Beyond Bose WHO WOULD PAY $125,000 FOR STEREO SPEAKERS? WHO WOULD MAKE THEM?
(FORTUNE Small Business) – David Wilson is no ordinary entrepreneur. The Ferrari-driving Mormon likes to read about epidemiology in his spare time and keeps a Mexican black king snake in a cage in his office. But his true love is running Wilson Audio, which builds the world's most expensive stereo speakers for stars such as Wesley Snipes and Lenny Kravitz. The company is way out on the sonic fringes, crafting stereo speakers with an attention to detail that is nothing short of fanatical. Such meticulousness has allowed Wilson Audio to thrive in a rarefied market niche even during bumpy economic times. And the company doesn't just dazzle audiophiles and get raves from hi-fi mags. It also regularly earns plaudits from the likes of Apple CEO Steve Jobs--a Wilson speaker owner and quality nut himself--who has long admired the company's commitment to excellence in everything from engineering to customer service.
Wilson's quest for quality has paid off handsomely. In 2002, the company says, it managed a $350,000 profit on sales of $7 million. At the same time, Wilson Audio owns the ultra-high-end market for speakers (north of $10,000), with a 50% share of that category. In that nosebleed niche, it doesn't even compete with Bose or Bang & Olufsen, facing off instead against fellow über-high-enders like B&W, Dyn Audio, and JM Lab. The company builds a limited number of speakers, but its various models sell for very steep prices, often in excess of $100,000.
Wilson Audio reports it has just come off one of the best quarters in its history, with 15% growth year over year in both the top and bottom lines. The fact is, the company is insulated from economic turbulence, thanks to a customer base somewhat impervious to hard times. To paraphrase F. Scott Fitzgerald, Wilson Audio buyers--they're not like you and me. For instance, Netscape founder Jim Clark just plunked down $125,000 for Wilson's newest creation, the X-2. "I think Wilson Audio makes the best speakers in the world" is his succinct explanation for why they're worth it.
Founder David Wilson is that rare person who can precisely date the moment he was first visited by his life's passion. On Christmas Eve 1958, 14-year-old Wilson was drifting off to sleep when some carolers perched themselves on his front stoop. They just kept going, song after song after song, which struck him as odd. He looked out his window and saw that rather than live carolers, as a prank a neighbor had set up a Klipschorn speaker. "It had fooled me," says Wilson. "Right then, I was infected with the audiophile bug."
The young Wilson was an inveterate reverse engineer, dismantling friends' speakers to see how they worked. Frustrated by the inevitable quality shortcomings, he also began crafting his own out of the guts of household appliances. Over time, however, he became convinced that speaker design was no way to make a living. At Brigham Young University he abandoned electrical engineering in favor of zoology, planning to do cancer research using lab animals. After graduation he worked at Abbott Labs for a few years, managing clinical drug tests, and then moved on to Cutter Labs, where he designed medical devices, including a kidney dialysis machine.
But Wilson remained a kind of weekend audiophile. In his spare time he began using sophisticated equipment to make pin-drop-precise recordings of church choirs. "I have a listener-centric perspective," he explains. "The accurate reproduction of music is my art form." He would press his recordings into LPs, and in 1977 he started selling specialty records, moving at most a few thousand copies of each title. Low sales didn't faze Wilson; this was just a sideline to his "Peter Parker job" at Cutter Labs. His real frustration was that despite the fidelity of his church recordings, he couldn't find commercially available speakers to do them justice. Wilson's solution was to create his own.
He set himself to a grand challenge--a kind of hi-fi Fermat's theorem-- of figuring out how to align the time domain. What that means in normal-speak: Because speakers have separate woofers, tweeters, and midranges, the sounds they generate arrive at listeners' ears slightly out of phase, milliseconds apart, whereas in nature, sounds are integrated and travel simultaneously. Wilson puzzled out a solution to that quandary and ultimately received a patent for his mental labors. But speakers capable of aligning the time domain were a rough beast, consisting of four 78-inch towers and weighing 1,100 pounds. When Wilson lugged them to various trade shows to demonstrate his records, he found that there was intense fascination with his ungainly but ungodly precise speakers. People began suggesting that he sell his invention. Thus was born the WAMM, a speaker that is truly legendary in snooty audio circles. He built the first ones in his Novato, Calif., home with the help of his family. Showing an early disposition toward obsessive behavior, he furnished his four children with time cards and in lieu of an allowance paid them by the job lot. "I helped build speakers, answered the phones, swept up, delivered brochures, everything," says son Daryl Wilson.
