From Death, Rebirth: Armageddon 2009
All great things come to an end. And in 2009, I thought Centric might come undone.
We’d weathered the web development downturn, and we’d ridden through two business hiccups that were either our fault or just the changing winds of the marketing times, but I’d never seen anything like the complete and utter disaster that was two-double-ought-nine.
Clients slashed budgets. New management jettisoned us. Proposals sat forever, or were teleported onto the world filled with single unmatched socks and pen caps. And, to top it off, one of our biggest projects ever, a near-$500k development of a kid’s virtual world, went slowly and painfully—then finally turned into a major debacle when the initial traffic brought the site to its knees.
Sue, my business partner at Centric, summed it up at the end-of-the-year Centric party. “The only good thing we can say about this year is that it’s over. Slam the door, nail it shut, and never look back.”
But out of that disaster, we got Schiit.
First, let’s start with the ass-kicking factor. Like Lisa, that year kicked us in the ass. And it made us think. For Centric, it led to an entirely new office (moving from the Academy of Television Arts and Sciences building in North Hollywood, with an office overlooking the Emmy statue, to an old wine shop in old town Newhall), an entirely new way of working with our staff, with more flexibility, more freedom, less overwork…and by mid-2010, Centric was back on track, and doing better work than ever.
Second, the audio factor. I’d toyed with the idea of starting another audio company from time to time, but I’d always been distracted by the “real” work of marketing, and by memories of how hard it was to work through distribution. 2009 gave me more time to think about it.
And finally, writing—and a fortuitous gift. In 2009, I was deep in writing mode, working on two of my own novels, planning more, submitting stories, attending writing groups. And writing takes a lot of time. And, for me, writing also means time without distractions. I’m not one of those coffee-shop wordcrafters who can work with screaming children running around their chair and baristas barking names at 110dB. Hell, I can’t write if there’s a TV on in the other room.
The solution? Use headphones. At first, just the Apple earbuds that came with my iPhone. Yes. Don’t barf. We all have to start somewhere, right? They let me drown out the distractions and write. It was all good.
Except, in the back of my mind, a little voice kept whispering: this could be better.
A friend gave me a pair of V-Moda earbuds. And they were better than the Apple earbuds. Which made the voice in the back of my mind louder. But it was still OK. I was focused on my writing. I could think about audio later.
Then, the fortuitous gift. A friend sent me a Chinese tube headphone amp, simply because he traveled to China a lot, and knew I used to be into audio, and…and I sat there looking at this intricate thing, thinking, How the hell can this be only $300? No wonder manufacturing is dead in the USA.
Of course, it didn’t work so great with the earbuds, being too noisy for them. My wife bought me a pair of AKG 701s, mainly because they seemed to be highly regarded and relatively inexpensive. They worked pretty well with the tube amp. Good enough that I began to understand what some of that “tube magic” was.
A sidenote: I’d never really been into tubes until Schiit. Sumo was all solid state. So was Theta. I knew Mike did something with tubes, way back when, but that was it.
I used that combo for a time, but I kept looking at it, and wondering, Can this be even better?
On a whim, I tried the headphones with an old Sumo prototype that never made it to production—the Sumo Antares integrated amp. Oh, Sumo never made an integrated, you say? You’re almost right. We only made one of them.
But it was a speaker amp. Would it light up the headphones? What would it sound like? Was I totally insane?
Then I hooked it up and listened. And sat there listening for hours. This was it. This was what those headphones needed. So much more detail, control, and—and, well, kinda etched top end, and, well, it was kinda noisy, but you can’t have it all, can you? And it was really, really good, this ancient, 60WPC speaker amp.
That really set my mind going. Headphones were efficient. They didn’t need 60 watts. Which meant the power supplies could be regulated to kill the noise. And you could easily do Class-A. And you could play with super-simple topologies that simply wouldn’t work in the speaker realm. It would allow me to do things that simply weren’t practical before—and that could be a lot of fun!
Quick Notes: Speaker Amps and Headphone Amps
Headphone amps and speaker amps don’t really have to be different in execution or topology. That’s why you see people using speaker amps with some headphones. But the devil is in the details:
Speaker amps are usually all about maximizing efficiency in order to deliver high watts at low distortion and moderate noise into a known load (4-8 ohms). Because of this, they tend to converge around some common, well-known topologies that meet this need—the most common of which is the Lin topology—differential input with some voltage gain, VAS with more voltage gain, and current gain stages afterwards, with overall feedback.
Headphone amps don’t need to be super-efficient or super-powerful, but they have to be very, very quiet—20 to 200x lower noise than a typical speaker amp, if you expect to run anything but planars. And they also have to be ready for loads from 600 ohms to 16 ohms—a much broader range than speaker amps. The result is that you now have the freedom to design around many different topologies, including single-stage and overall-feedback-free designs, as well as the standard Lin variants as used in speaker amps.
