By Eric Peterson | Jul 05, 2020
Amplifiers, power centers, speakers, and other audio components
As he recalls in his memoir, 99% True, McGowan was a program director for a rock station on California's Central Coast when he rebuilt an increasingly fuzzy preamplifier in response to a complaint about poor audio from the FCC.
In a week, McGowan -- who designed synthesizers on the side at the time -- built a preamp in a cigar box that sounded better than his Kenwood at home.
He connected with co-founder Stan Warren, a local audiophile and waterbed installer, to test the preamp. Warren was so impressed he approached McGowan with $500 to buy a company they would then start together: PS Audio. (The P and S stand for Paul and Stan.)
The duo honed the "cigar box wonder" and started selling them direct-to-consumer for $59.95 in 1974.
Warren left the company in the early 1980s and McGowan became the sole owner. "At that time, our revenues were barely $1 million a year," remembers McGowan. "I had zero business experience to lean on and cash was always the toughest part of the struggle."
He accepted an offer to sell in 1990 and relocated his family to Colorado, where he launched a new loudspeaker manufacturer, Genesis Technologies.
In 1997, PS Audio's owners offered him an opportunity to buy the company back. He took them up on it and relaunched the company from Colorado.
"In 1997, the company's revenues were only a few hundred thousand dollars," says McGowan. "Today, they are about $12 million."
Rethinking manufacturing has been a big part of the story. "We had been struggling for years with manufacturing in-house," says McGowan.
As of the early 2000s, PS Audio relied on a network of local contract manufacturers and vendors, but the supply chain for chassis and circuit board manufacturing faltered. "All those things weren't lining up," explains McGowan. "The cost of doing business here was really hurting the business."
PS Audio moved to outsource production of a top-selling AC regenerator to a contract partner in China in response in 2010. "It was a pretty good relationship for quite a while," says McGowan. "It turned out at the end of the story to be a disaster."
But two key factors led the company to reshore production in 2012. "They don't like doing small runs," says McGowan of Chinese manufacturers. PS Audio's orders of "1,000 at a time" paled in comparison to the "bazillion" units demanded by the "big dogs" of consumer electronics.
The second issue: "We expect our crews to raise their hands when they see something is wrong," says McGowan. "We depend on input from our workers."
That isn't the norm in China, where he says "being documented to a gnat's ass" is a must. "They have over years and years developed a culture of heads down, keep your mouth shut, and do your job," says McGowan. "As a small company, we do adequate documentation, but we don't document every nut and screw."
The "final straw" came when two wires for a temperature sensor were insulated as one, causing a short in an entire run of amps. "Their quality is amazing, but when they do make a mistake, 100 percent, every product has that identical mistake," says McGowan. "We had to bring it back."
Again manufacturing in Colorado, he decided the best way to repair and revive the brand was a big redesign and a slate of new products. That was in part guided by the new logistics of manufacturing in the U.S.
"We had to kill that product and take that basic design and redesign it so it was manufacturable in Colorado," says McGowan. "Many of the things we had done in China, like a fancy chassis design, we couldn't do it here."
He continies, "We set it up to be manufacturable over here, we hired more staff, and we really leaned on our community. We have a very strong community of customers and we just said, 'Look, this is what we're doing.'"
The company has worked with a number of partners in Colorado, including Kenray Corporation in Lafayette to make chassis, powder coating shops, and QSC Systems in Longmont for printed circuit boards.
The supply chain extends out of state in the U.S. as well as into Asia for commodity electronic components.
The employee count immediately jumped from 20 to 30, but the move fostered longer-term growth as well. "We slowly over time got up to the 50 people we are now," says McGowan, noting that about a third of employees are engineers. "For a company our size, that's really big. Most of our competitors maybe have an engineer. We're very big on engineering."
In 2018, the company moved to a 30,000-square-foot building with engineering, production, and administrative offices under one roof.
At the same time, PS Audio enlisted FlowVision to help reinvent the company's workflow and supply chain. "For the longest time, inventory control was a huge problem for us," says McGowan. "It was a big expense, but he came in and completely revamped how we manufacture. . . . That was probably one of the most dramatic things we've ever done."
One issue was two distinct production crews for audio and power components, he adds. "The audio crew built all the audio stuff and the power crew built all the power stuff, and never the twain shall meet."
This led to production bottlenecks whenever either crew hit a snag. "[FlowVision's Mike Henderson] set up this manufacturing process where everybody is experienced building everything," says McGowan. "It was really interesting. It took a good six months and a lot of teeth-gnashing and angst."
PS Audio invested in training and new equipment as well as implementing a kitting process in the production department. The company got a payoff in the form of a 60 to 70 percent uptick in efficiency and better quality, says McGowan, as QA-related rejections dropped from 2 to 3 percent to 0.5 percent.
"I was frankly stunned [by the impact]," says McGowan. "'I'm a seat-of-the-pants kind of guy."
Challenges: McGowan points to the "Amazon Effect," noting that PS Audio used to sell through high-end audio retailers in each market. "That model is gone. The Internet and Amazon just destroyed that model, and we've seen it coming for a long, long time."
The company moved to an exclusively direct-to-consumer model for the domestic market. "That was a huge shift," says McGowan. "This has not been an easy transition. It took us nearly five years to make the changeover, but as of late 2019, PS Audio is now 100 percent direct-to-consumer in the United States. In the 70 countries that handle our products, we still stay with the more traditional distributor/dealer model and that is serving us well."
He adds, "Over there, that model is slower to change, but I think over time, the same thing will happen and we will just have to roll with it. We can't sell direct in Japan, because I can't speak Japanese. . . . In Japan or China, we would find a local person, like the distributor we have now, and set them up as the retailer and show them how to do it."
The big hitch was the customer's inability to experience a product's audio quality without a brick-and-mortar presence. PS Audio solved that by offering to let customers try any product for a month before they commit to the purchase, McGowan adds. Only about 10 percent of shipments are returned, and shipping is free.
Tariffs have been another big thorn in PS Audio's sides, as the company imports some components from China and exports are typically 40 percent of annual sales. Tariffs "have hurt everybody," says McGowan. "We've had to raise our prices 5 percent to cover [Trump's] tariffs. That insanity will hopefully go away. It doesn't help."
Opportunities: PS Audio's catalog continues to grow. "We're just entering the speaker market," says McGowan. The first, the FR-30, will debut in late 2020 with a retail price of $15,000 a pair. It's the third highest-priced of a planned line of eight planned speaker models; entry level will be about $3,000 when the line is complete.
"I'd always wanted to have a complete PS Audio system," he adds. "The problem we have right now is people buy our electronics and then they always ask, 'What speakers do you recommend to hook up to it?' There's more speakers than you can shake a stick at, and none of them in my opinion are the perfect combination of great and affordable and/or impractical. Honestly -- I'm not trying to blow or horn or anything, when people ask me that question, I'm like, 'Gosh, unless you want to spend $50,000 or $60,000, I really don't have a recommendation for you that's going to do everything you want. They don't exist.' I wanted to solve that, and come up with a line of speakers that perfectly fit what we believe to be the ultimate sound quality, which is the idea of musicians playing live in your house."
The company's Stellar line has performed better than expectations, he adds. Most products are priced $2,000 to $3,000, which is on the more affordable side of the PS Audio catalog. "It's our biggest-selling line now," says McGowan. During stay-at-home orders during the pandemic, he adds, "Things that you do at home -- gardening, stereo -- there's more of that going on."
Needs: "Hiring people has always been problematic for us," says McGowan. "It's not getting better, it's getting worse."