Web Bonus Chuck Surack founder and president Sweetwater

Two-and-a-half years after breaking ground, Sweetwater is now officially occupying its entire new 150,000 square-foot, $35 million headquarters in Ft. Wayne, IN. Pro Sound News visited the facility and editor Frank Wells spoke with the man behind it all.
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Web Bonus: Chuck Surack, founder and president, Sweetwater

Chuck Surack, founder and president, Sweetwater.Two-and-a-half years after breaking ground, Sweetwater is now officially occupying its entire new 150,000 square-foot, $35 million headquarters in Ft. Wayne, IN. Pro Sound News visited the facility and editor Frank Wells spoke with the man behind it all.

PSN: When you started Sweetwater, did you ever imagine attaining this level of success?

SURACK: The company is now 29 years old and I started in a VW bus, so I couldn't tell you that I really had a vision that it would go this far. I was hoping just to not be on the road as a musician anymore. So I came home and started a recording studio. But every year our vision gets a little brighter, a little sharper, and 1990 is the first time we moved into a commercial building down on Bass Road, about two miles away. We moved in with 5,000 dedicated commercial square feet, and the next year, we had another 5,000, and then another 10,000, and we kept expanding and expanding until we had almost 50,000 square feet.

Finally, two and-one-half years ago now, maybe even three, we were getting ready to do another big expansion, had plans drawn up to do a big multi-story building at the old location and realized that, you know, 'this is probably the last expansion we could do here--we're pretty much landlocked' and all that--and I was afraid to put more money into it. So I started looking for more property. That's when we found this place. We broke ground May of 2006, but the architects had worked out plans probably for eight months before that. We wanted enough land that we wouldn't outgrow it. Today, we're sitting on 14 acres, but I bought 44, so there's plenty of room to more than double in the future if we need to or add other features--whatever we want to do.

But back to your question, it's clearer every day, and when you have hindsight that you can look at, you say, 'Oh yeah, I see what we will do tomorrow because I can base it off what I did yesterday.' In the early days, that was really hard. The banks and attorneys would say, 'How much business are you going to do next year?' I'd try to throw out a number and they'd laugh at me, then they'd look me up in their book and figure out what FIC code--business code--I was. I didn't fit neatly into the recording studio world, I didn't fit into the radio world, and they couldn't figure out where to pigeonhole me. Until I had enough success, it was hard to get credibility with all the professionals. They were concerned that I was a musician dreaming--which I probably was.

PSN: Your model has always been phone sales, but the internet's got to just kick it up to a new level at some point.

SURACK: The internet has helped, but it's not as much as most people think. Our whole deal is not even phone sales, really. Our deal is really the customer service. And we do that through the telephone and all of that. But we looked at the internet slightly differently. We won't necessarily tell customers this completely, but we look at the internet as just a portal into our company. Honestly, the way text and emails are, our goal is really to get that communication going between our sales engineer and our customer. That being said, about 30 percent of our business comes through on the internet. [Internet customers] always get a follow-up call that says thanks and 'I want to make sure it's the right item,' and 'Oh by the way did you know you need cable to hook that up,' and those kinds of things, and then we start developing the relationship. That contrasts with [online focused retailers]. They're trying really hard to do as much as they can online. I don't know, a couple years ago [one company was] publishing stats [claiming] they got 60 percent of their business online. I'm sure it's more than that today. They don't want expensive salespeople on the phone. Actually they want nobody on the phone, but they will pay telemarketing clerks, guys and gals that don't understand the products and [instead] just what page is it in the catalog or where is it on the website and all that. We're the other way around. I think the website is just a tool to, I don't want to say tease customers, but a 'Sears Wish Book' if you will.

You need to talk to someone that really knows the product because among 10 different handheld little recorders, which one is right for your application? There's no way you can figure that out from the website. Now fortunately, you may not make a bad decision either, because any one of the 10 is probably pretty good, but depending on what you do, there might be a reason to choose one versus the other--quality of mics or an interface issue or something of that nature. So there's always reasons. Training has just been huge and it seems like that's driven a lot of this design.

PSN: It appears the new facility is designed to allow you to take your training to a whole new level.

SURACK: That's how our company grows--by training more good people--and that's how we differentiate ourselves as part of that Sweetwater difference. Every new person that starts in the sales department already has at least a four-year technology degree from one of the big schools, and that could be Berklee College of Music or Full Sail or Tempe's Conservatory. Actually there's a really good program here in Indiana at Ball State University, an ET program where you basically get a minor in physics and a minor on an instrument or computer. It's about a five-year program, but they do it in four years; it's really tough. We get some of our best students from there.

