Skullcandy case study

Managing New Product Development Teams Skullcandy: Developing Extreme Headphones1

In 2001, Rick Alden was riding up a ski lift and listening to music on an MP3 player when he heard his phone ringing, muffled in the pocket of his ski jacket. He fumbled around with his gloved hands, trying to get to the phone before it stopped ringing, and at that moment he thought “ why not have headphones that connect to both a cell phone and an MP3 player?” 2 In January of 2002 he had his first prototype built by a Chinese manufacturer, and by January of 2003 he launched his company, Skullcandy. 3

Building an Action Sports Brand

Alden had an extensive background in the snowboarding industry, having previ-ously founded National Snowboard Incorporated ( one of the first companies to promote snowboarding) and having developed and marketed his own line of snowboard bindings. His father, Paul Alden, had played many roles in the indus-try, including serving as the president of the North American Snowboard Association, which helped open up ski resorts to snowboarders. His brother, David Alden, had been a professional snowboarder for Burton, and a sales repre-sentative for several snowboard lines. Thus when Alden began creating an image and brand for the headphones, it only made sense to create a brand that would have the kind of dynamic edginess that would attract snowboarders and skate-boarders. Alden could also use his deep connections in the snowboarding and skateboarding worlds to line up endorsements by pro riders and distribution by skate and snowboard shops. As Alden notes, “ I’d walk into snowboarding and skateboarding shops that I’d sold bindings to or that I’d known for 15 years, and say, ` Hey, man, I think you ought to sell headphones.’” Soon he was developing headphones that were integrated into Giro ski and snowboard helmets, and MP3- equipped backpacks and watches. The graphic imagery of the brand— which draws from hip- hop culture and features a prominent skull— helped to turned a once placid and commoditized product category into an exciting and important fashion accessory for action sports enthusiasts.

The company grew quickly. By 2005, the company broke $ 1 million in sales, and in the following year sold almost $ 10 million worth of headphones and accessories. By 2007, Skullcandy’s products were selling in Best Buy, Target, Circuit City, and most college bookstores in addition to the core market of action sport retailers, for total revenues of $ 35 million, greatly exceeding even the stretch targets the company was shooting for. In 2008, almost 10 million people purchased Skullcandy headphones for total sales of $ 86.5 million, and as of April of 2009, the company was on track to exceed $ 100 million in sales. 4 The company was careful in its approach to selling to the mass market, care-fully distinguishing between products that were sold to the core channel versus to big box retailers. 5 Alden’s philosophy was that “ Conservative guys buy core products, but core guys will never buy conservative. In other words, we’ve got to be edgy and keep our original consumer happy, because without him, we’ll lose people like me— old guys who want to buy cool young products too.” 6 In 2009, the company began to target the hip- hop music aficionado market by partnering with key music industry veterans such as Calvin “ Snoop Dogg” Broadus and Michael “ Mix Master Mike” Schwartz of the Beastie Boys. The collaboration with Snoop Dogg resulted in the “ Skullcrusher”— a headphone with extreme bass amplification perfect for listening to rap music. The collab-oration with Mix Master Mike was intended to produce the “ ultimate DJ headphone.”

Developing the Ultimate DJ Headphone To begin designing a set of headphones that would uniquely target disc jockeys/ turntablists, Skullcandy assembled a team that included:

• Mix Master Mike ( who would lend insight into the key factors that would make the “ ideal” DJ headphone, as well as lending his own personal design inspirations)

• Skullcandy’s Director of Industrial Design, Pete Kelly ( who would translate the desired features into engineering specifications)

• Skullcandy’s Vice President of Marketing and Creative, Dan Levine,

• An external industrial design company ( which would be able to more quickly transform the team’s ideas into photorealistic renderings)

• Skullcandy Product Manager Josh Poulsen ( who would manage the project milestones and communicate directly to the factory in China where the product would be manufactured)

• Skullcandy’s “ creatives” ( people with backgrounds in graphic arts or fine arts who would explore the potential color palettes, materials, and form factors to use) The small size and informal atmosphere at Skullcandy ensured close contact between the team members, and between the team and other Skullcandy per-sonnel. For example, the director of industrial design and the art director shared an office, and all of the graphic designers worked in a common bullpen.

7 The team would schedule face- to- face meetings with Mix Master Mike and the external industrial design company, and Josh Poulsen would travel to China to have similar face- to- face meetings with the manufacturer. In the first phase, the team met to analyze what functionality would be key to making a compelling product. For the DJ headphones, the team identified the fol-lowing key factors that would help to significantly improve headphone design8:

• Tough, replaceable and/ or washable ear pads made of antimicrobial materials ( ear pads were prone to getting soiled or torn)

• Headphones that could be worn by “ righty” or “ lefty” DJs ( DJs typically have a preference for leaning on one side while they work, and this side determines the optimal cable location)

• Sound quality that was not too clear, not too bass, and not too muddy ( DJs typically were not looking for the clear quality of studio sound)