In 1982, Wilson sold five WAMMs for around $30,000 a pair. On the strength of that performance, he quit his day job designing medical devices for Cutter Labs. But 1983 was a bust. He sold a single pair and was soon burning through his life savings. Moving inventory wasn't his only problem. The young entrepreneur was beginning to realize that he did not exactly have a fine-tuned business model. The price of Wilson's speakers--while astronomical--was barely enough to cover costs. WAMMs were so specialized that Wilson had to travel to each customer's home to oversee installation. Moreover, the price didn't adequately factor in marketing, phone calls, and other incidentals. "At the outset I had a hobbyist's mentality," says Wilson. "If people like what you're doing, you're kind of flattered. If people actually want to buy your wares, you wind up charging them what it cost to make them."
Necessity--and bill collectors--forced Wilson to alter his approach. Going against his instincts ("I'm a scientist. How commercial!"), he began introducing smaller and--in Wilson Audio terms--cheaper speakers. But he was unwavering about remaining focused on that ultra-high-end slice of the market. Today Wilson's least expensive model is the Sophia, which sells for $11,700 a pair. He also began charging more for his flagship WAMMs to account for the real costs and turn a profit besides. Over the years their price has more than kept pace with inflation, soaring to $225,000 earlier this year. (WAMM production is currently suspended while Wilson updates various components.)
Hewing to the ultra-high-end strategy proved canny. Once, at a Las Vegas trade show, Wilson recalls being approached by an executive from Sony. "I'm glad I'm not your competitor," the man said. Wilson demurred, saying he was also glad that Sony was not his competitor. "There's a very pragmatic reason for choosing the absolute high end," says Wilson. "We've selected a small slice of the market where the big predators aren't interested in going. I have a degree in zoology, so I know a thing or two about how niches can provide safe havens."
During the early years Wilson Audio was also dogged by quality problems. When it came to a speaker's precision electronic components, David Wilson was able to oversee much of the work himself. (Even with the introduction of "cheaper" models during the early 1980s, the company still sold fewer than 100 units per year.) By necessity, other tasks had to be farmed out. Speaker cabinets, for example, were assembled by a kitchen-cabinet maker, whose work fell well below Wilson's exacting standards. The solution came in a 1991 move to Provo, Utah, where Wilson set up his headquarters and a dedicated manufacturing plant. He was able to buy a parcel of land cheaply from Brigham Young University and also landed a couple of attractive loans, including one designed to draw high-tech outfits to Utah.
Today Wilson Audio operates out of a 26,000-square-foot facility. Having consolidated most of the assembly process in-house, David Wilson has been free to indulge his mania for quality. Because the company is small--just 55 employees--he is able to indoctrinate his workers one by one. Rather than relying on the work of W. Edwards Deming or some other quality guru, Wilson has created his own homegrown mantras, such as "levels of quality." That concept is predicated on the notion that if buyers choose to disassemble their speakers--as Wilson was fond of doing in his youth--they will be delighted even by touches deep inside the product's innards. For example, Wilson Audio speakers are held together by expensive austenitic stainless-steel hardware, often used in the aerospace industry.
Before any Wilson audio speaker is shipped, a "birth certificate" is prepared. This document includes results of precision tests done on the various components and interconnects. If a speaker malfunctions, the certification program makes it easy to identify the culprit. But incompetent workers are rarely a problem for Wilson Audio. As one of Utah's handful of high-tech outfits and one that offers above-average pay, the company has been able to attract a workforce capable of meeting exacting quality standards. For extraordinary performance, Wilson occasionally hands out spot bonuses in the form of a pair of speakers--and given the price of its products, that's a $10,000 bonus, minimum.
To get the best out of his workers, Wilson pounds home the idea that every detail of the speaker affects its sound, and without great sound the company is nothing. Take, for instance, the wiring. It would be a lot easier to buy off-the-shelf wiring, but Wilson's workers fashion their own copper wires. Why? "Sound quality," explains Vern Credille, head of R&D. "Wire is a major place where frequencies can start to smear." Apparently 14-gauge lamp cord--the speaker-industry standard--simply will not do for Wilson Audio. Rather, the company makes special wiring, which involves wrapping individual strands of copper around a Teflon core. The interconnects for the individual components--woofer, tweeter, and midrange--are customized to various ideal thicknesses. At any given time, there's a Wilson Audio employee or two braiding ropes of wire; they look something like copper-colored licorice twists.
