2023, Chapter 6:
No Slack for Bad Decisions
Since MQA has taken a left turn into bankruptcy-land, people have been asking my opinion. It makes sense, because way back in 2016, we put up a press release saying, “Yeah, we ain’t having none of that Schtuff.”
Here it is, in its entirety:
Why We Won’t Be Supporting MQA
Schiit Clarifies Position on a Proposed Audio Format
May 26th, 2016, Valencia, CA. Today, Schiit Audio announced that they would not be supporting MQA, a proprietary audio format claiming “studio quality sound you can stream or download.” Schiit Audio feels that it is important to support its customers—and potential customers—by clarifying the company’s position on MQA, so that they may choose another DAC provider that backs the format, if they feel it is important to them.
“Although there are still many questions to be answered about MQA, we feel we know enough to make a decision,” said Jason Stoddard, Schiit’s Co-Founder.
Stoddard outlined the primary reasons:
- We believe that supporting MQA means handing over the entire recording industry to an external standards organization.MQA wants:
- Licensing fees from the recording studios
- Licensing fees from the digital audio product manufacturers
- Hardware or software access/insight into the DAC or player
- Subscription fees from every listener via Tidal, and/or royalties from purchases of re-releases by the recording industry
- Our experience with standards-driven industries is sub-par. Consider the surround market. Companies making surround processors now have to support a dizzying array of different standards, none of which is a market differentiator, and the exclusion of any single standard can mean commercial failure. The result is a market in which competition is stifled and consumers are confused.
- We don’t believe MQA is a differentiator for high-end DACs if it is available on phones. Consider SRS, the Sound Retrieval System, as an instructive example. Before being acquired by DTS, it claimed to be on “over a billion devices.” However, there is little evidence any consumers considered SRS a must-have, differentiating technology.
- We consider MQA to be yet another “format distraction” that makes high-end audio more confusing and insular. This is a reflection of our position in the market—nearly 1/3 of our revenue is from $99 and under products, and we have one of the youngest customer bases in the industry. It is our experience that when someone starts getting into great audio, they just want a product that will make their current music sound better, rather than one that requires additional investment in streaming subscriptions or new releases.
- We feel that, even from a market perspective, many questions need to be answered. When will we see MQA on Tidal? At what cost? What percentage of the library will be MQA? How many releases should we expect to see from Warner in the next 12 months? What will be the cost? Again, a historic example may be cautionary. Consider Sony and DSD. DSD is a Sony technology that they promoted, and yet they released very few recordings in DSD.
Mike Moffat concurred, saying, “In addition to the market questions outlined by my partner, there are many performance questions (about MQA) that cause great concern. Actual decoded bit depth for both MQA and non-MQA DACs, claims of ‘lossless,’ the need for MQA to tweak their decode algorithm for a specific DAC (and their ability to perform this optimization on-schedule for a DAC manufacturer who might be, well, a little smaller than HTC,) the impact on the DAC manufacturer’s own proprietary technology and product development, and the impact on the DAC manufacturer’s own competitiveness.”
Moffat further opined that Schiit Audio considers the further development of in support of the primary 16/44.1 PCM format to be of the most value to its customers, citing extremely strong sales of Schiit Audio’s multibit DAC products, and the positive reception to its “DACs for the music you have, not the music you have to buy,” message.
Asked if there was any chance Schiit Audio might support MQA if it became the dominant format in the market, Moffat answered, “If it becomes the dominant audio technology, or even a very popular second-place format, we would have to evaluate it in the same way we evaluate other lossy compression standards, such as home theater surround formats, Bluetooth codecs, and MP3 variants.”
Aaaand, since then, we’ve been kinda snarky about the whole MQA thing in our FAQs, like:
But I hear DSD and/or MQA is the future!
Yeah, and reel-to-reel was the future in the 1970s, and it’s dead now, and DAT was the future in the 1980s, and it’s dead now, and HDCD was the future in the 1990s, and it’s dead now, and SACD was the future in the 2000s, and it’s dead now. But, let's say Sony suddenly opens their vaults and offers 30,000 DSD albums with guaranteed direct-from-DSD provenance at $5.99 each, or if Apple and Spotify and Amazon start streaming only MQA for free (yes, we know, stop laughing) then hey, Yggy is fully upgradable.
But to make my opinion totally clear, here it is:
Good.
