Ascape Audio and the economics of making headphones in America

At one Asian battery factory, Schrems said everything was “crystal clean” and modern. Later that day, he sat in a boardroom alongside his translator and another person he’d brought on the trip. Across the 120-seat conference table sat eight people from the manufacturer. One wall had a waterfall built into it. He couldn’t figure out why the cavernous boardroom had to be so big and elaborate, so he asked. They told him that “when Samsung shows up, they bring 80 people.”

On another tour, Schrems visited a different battery plant. Compared to the Samsung supplier, he said, it was filthy and inefficient. There wasn’t any automation, and every task was performed by hand. But the prices were cheaper than other suppliers’. By a lot. In the end, Schrems went with the cleaner plant, picking batteries that were already in production and, as such, less expensive.

Almost every company that makes headphones is doing it in Asia because the economics are better. Even Grado, which famously manufactures its shells in the US and assembles headphones in Brooklyn, sources its internal parts from Asia.

“It’s the American manufacturers, manufacturing companies, just choosing what products they want to make and which ones are profitable for them to make.”

When Schrems was still working on TurtleCell, he wanted to do a small manufacturing run to make sure the design for the battery pack was up to snuff. He reached out to Midwest Mold, a local tool shop in Detroit suburb Roseville.

The company looked over Schrems’ patents and estimated soft tooling would cost $55,000 just for one piece of the case. Hard tooling would cost an additional $80,000, and to build the entire battery case it would be at least $200,000 in up-front costs. Working with a Chinese partner would only cost Ascape $72,000. When Schrems told the local supplier how much he’d been quoted by the Chinese company, “they just laughed,” he said.

If the price of domestic manufacturing was only slightly higher than outsourcing, Schrems wouldn’t think twice about making Ascape products in Michigan. The control over the entire process would be a lot better, and he wouldn’t have to deal with headaches like language and social barriers every time he needed to communicate with the supplier. “If I could drive an hour to the place where it was getting made instead of having to schedule a two-week trip, and speak to the guy who’s actually gonna run the coding machine, it would be so much easier,” Schrems said.

“You get shit for it too. Trust me,” Clancy said. “It’s like … you think we don’t wanna do it here?”

“We’d love to,” Schrems added. “It’s the American manufacturers, manufacturing companies, just choosing what products they want to make and which ones are profitable for them to make.” In the end, Ascape paid Midwest Mold $5,000 in consulting fees to ensure its tooling was correct before sending the order to China.

It’s easy to make life difficult for yourself when working with offshore suppliers. There’s the language barrier, sure, but then there are the cultural hurdles. “Over there, they’re not as aggressive about telling you that you’re doing something wrong,” he said. “You’re the customer; you’re always right. So they’ll let you make mistakes without telling you.”

He brought up the example in Malcolm Gladwell’s book Outliers: One whole chapter details why Korea Air had so many crashes in the ’80s and ’90s. It was due to communication issues, because the cockpit crew members weren’t effectively telling one another or the control tower when something was definitely incorrect, in a forceful way. “I actually liked finding manufacturers who would tell me I’m wrong,” he said.

It typically takes two to three weeks for Ascape to go from making the initial order to getting a mock-up. “That’s pretty quick,” Schrems said. That doesn’t count the weeks of back-and-forth emails hashing out the engineering and design process itself though. He admitted that even with his experience and degrees (a bachelor’s in mechanical engineering and master’s in electrical engineering systems), there were still facets of the real-world process he wasn’t prepared for. “[Eastern companies] have been doing it for years, right?” he asked. “I had to learn through making mistakes of what can go wrong with the product.”

The TurtleCell designed for the iPhone 6 originally had a kickstand, because the marketing team demanded it. Since there wasn’t anything similar to a battery case with retractable earbuds and a kickstand, getting the tooling right was a nightmare. And expensive. The tooling supplier quit before production was finished, and the fledgling accessory company had to shell out extra money just so the manufacturer would complete the job. Schrems estimated it delayed shipment to customers by at least two months.

The plan is to launch between the end of April and the beginning of May and have the initial goal set low enough that the campaign is fully funded within the first few days. Should that happen, it means Ascape will make the Kickstarter homepage and start generating organic interest. It also means that any money raised beyond the artificially low goal will stay in Ascape’s coffers.

Schrems said Kickstarter serves a few purposes: It’s an “awareness generator,” and the company will help fund projects launching on the platform. Ascape would’ve put the first Ascend on Kickstarter, but the team thought it was too late to the fully wireless earbud craze and wouldn’t generate any interest. Looking back, Schrems said it would’ve cut Ascape’s digital-marketing costs significantly and the first Ascend could’ve launched sooner.

The up-front costs for the Ascend-2 are much higher than for the previous model. Since there aren’t local angel investors or a licensor involved this time, Ascape needs as much cash on hand as possible to start production and buying inventory. Selling pre-orders on a crowdfunding website is an easy way to generate capital. Plus, courting investors would take more time. Schrems said it’s better to go to customers directly first and then once you have sales figures, let the investors follow.

While there have been a few organic multimillion-dollar campaigns, Schrems said they’ve “rarely” ever broken $1.5 million in pledges. And that if one has pulled in more than that amount, there was definitely a marketing agency working behind the scenes.

Ascape’s marketing agency is Jellop, which boasts it’s helped raise almost $210 million across 439 projects, including the $13 million campaign for Pebble’s second activity tracker. “If you’re looking to pump up your campaign, talk to them,” Pebble’s Benjamin Bryant writes on Jellop’s website. Jellop typically waits until a campaign is under way to offer its help, but the firm reached out to Ascape months in advance.

“If the Kickstarter goes wildly successful, like many of them do, then we can make these and become an acquisition target.”

Clancy and Schrems wouldn’t divulge how much the pre-launch social media ad campaign costs, but it sounded like it wasn’t cheap. “With the amount of money we’re spending on the advertising pre-campaign…” Schrems said before catching himself. “If we don’t [fully fund], that’s gonna be a fucking…” Clancy mused, before Schrems cut him off. “Maybe we shouldn’t be saying all this.” Suffice to say, Jellop has made a significant investment, and Ascape will dominate your News Feed in the run-up to launch.

“If the Kickstarter goes wildly successful, like many of them do, then we can make these and become an acquisition target,” Schrems said. If it gets mediocre results, Schrems said the plan is to take their self-written 50-page patent and proof of sales and, in a word, sell out to a big player in the space.

It’s happened before. Revols launched its campaign for form-fitting wireless earbuds in Nov. 2015 and its $100,000 goal was fully funded in under seven hours. By Jan. 2016 the company had raised $2.5 million with more than 10,000 backers. Last Dec., the company was bought by Logitech.

It’s pretty clear Schrems and Clancy wouldn’t mind being gobbled up by a larger company. But if that doesn’t happen, the pair would be happy to run a successful business for a few years and put a bit of Motown in people’s ears, regardless of what music they’re listening to.