Chapter 5:
$800 In Screws?
It’s funny what sets off your doubtometer.
The name “Schiit” never did. From that first conversation, it stuck. Hundreds of hours building and testing prototypes, the first of which were massive failures, never fazed me. Getting into tubes for the first time and working with 200 volt rails didn’t scare me, once I figured out how durable, simple, and and fuss-free tubes are. Running around to a bunch of different metal vendors to get prototypes was no problem. Placing big orders for electronics components didn’t even register.
But when it came time to order screws, that $800 almost brought the whole mess down.
This was about the same time as the conversation with Mike Moffat in the Foreward. The design work was done, and we had working prototypes that sounded good and worked well. But the huge work of getting a working inventory and production system in place wasn’t done. We didn’t have all the parts we needed, we didn’t have a place to make the products, nor people to do the work.
And—to be clear—this is huge work. If you dismiss it as “only purchasing,” or “only operations,” your business is going to be headed for trouble. And, once you’ve grown up and have someone to handle your purchasing and ops, you’ll still be in trouble if there’s no oversight.
Aside: There may be one other thing more sure than death and taxes (besides “your metal vendor will screw up eventually.”) That is: “If you have one critical part that you can only get from one company, an unsupervised purchasing manager will order the wrong one—or will neglect to tell you that it’ll be out of stock for 22 weeks until the production run.”
By the time I got serious about purchasing parts, it was February or March of 2010. This was only a short time after that conversation I had with Mike Moffat in the foreward. It was also about the same time that Centric starting showing some serious signs of life. And with marketing picking up, things were actually looking better on the “ain’t going out of business” front.
So, I had less incentive to work on Schiit.
I remember sitting there in front of the computer and thinking, “$800 in screws? What will we do with $800 in screws if this doesn’t go somewhere? We have no use for $800 in screws.”
And I sat there for a long time, wondering just what the hell we were doing. How did we expect to just start up a new company in a field we we’d been out of for so long, and expect that it would simply work?
In that moment, the whole thing could have come undone. I’d told Mike Moffat that we should do a new company, and we’d laughed about the name, but there were no formal documents. He might even decide just to keep working in entertainment.
The doubts piled on: Would people really buy these things online? Would they think it was all a joke? Would our hacky-ass ecommerce system even work (more on that later.)
It actually took a few minutes to press that button. For $800 in screws. $800 in screws that might have undone the company. Remember, at this point it was still a money-drain and a time-sump. It would have been a lot easier to give into the doubts.
And that brings up an important point. If you start a business, there will be doubts. Lots and lots of doubts. There will be days when you’ll take $5 for the whole mess. There will be days you want to quit. These doubts, and these dark times, will be far larger than anything you can imagine if you’re working for someone else, even if the company is muttering about downsizing and layoffs. Because the whole mess is on you. There’s nobody else to fall back on. There’s nobody else to blame.
Production, Garage Style
“When I was back at Theta, we used to have a great board house,” Mike said. We were past the $800 screw order, and were talking on the phone about how we’d actually get everything made. “They’re in Simi Valley.”
“I was thinking we’d just hand-solder everything to start,” I told him. “The stuff is simple enough.”
“Ooohh-kayy,” Mike said, doubtfully. “But who’s going to do it?”
“I’ll do it,” Rina chimed in, before I could answer. She’d been listening to my side of the conversation and had figured what we were talking about. At the time, she was starting to get her own business off the ground, and was looking for extra cash anywhere she could find it.
“Rina says she’ll do it,” I told Mike.
“Ohhhh-kayy,” he said, even more doubtfully.
“Mike’s skeptical,” I told her.
“Has he forgotten that I solder better than him?” she shot back. “How many of those Theta amps did he make himself?”
I said nothing. It made a lot of sense. Rina knew electronics, and electrical, and had more experience soldering than any of us.
“I think we let her have a shot at it,” I told Mike, thinking, We can always switch to someone else if it doesn’t work, or go to a boardhouse if we ever do a second run of these things.
“Your call,” Mike said. “So who’s going to put them together.”
“Me, for now.”
Silence from Mike. This was his even more skeptical mode.
“We’ll get help when we need it,” I told him.
“Better start looking now.” Mike said. Mike’s always more of the planner. He thinks ahead. “And where are you going to make it?”
“In the garage.”
“The garage?” Skeptically.
