19 Sep 2012
On a Sound Track
It takes a special kind of CEO to run a company that thrives on cool.... Just ask Jeremy Andrus (MBA 2002), head of Skullcandy.by Deborah BlaggTopics:
HBS Alumni of a certain vintage might recall a BusinessWeek article from a decade ago about the dismal job market for newly minted MBAs. Jeremy Andrus (MBA 2002) certainly does. Upon graduation, with no job offers, Andrus decamped to his parents’ basement in Park City, Utah, to regroup. He then agreed to an interview with BusinessWeek, which ran a large color photo of a despondent-looking Andrus with the headline “Mom? Dad? I’m home!”
“You can imagine the ribbing I took from my classmates,” says Andrus, who still cringes when he tells the story even though he now has little to be embarrassed about. That’s because last year he was named president and CEO of Skullcandy, an edgily hip global company that does business at the intersection of consumer electronics, media, and lifestyle branding. Skullcandy, which Andrus helped build with founder and former CEO Rick Alden, is expecting between $280 and $300 million in revenues this year. The Bulletin caught up with Andrus at the company’s Park City headquarters, where Skullcandy creates and markets high-quality, boldly designed headphones, earbuds, speaker docks, iPhone/iPod accessories, and clothing.
What’s this first year as CEO been like?
We went public in July 2011, a few months after I was put in the CEO role, so there wasn’t a lot of breathing time. I had worked closely on day-to-day operations with the firm’s founder since 2005, so I was up to speed on most things, including the public offering. But being up to speed on something and owning ultimate responsibility are two completely different things.
What in your background has helped you the most?
I’ve taken different skills from different places. I spent some time at a small entrepreneurial venture in Dallas, where I had hands-on experience in manufacturing, supply chain, and selling. I worked for a while as a hotel developer for a Marriott franchisee. Before HBS, I was a management consultant at Monitor, which sharpened my perspective on business and industry strategy.
I learned a huge amount at HBS in discussions of leadership, entrepreneurial marketing, finance, and ethics. I also spent some time at Lehman Brothers in London learning about international finance and business.
I can’t say enough about the people I met at the School. During the IPO road show, for example, at one of the group lunches, I found myself sitting across from Josh Clark, an HBS classmate who was managing a $1 billion–plus hedge fund. Having those kinds of relationships as you make your way through the business world is a great advantage.
The IPO went well?
Yes, we raised nearly $190 million, which enabled us to retire debt and go in some new directions. My main challenge now is managing growth and our increasing organizational complexity. Last year was very active: we opened an office in Zurich and secured European distribution rights for our products, set up a joint venture with a partner in Mexico to build our brand there, and purchased Astro Gaming, a California-based gaming accessories company. Our office in southern China has grown significantly, and we’ve just opened a second office in China to manage sales and marketing. Our revenues have increased by more than 44 percent in the past year. So operationally, the business has changed a lot in a short period of time.
What are some of the challenges that come with conducting business on so many international fronts?
Skullcandy products are currently distributed in over 70 countries, a number that expands every month. So a major challenge for us is how to establish our brand in each local market. Good brands are globally consistent, but they’re locally relevant. We have to build and create demand and bring a message that is relevant in Shanghai, Panama, South Africa, Europe, or wherever. The United States is one big market. Contrast that with Europe, where we have a central office, but where there are lots of different markets that require different strategies and investments.
Our supply chain is complex. Most of our manufacturing happens in China, so the basic manufacturing piece—assembling millions of parts at just the right time, building high-quality widgets, selecting the right colors, and so on—that’s one challenge. Then the product has to be shipped and distributed to 30,000 or 40,000 locations across the globe, where government rules, regulations, labor laws, cultures, and tax structures vary significantly. The consumer sees a cool product and an awesome brand, but there’s a huge amount of unglamorous business activities behind the scenes that is critical to Skullcandy’s survival.
Let’s talk about the glamour for a minute—the celebrity sports endorsements, team sponsorships, promotions featuring models and freestyle rappers. Is branding your top priority?
Building brand is fundamental to what we do. We play at this very powerful intersection between consumer electronics, media, and lifestyle branding. The more mobile phones, streaming media, and portable gaming evolve, the more time consumers are spending wearing headphones. Think about what headphones looked like in 2003 when the company launched—they were boring. It was a neglected category. Headphones had not been a branding statement before we entered the space. But now, that piece of real estate over your ears calls for self-expression. Along with your eyewear, your hat, your hoodie, and your jeans, headphones are a prominent way to say, “This is who I am.”
