Professor Ulrich's Excellent Adventure

A few smart people. A really good idea. The level-the-playing-field impact of the Internet. Who needs money-hungry VCs? The story of Wharton professor Karl Ulrich and his hot-selling scooter reminds us why we first fell in love with the Web.

It's easy to spot Karl Ulrich among the teenagers and college kids riding their kick scooters along Palo Alto's University Avenue. At 39, he's the oldest member of the group -- by more than just a few years. His sandy hair is thinning, and his shorts aren't baggy enough to match the street uniforms worn by the kids who carve arcs across the concrete. He also happens to be riding the coolest scooter around: It's got big wheels, an elegantly curved steering fork, and a charcoal-gray deck that's the size of a skateboard and that's made from carbon fiber.

Scooting around in the sunshine, Ulrich looks like a middle-aged guy searching for his second childhood. This is an undeniably strange place to find a tenured faculty member from Wharton -- a guy with three degrees from MIT and 15 patents to his name.

So why is Ulrich hanging with a bunch of scooter-heads? His joyride is actually market research for Nova Cruz Products LLC, a company that he launched last year to design, build, and sell an "upmarket" scooter. Ulrich has dedicated himself to turning a kid's toy into serious fun for adults -- and an alternative form of transportation for urban dwellers. At one level, Ulrich's latest project seems like an abrupt detour in a fast-track career -- especially to his parents, both of whom are professors. "My parents think that he's absolutely nuts," confides Karl's brother Nathan, 35, a partner at Nova Cruz, where he oversees research and development.

Ulrich is too much of an engineer to act impulsively, however. Kick scooters have become a hot fashion icon for the young and the digital in Silicon Valley and in the Bay Area, and the fad is now spreading to other major cities as well. Since September, Nova Cruz has been selling its highly engineered, smooth-gliding "Xootr" (pronounced "Zooter") as fast as it can turn the scooters out, despite prices that range from $269 to $489. Judging from the way that the kids in Palo Alto are ogling the company's newest model, Ulrich can expect to find eager buyers for this top-of-the-line Xootr.

Nova Cruz is also a welcome reminder of the early promise and the enduring appeal of the Web. It's amazing, really, how quickly the Internet economy has taken on the trappings of the old economy. Today, virtually every aspiring entrepreneur looks to the same handful of blue-chip VC firms for funding. Founders declare their intention to "get big fast" and to create billion-dollar IPOs.

The story of Karl Ulrich and the Xootr is something else entirely. It's a story about how one smart person convinced a few other smart people to get excited about a new product. It's a story about how these partners bootstrapped the resources that they needed -- no visits to Sand Hill Road, no road shows for IPO investors. It's a story about high-touch craftsmanship -- the scooters are hand-built in a New Hampshire factory -- and about high-tech marketing. And it's a story about the power of the Internet to project a good idea around the world.

Nova Cruz Products is still a small company, but it is growing fast and turning a profit. Ulrich expects revenues from the Xootr to hit $10 million in 2000; he's aiming for $50 million in 2002. The Xootr is now available at high-profile retail outlets such as FAO Schwarz and the Sharper Image. But what's most surprising, given the company's modest size, is its global reach. Nova Cruz has parlayed its presence on the Web to forge distribution links to Asia, to Australia, and to some parts of Europe. "Everyone finds us on the Web," Ulrich says. "I don't even remember how it used to work."

Professor Ulrich is on sabbatical from Wharton this year and is devoting himself full-time to growing his business. If he were back in the classroom teaching a case study based on his company, what lesson would he emphasize to his students? "I'd tell them that Ralph Waldo Emerson was right," he says. "If you build a better mousetrap, the world will beat a path to your door -- as long as you display it at mousetrap.com. If you build something fun, cool, and useful, the Web lets people find it. And once they find it, they will buy it."

Fast Growth Requires Fast Feedback

Karl Ulrich began working on the Xootr because it was the kind of product that he'd always wanted to buy. He describes himself as an "alternative-transportation nut." Growing up in the college town of Durham, New Hampshire, he rode his bicycle everywhere, and he has commuted by bicycle to his teaching jobs at MIT and at Wharton pretty much every day.