“Hey, if it’s good enough for HP and Apple, it’s good enough for us,” I told Mike. “Remember, Christmas presents.”
More silence.
Schiit was a fundamentally different company than anything Mike had done before. In the old days, you brought out your biggest bestest baddest product first, then moved down to less expensive gear. This works well in a market where the press can be the spokesperson and the dealer can be the psychologist for a customer investing thousands of dollars. But nobody is going to throw down their credit card on a multi-thousand-dollar piece of gear from an unknown company. Schiit was always intended to work the opposite way—start with the inexpensive products, build a following, and move up.
“I’ll get you the phone number to the board house,” Mike told me.
Aside: Rina (sometimes helped by me or Jean, Centric’s bookkeeper and ex-Tektronix module assembler) ended up soldering about 1000 boards for Schiit, before we caved under the pressure and went to Jaxx Electronics, the assembly house we still use. The first 600 or so Asgards and Valhallas were assembled by me, before Eddie came on the scene—more on that later.
Aside aside: And, actually, we didn’t build them all in the garage. We stuffed boards at the kitchen table (and, in Rina’s case, on a 1966 Corvette hood), bent resistors while watching movies, built in the garage in a 20’ x 3’ wide space (no kidding), and burned in and did listening testing in the living room.
Duct Tape and Baling Websites
In 2010, websites and e-commerce, for Centric, was easy. Add money, and we could build whatever custom site and e-commerce system you want, with whatever features and workflow you needed.
Of course, Schiit didn’t have money. Or at least none I wanted to spend. But we still needed a website and an e-commerce system secure enough to handle a reasonable number of orders. And this led us to an entirely new approach, one we use to this day for start-ups with limited budgets.
First, we did a Wordpress template to our own custom design. Getting your own Wordpress template only costs a few hundred dollars, especially when you’re doing the design (you can blame me for the Schiit brand, design, aesthetics, and copy, by the way.) Wordpress gives you a very versatile content management system, so you can easily maintain the site by yourself.
Second, we hooked up to an easy-to-integrate payment processor. In those days, it was Google Checkout. Rina did the hack-and-paste code that allowed people to put products in a cart and check out.
Third, we figured out a rough shipping cost for domestic and international shipments, and used manual shipping calculation. Of course, this was inaccurate, cumbersome, and painful. I wouldn’t do it again.
But, in the end, we had what we needed: a working e-commerce website for a few hundred dollars—and a few dozen hours of time.
Update: Today, the general principles above hold true, but you have more options. You could easily use a platform like Shopify to get up and selling fast, without any code, and with much more robust shipping and payment options. You could build the whole thing in Squarespace. You can buy a commerce-friendly responsive Wordpress theme from ThemeForest for $40 or so, which will have tons more features than we ever imagined. Hell, you can even just set up an Amazon store and have them fulfill (take orders and ship products) for you. Bottom line: selling online is easier and less costly than ever. Don’t let it stop you from having your own business.
Okay, Let’s Talk Business
Before I go farther, let’s talk business. Real business. As in, business plans, business structure, all that good stuff.
No, don’t roll your eyes. I know, you can read about this in pretty much any “Start UR Own Biz!” book, but let’s apply the sharp point of experience and turn up all the key points to 11.
First, business plans are, in general, an incredible waste of time.
I know someone is going to blow up about this point, but I’ll stand by it. I have written about a dozen serious business plans since leaving college, and every single one of them was seriously researched, complete, and sounded compelling.
Not one of those businesses ever got off the ground.
Why? At least in part because business plans are big and intimidating. A standard business plan template has dozens of sections and subsections, asks for broad knowledge across a wide range of disciplines, demands decent writing skills, and requires some serious number crunching. It’s a lot easier to sit and stare at the thing, thinking, “I ain’t never gonna finish this,” or “I have no idea what these bozos are talking about,” than to finish it.
Because of this, business plans promote paralysis by analysis. If you really want to fill in all the blanks on a business plan, you’ll:
a. Eat up an incredible amount of time that could be used for getting started
b. Stir up a thousand doubts that can keep you from ever starting
c. Be so amazingly exhausted that you might not want to do a business at all
“But business plans are what you need to get capital,” someone at the back says.
Uh-huh. Right. Trust me, if you don’t have a working product that’s making money, you’re not getting capital even if your business plan was written by Hemingway. Period. And no, I don’t care if you’re friends with one of the board members. All VCs know that business plans are fundamentally BS.
