition, Mistral with the Jacobs group, did go ahead to acquire Fanatic in step one and F2 in step two. But somehow, again as I mentioned earlier, you cannot sit in an ivory tower, looking down at an empire of investments, from industrial to commodity trading and having this tiny investment in a sports brand but not understanding what this industry is all about.

The industry at that point of time sold only about 120,000 boards worldwide. The potential population of windsurfers out there is much, much larger and requires a very different approach, needs some very different marketing and product development strategies than that as determined by corporate managers sitting in a corporate head office in Switzerland or in Germany for that matter.

Neither the owners of Mistral, or F2 or Fanatic were windsurfers. Right? You had Mr. Schuetz of Fanatic who manufactures chemical tanks. Jacobs (Mistral), who is involved in chocolate and coffee. The Unitech group, the owners of F2 are in automotive and telephone parts manufacturing. Nobody had really been down to the ground and said "What's this windsurfing all about?"
AW: So they took your plans and ran with it.
KS: It looks that way, doesn't it. Yes. But obviously, as everybody who is involved in strategic planning can tell you, a plan is a piece of paper, and unless you have the author and the people who developed this strategy are implementing it, you will have big gaps.
These gaps may manifest themselves in the philosophy, corporate culture, believe systems, and passion that are the very essence of an organization. Passion you cannot express on a piece of paper. You have to live the passion. You have to meet that customer, listen to him, relate to that customer. Be there when something breaks and say "Why the hell did this break!  What does it take to fix it!" You cannot put this on a piece of paper. Whether Mistral had a look at my strategic plan or not is not really relevant but it does look very much like it. Unless you make the commitment with the passion, it couldn't work.
AW: So what we are seeing today and the problems we hear about the mergers...
KS: I think that is a result of poor implementation or result of being too far removed from the reality of the market and the feelings and loyalties of the customers.. Too far removed in the sense that the corporate managers are not on the ground. The result of trying to force a consolidation of three brands with very distinct identities, but not putting some real new money into the development of boards, marketing channels, of dealer networks.

You have to develop your dealer network. You have to help your dealers to develop the market too. You have look at where the next generation of windsurfers is coming from. It is not the 38-40 year olds. They are already your customers. They are yours. To a large extend this is your replacement market. You have to start selling to the kids. You have to sell to the 19, 20, 21 year olds that are now discovering and defining a new lifestyle. This is where you have to spend your money, and it is serious money. You have to develop completely new marketing concepts and you have to live what you preach. This didn't happen.

When I heard that Florian Bruner and Christian Ewert, [top two executives of the North/Mistral group who recently resigned] left or are leaving the Mistral group, the first thing that came to my mind was "Oh, another "Mickey Plank and Michael Kamm" exercise by the Swiss head office, because they too were out within 5 minutes, they were told. 'Thank you gentlemen we do not require your services any longer and here is the door'" Huh...I believe this is what happened. It's hard to imagine that, after putting in so many years of hard work, Christian and Florian would just resign in unison and say "Enough is enough!" I respect both of them, they are good friends. I think there was quite  a push from the corporate office.
AW: Could it be that the situation was so bad that they were presented with a budget and realized it was impossible to work with.
KS: You have to look at the timing. The financial year of Mistral is June. May is typically the time when the budgets for the next season are presented. I suspect Christian and Florian put a developing budget together that says "I need x dollars for next year to develop x, y and z, products, markets, channels, dealers etc.." The head office then probably said "Listen you guys, I don't want to spend more money. I want to see a bottom line." Now you're between a rock and a hard place. Christian and Florian are professionals, I can imagine that they said "Listen we can't work that way." The owner very likely then said. "Well if you can't work that way then we’ll look for someone else to make it work." I think that's pretty much what might have happened.
AW: So what now brown cow?
KS: The departure of Christian and Florian is sending an important message to the entire industry. Having two personalities like Christian and Florian depart from this new windsurfing conglomerate, raises a flag that says "We haven't been going anywhere in the last 5 - 10, and it is unlikely that we will, status quo . In a very real sense, "we've hit the wall!"

