It really had never crossed the minds of either one of them. But there they were, two well-respected high-end residential A/V business owners, both managing their own lists of demanding clients in the ski resort-laden “intermountain area” of Utah and Wyoming. One boasted of a nationwide reputation for high-end automation and control, while the other sold at retail some of the highest reference-level A/V systems in the country. Yet it wasn’t until a mutual supplier introduced the two men to each other that Salt Lake City, Utah, business owners Rich Barra, of Audio Design Group (ADG), and Michael Pyle, of Audition Audio, ever met face-to-face.
That was early last year. Only a few months later, in September 2000, Barra and Pyle completed the merger of their two operations, officially becoming Audition Systems, one of the largest residential systems installation firms in the country. “To be honest, we weren’t really looking for a merger,” admitted Kendall Robins, former GM of ADG, who now serves in the same capacity for the combined operation. “We were, however, keeping our eyes open for an acquisition.”
Although they had not quite settled on the best approach to accomplish their goal, Robins says that he and Barra knew that, for several reasons, it was becoming more important to find a way to grow faster than the 25-percent rate that they had maintained through the past several years.
“It was obvious to me that size does matter in this industry,” Barra said. Robins explains: “We wanted to compete at the very high-end of the residential industry and wanted access to the very best electronics at the very lowest cost. We already had the control equipment pretty well locked up, and were in fact one of Crestron’s largest residential suppliers. But we really wanted the full Madrigal product line and some others that are clearly at the very top of the performance spectrum in the industry. We had shored up our balance sheet over the last two years, and were in a good cash flow position, but weren’t seeing a lot of acquisition opportunities out there in our area.”
ADG had also recently moved into a new 18,000-square-foot facility that would provide the perfect environment for expansion. “No longer cramped for space, we could assemble, program, test, and perform quality assurance on every system before we brought any of it to a client’s home,” Robins said.
Meanwhile on the other side of town, 28-year-old salesman superstar Michael Pyle had recently leveraged himself to purchase the assets of a successful, but cash-strapped Audition Audio, the company he had worked for since 1996.
“I had spent the first couple months after purchasing the business just fixing everything that wasn’t done to my satisfaction,” Pyle said. “We completely threw away all the old bookkeeping and all methodology of running the business and started from scratch. Pyle says that after only six months of owning Audition, the company had already far exceeded his performance expectations. “We were definitely just in the beginning of our long-term goal of turning this into a real business,” he said. “It was not only nice to take over something that was in bad shape and to reorganize it, but also to make money out of it that quickly. We had expected just to stay alive, but not only was I selling a ton, we were also building an organization that could support it.”
So while Barra and Robins were debating the relative merits of various avenues of growth, and Pyle was preparing to take on the world with his new streamlined operation, a “high-level person” at A/V supplier Madrigal had begun to recognize the potential existing between the two companies. What if the two firms merged and became one full-service dealer for his product lines?
“At that time we only had access to Madrigal’s Revel speaker line,” Robins explained. “On the other hand, Audition carried Proceed and Mark Levinson and was also about to add Madrigal’s Imaging product lines, which we had always wanted.”
Wisely, Madrigal had been unwilling to put all of its eggs in one basket, with only one dealer (Audition) established as a retailer for very high-end products, and the other (ADG) focused on custom-installation related lines.
Soon thereafter, phone calls were placed and the proverbial seed was planted in the minds of Barra and Pyle. A little later, a lunch-time meeting was arranged between the two principals.
“[Madrigal] said, ‘Audition has just changed hands, and you should meet this guy,’ and that truly was my intent,” Barra explained. “They had told Mike the same thing, so we had lunch.”
It wasn’t that the two immediately saw the same light as Madrigal, but as Barra and Pyle walked away from their first encounter, a swirl of conflicting thoughts about their respective futures took over both of their minds. Pyle remembers being less than excited about backing down from his immediate corporate plans. “From an emotional standpoint I had some pretty strong feelings against it at first,” he recalled. “I remember walking away and thinking ‘that’s nuts!’ My knee-jerk reaction was, ‘Get out of here, I’m taking you on. I’m not going to give you a hug.’ But when I stepped back and really thought about it, I realized it made a lot of sense.”
Barra wasn’t unaware of Pyle’s initial reluctance. “I think it was kind of shock to him that we would even be going through this particular kind of a discussion,” he remembered. “But, honest to goodness, it only took me about three days to come back to Mike and say, ‘You know, we ought to talk about this.’”
As they began to explore the potential of a partnership, Barra says they both realized the complementary attributes of each company that would make it viable.
Audio Design wasn’t doing any retail business, while Audition had one of the most professional showrooms in the world. Audition was the exclusive dealer for Wilson and Levinson products in three or four states, and ADG didn’t have access to those lines but had wanted them for years. ADG had its new 18,000-square-foot facility for project design and assembly, while Audition no longer had real estate of that size.
“When you put all of that together it was sort like two puzzle pieces that clicked,” Barra said. “Between the two of us, this allowed us to do the whole package. Everything from someone who wants to come in and buy a receiver or an amplifier, all the way up to someone who wants to buy a million dollar theater.”
Pyle says that he eventually concluded that he would much rather be “a smaller part of a big thing than a big thing of a small thing.” I his opinion, a larger organization would actually help him to achieve his goals in the long run.
“It started to make more sense for me because in order to do what I really want to do, I’m going to need more help,” he said. “I want to take on the world, and I’m not going to do it by myself. But I can get closer to doing it with the best people around me and working with me.”