• Coiled cord or straight cord options ( many DJs preferred coiled cords whereas mass market consumers typically preferred straight cords) Above all, the team had the mandate given by Alden to create “ headphones that don’t look like headphones.” The product’s aesthetic design would be heavily influenced by Mix Master Mike. As noted by Dan Levine, “ When you attach yourself to someone iconic, you try to figure out what inspires their form sensibilities. For example, Mike likes transformers, Japanese robots, Lamborghinis, furniture by B& B Italia . . . we use these design elements to build inspiration boards.” 9 The team initially met for three straight days in Mix Master Mike’s studio. Then, after the team had created 6 to 12 initial sketches, they worked to narrow the list down to three of the best, and then fine- tuned those until they had one best sketch. The external industrial design firm created photorealistic renderings that precisely portrayed what the end product was to look like. At this point marketing people could be brought into the team to begin developing a marketing strategy around the product. The marketing team used “ sneak peaks” of renderings and nonfunctioning proto-types to gain initial sales contracts. The next phase was an iterative process of commercialization and design refinement. According to Levine, “ That’s when it feels like you’re swimming in glue because it never happens fast enough. The design phase is exciting. Once you have that design you get impatient for it to come to market, but you can only work as fast as manufacturing capabilities dictate, and building technical prod-ucts takes time.” 10 First, CAD files would be brought to China where a manufac-turer would use a stereolithography apparatus ( SLA) to create prototypes of each part of the headphone in a wax resin. As described by Alden, “ you can’t see the lasers – the part just rises up out of this primordial ooze. Then you can sand it down, paint it, screw it to your other parts. This part will end up costing $ 300 compared to the 30 cents the part will eventually cost when it’s mass- produced using injection molding, but it’s worth creating these SLA parts to make sure they’re accurate.” 11 SLA versions of the products were also often taken to the trade shows to solicit customer feedback and generate orders. Every week or two, the Product Manager would need to talk to the Chinese factory about build-ing or modifying SLA parts, until eventually a 100 percent complete SLA product was achieved. At that point, it was time to begin “ tooling” ( the process of build-ing molds that would be used to mass produce the product). This phase took four to six weeks to complete and was expensive. Several samples would be produced while final modifications were made, and then once a perfect sample was obtained, the tools would be hardened and mass production would begin. As Alden described, “ after you’ve got everything in place— after you’ve made the first one, then it’s just like making doughnuts.” 12 All of the steps of the project were scheduled using a Gantt chart ( a type of chart commonly used to depict project elements and their deadlines). Project deadlines were determined by working backward from a target market release date and the time required to manufacture the product in China. 13 In general, the firm sought to release new products in September ( before the big Christmas sales season), which required having the tooling complete in July.

Team Roles and Management

Josh Poulsen, the Product Manager, was responsible for coordinating all of the team members and making sure all of the deadlines were met. Every major design decision was passed up to Dan Levine for approval, and when the design was ready for “ tooling” ( being handed off to manufacturing), it had to be approved by Rick Alden, as this phase entailed large irreversible investments. Most of the people at Skullcandy were involved with many projects simultane-ously. As Levine emphasized, “ This is a lean organization. At Nike you can work on a single or a few projects; when you have a brand that’s small and growing fast, you work on a tremendous number of projects, and you also hire outside talent for some tasks.” 14 According to Rick Alden, “ We used to try to manage everything in- house, but we just don’t have enough bodies. We’ve discovered that the fastest way to expand our development capacity is to use outside developers for portions of the work. We’ll develop the initial idea, and then bring it to one of our trusted industrial design firms to do the renderings, for example.” 15 Team members did not receive financial rewards from individual projects. Instead, their performance was rewarded through recognition at monthly “ Skullcouncil” meetings, and through quarterly “ one touch” reviews. For the quarterly reviews, each employee would prepare a one- page “ brag sheet” about what they had accomplished in the previous quarter, what they intended to accomplish in the next quarter, and what their strengths and weaknesses were. These reviews would be used to provide feedback to the employee, and to deter-mine the annual bonus; 75 percent of the annual bonus was based on the indi-vidual’s performance, and 25 percent was based on overall company performance. According to Rick Alden, “ In the early days, we did things very differently than we do now. Everyone received bonuses based on overall performance— there were so few of us that we all had a direct attachment to the bottom line. Now with a bigger staff, we have to rely more on individual metrics, and we have to provide quarterly feedback so that the amount of the annual bonus doesn’t come as a surprise.” 16 The company also relied on some less conventional in-centives. Each year the board of directors would set an overarching stretch target for revenues, and if the company surpassed it, Alden took the whole com-pany on a trip. In 2006, he took everyone heliboarding ( an extreme sport where snowboarders are brought to the top of a snow- covered peak by helicopter). When the company achieved nearly triple its 2007 sales goal ( earning $ 35 million instead of the targeted $ 13 million), Alden took the entire staff and their families to Costa Rica to go surfing. 17 According to Alden, the biggest challenge associated with new product development has been managing three different development cycles simultane-ously. “ You have your new stuff that you’re coming out with that you haven’t shown anyone yet— that’s the really exciting stuff that everyone focuses on. Then you have the products you have just shown at the last show but that aren’t done yet— maybe the manufacturing process isn’t approved or the packaging isn’t finished. You’re taking orders but you haven’t yet finished the develop-ment. Finally, you have all of the products you’ve been selling already but that require little improvements ( e. g., altering how something is soldered, improving a cord, changing the packaging). We have so little bandwidth in product devel-opment that the big challenge has been managing all of these cycles. We just showed a product in January of this year [ 2009] that we still haven’t delivered and it’s now May. We were just too excited to show it. But that’s risky. If you don’t deliver on time to a retailer, they get really angry and they won’t keep your product on the shelf.” 18

Discussion Questions:

1. What are some of the ways that Skullcandy’s size and growth rate influence its development process? 2. How would you characterize Skullcandy’s new product development team structure?

3. What are the advantages and disadvantages of having Skullcandy employees serve on several project teams simultaneously?

4. What are the challenges associated with measuring and rewarding the performance of Skullcandy development team members?

5. If you were advising the top management of Skullcandy about new product development processes, what recommendations would you make?

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