The entire windsurfing industry has been so complacent, sitting on their asses, pushing more of the same to the same customers year after year after year. And, we've hit the wall. Literally. Our growth rate in the last 3 or 4 years, where we finally saw some growth again...what are we talking about, 4, 5, 6 percent? That is insignificant. That is nothing! That is a replacement market, not a new market. People replacing boards because it has a nicer decor and maybe a sharper rail, but you are not attracting new customers. So, with Florian and Christian going, I think everybody has to take a very hard look at where this industry came from in the last 15 years. We have to start with a clean sheet of paper that says "What are we going to do in the next 5 - 10 years? I believe what we have to do is, go back into the schools, we have to go back to the young people, we have to go to the families, we have to go back into the resorts, we have to make windsurfing fun, the fun that we had in the 70s and early 80s, when windsurfing was accessible to everybody, at the right price, on a board where every Tom, Dick and Harry could sail. I'm not saying to give up at the sharp end. We will always need that. We always need role models. I will be the first to admit, that sitting at Hookipa and watching Robby and Bjorn or whoever they are, doing those wonderful things is inspiring and aspirational. But 99 out of 100 windsurfers will never achieve this level of skill, or even get to go to Maui. So what do we do? We have to develop products that address not only this 99 percent, but much more important, the untapped market of potential customers. Price, specification, customer service, listening to what they want. This is where the industry has to go. If it means that a few of the brands will go out of business, so be it. It is high time, that we rid ourselves of these static players.

The arrogance that the industry has shown to the average consumer for the last 10-15 years has to stop. And now is the time to do that. Fortunately there are people like Roberto (Ricci), Svein (Rasmussen), we have people like American Windsurfer magazine, pushing, trying to develop a new mind set. Right? Now is the time. This is what has to happen, and we have to be honest with the consumer. We have to be accountable for what we did wrong.
AW: So you wrote us a letter as an expression of your frustrations.
KS: Very much so. I am a very patient person. I've seen so much in the last couple of years, what happened, or rather what did not happen in our industry. I meet the customer every weekend. Customers coming into our centers buying gear. I see them going out to the beach and trying the first steps of this sport. The ladies telling me "Oh hey, I don't want to windsurf because my shin bones and my knees are all bloodied." Then you have someone like Svein doing something marvelous like the GO board with a soft deck or building boards for girls! Right? A product that is addressing the anatomical difference of a male and a female windsurfer.

So when I read your Sam Moses editorial about North Sports, it just blew my top. I was royally pissed off. I had to stop it and it was the time to stop it, now. There are people and organizations that go the extra mile, that put the customers first. People like you with the magazine. People like Roberto and Svein. People like Jim Drake, a pioneer that everybody has totally pushed aside. Just remember, he was one of the guys who gave us this sport. He's 72 years old and he travels around the world promoting windsurfing. He made the effort to visit Malaysia a few months ago, sat down with our windsurfers here, he gave interviews, chatted with 10 year old kids that looked at him with eyes like saucers. I said, "This is a man we should have listened to in the last 20 years, not just now." I have hope and a great deal of passion for this industry and I've put a lot of resources into developing Malaysia and Asia for windsurfing. We have to find our way back.

You know just to give you another anecdote, I sponsored the Malaysian Monsoon Madness, the biggest windsurfing event in Malaysia, it is now in it's fourth year. The first race was called the Mistral Monsoon Madness. Since I manufactured and distributed Mistral boards, I thought, "Ok I'll ask Mistral to give me some support." I didn't ask for money, I said "Give me some prizes. Give me some product prizes, give me some support to promote the sport and the brand." What I did get were 200 brochures from North Sails and Mistral, 4 or 5 banners and a airfreight bill for $600. I don't need that kind of support, I really don't.

