Management by instinct didn't seem enough anymore. Every YPO class he went to repeated the same lessons. Today's company founder needs structures and systems to grow, a "professional" manager to channel the entrepreneur's energy. Diversify. Delegate. Leverage. He soaked it all up, every last MBO and M.B.A. of it. "I took it all as gospel," he admits. "These were educated people -- people I respected. My education had all been on the street."
There were the children to think about, too. Michael, the heir apparent, had been in the business since 1976; his brother John Jr. was likely to sign on soon as well. Hiring a professional manager as president would be like hiring a driving instructor for them rather than teaching his sons himself, one consultant told him. They wouldn't pick up any of their father's bad habits.
James D. Dodson, who signed a five-year contract with Koss in 1979, seemed the perfect choice as the new president, chief operating officer, and mentor. Koss knew Dodson through YPO, and knew that he "ate nails for breakfast." A Big Eight accountant by training, Dodson had run divisions for a couple of large corporations and -- by all accounts -- run them well.
Even more than the resume, however, Koss liked what Dodson had to say about repositioning the company. The stereophone business was mature, Dodson said, so Koss should use it as a cash cow to finance a move into loudspeakers and electronics. Koss already had an image with the audiophile -- it was time to transfer the name to a broader market. "After 22 years I was ready to have somebody say the brand image was good enough to move," Koss remembers thinking.
Even with Dodson on board, Koss kept the title of CEO. He continued to attend the big electronics shows in Las Vegas and Chicago, but kept his hand out of day-to-day operations. "If I decide someone is credible, I give them a total free rein," he explained. "Dodson's style was autocratic, which was directly opposite to mine, and he wanted to make all the decisions. But it was hard for me to keep disagreeing. I thought, 'After all, he's done it before."
Dodson moved swiftly. During the first two years, he switched from independent sales reps to an in-house sales staff, and added executive staffs to oversee training and sales management. On the production lines, he decreed that there would be no more temporary employees: a full-time production force, he reasoned, would be easier to control on the push to $50 million and beyond. To challenge Sony's new Walkman, the board charged Dodson with bringing out a portable radio cum headphone, to be known as the Koss Music Box, which he arranged to be produced in Taiwan. And to better leverage the company's access to distributors and customers, the company moved to acquire a small Florida business that was renamed Calibron Corp., a manufacturer of record- and tape-care products that would be marketed under the Koss name.
Vertical integration, off-shore production -- to the part-time CEO, it all sounded like a sound strategy for growth, but his other employees had a different view. They were unhappy with the new boss's autocratic style, and frustrated that Koss was not around to see it for himself. "When Mr. Koss was running things he made an effort for us to know what was going on, but under Dodson that was cut off," remembers assistant supervisor JoAnn Kimble, a 14-year veteran. "Mr. Koss had always been around, but we never saw Dodson. If you treat people like you don't care, then they won't care either."
Even Michael Koss, newly installed as product manager, had some skepticism about his mentor's style. He complained to his father of "enough memos and systems to run General Motors." But his father was less concerned. After Dodson's first two years, sales were at a record $25 million, with $2.3 million in net profits and a return on equity of 23.5%. "Look at the results," Koss told his son, "and do what you're told."
John Koss was not the first CEO to fall to earth from a dream of riches. Nor was he the first manufacturer to get burned by going offshore, although he was one of the few to make the same mistake twice.
By the fall of 1981, while Koss was shaving strokes off his golf score, market changes were shaving millions from audio industry sales. During the early '80s, the audio market would shrink 50% as consumers shifted their spending to such new products as video games, videocassette recorders, and home computers. Sales of Koss stereophones were down 25%. But Koss dismissed the warning signs, dazzled by the $5 million in Music Box orders that the company wrote at the Chicago Consumer Electronics Show in the summer of 1981.
Indeed, if Koss's Taiwanese supplier had delivered the Music Box in time to get it on retailers' shelves by Christmas, the product might have taken off, even at $90 a unit. Instead, delivery was delayed until February, and by that time all of Asia seemed to be in the music-box market. Prices tumbled. People didn't want a $90 Koss Music Box if they could get a $60 Sony or a $29 knockoff from Hong Kong. Koss Corp. found itself with a warehouse of inventory that would have to be sold at a loss if it could be sold at all.
John Jr., then working in San Francisco as area sales manager, went to his father, urging him to cut his Music Box losses and drop the price. But Koss wouldn't interfere with Dodson's ambitious program to dominate the high-end market. Quite the opposite. With his blessing, the company moved ahead with plans to add a tape recorder to its line, and continued with a $2-million research-and-development effort aimed at producing a new digital radio that would finally make Koss a player in that market.
