Peddling Innovation at Cannondale Bicycles : Recreation: An emphasis on the high-end specialty market has put sales of the company’s bikes on a roll.

Bicycles litter the hallways. Employees walk around in spandex shorts and bare feet. The company president comes to work in jeans, and the corporate headquarters are in a 19th-Century barn.

But don’t be fooled by the casual atmosphere at Cannondale Corp. This is a hard-pedaling company that has come a long way in the fast-growing bicycle industry.

Joseph S. Montgomery, 55, could not afford to make bikes when he founded the company in 1971, so he started with accessories, from nylon pouches to two-wheel trailers.

It was not until 1982 that the company’s first bicycle rolled off the lines: an all-aluminum-frame touring bike that came with Cannondale’s trademark wide tubing. The company sold 6,000 the first year.

Today, Cannondale produces 50 models of internationally known mountain and road bicycles priced from just under $400 to more than $3,000. It employs 800 people, with plants in Pennsylvania and offices in Japan and Holland.

The company’s sales have tripled in five years to about $102 million last year and are on track to improve this year--up 22% to $86 million in the first nine months ending April 1.

Earnings are also improving. The company earned $3.95 million in the first nine months of its current fiscal year, up from $340,000 in the same period last year. It lost $600,000 in 1994.

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Investors seem pleased with the company, which went public in November. Its stock debuted at $13 a share and is now trading at around $17.50 per share on Nasdaq, up nearly 80% from a low of $9.75.

Although Montgomery initially was worried about losing some of his independence when he took the company public, he said the move has not greatly changed Cannondale’s mission or operations.

Montgomery was inspired to get into the bike business after a stint on Wall Street analyzing the sporting goods industry. It was there that he discovered that leisure-oriented businesses were on an upswing.

In the past decade, the number of active adult cyclists has grown threefold, according to the Bicycle Market Research Institute of Boston.

About 11.3 million bicycles were sold in the United States in 1993, according to the institute, with the relatively new mountain bikes taking the lion’s share, about 60% of all domestic sales.

Three-quarters of the bicycles sold in the country cost less than $200, and most of those are purchased in large department stores or sporting goods stores, said Ash Jaising, president of the institute.

Cannondale has succeeded, he said, because it targets specialty retailers and resisted the temptation to go after a bigger chunk of the market by making and selling less expensive bikes.

“They stuck to their guns,” Jaising said.

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Cannondale’s bicycles are designed and tested at its headquarters, a red barn built in 1830 that’s just a few miles from the Cannondale train station, whose name Montgomery borrowed for his firm.

The designs are then transmitted by computer to a plant in Bedford, Pa., where they are handmade using U.S. materials. The company also has a plant in Phillipsburg, Pa.

Montgomery’s drive to get into the business and perfect the bicycle comes from his days growing up on a fruit farm in Ohio. The farm was at the top of two steep hills.

“God, I used to push my bike up those damn hills,” he said. “Then I got a Raleigh three-speed, and I could just about get halfway up the steepest, and I could just, on a good day, make the second one.”

Even with the advent of the 10-speed, Montgomery felt there was room for improvement. “Of course, we were able, along with some other companies, to lead the parade.”

Montgomery said Cannondale’s bikes are costly because they are innovative and meticulously designed. “The cost of innovation has got to be reflected in the retail price; otherwise you can’t afford to do it,” he said.

An example: While many bike companies are content to leave the welds on a bicycle rough and ribbed, Cannondale sands all the joints on its bikes, so that one tube flows into the other, presenting a smooth appearance.

Montgomery said his push for perfection is “not a very soft way to go through life.”

Although he demands a lot from his bike designers and developers, the three-time college dropout also does everything possible to promote a comfortable work environment. He encourages them to get out for exercise any time they want. And he doesn’t care what they wear.

“When I went to work on Wall Street, I used to wear three-piece suits all the time,” he said. “I said then, ‘If I ever get out of this bloody environment, I’m never going to put one on again.’ ”