Alison Lee Satake SPECIALIZING IN BUSINESS & SCIENCE REPORTING

Alison Lee Satake
Garage to globe

Baton Rouge Business Report

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The sleek contoured interior of audio engineering company PreSonus Audio Electronics resembles the designs of the recording equipment, audio mixer boards, and speakers created within these walls. And although the company moved into its new 44,000-square-foot headquarters six months ago, the new-car smell has yet to wear off.

The workplace has a distinctly tech, startup vibe as T-shirt and jean-clad employees work in cubicles in an open-plan office space or snack in the company’s cafe. It’s fitting because the company, whose co-founders have embraced new technology from the get-go, has been expanding into the more ethereal sphere of software and online music technology lately.

An electric guitar idly stands in the corner of a manager’s glass office while large recording equipment sits on a desk in another glass cube. Co-founder and chief strategy officer Jim Odom breezes into his office wearing classic Ray-Ban sunglasses and a jacket slung over his shoulder like a rock musician coming in for his sound check. It’s been a long road since he and his former high school and LSU classmate, Brian Smith, designed and built their first piece of professional audio equipment, launching the company in 1995.

Photo by Tim Mueller.

Late into the night after their day jobs as engineers, they worked in a garage warehouse that was part of a sonar company owned by Odom’s uncle. It took about a year for them to create the first product that could digitally control the dynamics of an analog audio signal.

At the time, the other options were in high-end equipment that cost more than $100,000.

“That investment was out of reach for any musician, except for the really successful ones. We were making records and wanting the same equipment but couldn’t afford it,” Odom says. “From the beginning, our philosophy was to design products that people can afford.”

Odom borrowed enough money from his father to build eight units and unveiled their first product, the DCP-8, at the mammoth National Association of Music Merchants tradeshow in 1995. Music industry expert and editor Craig Anderton named the DCP-8 as one of the top 10 new products of the show. Odom returned from the tradeshow with business cards of people from around the world. Some U.S. retail representatives picked up PreSonus’ product and started to sell it to retailers.

However, as a small startup with only about three employees, the company couldn’t mass-produce the units. “We could only make five or six a week,” Odom says. “We were terrible at it.”

Even so, the partners used the revenue earned from their first product to fund the design of their next product, a strategy they have maintained throughout the growth of the company. (Smith is now vice president of engineering at the firm.)

“Companies tend to spend every nickel they have when they are in the development phase,” says Kevin Couhig, chairman of PreSonus’ board of directors. “But this company has been primarily grown through organic growth and internal cash flow. It’s been very disciplined in that regard.”

A major investment

Couhig’s venture capital company, Source Capital, was one of the first investors in PreSonus. He recalls meeting Odom for the first time in 1995 through an introduction by another of Odom’s uncles, who was a banker. Odom presented his business plan. Couhig liked what he saw.

“When you’re doing startup investing, it’s all about people. So what I look for is, do they have relevant experience? Have they done things like what they are going to do now on a different platform? Did they work for someone in this industry? And Jim had all of those capabilities,” he says.

In high school, Odom had won a full scholarship from Downbeat Magazine to attend the prestigious Berklee College of Music in Boston, where he made friends with some music industry contacts with whom he still works today. Afterwards he toured and recorded as a professional musician with the band LeRoux for three years. (He continues to play guitar with the band at about a dozen regional shows a year.)

He also wrote, produced, and recorded music in Los Angeles, including movie soundtracks for Dirty Dancing and National Lampoon’s European Vacation. Notably, he comes from an entrepreneurial family: His father and grandfather were engineers who built their own companies in Baton Rouge.

For those reasons, Couhig invested $300,000 in the PreSonus startup.

“When I made my first investment in this company, I thought we were going to build products for recording studios,” Couhig says. “What we ended up doing was building products that replaced recording studios in people’s garages and homes. It just changed the whole nature of what recording meant.”

Before, recording studios were massive undertakings requiring special construction, miles of wiring, tons of equipment, and small armies of technicians. PreSonus carved out a space in the new, egalitarian world of digital audio recording.

Now, anyone who has about $1,000 to spend, an existing laptop to run the recording software (making it a Digital Audio Workstation, or DAW), a relatively quiet space in which to record, and the desire to learn the basics of recording software (such as PreSonus’ signature Studio One series), can achieve results hardly distinguishable from those of professional studios. Of course, you can spend a lot more by using additional equipment, but PreSonus and others have considerably lowered the barriers to the recording world marketplace.

Despite its founders’ initial success, it took a while for PreSonus to get off the ground. “For a long time, PreSonus was a real slow mover,” Couhig recalls. “They were learning their way. They were figuring things out, becoming more adept.”

Part of that learning process was adapting to customer demand.