Good not because I’m feeling righteous, or vindictive, but
because it removes another roadblock to better sound everywhere.
“Roadblock?” you ask. “What the heck do you mean by that? It’s just another format.”
Yep.
Just another format.
Just another choice.
Just another point to argue over.
Just another thing to confuse the high-quality-audio curious.
Here’s the reality: 95% of the world is used to music that just works. You pick your provider—Spotify, Apple, Amazon—put in your earbuds, and you get music. Done.
So how do you think when someone gets curious about this thing called “high-res,” and you immediately inundate them with
“…well, 24/44 is still pretty basic, but if it’s Tidal it might be MQA, which might show up 32/384 and have the blue light, or it might be Qobuz and 24/96 or 24/192 but sometimes it’s less and CD was 16/44 and uncompressed and a lot of people still like it, and no you can’t use Bluetooth for best quality because it’s compressed, and here’s a bunch of headphones that look like medieval torture devices and gear with Frankenstein-era tubes proper to a 50’s sci-fi movie that gets hot enough to burn your cat, but it’s really about the sound and there are some sacrifices and oh yeah we haven’t talked cables and fuses and stuff…”
Is it any wonder most run screaming?
So yeah. MQA in receivership. Hopefully that is the end. Not because it was wrong or bad or evil or whatever.
But because it makes things simpler. And we need simpler.
Cue the Hand-Wringing?
Amazingly, immediately after the MQA announcement, the hand-wringing began.
What would become of Tidal? Would they survive? Would they have to buy it? How would they compete? What about their library?
This is…completely bonkers.
Having founded and run several businesses, I mean, I don’t know if I can communicate how weird this is. In my experience, nobody cares about your mistakes.
Again, slowly and clearly:
Nobody cares about your bad business decisions.
There is no slack.
It does not matter.
So what about Tidal? Well, it didn’t take them long to say, nah, ain’t buying MQA, and we’ll be moving to FLAC like Amazon and Apple and Qobuz. Which is fantastic news. Now there’s even more choice in lossless high-res audio streaming.
Aside: when Amazon went FLAC, it was over for MQA. When Apple did the same, it was beyond over.
Aside to the aside: it was over for DSD when no streaming server used it. And yeah, I know, it’s still around, they are selling like 80 SACDs per month still, and there are files, but it’s not a big thing, is it?
Aside to the aside to the aside: it was over for DTS when no streaming video standardized on it. Yeah, I know, it’s still around on the theatrical side, but it’s not really around around, is it?
Aside x4: it’ll be interesting to see what happens if Apple decides they don’t want to pay for the Standards du Jour and do their own thing. Not saying I know anything about this. Just an interesting thought.
So what’s the point to all of the above? I think it’s time to talk about bad business decisions. Starting with my main point:
you get no slack for them, so you really don’t want to make too many of them.
Tidal gets no slack for pimping MQA. We get no sympathy for overbuying transformers last year. Companies that choose the wrong Bluetooth protocols or app platforms today may be crying in their Cheerios tomorrow, and nobody will care.
“But how do you make better business decisions?” you ask. “There’s no crystal ball!”
No. There isn’t.
But there’s experience (aka getting boned and learning about it.) And there’s common sense (AKA what you learned by getting boned.)
I’ve come up with lots of stupid ideas that ended up getting us boned. And I’ve sat out a lot of stuff that never went anywhere. So let’s see if our, ah, experience can help.
Always-Bad Ideas
So what does a bad business decision look like? And are there ideas that are always bad? Oh yeah, you bet there are! Let’s start with the biggest one:
- Not knowing why you’re here. If you’re in business, or contemplating starting a business, what’s the “why” of your company? And no, I’m not talking about profit-uber-alles, grabbing hands grab all they can, everything counts in large amounts. Because that’s dull. Banal. Might as well just do real estate. No, I’m talking about what marketing crazies like to call “brand DNA.” Why are you doing what you’re doing? We know you need to make (some) money. Are you there to change the world, introduce an amazing new technology, provide a better service that people really need, to do the best possible product? Have a purpose.
- Example: Schiit’s purpose hasn’t really changed since inception: to make fun, affordable products right in the USA (and maybe change the audio world for the better while doing so.)
