Focusrite - Phil Dudderidge OBE

Victoria Stevens

Hi, I'm Victoria Stevens, and welcome to our podcast, Stock exchanges. In my day job working as a fund manager at Liontrust, investing on behalf of our clients in UK stockmarket listed companies. I'm fortunate enough to cross paths with some of Britain's most inspiring entrepreneurs. It's a huge privilege to sit across the table from the people who have put their very heart and soul into growing and running these companies. And in this series, I want to share that privilege with you, our listeners.

Today I'm here with Phil Dudderidge, the founder and now non-executive chairman of Focusrite. Focusrite is a company that makes audio technology products used by musicians the world over, from amateurs in their bedroom to performers on the big stage. Their products include audio recording tools, like audio interfaces and amplifiers, electronic music products like keyboards and synthesizers, and audio reproduction equipment like loudspeakers. They even make podcast recording products, which we are of course using today as we sit together in Focusrite Studios in their headquarters in High Wycombe. Now, Phil's incredible journey from the early days on tour with one of the most iconic rock bands of all time, to setting up and ultimately selling his first company, to then buying the assets of Focusrite out of administration and building it up to the business it is today.

Phil is a real pleasure to have you on the podcast today.

Phil Dudderidge

Thank you very much. Lovely to be here.

Victoria Stevens

So you've been in the music business for almost six decades now I think I'm right in saying. So tell us a little bit about your early years in the industry long before you were ever involved with Focusrite. Tell us how it all began.

Phil Duddeidge

Well, y career in music started with a van and a band. I was 18, and I was working for an underground newspaper at the time, International Times, delivering their papers and also posters around London, around the shops that was selling them. The posters were produced by the producer and artist manager, Joe Boyd.

Joe was an American who came over to look for new talents and found it in bands like Pink Floyd, Fairport Convention, The Incredible String Band, and, Nick Drake, amongst others. So, I happened to be in his office one day when he was taking a call, making a call to cancel a gig because fairport Convention’s van had broken down. When he got off the phone, I said, do you need a van. And he said, yeah, can you get one or have you got one? I said, I can certainly get one by Saturday, which is the gig day. So he called up and reinstated the gig, which is at Leeds University Student Union, which is quite a famous gig in those days.

The Who famously made an album Live at Leeds. So within four days I'd gone out and bought a van for £100 and showed up on the morning of the gig, picked the band up in Muswell Hill and off we went to Leeds. And I'd never been north of Watford before, I don't think, that's how it all started.

Victoria Stevens

You were an entrepreneur even then?

Phil Dudderidge

Well, I guess, and, I did much of the same with various bands over the next three years until I was 21. And then I got the opportunity to work with LED Zeppelin, which you alluded to in your introduction. And that was sticking my head above the parapet a bit because I'd never done live sound before, but I was at the factory where the PA system was made, company called WEM - Watkins Electric Music. And Charlie Watkins was a really good guy. To us roadies in their 20s he seemed like an old man in his 40s. But, you know, he was bald, which didn’t help. So, although there's this generational divide, he was responsible for the PA systems, that went out when most of the bands at the time and the big gigs in Hyde Park, the Rolling Stones and so on, he was rock n roll, even if he didn't look at and I said to Charlie, do you know of any bands looking for somebody else because I've been working for Soft Machine for a year now, and I just need different music. And he said, well, Led Zeppelin looking for somebody. And in those days, being a sound man wasn't a thing. It was just, you're the roadie that looked after the PA, and it wasn't very complicated. So, I was able to, kind of, learn on the job. And so I did.

Victoria Stevens

And you then, if I'm right, went on tour with, with LED Zeppelin in 1970. Was it in North America? I mean, was that as glamorous as it sounds?

Phil Dudderidge

I wouldn't call it glamorous. But, it was certainly eye opening. It was very hard work. 28 shows, in 30 days, all over America. And 28 cities. So, there's a lot of driving involved. It was more driving in the was actually gigging as it were, because of the distances. So at a young age I got to see America, day and night. Yeah, it's very hard work, but exciting, but not a lot of time given to sleeping. So, by the end of the month, I was completely shattered and needed another six months to get over it.