And yeah, I know there are non-Lin speaker amps, there are current-feedback speaker amps, and circlotron-style speaker amps, and transformer-coupled speaker amps, and Class-D speaker amps, but those are outliers. The bottom line is that your common speaker amp is most likely Lin topology, two voltage gain stages (counting the front end) and two or three current gain stages afterwards. A headphone amp can be anything from a single op-amp to a Class-A follower to tube OTL to Lin.
Sidenote 2: The original Asgard was supposed to be an ultra-high-power amplifier, delivering a full watt of power. Yes, I know how silly this seems today.
Sidenote 3: The only Lin amp we do is Magni—so, ironically, Magni is closest to a speaker amp in the Schiit family.
On to the DAC
Up until this time, I’d been listening from a computer source. From the analog outputs.
Yes, I know, I’ve committed every headphone sin known to mankind, I should be purged from this planet, I’m a cloth-eared idiot. But all that thinking about amps got me wondering about DACs. I had an old Cobalt 307, and I found that my MacBook had optical outputs, and that Monoprice made funky cables that went from 1/8” Toslink to regular Toslink.
Soon, I had the Cobalt running into the Antares, and again—what a revelation! This antique DAC and geriatric amp were doing some amazing things. I didn’t want to write. I wanted to sit and listen to music.
But—they had to be doing a lot more interesting stuff with DACs and such these days, right (don’t laugh, I’d been out of the game a long, long time.) I started to spend a lot of time online, researching what was out there. I discovered Head-Fi. I read about ten thousand reviews.
And I sat there, stunned. All the energy that got sucked out of two-channel audio when it started going down the road to ever-bigger price tags was back, and bigger than ever.
I showed it to Mike.
“It’s like high-end about 1980,” Mike said. “Just getting started. Before we went insane.”
Of course, Mike didn’t know that I was going to start a company and drag him into it. I still didn’t know for certain myself.
But thoughts kept piling on each other: What if we could do something here? What would we do? Where would we make it? How would we sell it? Dealers again? How would that ever work in a world where Chinese manufacturers were selling direct on eBay? And direct? The only company I knew selling direct was Emotiva, and I had no idea how they were doing.
Fun fact: Centric actually subleased office space from Dan Laufman in 1995-6, when he was running a PCB assembly and contract manufacturing business. Yes, the Dan Laufman that would go on to found Emotiva, after getting tired of doing OEM work (that means, in English, makin stuff fo other peeps.) By 2009, though, we’d fallen out of touch.
But, hmm, direct. Direct changed everything. Because it cut out the reps, the distributors/warehousers, and the dealers.
A Quick Primer on High End Economics
Let’s pause for a quick look at how pricing works in the high-end world. Cue everyone in traditional high-end audio hating me now. If I die of mysterious circumstances, you know why.
Here’s how it works with a traditional distribution chain:
• Reps take 8-10% (thems the guys who go out and sell your stuff to dealers)
• Warehousing can take 5% (at the dealer or third-party, if you need it)
• Dealers take 40-50%* (thems the guys who take the order)
*Note: this is highly variable depending on the product, and, in some cases, is changing for the better these days—and it’s different for mass consumer products, which operate on much lower margins. Best Buy doesn’t make 40% on computers.
That means that 48-65% of the cost of a product can be in its distribution. So, the chain that sells, shelves, and stores the product take 1/2 to 2/3.
That means the manufacturer—that is, the company that engineers, designs, certifies, tests, packages, ships, markets supports, warrants, and repairs the product gets 1/3 to ½ of the retail cost.
Go back and read that again. The guys who put it on a shelf get as much, or more than, the company that creates and supports the product.
Yes, I know. Insane.
This is why, when I was last into audio, manufacturers would set MSRP at 4-6x of their fully burdened production cost. Your $499 amp? Under the old rules, they paid $80-120 to make it, including labor and overhead. But the manufacturer might only see $200 of that $500, with the rest going to distribution.
Now, don’t get me wrong. Dealers provide a service to customers by letting them compare a whole lot of different products. This is definitely worth something. And we are losing that as they go away.
But is it worth what they’re charging in today’s world? Especially when you can offer in-home trials and easy returns, and when (in headphone audio), local meets allow people to compare all sorts of gear? And when you can set up shop on Amazon and have them be your warehouse?
In the past, it really was a different world. Audio companies were completely dependent on getting the connected, aggressive reps that would get them into the right dealers. If the dealer required local warehousing or co-op money for advertising or spiffs for the salespeople (aka, the mob boss visiting you for his protection money), you did it. Because there wasn’t any other choice. If you didn’t do it, the dealers would sell the competing products that did.
But in 2009, we didn’t have those constraints. And, looking around, I saw the roster of dealers had already shrunk considerably in the last 15 years. It seemed the pendulum was already swinging away from old-style distribution.
And we knew how easy it was do set up an e-commerce site.
And we were a marketing company, after all.
At that moment, I stopped wondering. And started thinking: Yes. Let’s do something with this.