When a company is in crisis mode, it usually considers undertaking the painful but necessary "emergency action plan." According to the Turnaround Management Association, this third step of a five-step process involves cutting staff and exiting cash-draining businesses. But Skullcandy is ignoring this advice—and it’s actually working.
Skullcandy, a company that designs and markets audio and gaming headphones, earphones, speakers, and more, considered this step in 2013: After years of rising revenues and profits, the company’s performance suddenly started falling. Instead of growing at 30% as it had been doing, sales suddenly dropped by 30% and its profits turned into losses.
After assessing its viability (step 1), Skullcandy decided to look for new management (step 2) and settled on Hoby Darling as the person most qualified to turn around the company. At the time, Darling was the general manager of Nike+ Sport, which many consider the most innovative product to come out of the company in years.
Darling wasn’t interested in the position at first. His immediate reaction was, "I have the best job ever [at Nike]. I was a college athlete, I do triathlons, and now I get to work with Nike’s best athletes."
Furthermore, Darling was not interested in the five-step turnaround process. If Skullcandy wanted someone to cut the company down and build up a new story for investors—or, "put lipstick on a pig," as Darling put it—then that wasn’t for him.
He was only interested in the CEO role if he got to approach the process in reverse, starting with step five: rebuilding the team and employee morale in order to make a great company.
Darling believes that success is about getting people engaged in producing amazing products and telling stories, and it is through these emotional, authentic stories you tell that your customers connect passionately with your brand and your products.
In order for Skullcandy to survive, it would need to "reverse the pyramid:" It would need to rebuild the base—the people, values, and culture—which would then result in remarkable products and an emotional, authentic connection with consumers, which would inevitably produce financial results.
After the board agreed with his plan and Darling accepted the job, he traveled the world and talked to employees to understand the stories and values that formed the fabric of Skullcandy.
The company had begun on a ski lift when Founder Rick Alden was listening to music, got a phone call, and fumbled to pull out his headphones to answer. This inspired him to create the Skullcandy Portable Link, a product that combined headphones and hands-free cellular technology so people could use one pair of headphones to both listen to music and answer their cell phones.
But employees were not connected with the Skullcandy story. They weren’t saying, "I’m so excited to be here." In fact, they were on LinkedIn looking for new jobs.
The brand lacked clarity: You could find it in off-price retail outlets like T.J. Maxx, and they had forgotten who their core customer was.
The Skullcandy team started rebuilding the company culture from the bottom up. They clarified their values: passionate, gritty, team-first, optimistic, authentic to youth culture, and fun. And to make sure these were not just words, the company started ending team meetings, or "Skull Huddles," with stories about how the company was living those values.
Skullcandy’s headquarters are next to a ski area, and, according to Darling, "when there is fresh powder, [we pretend] it’s Saturday!" Considering it was on a slope that the founding insight for the company was born, employees are encouraged to go skiing. And since the company was also born of action sports and being active, there is also access to company and team workouts, mountain biking, trail runs, and other sports together. "It is a lot like being back in college," Darling said.
Company executives also stopped working in offices and now occupy cubicles with the rest of the team to increase communication.
Skullcandy created personas of its core customers, giving them names and characteristics: Aaron (male) and Sal (female). It explores how these "muses," as Darling calls them, fill their days with audio. For example, on a train, Aaron and Sal listen to their phone or watch a movie. When they get to work, they’re listening on the computer. At the gym they want earphones that don’t fall out. Skullcandy clarified its brand ethos to being fun, young, and irreverent in a way that is creative and active.
In Darling’s view, the strategy is working: Employees are engaged authentically with the brand and customer. The products are more about being disruptive with how "Sal" and "Aaron" experience audio versus just optimizing. And Skullcandy is starting to tell emotional stories.
Darling never promised investors they would see financial improvement early on, believing "at the end of the day, the financials will come."
Re-ordering the turnaround formula isn’t just a win for Skullcandy and its investors; it’s a win for its employees, customers, and anyone who believes that growth and success begin with people, not financials.