Here are the current Schiit shirts:
Are these shirts as warm as the amps?
Growth, Garage Style
You may have seen the video I posted of the early Bifrost era/Lyr debacle era in the garage, and thought “holy moly, these guys are really cramped in there.”
In reality, it wasn’t so bad. Most nights, there were just two or three of us—me, Eddie, Tony. Lisa shipped during the day, so she usually wasn’t in the garage with us in the evenings. And we’d gotten our space efficiency down pretty good, storing some chassis at the Centric office, some in the built-out attic, and some outside on the patio (yes, it doesn’t rain muIf ch here…)
So we didn’t really feel the pinch that much. At the time (late 2011), it seemed like a sustainable business for the mid-term, without taking on separate production space. Still, a little voice in the back of my mind kept whispering, “You’d better start looking.”
What did I do? I ignored it.
If I have a failing in business, it’s in being too conservative. I’ll wait until we’re completely overloaded until hiring, until we’re so cramped we can’t move until expanding, and so on. Part of this is simply being raised by parents who were, well, tightwads/intelligently thrifty/not using the house as an ATM. Part of it is seeing the consequences, first-hand, of what happens when you “hire forward” or “expand forward.”
The Penalties of Optimism
In 1999 and 2000, Centric was in the middle of the biggest boom we’d ever seen—the first internet wave. Companies were panicking, declaring, “we gotta get on the web, damn the budgets!” and spending money like, well, like someone had turned on a money shower. We got a ton of work, and expanded like crazy, going from 2800 square feet to 7100, and prepping to hire a lot more people if the boom continued.
Even then, though, I was conservative. We took no business from internet start-up companies that weren’t funded (or, in other words, we weren’t suckers taking stock options as payment—stock options that soon would be worth less than toilet paper.) We took very little business from internet companies, period. Because I know what a bubble looks like, and we were most definitely in a bubble. And I wanted to avoid the inevitable bursting of the bubble, when everyone had their website, looked at the cost, passed out, and said, “Never again!”
Hint: in marketing, if corporate says, “We don’t care what it costs,” there’s something very, very wrong—as in, you’re panicking for no reason (like the first internet boom, or the social boom, or the mobile app boom, etc) or your CMO is soon going to be shown the door.
Instead, we were doing business mainly with companies that worked on the hardware side of things—from the people who built the process equipment and metrology products to make and measure hard drives, semiconductors and optical fiber, to companies doing optical networking chips and new processes for connecting the “last mile” at high speeds.
(Remember, this is fundamentally the beginning of the DSL and cable era—we were still running a T1 line at the office for internet.)
Because we were conservative, and because we didn’t take a lot of internet business, and didn’t get big bank loans to expand like crazy, people thought we were, well, kinda stupid. I got comments like this a lot of the time:
“Wait a minute, you’re doing web development, and you’re only 22 people? What’s wrong with you? Why aren’t you hiring forward like those guys with 300 or 600 or a thousand people?”
I just nodded and explained we were an integrated marketing company that did web development, so we were selective and didn’t take all comers, we wanted to grow organically, and we saw the web boom busting soon.
Their response (in 2000):
“What? Are you kidding? Everyone has to get online, I just read a Fast Company article about billion-percent growth rates and so-and-so being bought for a trillion dollars or something like that!”
Yeah. When you’re in a bubble, most people don’t see it. Rah rah, buy everything in site, leverage all, and grow! Because it will never stop.
Fun fact: the “you’re a web development company, and you’re only 22 people, you must be doing something wrong?” comment changed in 2001 to “you’re a web development company and you still have 22 people, wow, you’re doing well!”
So, yeah. By being picky and conservative, we managed to avoid the web bust almost entirely. We lost only a single client in that morass.
But…we should have been even more conservative. The reprieve was short-lived. Remember I said we were working with a bunch of optical networking and tech players? Well, 2001 wasn’t so bad for them, but come 2002, very bad schiit went down. We lost 7 clients in one year, either because marketing budgets were slashed, or they went bankrupt, or simply dissolved. One company had taken $200 million in venture capital and never produced a product.
And—these are the “hire forward” companies. These are the guys who had the executive chefs come in and cook for everyone, every day. Who had the fully-stocked juice bars and all-you-can-drink beverages. Who had masseuses. Who had foosball and arcade games and lounges full of multicolored couches and bean-bag chairs. Who had ultramodern polished-concrete-and-glowing-translucent-walls-of-glass offices. Who had Porsches as the “car allowance” car.
Yeah. Because it will never end.
Back to 2011…
Okay, fine. Enough reminiscing. But you start to see why I didn’t want to go out there and sign a lease for office space. Because it could end. Booms die. Competitors come out of nowhere. We could screw up again. It could all just be a fad. And so on.
“What’s the big deal?” you ask. “It’s just industrial space, it can’t cost that much per month.”
And no, it doesn’t. Not per month. So, it sounds like it’s time for a quick primer on leasing space for your business.
Point One: Know what a lease is. Distilling down the 70 pages of legalese, here it is in simplest form: You will pay us $XXXX per month for XX months on or before this day of the month.
Point 2: Note the lack of any outs. The lease doesn’t give two craps if your business is in the toilet, if your cash flow sucks, if your sales forecast was wrong, or if you’re late on your mortgage as well. Pay us. Every month. Until the end.
Point 3: Subleasing sucks. Someone who’s never had a lease before sez, “Well, you can always sublease the space.” Yep. Have you ever tried? By the way, you’re on the hook until it subleases—and even after. They crap up the place? Your problem, not theirs.
Point 4: You’ll have surprises, and they won’t be good. Instead of hearing “hey, you get a free month of rent this month,” from your landlord, be prepared to hear, “Hey, well, I don’t care if the plumbing isn’t working, that’s inside the building, so that’s your problem,” or, “We had to refurb all the air conditioning units, here’s your pro-rated part of the bill.
Point 5: There’s less space than you think. Even before you sign a lease, you’ll quickly find that many spaces won’t fit your needs. They’ll be too big, too small, not air conditioned, in a bad neighborhood, etc. etc. That big long list gets very small very fast—and then forget about leverage on the lease rate.
And—an unwritten fact of life—you’ll probably be on the hook for the lease, especially if it’s your first business lease. They’ll want you to sign what’s called a “personal guarantee.” That means that even if the lease is in Arglebargle Inc’s company name, you have no corporate shield. Fold up? They come after you. Can’t pay? They come after everything you’ve got.
Leasing a space is very much one of those invisible lines in business. Once you do it, you won’t go back. Nor will you back out. So you’d better be damn ready to do it.
So why would you ever lease anything? Because you need the space.
We were just on the edge of needing the space, but we were doing well enough. We could squeak by. And we could rationalize a lot of stuff for the future, like:
And we had one huge advantage, late in 2011: we ran out of stock all the time. Since we ran out of stock all the time, we didn’t have to keep huge stock. That saved a ton of space.
Fun fact: running out of stock and going into backorder became so bad that we actually were out of stock on every single product at the end of 2011. That’s right. No Asgards, no Valhallas, no Lyrs, no Bifrosts. The holiday rush crushed us.
Still, I knew the end was coming. Mike and I were talking about the next step-up products, the as-yet-unnamed Mjolnir and Gungnir. I wanted to do a balanced amp, and he wanted to do a balanced DAC. We knew they would be bigger than our current products. Bigger products meant more space.
And—there was Modi, the DAC in the toilet paper roll. And an amp. If I could get one to work, that is. Bigger runs meant more space.
But for the moment, we stayed put, as 2011 ended, and 2012 began.