- Going counter to your purpose. Once you know why your company is doing what it’s doing, stick to it. If you’re about saving the planet, don’t go and launch a 12 cylinder SUV. If you’re about introducing an amazing new proprietary technology, don’t just make a boring me-too product because everyone’s doing it. Stick to your why.
- Example: If we did something that cost like a car and made in Vietnam, suddenly it’s not clear what we’re about. Maybe we’ll do something even dumber in the future? Maybe we were never what we claimed to be?
- Not planning for the looooonnng thiiiiiiiin stretch. When you’re starting a company, you’re gonna need money. Or at least the ability to postpone pulling cash out of the operation. And this will go on longer than you expect. Can you live on your reserves until the company is flush? Or, if you’re going for other people’s money, did you raise enough? Starting up is long, slow, and costs more than you expect. Figure on ramen days.
- Example: Schiit is self-funded. We don’t do other people’s money. That’s a choice. It’s a strong recommendation, too. There’s no bigger motivator than watching your own savings go up in flames.
- Using too much money. Business is about cash flow. You don’t really know this until you’re in it. Everyone thinks you’re rich if you have a “million-dollar business.” Which, if you’re talking gross, may mean you net $50,000 per year. Or you might end up in the red. Or you might be one of those businesses with fantastic operating margins and do $150,000. Oh yeah, and none of that matters if you buy all your stock at the beginning of the year and the people you bought it from want paid for it in 30 days and your production has been delayed. Spend too much…spend it at the wrong time…take too much…don’t leave enough in for operations…you’re in big, big trouble. And yeah, silly people think leverage can be the foil for cash flow, but if your leverage needs leverage (no kidding, I’ve seen it), it’s about to get ugly real fast. Consider your business cash flow…and don’t use too much of it.
- Example: Schiit is pretty darn conservative with respect to cash flow, and we still got in a pinch at the end of last year, when we overbought and sales slowed. The result? A first-ever (and hopefully last) sale. Ouch.
- Rushing to do something completely new. OMG OMG OMG there’s a huge thing its gonna be bonkers nuts we need AI in it and we need self-replication and we need robots and we need to stop what we’re doing and do this new thing NOW NOW NOW! Ah, in short, no. This is super dangerous. I mean, yeah, I understand there are some new shiny things that are very attractive, but if you have a going business, it doesn’t make sense to completely abandon your past. Sit back. Take a deep breath. Have someone who’s more critical look at the new shiny. And, if they think there’s merit, and if it’s not counter to your purpose, and if you have enough money, then maybe, just maybe…you consider adding it to your line. Don’t fall for the ooh shiny.
- Example: the original Loki. DSD. Ahhhhhhh yeaaaaaahhhhh. No more of that stupid. Hence no MQA.
“So what always bad ideas have you been guilty of?” you ask.
Well, luckily I’ve taken a miss on #1 and #2. I don’t think this is due to any especial skill. If anything, I’m simply stubborn. “Affordable audio products made right here,” is something I had in mind since the beginning, and that hasn’t changed.
What can change, though, is the definition of “audio products.” Does this mean future line expansion? Maybe, and carefully. Again, see below. “Affordable” is similar. We already get some flack for $129-2799 DACs. But in the context of the market, Yggdrasil+ is still affordable.
#3 and #4? Again, I’m conservative in terms of money. I’ve worked for companies that bounced paychecks. I vowed never to do that, and we haven’t. I’ve worked for companies that were so profoundly cheap they “made the Indian ride the buffalo.” Our people are well-paid. Have our reserves gotten thinner than I’d like? Sure, in the midst of the global supply chain disruption, when we were buying everything in sight. Hence the sale. And let me say a hearty **** you to all the suppliers who forced us to take it when things were tight. This year isn’t so pretty for them. Things are slowing down. They’re looking desperate. And we remember.
#5? In addition to the whole Loki (original) thing, when I convinced everyone that it would be a good idea to do a DSD add-on DAC, I also screwed myself on that one, back in the Centric days. There was a short period in the world when corporate investment in Second Life seemed like a good idea. And me, being a science fiction writer, and being obsessed with this whole new cool metaverse development thing, took the company a bit too far down the path. We did some amazing stuff, including David Rumsey Maps, which was written up in MIT Tech Review, and stuff for HP, and alternate reality games, and maybe the largest event of its type at the time…but then cooler heads prevailed and budgets got cut and it hurt. A lot.