When I subsequently asked Mistral "Why isn't there any more support?" "Huh, Asia isn't a market we are interested in." Asia is not a market we are interested in!!!! I had to say that twice because this is so unbelievable. You're looking at a population of about 2 billion people. I'm not saying they are all going to be windsurfers. What I am saying is that Asia is developing. It is affluent. Lifestyles are changing. People are taking a much harder look at their lives. They want to go out, they want to be active. You've got beaches, no end. We've got beach resorts, we've got anything you would want, windsurfing all year round. And here you got a major player telling me they are not interested in Asia.
[Sighs] I rest my case.
AW: So how can we make the changes. To make the difference?
KS: It comes back to what I said earlier. It's passion. It's the believe of putting the customer first. the believe that the customer deserves value added. I don't believe we are in a business where we just push a product across the counter, slide the credit card through the card reader and then the customer walks away. Our industry is a lot more than that. Our industry needs nurturing, needs training, need consultation, needs us to be where the customer is. Needs to be there when they need you, needs events, even if it is just a barbecue on the beach after a day of windsurfing. This sport needs island hopping. Strap a sandwich on your board and explore the islands that are accessible to you. Get a bunch of people together and take them to Bali, take them to Maui.
This is what this industry is all about and the passion that it can incite in people. It is not only sitting in a shop or an office and pushing a catalogue across and then a piece of equipment. Right? That's not it.
AW: Tell me a little about who you are.
KS: I'm German by birth, I've lived in Malaysia for almost 18 years now. Twelve years out of the eighteen I was with the Stanford Research Institute as the Director for Malaysia and also the South East Asian region.

I did economic planning for the developing economics here, focusing on technology consulting and research work. I consulted with some of the largest corporations and the government in the region from technology to economy development, aerospace planning, defense department and logistics. That's what I did for 12 years here. After I left SRI, I started to invest...let me put it this way. I ate my own medicine, because for 12 years I was telling everybody how to do it and now I live  what I preached.

I manufactured the Mistral board until last year. Due to the acquisition of F2 and Fanatic, Mistral did get some manufacturing facilities back in Europe and all the boards are now either manufactured in Europe or in Cobra [factory in Thailand]. I've started to create what I call "Action Sport and Lifestyle Centers." This addresses exactly this lifestyle that I see being the way forward in the future. People, besides work, are paying allot more attention to an active and enjoyable lifestyle. Lot of it has to do with being active, sports ranging from mountain biking to windsurfing to rock climbing to whatever you want it to be, inline skating, roller skating. These are the centers I've started to build in Malaysia. I've invested in restaurants, hotels and so on.

Now I am concentrating more on investments and my passion for the next 10 or 15 years or however long I am physically fit to go windsurfing, will be to develop this sport. In Asia, my plans are to expand into Thailand and Singapore and the rest of the South East Asian region to bring the sport back to where I think it should rightfully be.
AW: So what is it about windsurfing that gives you such passion?
KS: To me windsufing is a very powerful tool to make social, racial and class differences disappear. You come back to shore...out there you are all the same, doctors, carpenters, brick layers, doesn't matter. You come back and you have the same experience-there are no differences among the participants. The thing that bonds you is this love for the sport, this feeling of being out on the water, having the wind in your hands, pushing the board in the direction you want to go. You come back to shore and you meet people that shared the same experience. It is such a wonderful and powerful experience and we need to revive that. We need to bring that back.

Here in Malaysia I observe it when I go out to our beach on Sundays, there are doctors, students, engineers, construction workers, artists,
hawkers, they've got...
AW: Did you say hookers?
KS: Yeah, hawkers, yeah.
AW: [laughs] Really? You have hookers?
KS: I will send you a special picture. We had built a simulator at this particular center, and one Sunday when I got there is this hawker in his rubber slippers, his shorts, with a half motorcycle helmet, straps hanging down and a cigarette dangling from his lips on the windsurfing simulator...
AW: Wait, wait, wait. You said a hooker?
KS: Yes, a hawker.
AW: You mean a hawker, someone who sells things on the street.
KS: Yes, yes.
AW: I thought you said a prostitute.
KS: I can get you those too. No sweat!
[both laugh]
KS: But you know, seeing this typical traditional Asian type of individual, that earns his living cooking food out on the street stand on this windsurfing simulator with a cigarette hanging out of his mouth, it was just so great! It has reached somebody where you would say, "Never!" And this guy goes back every Sunday now and is out there right now windsurfing. I believe that it has just opened his mind, it has opened his life to a dimension that he never thought of. And he sits around with us and is one of us. It is just wonderful! Just wonderful...this feeling of equality.
AW: A feeling of re-awakening?
KS: Yes! A feeling of re-awakening because this is not a feeling for a select few, it is for everybody! Everybody who is physically fit and wants to feel good. Wants to belong to this sort of group.

We'll make it happen!


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