15 Minutes With...: Bay Audio Founder and CEO Ira Friedman
Ira 2014: So why did you start Bay Audio?
Ira 1999: I had left Boston Acoustics as VP Sales and Marketing in 1998 and I had two choices: start a custom-oriented speaker company focused on CI dealers without retail locations, or work for someone else. I just couldn’t see working for someone else.
Ira 2014: Let’s review some of your prognostications from 1999, and see if they came true.
Ira 1999: Well, I felt the dedicated CI dealer’s business model was a shift from the old retail model. It needed product, pricing, marketing and services unique for this new way of doing business.
My initial product plan was easy: Bay Audio’s product line was always driven by the
“Krupps Coffee Maker Principle,” which states a product speaks of its own performance. A product built of higher quality materials, with a keen focus on performance will serve the customer better, even when priced above the competition. A shopper at Target sees a Krupps coffee maker sitting next to a Mr. Coffee. The Krupps is
simpler, more elegant, heavier, built to a higher level of precision, and it costs more.
The discriminating customer chooses the Krupps – despite being unable to test its coffee-making abilities—because the product is apparently better than the competition.
Our product design focuses on better materials—like a healthy reliance on aluminum, metalized plastic, HDF—
higher manufacturing precision, and an obsession with
CI dealers don’t employ double-blind demos to sell speakers, they rely on the manufacturer to give them a better solution. I want the dealer to grab a Bay Audio product, hand it to the client and say, “look, you can see this is built better, Bay Audio takes this stuff seriously. This is why it sounds better.”
Ira 2014: That sounds admirable. But it limits your
Ira 1999: Indeed. But I can sleep better knowing I’ve
created a higher value speaker.
Ira 2014: You’re right—you will sleep better. What other decisions did you make in the early days?
Ira 1999: In my role at Boston Acoustics, and as President of Snell, I found that fewer than 50 percent of our dealers were taking early pay discounts. When you consider most CI dealers earn less than 6% Net, those early payment discounts could represent half a dealer’s net profit for the year. That’s scary.
I wanted to guarantee that Bay Audio dealers always got their early pay discounts, so we implemented automatic credit card and EFT payment options. We took the guesswork out of bill paying. We were the first vendor to do this, and it’s served our dealers—and us—well. When a dealer nets out their Bay Audio margins, they’re consistently earning significantly more than the industry average.
Ira 2014: How is that possible? (Of course I know the answer, I’m just getting you to respond.)
Ira 1999: Bay Audio follows a strict specialty distribution policy. It’s something Frank Reed drummed into my head at Boston Acoustics. He’d say, “the key to success is year-over-year
consistency in channel management.” So we hand select our dealers, give them plenty of marketplace to roam, keep our MSRP’s unpublished, and work really hard for the dealer’s profitability. Dealers can charge appropriately without undue competitive pressure, earn a substantial margin and be guaranteed their discounts. That was a guiding principle of Bay Audio from day one.
Now let me ask you a question. What did I miscalculate?
Ira 2014: I didn’t predict how the rise of automation, lighting and shades would negatively impact the acoustic performance of a system. And it has. Clients have a discrete budget—there’s only so much they can spend. Dealers began shifting budget dollars away from performance over to control. I think performance is paramount—clients are not in love with their remote, they’re in love with their theater, their backyard system, their whole house music. As dollars shifted from performance to control, dealers woke up to find their profitability began to suffer.
Ira 1999: Why?
Ira 2014: Because control is inherently less profitable than audio. Product margins are lower, design and installation costs are higher, and service costs chew up a tremendous amount of profit. As profitability decreased, dealers sought margin dollars wherever they could find them. Which gave rise to the $75 in-ceiling speaker that sells for $600 MSRP. I would never have imagined the marketplace allocating so much money into control at the expense of performance.
Ira 2014: But cheer up, 1999. I believe we’re in a Performance Renaissance. Discriminating clients and savvy dealers are moving back to high-performance sound and video quality.
Ira 1999: Any other miscalculations?
Ira 2014: Yeah. I never thought Bay Audio would be manufacturing as much as we do. We build over 70% of our products right here in San Diego, driven by the demand for custom solutions and precision manufacturing. We make custom soundbars, custom theater solutions, and design and build one-off solutions. We build all our Live-Wall invisible speakers in-house, because our patents and technology require watchmaker-like skills in order to achieve such high performance. Just to let you know, I like that we build in San Diego. There’s something satisfying about watching product move down the line. And the guys get a kick out of building the super-custom products. We’ve built one-off tower speakers in polished brass, we’ve built 100-inch-long soundbars with theater speakers, and we’ve even built disco-volume outdoor speakers for a rooftop party patio.
Ira 1999: So let me ask you something. Is all this work going to be
Ira 2014: It’s been 15 years, and it sure doesn’t feel like work! •
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