Ulrich first broached the idea of a human-powered scooter targeted at adults in an email that he sent to his brother Nathan on January 27, 1999. In six terse paragraphs, Ulrich sketched out the basic requirements: The scooter should be easy to carry into stores or offices, much faster than walking, and very cool looking ("i.e., not a geek thing"). Ulrich figured that if the cost of the parts was kept under $80, the product could be promoted and sold on the Web for less than $300. Within 10 days, Karl had crafted a business plan, and Nathan had created a prototype of the Xootr in his machine shop.

The rest of the launch proceeded just as fast. Ulrich persuaded Lunar Design Inc., an award-winning design firm, to become a partner in his venture. By July, six months after that initial email, Ulrich was ready to take orders for the Xootr.

One reason why Ulrich was able to move so fast was because he cared so much. He really believed in the concept behind the Xootr. But he also believed that moving from concept to winning product required a direct, two-way connection to customers -- the kind of relationship that flourishes through email, as well as through a Web site that invites customers into the organization. Ulrich, who taught himself HTML, built much of the Xootr site on his own, trying hard to avoid the "smoke and mirrors" that he saw elsewhere on the Web. He wanted his site to be simple and authentic: It includes pictures of the Xootr and its makers during the manufacturing process, as well as product comparisons that are candid about the Xootr's strengths and weaknesses. "People look for visual cues about what your company is like," says Ulrich. "The site makes us more approachable."

Ulrich now gets about 50 emails a day from customers telling him what they like and don't like about the Xootr. Most of them start by addressing him as "Karl." The day that he received a poem extolling the virtues of the Xootr, Ulrich knew that the feedback loop was alive and well.

Even more useful are the technical critiques sent in by scooter enthusiasts. Some people had been trying to do skateboard-style stunts on the Xootr: They'd ride it into curbs at full speed and end up breaking the steering pin. After receiving an email about the problem, Ulrich replaced every one of the affected units. And complaints about the hand brake being too hard to squeeze led to a design change that Ulrich intends to introduce this summer.

Surprise! Your Plan Doesn't Work

There's nothing more powerful than a two-way connection with customers to guide a product's evolution over time. But even the most robust customer connections can't guarantee success: Markets move too fast, competitors respond too fast, and consumer tastes change too fast. When launching a business on the Web, you should expect to be surprised -- and then respond intelligently to unforeseen problems or opportunities.

Last October, for example, a few months after he launched the Xootr Web site, Ulrich decided that it was time to test the Xootr's appeal with a key market segment: college students. He figured that the scooter would click immediately, particularly with the half million students at the country's 20 largest warm-weather campuses. It didn't take long for Ulrich and his team to settle on Stanford University as the first test market.

Ulrich paid a student agency to slip flyers under every dorm-room door on campus, offering to give away a free Xootr to 10 lucky students. All that the students had to do to qualify was to register on the Xootr Web site. Late on the night of the contest, seated at a computer in the basement of his home, in Narberth, Pennsylvania, Ulrich watched the site as the number of registrations began to climb. Because of a quirk in the Stanford network-addressing system, Ulrich could literally see the pattern as students from one dorm after another hit on the Xootr site to register. He was watching from afar the progress of flyers being shoved under doors.

Over the next couple of days, 8% of Stanford's student body registered on the Xootr site -- a response rate that would have even the most successful direct marketers doing somersaults. For a couple of months, Nova Cruz brought a small fleet of Xootrs to campus every Friday and Saturday, so that students could try them out. So how many scooters did the company sell to Stanford students? Negative one. "We actually sold one -- but then the buyer returned it," says Ulrich.

The trial blindsided Ulrich and his team. Among college students, their primary market, the Xootr just wasn't cool enough. So Ulrich moved on to plan B. On January 10, 2000, he met with his four partners and told them that he wanted to refocus the company on a battery-powered scooter, dubbed the "e-Xootr." Adding a battery, he believed, would turn the Xootr into a true commuter vehicle. The prototype that he brought along to the meeting was a hit. Tom Miner, a senior vice president at Lehman Brothers and an investor in Nova Cruz, pulled Ulrich aside and said, "Forget about the kick scooter. This is it."

But just as Ulrich was preparing to wind down production of the human-powered Xootr in favor of the e-Xootr, he got another surprise -- this time an opportunity -- in the form of a scooter manufactured in China called the "Razor." The low-cost Razor was selling particularly well in Japan, and it was fueling a scooter boom throughout Asia. Faced with a shortage of Razors in Japan, consumers and retailers began checking the Web for other places to buy scooters. Now Ulrich's Web site started to pay off -- thanks, in part, to its authentic design, but thanks also to a clever trick that Ulrich had engineered to increase his company's visibility on the Web.