Victoria Stevens

And I'm sure you did. And so we come close to the point where you set up your first company, Sound Craft Engineering. So tell us a little bit about how that came about.

Phil Dudderidge

Well, I worked for a year for an amplifier company, after Zeppelin and during that time I was doing the sound at the Roundhouse on Sundays using the Hiwatt systems that I was selling during the week. And that led to a friend of mine approaching me and saying, you want to start something? I think I can build PA systems, and that's that.

So, long story short, we started a business called RSD, and took on a partner who was an electronics designer designing the mixing consoles. Within a short time, he and I split off to start SoundCraft because we weren't getting along very well with our partner, my original partner. So, Yeah, that's how sound craft started.

And we started with £4000. And that was it. And nowhere to work from, so initially we were working out of my spare room in my flat, and he was working in a factory that was assembling things for us, in Essex. And then, it just grew from there. And we devised a mixer that was affordable by a lot of people as opposed to the custom built jobs that we had been doing before, which, sort of thousands of pounds, and we brought out a mixer that was under £1,000, and as I say, people could afford that if they were professional bands going out, earning money. So, that's how we got started, and, we couldn't make them fast enough so it was very, very successful, and we moved into recording mixers over time, and my career with SoundCraft was 15 years before we then sold the company to an American group called Harman, and Graham stayed with it and I left, wondering what to do next, which at that point I was just turning 40.

Victoria Stevens

So you you're almost about to turn 40, and you've presumably got quite a nice payday at that point. And your left it effectively a fork in the road. So, so how do you come to decide to do it again?

Phil Dudderidge

Well, I wasn't planning to do it again. I was going to take some time off and figure out what to do next, possibly even go to university, which was something I hadn't done. But, you know, I could afford at that stage to sort of, take my time. But within a matter of weeks, I got a phone call saying that the original Focusrite company was in trouble. I went to see it. I was asked to go and see it, and I went to see it, and it was in real trouble. And I said, no, I'm not going to put my good money into supporting your bad money. And I walked away from it. About a month later, I got a call from the insolvency practitioner who by then had been appointed, and he persuaded me to come and have another conversation and, I then made an offer for the assets and won the bid.

Victoria Stevens

Wow. And that's something that I think you find quite regularly when you talk to entrepreneurs, that willingness to jump in, I suppose, to take that ris, to seize opportunity where they see it. And is that how you felt it was? A little bit of an opportunity with Focusrite?

Phil Dudderidge

Yes. I think, the cause of the demise of the original company was very large studio mixing consoles. For anyone in the sort of audio equipment business, there's something very attractive about the scale. These days they're not so big. You know, technology has moved on a little bit. But a lot of the consoles that were built back in the 80s are still used today. And, the classic photographs you see of studios, typically have those, that generation of consoles in them rather than the computer based recording studios that people have in their bedrooms these days, which is our main customer base.

Victoria Stevens

Yes. And so Focusrite was the second time that you've effectively built up a business from scratch. What do you think it taught you to have that experience already on board when you were starting up Focusrite effectively again? What might you have done differently had you not have had that experience?