Anyway, they typically come out of one of those programs and hopefully they actually have some real world experience. We try to get folks that are here for a career. Nothing against [some of the other retailers], their philosophy is to get minimum-wage people working at the counter and those folks stay there until they get a playing gig or whatever. My guys are a little bit older and they hopefully have that out of their system and are thinking about quality of life and having a home and raising a family and all those sorts of things. So they have this degree, maybe some experience. We just hired a new guy to start yesterday, [he] has 20 years doing rock and roll live sound at House of Blues in San Diego and moved to the Midwest because he's got a 15-month-old son and new wife and they'll be able to buy a home here for what a deposit would have been in San Diego.

After [new sales engineers] get here, they go through 13 weeks of Sweetwater University, eight hours a day--there's hundreds of classes we teach. It's sort of like a Doctorate Program, if you will. It's learning about audio stuff and keyboards and guitars, and digital audio and analog audio--things that maybe they had at school, but we're trying to make sure we fill in all the gaps they might have.

Then we spend half the time on the Sweetwater philosophy. How to build up relationships with customers, how to not negotiate the price until the selling's done--we will make sure that it's really the right product, [and] if we're the right place to buy it, then price becomes important. But it's 13 weeks of that for every new person before they're on the phone with a customer. Then after that, there's always ongoing training. We have minimally three hours a week every Tuesday morning and Thursday morning in that new theatre, and there's usually a manufacturer or two walking through here about every day or every other day. There's some remedial training if you're on the bottom end of the sales staff, you get an hour of extra sales training on Monday mornings. Three hours would be minimum if you just did Tuesday and Thursday morning, you might have five, six, seven hours of training a week. It's important, but it's also to help them keep up. Stuff is changing so fast. How do you keep track of 10 different models of handheld recorders, or however many there are?

Training is from the front door to the back door of this building. You know, I've talked about the sales department but it's the same thing for our service people. It's customer service with receptionists; it's customer service with our warehouse people. We just think that education, that training, makes us do a better job with the customers, which then makes the customer more loyal. We get more referrals.

PSN: The technical side is almost the easier side of it.

SURACK: Yeah.

PSN: The technology is fact-based and concrete, but the taking care of customers is more about attitude and philosophy--guiding your new staff into your corporate approach and values.

SURACK: You're absolutely right. We try and make it really simple for new people. When you say you're going to do something, just do it. It's not a problem if you don't know the information, but it's a problem if you try and lie and bluff, because you'll get caught. There's always somebody better and smarter, the internet makes it easier than ever today. If you don't know, there's no problem saying 'I'm sorry, I don't know, let me research that, I'll get back to you,' and then just do it. I tell all the new people the only thing we have to sell is our integrity, and hopefully you're adding to the company's reputation and integrity pool and not borrowing from it and if you are, you won't last here very long.

But I look back for 29 years now, that's what I've sold for 29 years and actually before I had the company. The products have come and gone and changed. I started as a recording studio selling recording studio time; that's because the people trusted me. And then we started selling analog boxes, [Kurzweil] K250s, and I'm selling them to Stevie Wonders' and Kenny Rogers' and Dolly Parton's because those people trusted me, and then their friends and guys in the band.

Then we started selling analog reel-to-reel tape recorders in the Tascam days, and then computer software and digital--I mean it's all completely changing. Now we're selling little handheld things. But in many cases--most cases--I had the very same customers. Our director of human resources was a recording studio customer 27 years ago. He only came to work for me because of the integrity of the company.

You know, do what you say you're going to do, that's what we really push hard. We also try not to put a lot of rules in place. You have to have some rules with a big company, we're 325 people or whatever, but I'd much rather have people that can make judgment decisions and do what's right and you know, if I lose some money on this transaction, this sale, that's fine with me, I'm interested in a long-term relationship with the customers and a long-term employment of the employees. We're all going to make mistakes, we're all human, so I'm trying not to get caught up in that. It would be really hard not getting caught up in the company; we've never laid a person off and I don't want to go through all the crap that you watch the other big companies go through. That's one beauty of being privately held: You can call those shots yourself.

PSN: And you can be flexible. You can plan for the future. It seems like a lot of this facility, though, is built not just to take care of the customer, but is really built to take care of your employees.

