By Lisa Johnston
New products on display at the American International Toy Fair, held in N
Custom supplier Sonance has crafted a growth plan that it expects to boost sales to $80 million in two years and to $160 million in four years from more than $40 million in 2001, said CEO Chip Brown.
The company will remain private during this time, using internally generated cash and its banking relationships to finance growth, he said.
The plans include a further expansion of the company's R&D budget, more personnel, and a more aggressive stance in the tract-builder, marine and commercial markets. In these markets, Sonance is designing products exclusively for these channels to support installers who are already targeting these markets, Brown said. The company, however, will also likely market direct to tract builders, yacht builders and commercial venues, including conference and guest rooms in hotels, in ways that "will be sensitive to distribution conflicts [with Sonance customers]," Brown added. Sonance, for example, won't sell direct in geographic markets where its customers already target these channels themselves, Brown said. In addition, Sonance could team up with installers to install the products sold direct by Sonance.
Sonance's residential products are already sold through these channels by installers who in some cases have had to modify the products, Brown noted. In the commercial market, for example, installers convert Sonance electronics to operate on 70-volt electrical systems.
Brown outlined the goals following his promotion to the company's newly designated top spot of CEO by Scott Struthers and Geoff Spencer, who founded the company in 1984. They recently left their day-to-day positions as president and VP, respectively, to become board chairman and vice chairman. The co-founders, who remain co-owners, tapped Brown as COO two years ago to leverage his management experience at Pepsico, Ford and other companies, to move Sonance out of its entrepreneurial phase.
Since his 1999 arrival, sales have doubled, raising the company's compound annual growth rate from 8 percent to about 50 percent during the past two years. Also during that time, profits doubled, and cash flow quintupled, Brown said.
R&D, support up: During the past two years, the company increased installer support, expanded its electronics selection to complement its strong architectural-speaker presence, added its first distributed-audio systems, and increased its R&D budget to 7 percent of sales from 4 percent. The company plans an additional increase in R&D spending as a percent of sales, he added, "to be the best in class in digital technology, including amplifiers."
These efforts, as well as restructured marketing and installer-support programs, have "won back customers from competitors," he claimed.
Customer service, while "spotty" in the past, is now a company "strength," he said. "We've positioned ourselves as the people to talk to about your problems, such as inventory," Brown said. To further assist installers, the company will soon roll out an education program that will help dealers market to builders. The program includes classroom instruction and a self-taught program.
On top of that, Brown has hired the company's first full-time training staff, now numbering three employees.
Sales tools: The company also redirected its marketing and advertising efforts to focus on lifestyle issues rather than product specs, Brown said. The changes included new brochures that depict the lifestyles that consumers can enjoy with Sonance products. "Our brochures were too technical," he said. "Dealers take the best-looking literature and put it on top of their proposals, and consumers take the best picture and say 'I want that.' Now our literature is on top."
Likewise, Sonance revamped its trade-show exhibit last year to demonstrate its products in indoor and outdoor home settings.
New categories: To enhance its position as a one-stop shop for installers, Sonance developed strategic alliances with other companies to build the company's first distributed-AV/home-control system, introduced last year as the Navigator Network. A similar alliance was struck to deliver the THX-certified 5150 home theater amp, also launched last year. "With the speed at which new technologies develop, we need to do this," he said. The more basic Navigator Harbor and separate Navigator keypad system were developed in-house.
The distributed-audio systems, he noted, are important to future growth because they "sell the rest of the line," which increasingly includes products other than the speakers that have dominated Sonance sales.
New markets: Sonance will further accelerate growth by actively entering the tract builder, marine, and commercial markets, Brown said. "We're already in these markets through our dealers," he said. "More and more of our dealers are doing these installations using our products."
Sonance, however, will be able to penetrate this market further with products that take into account the installation requirements of these channels, he said. Less mounting depth, for example, is often available for mounting speakers in yachts.
Builder-market products and programs will be ready by the end of the year. Marine and commercial products and programs will follow in 2002.
In the builder market, the company sees ample room for direct sales because most installers don't get much volume through tract builders. Instead, they get most of their leads from consumers who are building custom homes and, secondarily, from architects designing custom homes.
The builder market is challenging because tract builders are "risk averse," but it's efficient for manufacturers to target because a small number of builders do the majority of tract-home construction.
Brown will provide separate resources and personnel for each of the three new channels that are being targeted. "We're hiring people with experience in those industries," he said.
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