Part of Wilson's cachet is that he's willing to spend whatever it takes to make the best speakers in the world. Most audio companies--even at the high end--tend to make speaker cabinets out of fiberboard. While cabinets aren't as vital to sound reproduction as, say, a clarion-clear tweeter, they still play an important role. (Poorly made speaker cabinets create distortive vibrations.) Wilson makes use of exotic materials, such as phenolic resin-based ceramics, the same stuff that's used by Intel to reduce tremors during chip fabrication. The ceramics are 14 times as expensive as fiberboard.
When painting his speaker cases, Wilson follows a seven-step process that is more vigorous than that employed by Rolls-Royce, a benchmark for automotive paint jobs. Often buyers send along paint swatches or photographs of their sports cars. Wilson Audio works diligently to match the colors. But why even do that? Hasn't the company identified enough technical challenges? There's method to Wilson Audio's madness. Turns out that less than 1% of the purchasers of its speakers are women. (Think hard: When was the last time you saw a woman playing air guitar?) But behind many of the gadget-mad man-children who covet Wilson Audio's offerings are women who have to okay the purchase. "We're well aware of the wife-acceptance factor," says Wilson. "If a speaker is going to sit in a room in a house, it had better look beautiful."
Wilson's drive for perfection doesn't end at the factory floor. His sales staff forms intense relationships with the handful of high-end audio shops where their speakers are sold. Wilson speakers are available in 46 stores in the U.S. and Canada, including such sonic meccas as Innovative Audio in New York City and Sound Components in Coral Gables, Fla. They are also sold at dealers in about 35 other countries.
Wilson and his sales team regularly drop in on dealers armed with an array of specialized sound-wave analysis equipment and run tests designed to improve the acoustics in customer listening rooms. Wilson reps, for example, might suggest precise placement of vibration-absorbing paneling. "Most manufacturers don't engage with the same thoroughness and involvement," says Elliot Fishkin, owner of Innovative Audio. Fishkin adds, "In terms of quality, I'd put them at the top, with a large margin between them and second place."
Of course, you can have superbly engineered speakers. They can sound sublime in a showroom. But the real test comes when a customer brings them home. "Our speakers have the unfortunate disadvantage of having to work in people's houses," says John Giolas, Wilson's marketing director, "and there's a huge variation from one to the next."
Not wanting to leave anything to chance, the company trains the dealers to optimize speaker performance in customers' homes. One of the techniques, dreamed up by David Wilson himself, is a so-called voicing procedure. The fine points get pretty technical, but in essence dealers case the room in which a customer plans to install speakers, talking as they walk and looking for the spot where their voice sounds most natural. It's a little like the "Can you hear me now?" Verizon guy. "It may sound silly," says Charles Santmire, owner of the Sound Environment stores in Omaha and Lincoln, "but Wilson speakers are so good that a quarter-inch change in placement can make a difference to a discerning listener."
If you are one of those lucky enough to afford a pair of Wilson's $225,000 WAMM speakers, you get the ultimate in customer service: a visit from the CEO himself. David Wilson has built and sold just 53 WAMMs over the years, but that has required him to travel to China, Indonesia, and Brazil, among other places, to install them. On those occasions when he encountered buyers who shared his passion for music and engineering, he sometimes chose to hang around for as long as three days, making sure everything with the WAMMs was just so. Wilson recalls the time he traveled to Hong Kong, only to learn upon arrival that his buyer was a local underworld figure. "Talk about pressure to do a good job," he says.
Now for the big question: Do Wilson Audio speakers truly sound better than other brands? The answer: That's a tough question. After all, how could one conceivably separate actual performance from the hype, the cachet, the intimidating sticker price, and the showy engineering feats? (For the author's amateur attempt to do so, see box.) Well, the only way to answer the question is to turn to the people who really matter: the customers. Alfred Chuang, 41, is founder and CEO of BEA Systems, a $1 billion San Jose firm that designs software to support the e-commerce transactions of companies such as FedEx and Amazon.com. So he fits the typical Wilson Audio demographic. Recently Chuang built an 800-square-foot home theater, optimized specifically for his WAMMs. He enjoys listening to Liszt piano concertos and watching IMAX productions of Mario Andretti racing Indy cars. "Absolutely, there's a difference," he says. "I own a lot of other speakers. But you just close your eyes, and a Wilson is a Wilson. The way every note is reproduced, it's unbelievable."
What's next for Wilson Audio? There's talk about a mysterious new speaker that Wilson is supposedly developing. Its internal code name (Arabesque) leaked out, as did a rumor that the price would be above $300,000--all of that leaving the audiorati agog. But on this subject, Wilson is staying tight-lipped. "All I'll say," he allows, "is that my goal remains to build products that are so good that our competition is rendered irrelevant." Are they listening?