“What we thought was a perfect product turned out to be close, but we had to listen to our customers who told us, ‘Now you need to rip that faceplate off and get all of that fancy digital stuff out of the way and just put a bunch of knobs on it,'” Odom says. “It was an enormous lesson for me as a product designer.”

PreSonus listened to its customers and introduced a second product that had 64 knobs.

“It was outrageous how many orders we took,” Odom says. The ACP-88 remains part of their product line today.

Despite impressive sales, the company struggled to get financing through traditional banking. “Bankers did not understand their inventory,” Couhig says. Source Capital invested more in PreSonus and lent the company money for inventory.

PreSonus also received some financing from a mezzanine lender in New Orleans. However, in late 2001, the lender analyzed PreSonus’ sales and determined that the company was dying, Couhig says. Worse, the terms of the financing included a stipulation that prohibited PreSonus from receiving other financing.

“It was very difficult,” Couhig says. But he was able to work out a deal to buy out the mezzanine company’s interest.

“We provided a couple million dollars of additional financing to the company,” he says. “And at that point, my company took a really significant stake in PreSonus.”

Today, although there is no majority shareholder, Source Capital has a controlling interest in the company. One of Source Capital’s managed funds, Louisiana Seed Capital Partnership, also owns part of PreSonus.

Louisiana Seed Capital Partnership was the first CAPCO, a state-funded venture capital program, in the U.S., Couhig says. Also Louisiana Economic Development was one of PreSonus’ first shareholders, Odom says. PreSonus’ managers, the founders’ friends and family, and a couple of individual investors hold shares in the company, too.

Last year, PreSonus had about $50 million in revenue and is on track to reach $58 million this year, CEO Jim Mack says.

Long-term vision

Odom plays a riff on a black-and-white Fender Stratocaster in one of the company’s new, airy conference rooms during a spare moment. He first picked up a guitar at age 10. Around that same time, he also began tinkering with electronics. As a teenager, he built a recording studio above the barn in his family’s backyard. He recorded about 30 to 40 local bands for fun. He continues to play music and innovate today.

Perhaps inspired by that experience, PreSonus’ products were predominantly hardware for small-to-medium recording studios until 2006. “We were providing a piece of the toolset,” Odom says. But Odom wasn’t satisfied with the existing audio editing software that was available on the market. “I was making records with third-party software and hating every minute of it,” he says. He believed PreSonus could do it better.

In 2006 the company partnered with a software startup in Germany to develop the Capture and Studio One recording and editing software. Eventually PreSonus acquired the startup and launched PreSonus Software Ltd., which is still based in Germany. But this move was part of a bigger plan. Odom’s long-term vision was to develop an all-in-one system that combined PreSonus hardware with streamlined editing software.

“Once we had control of the entire experience, then we could expand that. It was a business decision, but it was also a strategic decision for the consumers we were building products for,” Odom says.

However, not everyone understood Odom’s vision.

“For a couple of years, he was getting hammered by his board because he was spending money and no one could see the end of the spending or what the result would be,” Couhig says. “He had a vision to marry hardware and software in a way that had never been done in this industry, at least on an affordable level.”

But ultimately, this new capability, which they named Active Integration would be a game changer for the company and the industry and would usher in the next stage of PreSonus.

“I think this was under the radar, so to speak, to the rest of the industry as to why we were building our foundation,” Odom says. “No one had a sense of what we were up to.”

It was also a bold move that drew Jim Mack to join PreSonus as CEO in 2008.

“One of the things that attracted me to PreSonus was that idea of putting the hardware and software together,” he says. “Because I had worked for all of these hardware companies, and you could see the market was moving.”

On a business trip to China, where Couhig was to meet with manufacturers, Couhig remembers realizing how the company was going to change the music industry. He was struck by how PreSonus was leveling the playing field by building mass market products and offering hardware with integrated software. When setting up a small recording studio once cost at least $300,000, the company was about to offer an all-in-one system for less than $3,000.

“It not only democratized the tools, but in the process it gave everybody the ability—from the start to the finish—to be able to control the creative process,” Mack says.

PreSonus onstage

Cedar Park Recording manager Casey Horton is one such artist who has benefited from this new capability.

“I used a lot of PreSonus gear in my home recording studio,” he says. “They are always up-to-date and affordable for home recording but with a professional standard.”

He bought Little House Productions in Baton Rouge about a year ago and is setting up his own recording studio. Although he has not bought additional PreSonus gear, he has noticed that the brand has released some newer, “flashier” equipment he has yet to try out.

“As an artist, producer, singer/songwriter, you need functionality to get started with a product like PreSonus,” says Eddie Ciletti, a columnist for Mix magazine, an audio and music production publication. Artists can easily bust their entire budget on one piece of high-end equipment, so having less expensive options in the marketplace gives more artists access.