“But it helps you keep your eye on the big picture,” someone else says.
Um. No. The big picture changes every day. This is not the slow, distribution-centric world of thirty years ago. Today, a new competitor can pop up on Amazon overnight—from literally anywhere in the world. Online pundits can make or break a new company with a single post. And even traditional companies are moving faster, and getting into new, unexpected product segments.
What business plans promote isn’t big-picture thinking, they promote “railroad syndrome.” As in, the business plan is the rails, and you’re a train. It’s easy to continue driving down the same wrong path until it’s too late, because:
1. It’s what’s in the plan, so it must be true
2. You spent so much time researching/writing, it really has to be true
3. If it’s not true, you don’t want to spend all that time again to figure out what is now true.
So, throw away that business plan. Forget it. Pay attention to your market. Learn your market. And keep learning. Because it changes every day.
“But I don’t want to just wing it,” yet another audience member says. “I want some structure in my business. What can I do besides a business plan?”
Okay, fine. Let’s try something new. I’ll call it a Business Brief. It can be no more than a page long. It’s not for getting capital. It’s not for answering every question. It’s about having some answers to the most important questions. To create a Business Brief, answer these questions:
1. What will this company do that no other can do?
2. If others can do this, or are doing this, how are you significantly better?
3. Why would someone pay money for it?
4. How will they find out about it?
5. How much money do you need to start it?
The goal isn’t a dissertation—single sentence answers are ideal. Let’s do this for Schiit.
1. What will this company do that no other can do?
Make amazing-sounding, amazing-looking high-end audio products in the USA for prices similar to Chinese manufacturing.
2. If others can do this, or are doing this, how are you significantly better?
Nobody else truly manufacturing in the USA can beat our prices; we also have unique aesthetics and compelling features.
3. Why would someone pay money for it?
Because it’s a helluva deal, and they laughed their butt off when they heard our name.
4. How will they find out about it?
By people with no sense of humor carping about the name to their friends on forums. (No, seriously: through an unforgettable brand and direct engagement in micro-social activities.)
5. How much money do you need to start it?
$10,000, and 2 years of no salary.
See? Easy. And very easy to change when the game changes. A business brief makes you answer the two key questions of what you do and why it matters.
Second, you incorporate. Full stop.
Don’t even think about silly stuff like partnerships or sole ownership. If you are making things that plug into a wall, even with CE and FCC certifications, you need to be a corporation. Period. Yes, it’s expensive ($1000 or so in California), and yes, it’s a pain in the ass (as in keeping your personal and company assets completely separate, corporate minutes, resolutions, etc), but here’s why you incorporate:
Let’s say someone wants to listen to your great new tube amp. While in the bathtub. What’s more, they love it so much they give it a big hug in the warm, watery depths. They die. Their family does not understand that stupidity does not give someone carte blanche to free money and sues your company.
• If you are a corporation, the corporation either pays for a successful defense, reaches a suitable bribe—er, settlement—to make the family go away, or loses and pays or goes bankrupt. It will be a terrible time for you, but they can’t touch your own personal investments, house, cars, etc.
• If you are anything but a corporation, they can go after everything you have, whether or not it was yours before starting the company. And by everything, this means everything.
Third, you truly understand “cash flow.”
They call it cash flow for a reason. For about two years, you get to watch the cash flow from your customers, through your hands, and back out to your vendors. And that’s about it. A fast-growing company eats cash like mad. You’ll be reinvesting everything you make in growth. And there won’t be any left over for you.
• Yes, that’s right. Expect no salary for a couple of years.
• Yes, I know, that’s unrealistic if you don’t have the savings or an alternate form of income.
• Yes, I know that’s not fair because you can’t find anyone to give you free money, and it’s holding you down, you could take on Musk and The Resurrected Jobs with one hand tied behind your back.
It’s not fair, but it’s the way things work. If you can’t afford to put in some money up front and have no salary, you’ll need to start a company that requires little or no capital, and can be done in your off-time from your real job.
Wow, this is starting to sound like a business book. And it’s taking far too long. So let’s cut to one more aside, and then close it up for now.
The Schiit Ass Guard?
Believe it or not, we never connected “Asgard” to “Ass Guard” until people started to comment on it after launch. So no, “Schiit Asgard” isn’t an inside joke for “Schiit Ass Guard.” Or maybe the joke’s on us.