One very interesting fact that the business owners realized was that amazingly, their client list hardly overlapped at all. “From a systems point of view, we had installed some hundreds of systems and they had installed some hundreds of systems as well,” Barra explained. “Of those, the clients that we have both talked to don’t number more than 10. If we saw each other in the marketplace once a year it was a lot.”
Perhaps this could be explained based on the fact that the two companies had taken two different paths to their individual successes. While Audition developed many of its relationships with people who walked in the front door of its 15-year-old retail store, ADG’s marketing was focused entirely on finding customers through “gatekeeper” contacts. “They are typically architects, interior designers, builders and other specialty types of people,” Barra explained. “They are a list of maybe 120 people. We cultivate those 120 people. We don’t do business with them, but they send people to us that can do business.” Combined, Barra is quick to point out, the company now utilizes both the retail walk-in traffic and gatekeeper sales approaches.
Prior to the merger, the respective owners’ management styles were just as different as their sales philosophies. “Mike and I like each other, but we’re very different,” Barra explained. “I’m 51, he’s 28.
He’s got a lot of energy and is not afraid to make those big sales and tell people that they have to spend a half million or a million bucks to make a project right. He doesn’t make a technical sale at all, whereas I’m an old physics major and an audio geek. Mike deals very much with people on their emotions and what’s cool. Different people react to different kinds of stories.”
But just like Yin and Yang, the partnership really had begun to look like a perfect match for Barra and Pyle. However, a big question remained: How would the 40 employees of the combined two firms get along when they met for the first time? How could these competitive people, many of them industry veterans, be expected to suddenly shed years of rival emotions and begin working together…in the same building?
“The problem with being a direct competitor in the marketplace for so long is that all you get to see and hear is negative stuff about the other guy,” Pyle explained. “Nobody comes to you and says, ‘These guys just did such a great job.’ If you think that, you’re not going to be talking to me.”
Pyle admits that this was much more of an issue for his long-term employees than it was for himself, who had only been with the company for four years. “It wasn’t as much of a build-up for me as it might have been for some of the others. But a lot of the other guys are still adjusting. From a deep down emotional standpoint it will take time for them.”
Barra agrees that, initially, everyone was a little worried about employee chemistry. To smooth out the rough edges two days after the merger was announced, Barra and Pyle brought the two camps together for a big dinner at a local hotel. “We made a seating chart so everybody had to sit with people they didn’t know,” he said. “What they found out was that they were all the same kind of guys. They all love this stuff. They’re in this because it really interests them and they enjoy it. Yes there are arguments about whether we should be carrying this product or that product or whether we should be doing something ‘your way’ or ‘our way,’ or who’s accounting system will prevail, but the guys have done surprisingly well so far.”
Next came the issue of employee roles and responsibilities within the newly named Audition Systems. The assumption, by at least Pyle, was that one group would continue its “up front” retail role, while the other would be the “behind-the-scenes” designers and installers. This, surprisingly, wasn’t the case.
“Originally I thought that was how it was going to be,” Pyle said. “But it’s not really ‘us and them’ or ‘retail and custom.’ It’s really just one company. Actually there were some guys from Audio Design who really wanted to do retail and couldn’t before, because their company never really focused on it. We’re trying to use everyone’s talents to their fullest. I think we’ve been very successful at fully integrating both of the groups and just being one company.”
What about Barra, Pyle and Robins then? Who’s the boss now at Audition Systems? The simple answer is that while Robins continues to keep the books as general manager of the new company, Pyle and Barra will both serve simply as “principal owners,” with each having more time to focus on the areas of the business they like the best: sales and customer relations.
“In the world of limited liability corporations, which is what we are, the legal word for people that run it are actually ‘managers.’ In fact Mike and I don’t put anything on our business cards at all and if someone asks us who we are, we just say we’re one of the principle owners. There’s nobody that’s a president or CEO. It doesn’t matter to either one of us, and we just sort of let it go.”
Though both owners say that they have seen great improvements since the merger, actual results from the deal probably won’t be realized for some time. On paper, however, Audition systems is positioned as one of the largest firms in the country. This is not inconsequential given all of the recent industry gossip about large roll-ups by technology providers.
“First, should anybody want to deal with stuff in Salt Lake, they’re going to have to take us into consideration,” Barra pointed out. “And, if there are [roll-up] opportunities to come in this market, we’ll be in a position to be taken into consideration or talked to. I don’t expect to get blindsided, and honestly I don’t think anyone could expect to come in and have a real business and do what we do here anymore. I really don’t. They’d have to spend a ton of money a lot of years to get to where we are now.”
That being said, Barra also noted that he and Pyle want to first make sure they keep the real keys to their success, their employees, at the top of the priority list.
“This industry is one of inherent change and fluctuations,” he said. “Because of that, you need to hire really good people, and they need you to take really good care of them. We have a great team of people and we want to keep them in place.”
As for how much he expects out of those employees in the form of production, Barra admits that “it’s a balancing act.” “I bet I go back and forth five times a year from saying, ‘My god we’re selling too much,’ to adding people to increase production,” he said. “I think we’re less into limiting our growth than making sure we’re selling the right kind of things that work into the strengths of our business and allow us to make money.”
Pyle, ever the salesman, puts it best: “We give customers the performance, give them the service the install and the support and we’re going to be here forever and the fact that we can do things out of town successful,” he said. “Separately we have proven we can do that successfully. Together we can do that much more.”
Jeremy Glowacki is editor of Residential Systems.