So what’s the commonality between all of these Always-Bad Ideas?
Desperation.
Bottom line, you’re scared. Wondering what’s over the horizon. Thinking you may be becoming irrelevant. Worried that a competitor may eat your business. And when you’re desperate, you do stupid things.
Stop. Deep breath. Find the most conservative guy in the company. Talk to them. Find the craziest guy in the company. Talk to them.
And then do something different from both.
And not Always-Bad.
Sometimes-Bad Ideas
Now we get tricky. Let’s venture into the land of ideas that can sometimes be good, and sometimes bad. Or good to start and bad later. These kind of ideas can include
- Bowing to standards.By “standards,” I mean things like MQA, ATMOS, USB, Bluetooth, WiFi, and a whole slew of possibly well-meaning, possible world-domination tech things that are typically billed as making your company’s life easier. As in, “we create a standard everyone can agree on, you support it, everything’s interchangeable, and everyone benefits.” Except, well, hmm, almost all of that. Let’s break it down:
- We create a standard. Actually, it’s more accurate to say, “we create a standard now, and an improved one later, and a different one later than that, an a super-duper one a bit later, and a super-duper-duper one that fixes the problems of all the old ones a bit later than that, wash rinse repeat. So if you’re signing up for a standard, know it will most likely be an evolving standard. That can still be fine. But know that this is a treadmill, not a couch. You’re gonna have to keep moving.
- Example: USB. USB 1.1. USB 2. USB 3. USB 3.1. USB 3.2. USB A. USB B. USB C. USB Micro. USB Mini.
- Example: Dolby. Pro Logic. Digital. HD versions (forgot how many). Atmos. 2.1 to 32.8.4 or whatever? On phones and in receivers and theaters?
- Everyone can agree on. LOL. Not really. This is what causes standards drift. Sometimes for good reason. Original USB was slow as balls. And the one-direction connector was stupid. And Dolby doing discrete surround made total sense. But in these changes, we get the push and pull of what people want, what they agree and disagree on. So things can change.
- Example: tell me the best practice for terminating a USB-C shield for ESD and EMI requirements. You’ll find a ton of engineers all yelling each other down with their own recommendations. You won’t find a hard-and-fast “do this” in the spec.
- You support it. Yeah, you support the standard. Even when it changes. Even when you don’t want it to change. That much is fairly true. The sting is in the unstated parts.
- Everything’s interchangeable. Oh that’s funny. Even funnier when you have an old printer and only USB A-C cables.
- Example: HDMI. Oh shoot me now, is it up to 8K/120Hz yet? Did your cheap de-embedder kill your 4K? How many cables have you had to replace? Are they still doing plugfests, where a bunch of manufacturers come together to see what works with what?
- Example: So what Bluetooth codecs does Apple support? Android? Today? On your 4-year-old phone? Which one is best? Uh-huh.
- Everyone benefits. Well. Yeah. Kinda. To a point. We’re part of the USB-IF. It’s necessary if you’re getting deep into USB development, like we did with Unison USB. It’s evolved into a standard that is pretty decent, as long as you’re using the latest connectors. But there’s still a lot of legacy to deal with. We haven’t engaged with others, so we’ll stop talking now.
- Summary? Standards may be for you. They may be necessary. But they are hardly standard and unchanging. Beware.
- Making things for others.When things get slow, it’s tempting to make stuff for other companies, especially if you have in-house production equipment or assembly lines that are in danger of being idle. And, for some companies, this can be a fantastic idea. Look at Foxconn. There are entire businesses that do nothing except make things for other people. But you have to be super-careful about this. If you decide to do some OEM (original equipment manufacturer) work, you need to remember:
- You now have bosses. If you’re used to doing your own thing, get used to working for someone else again. If you’re making stuff for other companies, they are the boss.
- Most bosses have stupid ideas. They can also have good ideas, but they’re also going to have their share of dumb.
- Bosses can get testy. They’re not going to be happy if the stuff you’re making for them is late or crap.
- Every second you’re spending on other companies is time you could be spending on yours. Is this the best use of your time? Maybe it is. But frequently it isn’t. Be careful.