Phil Dudderidge

Well, I probably wouldn't have done it at all if I had that experience. For a number of years, I thought I had made a bad mistake because, unfortunately those large consoles were quickly becoming obsolete in the eyes of studio owners. They were concerned about digital consoles coming, which were not really an immediate threat, but there was also recession going on in the early 90s and especially in the recording industry. So, the market for large consoles was dwindling and, we were competing with established brands, in particular both British actually, for a worldwide market and, so we decided probably after a couple of years of selling of, you know, a few consoles, but not enough to keep the business going to get out of that. But fortunately, we had a secondary line of products which were the sort of things that people would augment a studio with. So outboard equipment as it's generically called. And, so we focused on that side of the business, which is much more immediate and cash generative than selling half million pound consoles to people not very often. And so, that worked out quite well. But we had to, you know, continually reinvent the business to find the, you know, the magic formula. In ‘95 I met somebody at a trade show from a company called Digital Design and Digital Design were the preeminent brand of digital audio workstations, which is, software. But they also have hardware that goes with it. They were very keen to get involved with us, and have us develop software for that platform emulating the Focusrite hardware. And I saw the opportunity, but I said, well, we don't know how to do that. But you do, so why don't you do it? And I sort of flipped the proposition. So they developed the product they were asking us to develop, and we received a royalty stream for the use of our brand and the use of the look and feel of the hardware but emulated in software. And that worked out really successfully for both parties. And that relationship developed to the point where we were developing hardware products for them as well, including the first audio interface that we developed in-house. But it was sold under the dual branding by them, and very successfully for a good number of years.

Victoria Stevens

And how did that partnership come to an end? It sounds very fruitful at that relatively early stage during Focusrite’s development.

Phil Dudderidge

In 2004. A couple of things happened. We bought Novation, again out of insolvency, and, Digi Design bought M-Audio, which was an American competitor. And within a couple of years they developed a replacement of the Mbox, which was the original interface that we had developed back in 2000. But, it didn't happen straight away and by the time they brought out the Mbox 2, we had developed a new line of products called Sapphire, which were Firewire based. And, so you know, the business transitioned from being dependent on royalties coming from Digi Design to selling our own products with a normal margin.

Victoria Stevens

Yeah. The partners had become competitors. So, Phil, we take us from that point to where we sit today. We'll come back to the stock market listing decision, I think, later. But just bring us up to date and perhaps it might be useful here - I gave a little bit at the beginning in terms of that elevator pitch - but I think it'd be really helpful for our listeners to hear in your minds, you know your elevator pitch of the business and the range of products you design, who you design them for and where you sell them.

Phil Dudderidge

Well, there are several strands to the business now. Focusrite is the core, if you like. And then we've acquired, other businesses in the last five years or so. So Focusrite and Novation come under the Focusrite Audio Engineering Ltd company which is a subsidiary of Focusrite plc. Focusrite plc. and the other brands that I've alluded to.

So we've now got quite a group of brands which address the musician, amateur and professional and, as you mentioned in your introduction with the audio reproduction rather, that's the live sound business, based around Martin Audio, and now includes Linear Research, which is an amplifier business, that works with Optimal Audio, a new brand they've developed.

Victoria Stevens

And I'm just going to pick up on something you said there, if that's okay, Phil. So, you know, I'd be really interested to learn why it was important to you to cater for both amateur musicians and also all the way up to professionals, because that is a bit of a departure, I think, from what you were doing in the early days, and I wondered if it stemmed from, you know, a real passion for making music yourself.

Phil Dudderidge

I've never been a recording engineer, and I'm not a musician, so, I was a live sound man a long time ago, but the original proposition of the business was very much at the high end of the professional market. But since 1990, there's been a progressive shift in the technology - we've gone digital, computer based Computer based recording systems have a really democratized recording.

So these days, you don't have to get a record deal and go into a big studio to make a record. Anybody can now buy equipment for, relatively modest investment and record at home. Of course, they have to develop the skills to do so. And the first skill and it is to be able to play their instruments or sing that song.

So there is still very much a place for the professional recording engineer, but it's amazing what people can achieve learning how to do everything themselves. And so it's been, what, a 30 year process of democratisation, and addressing both the and so the Abbey Road level market, producing products that are affordable to individual and virtual musicians, amateur or professional.

Victoria Stevens

I think one thing that comes through so strongly when I read your statements or listen to you present, is that idea of the importance of musical heritage, that passion for the musical heritage, staying true to the, to the quality of the products and the brands. And I think one moment where that struck me really vividly was when you bought Sequential, which is the Californian synthesizer business a couple of years ago, and I remember you talking in the release about the importance of the pedigree of the instruments, the brand staying true to, you know, the mindset of the founder, Dave Smith, who I think you described as legendary in that release.

