Now Hear This

Every business needs two things, says Skullcandy CEO Rick Alden: inspiration and desperation. In 2001, the Park City, Utah-based Alden had both. He’d sold two snowboarding businesses, and he was desperately bored. But he had an idea: He wanted to make a new kind of headphone.

“I kept seeing people missing their cell phone calls because they were listening to music,” he explains. “Then I’m in a chairlift, I’ve got my headphones on, and I realise my phone is ringing. As I take my gloves off and reach for my phone, I think, It can’t be that tough to make headphones with two plugs, one for music and one for your cell phone.” Alden described what he wanted to a designer, perfected a prototype, and outsourced manufacturing to China.

Alden then started designing headphones into helmets, beanies, backpacks – anywhere that would make it easy to listen to music while snowboarding. “Selling into board and skate shops wasn’t a big research effort,” he explains. “Those were the only guys I knew!”

Alden didn’t want to be a manufacturer. And by outsourcing, he’d hoped he could get the business off the ground without debt. But he was wrong. “You can’t make money without product, and you can’t get product without cash. So I asked my wife, Holly: Can I put a mortgage on the house? She said, ‘What is the worst thing that can happen? We lose the house, we sell our cars, and we start all over again.’ I definitely married the right woman!”

For the next two years, Alden juggled mortgage payments and payments to his manufacturers. “Factories won’t ship your product till they get paid,” he says. “But it takes four or five months to get a mortgage company so upset that they knock on your door. So we paid the factory first. Twice, a sheriff came with eviction papers. When we got money from retailers, we’d pay the mortgage arrears.”

Gradually, non-snowboarders began to notice the colourful headphones. In 2006, the company started selling them in 1400 FYE (For Your Entertainment) stores. “We knew that nine out of ten people walking into that store would be learning about Skullcandy for the first time. Why would they look at brands they knew and take home a new brand instead? We had agreed to buy back anything we didn’t sell, but we were dealing with huge numbers. It’d kill us to take back all that product.”

Alden’s fears faded as Skullcandy became the No. 1 headphone seller in those stores and tripled its revenue to $120 million in one year. His key insight was that headphones weren’t gadgets; they were a fashion accessory. “In the beginning,” he says, “that little white wire that said you had an iPod – that was cool. But now wearing the white bud means you’re just like everyone else. Headphones occupy this critical piece of cranial real estate and are highly visible.”

Today, Skullcandy is America’s second-largest headphone supplier, after Sony. With 79 employees, the company is bigger than Alden ever imagined. “Mistakes now are big mistakes. We had 100,000 iPod and iPhone cases returned. We’d rushed our first effort – it wasn’t a beautiful case. But our second series is Best Buy’s bestselling one. Though we’re still sitting on 111,000 cases, I’ll think we’ve succeeded when we can link together more small victories like that.”