Horton noticed that musicians on several stages at the recent Baton Rouge Blues Festival were using PreSonus equipment. It included the huge mixing board with dozens of “sliders” so familiar to concert-goers over the years. But PreSonus’s audio mixing software can also be run virtually on a tablet—as it was at last year’s Foundation for Historical Louisiana gala—rendering the sound engineer free to move around the venue to hear how the “mix” of instruments and voices onstage sounds in different places.

“[The system is] all-in-one. It’s more streamlined and easy to use,” Horton says. However, some older musicians prefer to have separate pieces of equipment that won’t wipe out the entire system if one part blows, he says. Or if you drop your tablet.

“But it definitely cuts down on the amount of gear you have to carry,” he says of PreSonus’ system.

The company’s customer base is typically the new singer/songwriter or band breaking into the market. “The newcomer in the industry—that’s our customer,” Couhig says. “That’s who we want to focus on.”

Yet some big names have already come through PreSonus’ new state-of-the-art recording studios (see photos). Edwin McCain recorded earlier this year as well as Reba McEntire’s band. But PreSonus did not build the studios for commercial recording sessions. Their primary purpose is to test and develop products in an environment with optimal sound quality.

The famed Walters-Storyk Design Group in New York, which designed Jimi Hendrix’s Electric Lady Studios in 1969 as well as personal recording studios for musicians from Alicia Keyes to Jay-Z, designed the company’s two recording studios: the sound studio and a live sound room. John Storyk personally came to tune the room for PreSonus, says Steve Oppenheimer, PreSonus public relations manager.

“For people who are creative and work here, [the studios] bring to their worklife things they appreciate and enjoy,” Couhig says. “If you want to have a creative environment, you need to have the tools. These are the products we make, so who should have these studios more than us?”

They are also a creative setting for presenting products to artists and other customers.

Shifting leadership

Around 2008, when the company was preparing to grow from a $20 million company to a $50 million company, the board of directors asked Odom where he’d like to focus his time and energy, a discussion that moved him from heading the day-to-day business to the role of chief strategy officer.

Odom tapped Jim Mack for the role of CEO. He had worked with Mack on developing the PreSonus mixer while the latter was working at SaneWave, an audio equipment design firm.

Since Mack has been on board, PreSonus has diversified its product offerings and grown exponentially.

“From a business standpoint, as we grew the mixer business, it became too much of a focal point of our revenue. At one point, three products were 60 percent of our revenue,” he says. Under his leadership, the company began to look for new areas of growth.

It acquired Massachusetts-based online music marketing, sales, and promotion company, Nimbit in 2012, and the assets of music notation software company Notion Music, based in North Carolina, in 2013.

By acquiring Nimbit’s online distribution program, PreSonus became able to offer musicians and producers direct marketing services to distribute their work to fans and customers to help them manage their music business. Through Notion Music, PreSonus extended its reach by providing software for music composition and music education, a feature it plans to offer as an integrated tool in a future version of Studio One.

“We saw a huge opportunity for our products in education—both from a recording and a music education standpoint,” Mack says.

He has also led the company to expand from the recording studio market into the live performance arena. The company’s first line of loud speakers fit the 200- to 300-seat venue. But he recognized a demand in the market for 2,000- to 5,000-seat venues. In order to grow in this market, PreSonus acquired North Carolina-based commercial speaker manufacturer WorxAudio earlier this year. WorxAudio’s speakers and technology instantly gave PreSonus the capability to compete for business in venues with 5,000 or more seats.

“I think a big part of the companies that we are looking at from an acquisition standpoint is, if we were doing it on our own and had to do it in series or with other things we are doing, we might not get there quick enough to take advantage of where we see the opportunity in the market,” Mack says. “Now with a product line like WorxAudio, we are a major player in that [larger] space. We went from having four products in the speaker space to having about 75.”

Speakers and mixers bring in the most revenue for the company because of the demand from the live, commercial sound business, which continues to grow in dollars and units. Conversely, the price of individual products for recording studios continues to drop as the technology evolves.

“Even if you grow the number of customers, the actual dollars in that space are not significantly grown,” he says.

Up ahead

In developing new products, the company believes in following technologies and customer needs closely.

“You can see it in all of our products,” Odom says. “The technology advances, meets the market needs. When those meet, you have market fit.”

The company has a list of about 100 new products they’d like to design. But they can’t design them all.

“We narrow it down by business case, by development time and cost, return on investment,” Odom says. “We do a basic business analysis and technical analysis, all of those things to come up with the best concept that works for our company and shareholders.”

For example, PreSonus recently released a new digital mixer that is controlled by a large touchscreen monitor or a tablet.

“It’s about using the tools that are available in a way that changes the way we work,” he says.

Cloud computing is also changing the way many people work, including those in the music industry.

“We can now share ideas. We can share mixes. We can share songs. We can share concepts,” he says. “If I’m a creative artist, I can sell things to anybody from anywhere from this environment. It’s going to be one big connected community. It’s coming. And that connected community will be part of your world.”

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