And for me, that really epitomized what I'd heard from you over many years in terms of the importance placed on that musical heritage. Does that does that ring true for you?

Phil Dudderidge

Well, I think there's two aspects of that. You know, one is the absolute, importance of quality for the customer. So what brands represent is, as you say, heritage of quality. So, you don't have to if you've got a good brand, you don't have to explain what you're all about. It's as if we often use the car analogy: So, you know, if you're Mercedes, you don't have to explain that you're a good quality car manufacturer. And, so Focusrite is known, globally as high quality but affordable. Some people say that we’re the sort of BMW or the or perhaps the Volkswagen of audio, you know. We like to think that we’re Porsche or Mercedes too with our different price points, so we're addressing the market, at different price points, but always trying to have the quality that professionals can use, even if it's for an amateur spending a relatively modest amount of money.

Victoria Stevens

Because, as you rightly say, that, you know, people associate those brands with quality, but they won't maintain those brands if they don't maintain the quality of the products. It might there might be a lag effect, but certainly that won't remain true.

Phil Dudderidge

Yeah. It'd be very easy to trash to the brand.

Victoria Stevens

Absolutely, absolutely. Like a reputation. Right. It takes years and years to build it up in moments to destroy it. So in terms of the importance then associated with the quality of the products, how important is constant innovation to your business? You know, is that the secret sauce of Focusrite.

Phil Dudderidge

I think that the innovation plays an important part in making the musical journey better. So when we're not innovating so much for better quality because we've always had that. We're innovating to achieve high levels of performance at remarkably low cost - very little inflation and the price of our products over the years. But it's also the workflow, how people are using the products with software for example.

I'm talking here very much about audio interface business, which is, you know a very significant part of the overall group. But, certainly most of what Focusrite does today is audio interfaces. You know, we stopped doing the big consoles back in 1992, I think. So, we've reinvented the business significantly over the years to address the market that's created by software andby digital audio workstations and, when it comes to other product segments - accents, controllers and loudspeakers - there's a lot of innovation that goes into making them better, more creative, more reliable, more affordable. So, yeah, we invest a lot of money every year across the group in product development.

Victoria Stevens

Absolutely. Now I'm going to take us in a slightly different direction now, onto more of the challenges associated with being an entrepreneur. Now, in our conversation so far you've obviously skirted neatly over a couple of those challenges from operating Soundcraft on a shoestring from right when you started out, to splitting ways with one of that initial partnership of three.

You know, we've we sort of skirted over some of the more difficult periods, in terms of the macroeconomic picture, throughout those years as well. And I just, I mean I’m really interested in the attitude and the mental strength that it takes to be an entrepreneur because I strongly feel that probably for all of those highs, and there must be very many of them having built up a successful business, that there must be some quite crushing lows as well to get past. So how do you remain resilient through those periods where it's really challenging?

Phil Dudderidge

The biggest challenges were in the first few years and I often said to myself, you know, I'd made a bad decision in buying Focusrite out of insolvency. But, I'm not a quitter. So it was a matter of, okay. Let's pivot. Let's decide what works and what doesn't work, and let's concentrate on what does work and, what there is a demand for and how we can succeed.

And then with the, partnership we had with Digital Design, that was an example really of recognizing an opportunity and seizing it with both hands and thinking, okay well, it wasn't something we planned for, but you know, this is a clear opportunity to work with another company and license our brand and licensing the brand to them for a number of years really made the difference between success and failure.

So really, since ‘90, I would say ‘97, we've just had progressive growth. And so the challenges have been not those of insolvency, which threatened in the first few years, but of meeting the sort of challenges of just organizational development, hiring the right people, managing things Well. Every year has different challenges. But, you know, we've got a great team. It's not all on my shoulders. And now that I am non-executive chairman, it's not on my shoulders at all.

Victoria Stevens

Yes, but in those early years in particular, I suppose there must be an element of needing to bring the energy, I suppose, every day. And, you know, it's about as far from a job which is a 9 to 5 as it's possible to get. You know you will, I'm sure, have lived and breathed both of your businesses for very many years.