SURACK: You know, I can come up with lots of analogies and this is probably a bad one, but at home you say 'if momma ain't happy, nobody's happy.' It's that sort of thing. If employees aren't happy, it's going to clearly show to the customer, so from a pure financial point of view, it just makes good sense to take care of the employees, and they'll take care of the customer.

Even beyond that, I am fortunate that my wife and I own this thing 100 percent, [we] don't have to answer to anybody, and hey, I'm motivated by being around such great people. They're all friends and it's a blast watching them have their families or their first child, buy their first new home, their first new car, so we just wanted to do it for everybody. You also go home with more satisfaction. I mean, it's cool to work with customers that love the kind of business that we do and the way we do it. It's cool to be around--you're inspired, it's truly inspiration.

So when we started thinking about the money this was going to take to do this--we didn't even think about that. We just knew we wanted to do it right for the employees. My benefit is that it will make better employees for the customers and ultimately we'll sell more gear, but that really wasn't our motivation. Several years ago, we were making enough money that it wasn't going to change my lifestyle one way or the other--I've got multiple homes and a big car collection and company jet, so more money is not going to change my personal lifestyle. We've worked really hard to try and give back to the employees in things that we've done here and other personal things we do, but then also to the community. As an example, this whole building, we've told all of the arts, non-profit arts performing groups they're welcome to use our space, whether it's conference rooms or the theatre or the conference hall. And they are: the Philharmonic is using it, the children's choir is using it, so it's very cool. That's where our motivation is.

PSN: The location, being Fort Wayne, probably would have to play into that a little bit, too. Having to lure somebody to the Midwest--that's not to say it's a bad place to live, it's a great place to raise a family, it's a good-sized small city--but if you just throw it out there and folks have never experienced that...

SURACK: We've thought about it a lot through the years, it's pluses and minuses. When we were building the new building, one of the things we looked at was, do we do it in Ft. Wayne or do we do a Los Angeles or Nashville, where more musicians and recording studios and all that are. At the end of the day, it was my home and I'd already relocated a couple hundred employees here. That was a serious consideration, but more importantly, it does provide a quality of life you can't get in other places, but we think it's a good balance. I mean, homes are incredibly affordable here and they were before everybody's house pricing dropped.

There's good minor league sports, there's lots of great live music. We have a philharmonic orchestra that is so much better than it should be for the size of our community market. It's a professional orchestra, been in business for 60 years. And we have those sort of arts all the way around, it's a great community for that. We have a great school district and [the Fort Wayne] Coliseum is rated one of the top facilities in the country, so they bring in all kinds of big music acts. And if that's not enough, you're only two hours from Indianapolis and three from Chicago, Detroit and Columbus. But the bottom line is you come here and literally buy a house for what a deposit would be in some of the markets that we looked at.

The other thing is that a lot of companies have figured out this region is good from a shipping point of view. There's a reason that Fed Ex has a big hub in Indianapolis, there's a reason Guitar Center put their hub distribution center in Indianapolis. And so Ft. Wayne [and] Indianapolis [are] relatively close, and I don't remember the percentage, but if you look on a map, there's a huge amount of population that's circled around the Indiana, Ohio, Kentucky area, which is why a lot of shipping hubs are based in this region.

PSN: You tried a few satellite offices in the past. Is that something that you see ever going back to? Or does it not fit the model, per se, if it's so hard to translate your service model to that?

SURACK: We had an office in Nashville, we've had one in Chicago for a long time. Nashville was shut down several years ago and we basically just shut down the Chicago office, although we have a guy working out of that area--actually two guys working out of that area still. You know, there's lots of thoughts on that. It is hard to translate it.

One of the beauties that we have in this building, with this culture, is my salespeople only have to sell and take care of customers. Then we have a service department, and they can install all those turnkey things or fix a defective [product], or even give technical support. Even though my sales guys could do it, it gets them off the tech support calls and onto the next sales call and lets a guy who's really good at tech support do tech support. And then when it comes to shipping, I have a dedicated shipping department with 35 people or whatever, so the sales people don't have to package their own boxes.

So the economies of scale, and having the inventory that we have--today, you sold a whole bunch of Genelecs. Most of the guys didn't sell any, but a couple guys did, so you're able to pool or share all that inventory. All of those things work against us with the local offices. I also think it's just, because of companies like Sweetwater, but also Full Compass, BSW, Musician's Friend, the days of the traditional pro audio guy making big fat margins and selling multi-hundred-thousand-dollar consoles are going like most of the pro studios are going.

PSN: The pro audio products are now in the line of any MI store. Nobody buys new giant-sized tape machines anymore. Very few buy $750,000 consoles. Technology is driving the changes.

