Miscellaneous

99% True: Almost a National Bestseller, by Paul McGowan. Lioncrest Publishing, 2019. 364pp. $25.00, hard cover; $15.99, paperback; $9.99, Kindle e-book.

To many audiophiles, high-end audio manufacturers must seem like monolithic entities, enduring for what seems like forever, like cliffs beside a familiar path. But as Paul McGowan explains in this unputdownable autobiography (footnote 1), behind the facade of stability things can be in financial turmoil, with success equally as risky as failure.

Paul writes on his website that he's "the CEO of PS Audio, a multimillion-dollar corporation that makes stereo equipment: a proud father of four, a mentor, a respected member of our community. But look deeper, because there's more. My father swore I would wind up in prison. My mother prayed that I would make it past puberty."

Paul did make it past puberty, building his first loudspeaker in high school in the 1960s, using an 8" woofer with a whizzer cone. (The rest of the system was a turntable he'd resurrected from his father's junk pile and a Fisher 500 receiver.) After studying to be a DJ and setting up an illicit radio station while in college, Paul was drafted and shipped out to Stuttgart, Germany, where he worked as a DJ for the Armed Forces Network. He went, as he describes in this book's early chapters, from "dope-smoking, snake-eating, draft-dodging, acid-popping, and loony-bin misadventures through Europe" to using one of the first op-amp chips, Fairchild's µA709, to create with his friend Stan Warren a better-sounding phono preamplifier—housed in a cigar box—in 1974. From "Paul" and "Stan" was born PS Audio.

But before that point of inflection, Paul was working as a radio DJ in California's Central Coast region by day and designing a polyphonic synthesizer by night. He decided to start a company to make it. That was not as easy as he thought. He writes: "To build a prototype and finance the manufacture of production units, I needed money I didn't have. . . . The first place I tried seemed a natural fit: the local bank. Armed with a business plan showing first-year sales of $1 million, a firm handshake, and a big smile, I met with the bank's loan manager . . . we spent the better part of a morning going over facts and figures, until it became clear to me that banks don't lend money to people who are financial risks." Eventually, a local supermarket magnate chipped in $10,000 for half the new company. "Flying high, I felt like a millionaire . . . minus a few zeros. I had a real company checkbook, letterhead, business cards, and the title of Company President. I immediately invested all but $500 of our $10,000: $9000 into a subcontractor, who would build all our products; and $500 in a pound of fine pot, for inspiration."

Paul got a job at another FM station and was immediately asked to design a low-noise phono preamp for the station to satisfy the FCC's license requirements. And while he was doing that, the subcontractor told him that while they had spent the supermarket magnate's money they had been given to manufacture the synthesizer, they had produced nothing.

Paul learned for the first time that a good education is always expensive: "I eventually won a judgment . . . but it was meaningless; there would be no blood from that turnip."

He let Stan Warren, a local audiophile, listen to the radio station's phono preamp. A little later, Stan showed up on Paul's doorstep. He had sold his van for $500 and wanted to use the money to start a company with Paul to make the phono preamp. "And just like that I went from being lost in the woods without a map to passing through the tollbooth of my life's future highway," Paul writes.

The preamp didn't sound as good as an Audio Research SP3, so Paul and Stan worked on improving it. "Evenings, weekends, and sometimes even lunch breaks found the two of us ensconced in his living room sketching new circuit ideas, arguing over the merits of parts and designs, and endlessly listening to the same tracks of music to compare one notion to another. . . . We spent every spare hour learning, tweaking, listening, redesigning, and listening again, trying to figure out how to engineer audio magic so we could build and sell our own version of it. We didn't know it at the time, but we were learning a skill that few people had back then: the ability to correlate what we heard with changes in electronic circuitry—changes that didn't register on traditional measures of sound quality like distortion or frequency response."

