Fokos interviewed seven graphic-design firms before he deemed one worthy of giving Icon a corporate identity. He then spent $40,000 on stationery, business cards, a brochure, and the production of one display ad, all of which are distinctive in their design and feel. Fokos makes no apology for that outlay. He considers the expense a good long-term investment.
From the start Fokos planned to spend little on display advertising. He considered it expensive and not cost-effective. He would pursue a more grass-roots approach. He had contacts in the industry. He figured he could get his speakers reviewed in consumer magazines. He thought he could get feature articles written about Icon. He would go to trade shows where the cognoscenti congregated. He had his fancy brochure to send around, and in the trades he would take out cheaper classified ads, whose print, no matter how fine, would be scoured by the true believers.
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The Financing The generally positive reviews Fokos had received for his speaker designs at Conrad-Johnson enabled him to raise some money to start Icon. At C-J he had acquired a following among some hard-core customers, and several of them became Icon investors.
Fokos wanted Icon to be debt-free. He decided upon a private stock offering, and by early 1989 he had sold 42% of the company for $189,000, or $4,500 per 1% share. That would be his working capital. (He kept 58%.)
In Icon's third year, Fokos figured, the company would pay its first dividend -- 30% of the original investment to each original shareholder. In year four the number would jump to 70%, then to 100% in year five.
Those numbers were based on his initial revenue projections, which started in 1990 at $225,000 (300 pairs of speakers sold) and doubled each year for the next three, reaching $1.8 million by the end of 1993. Fokos estimated sales at $2.5 million in year five, 1994.
He originally projected that Icon would break even in 1990, with about two-thirds of revenue covering inventory, equipment, and marketing. The balance would be for general and administrative expenses, which included Fokos's salary of $24,000. In 1991 and 1992, he projected, pretax net profit margins would rise to about 12% and 23%, respectively.
But by early 1990, with most of his money plowed into inventory and equipment, Fokos had to abandon his debt-free strategy and seek a $50,000 loan -- a loan he would not be able to secure until midyear. "That money was spent before I had it," he recalls.
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Operations Dave Fokos can build and ship two pairs of small speakers or one pair of big speakers per day. At that pace, he figured, he could run the company solo for a year. Labor was not the issue. It accounts for only 14% of the total cost of Icon's speakers. The big bite -- 86% of the cost -- comes from buying all those fancy components. Icon needed a lot of capital ($100,000) on the front end to plow into inventory.
Icon Acoustics began life on April 1, 1989, and quickly ran into trouble when Fokos couldn't immediately get his hands on that money. He needed regulatory approval for his private stock offering in the states in which his investors lived. Fokos had hired a lawyer who told him that was no problem; the paperwork would take three weeks. It took three months. It wasn't until August that Fokos had access to his working capital.
Without that, he had to dig into his own $10,000 stake in Icon to pay the rent starting on May 1. Fokos had figured he would build his prototypes in the spring and early summer and have production speakers for sale by October. Now he knew he'd be lucky if he had the prototypes done by the first of the year.
In January 1990 Fokos ordered 10 sample cabinets. He knew from experience that finding a reliable cabinet supplier that could meet his demand would be key. He had wanted to use a cabinetmaker in Colorado who did high-quality work, but the distance and shipping cost proved to be a hurdle. Fokos chose a source much closer to home, in Medford, Mass. The cabinets took two months to arrive, but they looked good. What Fokos didn't know is that it would be downhill from there. Subsequent quality fell off, sending him on a time-consuming search for a new supplier. Even though the sample of his big speaker, the Parsec, drew a favorable response -- and 54 orders -- at the High End Hi-Fi Show in New York City in April, Fokos was unable to realize much of that business. It would be at least two months until he even had any production cabinets.
Still, by June Icon was beginning to look like a real company. Its hit-or-miss marketing strategy, relying on magazine reviews and word of mouth, was starting to hit. In a report on the High End Hi-Fi Show in its August 1990 issue, Stereophile magazine said this about Icon's speakers: "The overall sound was robust and dynamic, with a particularly potent low end. Parts and construction quality appeared to be first-rate. Definitely a company to watch."
In an accompanying vote dubbed "The Best Sound at the Show," with ballots cast by attendees, rating 200 brands, Icon's Parsec speakers, selling for $1,495, placed 15th. In the top 10 the least expensive were $2,400 a pair, and six of the systems sold at prices ranging from $8,000 to $18,000.
Fokos sold 20 pairs of speakers in October and another 20 in November. He also invested in one slickly produced four-color display ad, featuring the Parsecs, in the buyer's guide issued in October by Stereo Review, the consumer magazine with the largest circulation (506,000). That dovetailed with a generally favorable review in December in Stereophile magazine. For the last six months of 1990, the company's sales registered $70,000.