SURACK: Fortunately, with FedEx and those sort of things, I can't run a replacement Pro Tools card across town this afternoon but I can get you one tomorrow morning, and because I have the size here, I've got them in stock. If I were a local guy, maybe I'd have the Pro Tools card, but probably won't have the hook-up cables, or it would be something you need that a retail store, a pro audio store in Nashville may or may not be able to stock. As I say, I may not be able to help your session this afternoon but boy, tomorrow morning I can have it there. So we've been able to service customers all around the country really well because of that.

PSN: Now the only other possible liability to the model that is obviously working, is just physically being able to put your hands on things and try stuff and put your ears on things if you're not here.

SURACK: Yeah, and I would say the internet's helped that a lot. Customers buy today differently than they did when I started. They're doing forums and chat boards and researching themselves. Even when I was buying 24-track reel-to-reel machines and stuff, you walk in and what are you going to do, hit record and [say] 'Oh yeah, it sounds good, I'm going to buy it'? And whether it's a pro audio store or a trade show store, you can't tell what a microphone sounds like...

PSN: ... or a set of speakers in a demo room versus in your studio. So you face it with a liberal return policy and by trying to have knowledgeable salespeople up front to make sure you get as close to the right product the first time.

SURACK: Exactly right. Theoretically, I would love to have great pro audio shops that have several million dollars in inventory in every market in this country, but there ain't no business sold to justify that.

We started selling guitars. The only reason I started selling guitars and, actually, the only reason I start selling most stuff is because customers kept saying, 'I buy all my pro audio gear from you; why can't I buy guitars from you?' Some people said 'You won't be able to sell guitars online,' and I said 'I think there's ways to do it.' And so we did a bunch of unique things. Today we've been copied quite a bit, but the first thing we did was called Guitar Gallery, where we take close up pictures of that guitar, I mean down to serial number and the grain of the wood and all that. We open every guitar that comes in this building if it's more than $200--any real guitar--and do a 55-step checkout on it. Then we carefully re-box it, or fix the problem, or send it back to the manufacturer and say unacceptable, which we don't have to do a lot of but once in awhile we do, and then we put it back in our warehouse. The whole building, from the back door to the front door, is humidity controlled, 50 percent humidity, so we don't have to worry about guitars shrinking or stretching like wood will do. When the customer's ready to buy it, he's seen good pictures of it online, he's talked to my sales engineer who promises that we've checked it out, it's perfect, and if you don't like it for any reason we'll take it right back.

And we sell guitars like they're going out of style. Guitars are new for us, some of the brands have only been like three or four years and some are six or seven, but we were Taylor's second largest guitar dealer last year. We were in the top 10 with Paul Reed Smith, number five or six. Fender and Gibson were top four here. Customers are totally comfortable buying guitars online. In fact, to go a step further, the guys that sell the most guitars online [do so] sight unseen. So I didn't think selling guitars would be a problem and we're now selling hundreds and hundreds of them, it's unbelievable, actually. You know, you build a new home and don't know what your new home is going to look like. You trust the builder, the people doing it, and when it's done hopefully you'll like it. There, you can't return it; at least with our guitars, you can return them. It's the same thing with buying nice cars--you might see something similar, but you don't see your car until you've ordered it from the factory and it comes [to the dealer] in six weeks, eight weeks, 10 weeks.

Selling guitars has been much, much easier than we thought, and it's defied a lot of people's logic. I also don't have my guitars hanging on the wall, I mean I've got a few in our store but not many compared to what we really have. At most of the other 7,000 stores across the country, they've been hanging there for weeks or months or years and kids with belt buckles have been banging on them. At Sweetwater, you're getting a virgin, fresh [instrument that's] only been touched by the guy that built it and our support guys before it gets to you.

PSN: How much room do you have to grow within the new building?

SURACK: We moved into the first part of this building about a year and three months ago. We moved in with 90 sales engineers, built 190 cubicles and we're 110 now. We could knock out a wall down at the far end and put a multi-story building up. We designed all the mechanicals to be able to do that. There's also an area over the cafeteria, believe it or not, that would probably hold another 50 or 60 salespeople if we need to. There's an open area that we didn't finish, and we're kind of waiting, do we need more salespeople room, do we need to expand our health club, do we need more lesson room? Right now, I think we've got room to hire another 80 salespeople or something, and even then we may put people in the aisles and do other doubling up that we've done in the past. That would be a great problem to get to.