But the lack of finance was still a problem. Paul made the ultimate sacrifice: He sold his thousands-strong LP collection at swap meets so he could afford to take out a 1/6-page ad in the April 1975 issue of Audio, advertising the phono preamp for $59.95. Orders came in, but . . . "Stan and I realized that in charging only $59.95 for a product whose parts cost $30, we'd screwed up. Each unit required two hours of labor to build, and even paying an assembler a meager living wage of $8 per hour . . . we would make no profit. In an attempt to get our budget under control, we soon doubled the retail price, to a whopping $119.95. That covered our expenses, barely, but it left no room at all for dealers, who routinely doubled a product's wholesale cost to set their retail prices. We didn't know it at the time but we were headed down the slippery slopes of a poorly managed business that so many startups go through. If we weren't careful, we'd wind up in the same place the majority of small businesses eventually land: bankruptcy court."

Even so, PS Audio grew steadily for the next eight years, with an increasing number of products getting good reviews—including one from me of the PS Audio IV preamplifier in the May 1984 issue of Hi-Fi News & Record Review magazine—and generating sales. But as Paul admits, "We still hadn't figured out the importance of making a big enough profit or how to manage the meager cash we had to work with." Parts and labor had to be paid for before finished products got into customers' hands and before PS Audio received any payment.

"We didn't have the accounting chops to comprehend the truth: PS Audio was leaking cash faster than we could top off its reservoir. . . . Without the business acumen to understand the root cause of our struggling business, we doggedly continued to patch the cash holes by expanding revenues with new products: products that weren't generating enough profit to fill our cash needs," he writes.

In 1984, Stan Warren bailed, to found Superphon, and Paul became acquainted with Arnie Nudell, then running Infinity Loudspeakers for Harman International. Nudell examined PS Audio's financial records and "Damn if he didn't explain in five minutes what no one had been able to make clear to me in five years," Paul writes. "Our profits were all sitting there—just not in the form of cash. Instead, those profits had been invested in inventory, and in credit terms to our dealers." In order to have sufficient cash reserves to self-fund a company, Nudell explained, "either a lot more profit would have to be made or bank financing would need to be secured. PS Audio had neither."

The inevitable happened. PS Audio was sold to two industry veterans, Randy Patton and Steve Jeffery, and Paul joined Nudell in Colorado to start a loudspeaker company, Genesis Technologies. And despite Genesis making great-sounding speakers, history repeated itself. "We limped along, with too little profit and too much overhead for a company as small as ours. We'd made the first of many classic mistakes companies fall prey to: we tried to grow in a hurry by investing more money than we should have in marketing, warehouse inventory levels, our own executive salaries, the purchase of a new building, and travel." Seven years after the birth of Genesis, Paul moved on.

PS Audio had not fared well in the interim, either, and in 1997, Paul and his wife Terri were able to buy it back for just $1. Applying the education he had earned the expensive way, Paul started afresh. He worked with Arnie Nudell on "voicing" products: the art of modifying and adjusting designs by ear that Paul and Stan had learned in the 1970s. Starting with a new product category, the AC regenerator, the re-born PS Audio grew within its means: controlling parts inventory; paying the bills; introducing good-sounding products at the right time and at a price that ensured the necessary profit; and, in an increasingly disintermediated world, managing the change in audio retailing from one based on bricks-and-mortar dealers to one combining the smaller number of those dealers with online sales (footnote 2). Perhaps most importantly, Paul worked on developing a sense of community between PS Audio and its customer base with a daily newsletter, a website forum, podcasts, and videos, a concept called "permission marketing," for which Paul rightfully credits Seth Godin (footnote 3).

Paul is bullish about the future of the audio industry: "There will always be those who want better sound, and who, when they hear it, will appreciate it enough to pay a reasonable premium for it," he writes on the book's final page. "Like fine food, fine wine, fine literature, fine art, and fine music, there's audible magic being made by today's fine audio systems—more magic than ever. You just have to look and listen for it."

Along with Jason Stoddard's Schiit Happened: The Story of the World's Most Improbable Start-Up, Paul McGowan's 99% True is essential reading for anyone interested not just in high-end audio but also in how small companies are born, live, and sometimes die (footnote 4).

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Footnote 1: I wrote the notes for the dust jacket of this book's hardcover edition.

Footnote 2: After this review was written, PS Audio announced that it was discontinuing sales through retailers in the US. See this report by Jim Austin.

Footnote 3: See the video interview I conducted with Paul here.

Footnote 4: You can find photos of many of the happenings and products described in the book here.