So personally, if you take a step back from the office, such as it is, you know how do you gain that mental resilience to come back day after day with that energy and enthusiasm to build for the long term?

Phil Dudderidge

Well, I suppose you either have it or you don't in the first place. And, I think I was very resilient during my days on the road with bands at a young age. And I suppose I've always believed in myself, but then in the company, if you believe in the company, then, you just put everything into it.

You know, in the early days, we burned through a lot of cash, like lots of startups do, to the point where I had to mortgage the house, and when it all came good and the company was able to pay me back, that was great. And, my wife made me promise never to mortgage the house again, but I think it's not unusual for the entrepreneurs to put everything on the line, to achieve success.

You know, when you're younger, you can accept a higher level of risk, perhaps, than when you're older. And at that point I was old actually, I was in my early 40s and had six kids. So, I was risking everything, you know, both for them and successful failure was going to be affecting them as much as it was going to affect me.

Victoria Stevens

Absolutely. I'm going to come back to that idea of having everything on the line or stake in the business in a second, but it ties in to your decision, as we were talking about just before we started the podcast, almost ten years ago now to list your business on the stock market. So Focusrite listed on the so-called Alternative Investment Market or AIM, as it's known, which is, the London Stock Exchange's junior market, designed especially for smaller growth businesses.

How do you think that decision to list the business has changed the course of Focusrite history.

Phil Dudderidge

Well, it's enabled the company, to develop as a more mature business that will outlive me. And I, you know, I was 65 at the time, now 74. And so, I was cognizant of my advancing years. And, you know, I didn't know how long I'd be able to keep going for, and I wanted to put the company on to a foundation in financial and management terms that, as I say, was sound and secure and could go forward whether I was involved in or not. And I think it's worked out really well. And one of the great things, apart from, freeing up some capital and being able to take some money off the table at the time, it's enabled us to hire non-executive directors who we wouldn't necessarily thought of attracting had we remained a private business, let alone been able to, but we've had two extremely good non-executive directors at the time of the float, one of whom has retired and the other is still with us. We've fired two more subsequently. So, we've got a strong board which, I think, it gives a strong foundation to the business, as well as you know the other aspects of the business, you know, obviously you look at any business and you look at what they sell, how they sell it, what the brand is, or the branding aspects of the company, how they make things, all of those sort of things. But the management of business is so critical. You can have all those things, but you can lose it all if you lose direction.

Victoria Stevens

One of the things that me and my team focus on when we invest in businesses listed on the market is the importance of equity ownership. So owner managers who own a stake in their own businesses. And that idea of having skin in the game, we think really encourages entrepreneurs to think for the long term, about building the value of their business, not with tomorrow's results in mind, but with really securing their legacy, securing the longer term future of the business.

Would you agree that equity ownership, and you still own when you talk about taking a bit of money off the table, but you said I own over 30% of this business today. Has that been a really important motivator for you over your time With Focusrite? And also, is it something which you're trying to encourage more of cascading down the ranks within the business as well?

Phil Dudderidge

Well, I think yeah certainly equity ownership is ia strong motivator from day one. You're looking to grow something. You're not just, you know, trying to trying to make a living, you know, trying to build something with long term value. When we were planning the IPO, for a number of years we had an option scheme, for employees. And we ensured that at the time of the IPO, all the people in the company had share options that would vest over a period of time depending on how long they'd been with the company. And so, it was important both from a reward point of view but alsot the time of the IPO, they would feel something tangible.

Those options probably felt a bit worthless until the IPO came along. And then suddenly people woke up to the fact that, hey these pieces of paper are worth something. And over time, you know, some people. So the, you know, exercised their options and sold their shares, and were able to, you know, buy houses and do all sorts of good stuff, for their families. And others have, you know, kept some of the shares or even all of the shares and are enjoying the fruits of their labors in that way. So, yeah, I certainly hope, you'd have to ask them how motivated they are, but I certainly hope they are strongly motivated by that sense of, ownership.