Fortunately, as the company grows, there'll be more infrastructure, but we don't need another Chuck, we don't need another Vice President of Operations. So there's some economy that's able to work for us from that point of view, too.

PSN: And the warehouse can expand, but isn't going to have to expand grossly.

SURACK: Well, we've done some studies on it. The thing is about 40 percent full right now. We're storing some things in there, accounting records and things that we don't really need to keep but we've got the space so we do it, but I think it's about 40 percent full. So if we needed to double in inventory we can do that. Hopefully, as we double or triple in sales, we don't necessarily have to double in inventory because there's economies of scale working for that, too.

PSN: The most impressive part of the inventory, too, is the fact that they say it turns over every month.

SURACK: That has been one of our key strengths, you know. Banking guys always want to see that but most business people say that's inefficient, you can't do it. But it's hard. It takes a little more labor to manage the incoming inventory, to make sure we have the right stuff on order at the right time and then we're dependent on manufacturers, some of which are great and some not so great, and they're dependent on their suppliers. That causes some extra planning. Invariably, a couple years ago, we had stuff getting stuck in customs and all that. Our inventory model is not traditional textbook but it works really, really well, and it means we don't have out stock or overstock of obsolete items. It's not a lot different. It's sort of adjusted timing, but some things, like computers, we try not to have more than a week's worth because they're always changing and we get them really fast. We're good at getting the stuff faster, PC's or whatever the case may be. Some of our Japanese or Chinese products are may be three months' [wait time on an] order, but it all averages out to less than a month turnaround.

PSN: That's really impressive. And again it takes statistical analysis and planning and thinking through of those pipelines, and it can't be something that's just set in place, it's not automatic either.

SURACK: We have a lot of algorithms that help. At the end of the day, a human's got to look at it and go 'Yeah, but I know right now Company X is being really stupid,' or as the case may be. Or, [for instance] I know the Chinese holiday was going on a week or two ago, and it had some bearing on what we ordered when.

PSN: I'm sure some of it is just the sheer size and volume that you do. Your vendors are going to try to take care of you very well, too. Over the years, that's got to have gotten better and better.

SURACK: It's an interesting level where we are. We did $131 million last year. We'll do more than 150, at least, this year. On the one hand, it's big for a little company and it's big compared to most of the 8,000 music stores. On the other hand, it's not big at all compared to Guitar Center's $2.2 or $2.5 billion or Sam Ash is probably $500 million and AMS is probably close to our size or in that ballpark. Those are the four big guys and I think I might have added up $3 billion. We're big enough to get the acknowledgement from the manufacturers, but also, small offers a lot of room to grow and all that sort of thing, so it is a good position. And as [the largest retailers have] gotten bigger and bigger, all the manufacturers are scared to death of them, so they're always looking for alternatives. [Some are] really good at growing that entry-level customer. They'll get a customer to buy his first or second guitar or recording thing, but soon you outgrow the minimum-wage clerk at the counter and the customer's looking for more advice.

PSN: How do you market yourselves besides the ubiquitous internet?

SURACK: Referrals. We ask for referrals all the time. Musicians are always playing with other musicians and their friends and so our sales guys are trained [to say,] 'If I've done a good job for you, is there someone else, a friend of yours I could call and say you recommend me,' and all that, so that's a lot of it. Currently [also there's] the strength of the magazine ads, we've done those for a long time and we wouldn't continue them if we didn't think they worked.

You know, you build credibility and do whatever you can. Usually, the good customers will wise up. They'll do a purchase or two at [the physical stores] and they'll understand the strengths and the weaknesses of them.

PSN: And they may still run by them if they need a set of strings.

SURACK: Absolutely. I know customers all over the country and story after story I've heard, a guy in New York City or L.A., can you imagine going into New York City, and if you wanted to buy an 88-note keyboard, you don't have a car, how is it going to get to you, the subway? Rent a car, whatever. Then you go in and work this deal out and then you go 'I don't want the box because I don't have room in my house,' so you throw this thing on two wheels, I mean, I can't imagine.

Versus a guy buys it from me, I overnight it through FedEx, delivers it to his apartment door in New York City or in L.A. We have people in Ft. Wayne, that's what blows me away. Ft. Wayne, they can come over from where they live in 15 minutes, I mean we have no traffic and invariably every day we have customers that say 'Just mail it to me, just Fed Ex it to me, just UPS it to me because I'll have it tomorrow.' People's time today is so valuable. The model is working really well for us.

Sweetwater
www.sweetwater.com