- Sneaky business changes.Without even meaning to change the course of your business, you might screw yourself unexpectedly. I’m referring to things that sound simple, but have greater ramifications. Things like:
- Building an app. Doing an app for remote control sounds pretty cool and easy, right? Everyone’s doing apps. Heck, you might even be able to get ChatGPT to write it for you. Except suddenly you’re a software company. You’ll need to make sure your app works on all important platforms in all typical form factors…and you’re gonna need to update it when those platforms change. Are you ready to be a software company? Maybe not.
- Going wireless. Both Bluetooth and WiFi mean you’re going to be engaging in standards, and you may have a whole lot of codecs to choose from within those standards. Not only that, you’ll also get to meet exciting new people who will help you spend a ton of money to ensure your intentional radiator meets FCC requirements. Again, this can be fine if you’ve planned for it, but it can also be a massive time-sink you didn’t expect.
- Rapid expansion. Again, this can be good or bad. Rapid expansion can be very, very good, leading to excellent results, new opportunities, and new ideas. It can also be very bad, burning through cash, create false expectations, and set you up for failure. If you have an opportunity for rapid growth, I’d say “if you can afford it, take it!” But at the same time, don’t expect it to be your future. Don’t schedule those large runs out for the next 2 years. Don’t spend all your money on a palatial expansion that may never be used. Keep a sharp eye on results…and be ready for new opportunities.
- Taking operations for granted. Operating a business is tough—a lot tougher than you think. But, at the same time, it’s easy to get yourself tied up with needless paperwork and bureaucracy. So this is a weird one. Sometimes it’s best to take operations for granted—to let it ride, to not worry about how things are going on a micro scale. Sometimes that can get you in trouble. So how do you choose whether or not to tighten up and find out what’s going on? Two rules have served us well:
- You need better controls when the business is growing. Otherwise you’re gonna get in trouble. Our lack of a good ERP system bit us in 2022. Yes, it’s painful when you have a ton of other things to do, but this is when to do it.
- Nobody likes micromanagement. If a 90% view isn’t good enough, you’re in trouble—and you’re wasting time. If people are spending a good part of their workday serving the operations bureaucracy, something’s broken.
So which of these sometimes-bad decisions have we screwed ourselves with? All of them. Luckily not very many times.
With #1, we wasted time with DSD, as noted. But we did avoid MQA and a bunch of Bluetooth codecs and the entirety of surround. And we correctly engaged with USB, in order to get Unison USB done. So pretty good.
With #2, yeah, we made some stuff for other people, but mainly because I was excited about the idea and it wasn’t a ton of work. We also took zero money from them up front, which meant when they came with their own silly ideas, we could simply ignore them. Maybe we wasted some time on this, but I also learned a bunch of stuff while doing it. Heck, the Jotunheim R introduced efficiency and power delivery features that are in a whole bunch of products.
#3—yeah, early on, the Freya and such were gonna have app-based remotes. We wasted a decent amount of time on that. Killed when we asked some people about it and they almost universally hated the idea of getting their phone to use their preamp.
4? Oh yeah, we’ve been through many rapid expansion phases. Some have been handled better than others. The latest was recently, trying to meet demand in the midst of supply chain issues. We’re working through that now, and with ERP in place it’ll be harder to get into that kind of trouble again.
5? It’s hard to get this balance. We seem to have a good thing going right now. But we’ll see how that develops.
So yeah. Lots of mistakes. As I said, I do lots of stupid things and have my own dumb ideas. Anyone who tells you something different is, ah…well, let me put this politely: fooling themselves.
But Again, Nobody Cares
So why all this writing about failed technologies and bad ideas? To make this point: nobody cares.
If you’re getting into business, keep that in mind when you make a mistake: nobody cares. They don’t care if you backed the wrong tech, bought too many transformers, mis-planned your growth, or took on too many new things that you can’t deliver.
Aside: well, they don’t care unless you get yourself into a big enough pickle that you end up having a sale. Then maybe it matters. But do a second and you’re a “sale” company. Have fun with that.
Nor should they care.
You wanted this. You created it. You made your decisions.
And, if you’re lucky, you’ve created a product or a service that is truly useful, that people want, that is based on a why or a purpose, and supported in such a way as to be around for a long time. That’s it. It’s as simple as that.
So yeah, going back to the opening: be careful about bad decisions. We’ll see if Tidal keeps their promise to replace MQA with FLAC. And MQA, even if they get out of receivership, is about to find out the phrase “from a formerly bankrupt company” is not a strong selling point.
