This was originally posted at PSW in September, 2012.
I love the phrase “… to the next level.” I did some back-of-envelope figuring about 25 years ago when faced with a similar desire for my small PA company to see what it would cost.
What came of that was a determination that “the next level” costs you as much as EVERYTHING YOU’VE SPENT, TO DATE. That means from the time you bought your first microphone or speaker up to the present day. If you spent $50,000 so far, to get to that next level will cost you a minimum of $50k ALL AT ONCE. Faced with that knowledge and the realization that I was stuck with clients that could never pay me more (and that I hadn’t charged enough to allow for proper maintenance and eventual expansion), I did some serious soul searching and sold off most of my gear; doubled down on the business & accounting side and took to managing other peoples businesses.
Some of the gems of wisdom that came from the education received and from advice from others in the industry I came to several conclusions. In no particular order –
- A sound system is a tool to make money. It is not a big ass personal stereo system, so when it comes to making decisions about brands and models my personal preferences need to take a back seat to other considerations.
- If myself or my crew are the only people who will operate the equipment, I have more leeway in selection; if the gear is to be operated by others it is important to invest mostly in the stuff they want to use, subject to the ability to recover those costs in a reasonable amount of time.
- Excess capacity is infinitely expensive. Having another 8 speakers or amps in inventory that only go out a couple times a year means those gigs have to pay a great deal more to compensate, or we should look to renting the additional capacity on an as-needed basis.
- Certain big ticket items like large frame consoles seldom provide a return on the investment before they are obsolete. Why? Because in most music/entertainment situations you can’t make them a separate line item on an invoice; a console is expected to be part of the equipment package. In a previous incarnation of PSW, Chip Self of Logic Systems had a great Study Hall article on ROI and how this happens.
- Spending big money on capital equipment needs to be justified by the generation of additional income above and beyond what is brought in from existing equipment, and that investment must recoup its costs in a timely manner. If purchasing a new console or speaker system means you can get more money from existing clients; if it means you can realistically expect to get gigs you can’t get now; if it provides new opportunity; then it *might* make sense.
- Beware of false economies. It’s just as easy to spend too little and not buy new opportunity as it is to spend too much and have either excess capacity or gear that isn’t popular with clients.
Take a good hard look at the business side of your company. Ignore the blinking lights and flashy advertising, the gleam of bright shiny objects. Instead ask yourself how you’re going to justify to your significant other the spending (and likely borrowing most of) 6 figures to the left of the decimal point. Almost any stock index fund will return more than spending that money on audio systems.
Have fun, good luck.
And a follow up to my post: It’s been about 6 or 7 years ago, but my boss and I had a conversation about this. We looked out the office window into the warehouse and I asked him how much we had tied up in the inventory we could see from there. “About $350,000”. “You’ll need to spend at least that much, all at once, to get to the next level or even remain competitive in the industry in another 5 years.”
His wife swears she heard his sphincter pucker from across town. 😉
It took him a couple years to fully digest that brief conversation and weigh the implications of various scenarios, but in the end we’re spending more than that to remain the top shop in our market area. You have to go almost 200 miles to find a firm with greater capability, and we’ve got a great staff to send with our gear.
In a long, round-about way this brings me to another bullet point:
7 – Any particular amount of capability costs the same. By that I mean that the costs of entry at a give level (bar, club, theater, arena) remain roughly the same from year to year. Twenty-five years ago the capital equipment costs of opening a regional sound company was about $300K. Today it still is, but the difference in output, quality, packaging and deployment is tremendous. Someone entering the business from scratch, with no purchase legacy or history is spending his money only once (so far), whereas an owner in an upgrade cycle is re-spending. Guess who has the advantage? Throw in that promoters really want to see current technology to avoid hassles with artistic crew, and there is a marketing advantage as well. This leads us to…
7(A) – The wrong piece of gear at the ‘right’ price is still the wrong piece of gear
7(B) – Buy once, cry once.