Victoria Stevens

Absolutely. Now, moving on to the next such a topic I wanted to cover with you, Phil, there's a there's a dynamic that we, I think, see play out quite frequently in the entrepreneurial growth businesses that we invest in, in that there's often a natural peak, I feel, to where an entrepreneur can naturally take his or her business. And after that point, it becomes more challenging for that person to be the one to take the business on to the next level. And I sort of have a theory that that's perhaps something to do with the fact that if you've got that really deep passion and an intensity of focusing on often the quality of products and superior customer service and that sort of nitty gritty, in the early years, you've often invested blood, sweat and tears to get the business to the point it is at that, in that day. You know, that's fantastically valuable up to a point. But there probably comes a time when to set the business on to the next phase of growth, you actually need a bit more of a layer of impartiality, dare we say it? Professionalism. I don't mean that in a derogatory way. I mean professional management coming in with that ability to see things perhaps more objectively. Now, you've obviously lived through that journey to an extent, having gone from an executive role to a non-executive role.

Did you find that hard taking that step back, relinquishing control, if you like?

Phil Dudderidge

Well, no, because I did it over quite a long period of time. I first appointed a managing director in 97, and then took back that role in 2007, and was CEO for about five years before then once again delegating the running of the business to a new CEO.

He was with us for five years. Unfortunately, he retired due to ill health. And our current CEO Tim Carroll joined us in 2017, I think it was. So I've delegated the running of the business over quite a long period of time. I remained as executive chairman until just after Covid and I was, in 2020, just before Covid, starting to think it was time for me to, hang up my spurs as it were. And then Covid came along and, having being isolated from everybody not coming to the office and all of that sort of thing, by the beginning of 2022, I decided that, you know, I felt sufficiently distanced from the day to day that it was time to formalise that and become non-exec. But you know, I'm still, in regular contact with people here, and I sometimes find it frustrating, you know, it's that letting go thing. But, so I try to maintain the right balance between providing, you know, sage advice, if you like, but letting the CEO and the CFO run the business as they do and, you know, we've over the last five years really built out the group with a number of acquisitions and, expect to do more of that over time. We've been very careful to not buy things that are the wrong things. So we'll only buy a business if we’re really certain it's going to add long term value to the group.

Victoria Stevens

We're back to that careful long term mindset. And you make that sound so easy to gradually take that step back and hand over the reins, if you like, to the next generation. But I'm sure in practice it's anything but, especially when you've lived and breathed it for so many years.

Phil Dudderidge

Well, it's easy in some respects and not in others. So, you know, but I'm very happy with the the way things are now.

Victoria Stevens

We're coming to the end of the podcast but Phil, I would say many people would probably agree that being an entrepreneur, building your own successful business once, let alone twice, must be right up there, right at the pinnacle of what anyone could hope to achieve with a career. But I'd like to ask you one last question, if I may, which is if you could exchange places with with any other person just for a day, who would that be and why?

Phil Dudderidge

I knew that you were going to ask me this question. Well, I haven't really got an answer. I'm really happy in my own skin. And, you know, I admire lots of people in their lives and their careers, but, I'm perfectly happy with my own.

Victoria Stevens

I wondered if you going to tell me that you wanted to be a rock god up there on the stage, harking back to your 21 year old self on tour?

Phil Dudderidge

No. I was remembering the other day when I was talking to somebody, that at the age of 21, I was standing in front of 25,000 people saying, testing one two before Robert Plant went up to the microphone. So, so, you know, I've been on that stage, but I never aspired to entertain.

Victoria Stevens

Well, you certainly entertained us here today. Phil, say, thank you so much for agreeing to come on the podcast. It's been such an enjoyable discussion. And for our listeners, please do subscribe via Spotify, Apple, Google or your usual podcast provider. And please remember, nothing in this podcast should be construed as investment advice or a solicitation to purchase securities in any company or investment product mentioned.

Thanks so much for listening and we'll see you next time.