Ulrich had inserted the names of competing scooters into a 200-word description of his Xootr site called a "meta-tag." He also included common misspellings of the Xootr name, as well as the words "push scooter," "kick scooter," and even "polyurethane tires." Ulrich's intended audience was the all-important search engines, which scan thousands of meta-tags and rank the most relevant matches whenever someone types in a keyword.

Ulrich had a hunch that the meta-tag would prove important in marketing the Xootr -- and he was right. Whenever potential customers typed a competitor's name into a search engine, the Xootr site popped up as well. There was no sleight of hand -- just some thoughtful code writing. "We thought that we were pretty clever," Ulrich says with a laugh.

Jeff Smith, cofounder and president of Lunar Design, calls what Ulrich did Internet "skitching" -- the term for a risky street game that involves grabbing on to the back of a car while riding a bike, or while sitting on a sled, and being pulled along by the car. "Razor was building a lot of brand awareness," says Smith. "We grabbed on and instantly became a part of the global channel. We immediately started receiving calls -- particularly from Japan, where people were eating up the Razor and were ready for a higher-quality scooter."

For six weeks, Xootr sat at the top of Yahoo!'s index for scooter sites. By the time his competitors caught on, Ulrich had established distribution deals in Australia, Hong Kong, Japan, and Singapore, as well as in the Netherlands and Switzerland. One customer asked Ulrich how much it would cost to buy a large shipping container full of Xootrs -- more scooters than Nova Cruz had made since it went into business. "It was a huge leap of faith," Ulrich says of the company's decision to go global so quickly.

But it paid off almost immediately. "Conventional wisdom holds that a new business should develop its local market first and then expand globally," Ulrich says. "But Nova Cruz pursued the opposite approach, and it grew much faster. With the right Web site, a new company can attract international customers just as easily as it can attract domestic customers."

If They Come, Can You Build It?

Success on the Web -- especially if it comes faster than expected -- creates its own challenges. Success is already emerging as a challenge for Nova Cruz, which is trying hard to keep up with demand for the Xootr. Ulrich figures that the company can produce about 100,000 units a year -- double the number of scooters that he expects to sell in 2000. But recent deals with FAO Schwarz and with the Sharper Image have already stretched Nova Cruz thin, and if Ulrich lands another big distributor, he might have to outsource production to a contract manufacturer. For the time being, though, Ulrich argues that the small scale of Nova Cruz's manufacturing operations is a virtue: It emphasizes quality and allows for the quick introduction of design changes.

Who says there's no room on the Web for old-style craftsmanship? The Xootr is hand-built in a house located on a dirt road in the New Hampshire woods -- a house that also serves as the home of Nathan Ulrich and as the site of his engineering and contract-manufacturing business, Technique Applied Science Inc. The modest scale of Nova Cruz masks the sophistication of the enterprise, however. Three computerized machine tools run three shifts, 24 hours a day. Nathan designed some homegrown tooling fixtures that allow the plant to milk these computerized machine tools for all that they're worth. The Ulrich brothers know the cost, right down to the penny, of every one of the components that make up the Xootr -- and how those costs compare with the cost of making the same part elsewhere.

The biggest challenge for Nova Cruz now, Ulrich says, is to keep up with all of the orders that are flooding in. But the MIT whiz kid is already preparing for the day when the general-interest scooter craze starts to decline. His plan: Allow scooter enthusiasts to design their own Xootrs, using the Web and Nova Cruz's manufacturing sophistication. Ulrich envisions an online-order screen with six to eight slider bars that would enable customers to shape the scooter's deck like an ellipse, an hourglass, or anything in between. Customers could design their own logo and select a custom color. They might even be able to watch their Xootr take shape in a machine tool at the New Hampshire factory.

"We want to keep the competition from moving toward price and cost, because we can't compete there," Ulrich says. "If we want to stay in the United States and do our own thing, we'd better offer lots of variety that can't be replicated by mass producers." That's next year's challenge. For now, Ulrich must catch up to global demand for the Xootr. Thanks to the Web, he's on quite a ride.

Paul C. Judge (pjudge@fastcompany.com) is a Fast Company senior editor. Contact Karl Ulrich by email (karl@novacruz.com), or learn more about Nova Cruz Products on the Web (www.xootr.com).

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