Sue Sillitoe writes...
Phil Dudderidge says he has learned a great deal from his experiences as the chairman and founder of Focusrite – but to put those lessons into context, you have to look back at what came before.
"Prior to acquiring Focusrite, I spent 15 years running console manufacturer Soundcraft," he says. "That company grew like Topsy because we were entering a market which hardly existed when we started in 1973. No one else had live sound mixers so we were there right at the beginning. Of course there were big studio consoles – Rupert Neve was one of the people building those. Rupert's consoles were always iconic and in a different league to ours, so it was paradoxical that, after selling Soundcraft in 1988, I got involved in a company he had founded."
The original Focusrite was started by Rupert Neve in the mid-1980s, and one of its first contracts was building extensions to the Neve consoles at AIR Studios. Soon, other people were asking Rupert Neve to build consoles – and, according to Dudderidge, that's when things got out of hand.
"These were big projects, and the original Focusrite company wasn't structured to deal with them," he says. "Only two consoles were delivered – one to Master Rock and one to Electric Lady – before the company went into liquidation."
Dudderidge, who had money in the bank from the sale of Soundcraft, bought the assets from the liquidator.
"When I sold Soundcraft, I was planning to do something completely different," he says. "However, this opportunity came along and I got drawn into it. I was turning 40 and was too young to retire, plus I was seduced by the idea of big consoles. In hindsight, it wasn't the best investment decision considering where the market went."
The demise of the large console market taught Dudderidge a thing or two about good and bad investments, but buying Focusrite didn't turn out all bad, and the positive lessons he learnt have stayed with him to this day.
"Never make the same mistake twice – that's definitely something I've learnt," he says. "We acquired Focusrite as a big console business, but it was the sale of outboard units that gave us immediate cash-flow. Focusrite never built those units in-house, so we were able to restart the manufacturing process very easily using existing subcontractors. Looking at this model, I realised it was a very good one and decided to stick with it.
"At Soundcraft, we'd had our own factory and that had always been my Achilles heel. Running a factory was the last thing I wanted to do, so I jumped at the opportunity to operate this new company differently. Subcontracting gives you much more flexibility. We're no longer putting the cart before the horse and doing things just to keep a big factory busy."
Another lesson Dudderidge has learnt over the last 25 years is the value of acquisitions and partnerships.
"You have to keep your eyes open for changes in the market and look out for new opportunities," he explains. "We learnt this when we acquired Novation in 2004. We thought keyboard controllers were a good direction to go in, and we had already identified Novation as a potential sister brand before they ran into trouble and we bought them. We managed to save the brand by absorbing it into Focusrite and it has become very successful."
Dudderidge adds that Focusrite's partnership with Digidesign was also valuable. The two companies began working together in the late 1990s when Focusrite designed TDM plug-ins for Digidesign's Pro Tools. This provided the foundation for other joint projects including the M Box audio interface, launched in 2001.
"Our partnership with Digidesign was highly significant and it taught us not to turn our backs on new opportunities," Dudderidge says. "M Box sold for $495 and at its peak Digi was selling 6,000 of them a month. Initial sales projections had been for 1,000 a month so we were pretty pleased with that. It was like having a hit record for years."
Focusrite also designed the Pro Tools hardware controller, Control 24, which taught Dudderidge and his then-managing director, Simon Blackwood, to look beyond the UK for manufacturing in order to reduce costs.
"We took responsibility for establishing production, and, to stay within the parameters of the budget, we used a contract manufacturer in China," he explains. "That was the first time we had manufactured anything there and it's been a huge success. Since 2002 we've made everything in China using trusted partners who give us great quality and service."
One might ask, “What about the UK?” Doesn't he feel any responsibility for the demise of its manufacturing base?
"No, because sadly the UK is not a country of contract manufacturers and China is," he says. "During the early 1990s, when we first acquired Focusrite, we designed a new console based around Rupert Neve's ISA110mic pre and EQ module. We made these in the UK and eventually sold 10 consoles around the world. The last one was incredibly hard to sell, which is why we stopped making them. They were obsoleted by technological changes, but also by the cost of British manufacturing, which was too expensive to allow us to compete effectively on the global stage.
"People simply couldn’t afford the high cost of producing stuff here."
Although big consoles were what attracted Phil Dudderidge to Focusrite, the demise of that market allowed him to concentrate on outboard products and ultimately rebrand the company as an audio interface specialist.
"Being clear about your future direction is very important," he explains. "Our contract with Digidesign for the Mbox precluded us from doing a USB interface at the time but said nothing about FireWire, so we developed a whole range of FireWire interfaces that I now call our first-generation phase. These came to market as the Mbox came to an end.
"By 2008, we had second-generation units using different FireWire chips, which were a big improvement. In 2009, we decided to become known as THE audio interface company. This allowed us to refocus our development resources and significantly push the company forward."
It certainly worked. Focusrite's turnover has risen from £10 million in 2007 to £45 million this year. Not a bad result, given the economic climate.
"In the last five years we have also taken control of retail and distribution by doing things a bit differently," Dudderidge adds. "The US market is the single largest market in the world, so we have established a US subsidiary to handle sales and marketing. We still have a distributor there but we have divided the role so that we are responsible for creating demand and they are responsible for fulfilling it."
Germany, too, has been given a shakeup, with Focusrite now selling direct to retailers and having a dedicated German sales and marketing manager who is responsible for the retail channel.
"My experience at Soundcraft taught me that selling to Americans in anything other than dollars doesn’t work because of problems with exchange rates. Luckily, our Chinese manufacturing model allows us to buy and sell in dollars. Whether sterling is up or down obviously makes a difference to the value of profits, but at least we no longer have the huge cost-based problem that we had when we were manufacturing in pounds."
Dudderidge adds that selling in euros in Europe is also important as this prevents exchange rates from bouncing prices around, enabling stable prices across the Continent.
"We have created a standard European pricing model that does away with price disparities between countries. It surprises me that more companies in our industry don’t do this because it has big advantages and isn't difficult to do. Exchange rates complicate a distributor's business so we manage them centrally instead.
"I'm glad we (the UK) didn’t sign up for the Euro, especially in light of what the currency has gone through in recent years, but I am pro-European and I'm all for removing obstacles and creating harmonious conditions for doing business."
Having reflected on the positive lessons he has learned, is there anything Dudderidge wishes he'd done differently?
"If you’d asked me that question six months after I bought Focusrite, I'd have said I should never have done it," he says. "We didn't make any money for the first five years, and I burned a lot of my own capital that I'd spent 15 years accumulating.
"By the mid-1990s things got quite scary and I had to remortgage my house. We had a venture capital company involved and we burned through their money as well. I eventually bought them out because they didn’t want to invest anymore and I was prepared to invest further. I bought them out for a fraction of what they had invested. I felt sad that I had let them down but we both lost money together but that's the risk they take.
"Thankfully, we turned a bad decision into a good one by continually reinventing the company and recognising market trends. We're still doing that with our RedNet series of networked products, which are moving us into the live sound and installation markets.
"It's the same with Novation, which is not just about synthesisers and keyboard controllers anymore but also about grid controllers for electronic music production. We are clearly very proud of what Focusrite has achieved, but we don’t rest on our laurels."
Focusrite now employs over 100 people in the UK and is renowned for its high morale and low staff turnover. It has twice featured in The Sunday Times’ ‘Best 100 Small Companies to Work For’ list and puts great store on staff satisfaction.
"Employees are what make a business and having that ‘best company’ recognition makes me very proud and tells me we are doing the right thing," Dudderidge says. "Focusrite is a great place to work and the company I'd like to work for if I was an employee."