How do you provide the style and image your consumers want to convey?
You have to stay close to your core consumer. Even though Skullcandy has grown over the years, and we now sell in mainstream places like Best Buy, Target, and Apple stores, the consumer at the center of our circle is still the person who shops at a small skate, surf, snow, or independent music shop. They’re trendsetters. If we stay relevant to them, we can appeal to the broader demographic that’s influenced by trendsetters.
Would you say you mostly follow trends or create them?
A little bit of both. We certainly are aware of trends that exist, but great brands and great product companies are always innovating and leading their consumers.
How do you connect with consumers?
We interact with them in grassroots environments, such as the US Open of Surfing; the Vans Warped Tour; local skate, snow, and music events. We are continually building authenticity in the brand by going to the places where our consumers love to be and by identifying our products with the sports and music icons they look up to. Someone who’s inspired by the surf or skate team we sponsor will likely identify with our product. If you’re an NBA fan, and you see Derrick Rose wearing Skullcandy headphones, that’s pretty powerful. Social media is another way to interact with consumers and build brand loyalty.
So branding is one priority. What else do you focus on?
The company is built on product innovation. Rick Alden had the idea that launched Skullcandy while he was riding a chairlift. His phone rang, and because he had to take off his helmet and headphones and fumble around in his jacket to answer it, he missed the call. That led to the development of Skullcandy’s first product, called Link, a device that enabled headphones to have two plugs so you could switch back and forth between music and phone.
We took off from there in the direction of designing headphones that would be unlike anything on the market. Skullcrusher, our first headphone generation, had a battery-powered subwoofer, which provided a deep, aggressive bass. It was like strapping a set of subs to your head. We wanted to give listeners a totally different headphone experience.
When I first started showing the Skullcrusher, people would put them on and start shouting expletives because the sound quality was so incredible. Our engineers and designers strive for that reaction.
What’s one of your latest audio technologies?
We just launched headphones with Supreme Sound, our proprietary sound profile of attacking bass, natural vocals, and precision highs. We’re pretty excited about that, and we think our customers will be too. We’ve recently brought our product development process in-house, so instead of sourcing products in Asia, we can take a concept from a blank sheet of paper through to finished prototype right here in Park City before we manufacture. Having that added measure of control is huge.
Is control an elusive goal in such a fast-growing company?
Being in a growing company can be uncomfortable sometimes, because everything changes so fast. What you did six months ago in terms of how the business is structured, how you process orders, or how you interact with customers can be irrelevant today. You get used to feeling like you’re tipping halfway back in your chair and not knowing which direction you’re going to go. There are a lot of factors we can’t control. But what we can control is creating something unique for our customers—if we keep focused on that, it helps us stay grounded.
How are you managing the grind?
You know what? I’m energized by it. It’s not just the hours and travel, it’s the pace and intensity of what we’re doing. There’s so much passion and energy in this company and among our customers that you don’t burn out. At least I haven’t yet!
Sharing the Passion
Skullcandy sponsors leading surf and skate teams and partners with prominent athletes, such as NBA stars James Harden and Kevin Durant, and nationally known DJs, fashion models, and musicians like rapper Jay-Z. “Because we share our customers’ passions, we don’t need to waste time wondering what they would like,” Jeremy Andrus says.
Skullcandy employs 350 people, mostly young and male (think jeans, plaid shirts, and scruffy beards). The company’s product development group comprises industrial designers and mechanical, electrical, and acoustics engineers, including one known simply as “The Golden Ear.” Their no-holds-barred creativity is supported by a corporate culture steeped in youth and rebellion, as expressed in the company’s motto, “Every revolution needs a sound track.”
The corridors of the Park City headquarters are uncarpeted concrete, an open invitation for workers to navigate the building on skateboards. When there’s overnight snow on the slopes of the nearby Wasatch Range, morning meetings are rolled back to accommodate the quest for fresh powder. And if you happen to visit Skullcandy on bring-your-dog-to-work day, be sure to give the Boston terrier a wide berth—he bites.
Class of MBA 2002, Section E