Paul Reed Smith Interview
This Paul Reed Smith Interview Post is Part II of a series of posts regarding Paul Reed Smith, Founder, and CEO of PRS Guitars. If you don’t know anything about Paul Reed Smith, you might want to read Part I here. After discovering PRS Guitars, going on the factory tour, and purchasing two PRS Guitars, I had to meet the man behind this gem of a company on the Chesapeake. PRS is one of the DMV Region’s magical success stories. They design near-perfect instruments. Works of Art… judged on appearance, playability, and sound performance.
In terms of guitar sales, PRS is the number three US Manufacturer. Their two largest competitors Fender, founded in 1946 and Gibson, in 1902 are much older and yet PRS is closing in on both of them with a rabid, devoted fan base. I wanted to find out about the genius who created this company from nothing.
So I contacted Jeanne Nooney, PRS’s head of Press Relations and Events and she arranged for a sit-down, Paul Reed Smith Interview.
I learned during the Paul Reed Smith Interview that Paul is a complex man. Part Antonio Stradivari, perfecting the art of building the perfect instrument. Part Bill Gates a healthy mix of businessman, technologist, and philanthropist. Oh.. and he’s no pushover.
Jeanne met me at the Factory in Stevensville Maryland, and after a short wait, Paul Reed Smith came out to meet me. I immediately attempted to hand him a literal, physical can of WhoopAss but Paul wanted no part of it. He poo-pooed it. He had the audacity to make fun of me and my can. The interview started off badly… my bad. It went downhill from there…
Paul asked if I mind, he needed to speak with Jeanne in private, and they entered his office as I waited for 2 minutes outside the door.
When the door opened I was ushered in and sat down at a long conference table to begin the Paul Reed Smith Interview. I had submitted questions in advance in order to assure Jeanne that this wasn’t going to be one of my Mr. Cranky hit pieces. If WhoopAss was strike one, these questions were strike two. Just a few of those questions:
- What did he study in College?
- How did he get the support of Carlos Santana and McCarty (Ted McCarty the genius behind many of Gibson’s great guitars and a mentor to Paul)
- To what does he attribute his success?
- Thoughts about customer loyalty.
- Thoughts about corporate culture.
- Would he rather be a rock star, then CEO of PRS?
- If he couldn’t be either, what would he do?
- Why does he come in every day?
- Why haven’t you raised capital in the public markets?
- When will he be done?
- What happens to PRS after Paul?
Paul’s office door opened and I was ushered into the office for the Paul Reed Smith, Interview.
I sat down in his cluttered office. There were a couple of bookcases filled with books, lots of books. Lots of photos and memorabilia on the walls, bookcases, and desk. A cluttered desk and a large cluttered boardroom style conference table filled with folders and other work product. The only thing missing from the room was a completed, playable guitar.
The Paul Reed Smith, the interview begins:
Paul Reed Smith (PRS): Question can I push back and say I’m uncomfortable (by the tone of his voice, this is not a question. He seems irritated and a little Larry David-ish).
Mr. Cranky (MC): Yes, these are just general questions.
PRS: They very probing questions and if I’m uncomfortable with them I’ll tell you that. How’s that? Is that fair?
MC: This is why you need this… (holding up can of WhoopAss), this is you!
PRS: No, no, no…
MC: This is you.
PRS: No it’s not. I suck at WhoopAss. But, I will do everything I can possibly do to protect the things that need to be protected.
MC: I understand, so if we can start with most interesting story I’ve heard is how you started this thing.
PRS: Now that’s been told a million times
MC: It has but, not to my readers, but most of my readers are not guitar people. So it’s new to them.
PRS: Why don’t you ask me how did we get a 10-month back-log in this environment. Why don’t we go after the business stuff?
MC: I’m okay with that. Are you comfortable with me just going with the Wikipedia version of the Santana story?
PRS: Sure why not.
The Santana Incident
MC: That took a lot of guts (referring to bringing a handmade guitar to a Santana Concert and getting Santana to try it back in 1985).
PC: No it didn’t. There was nothing to lose. Now people all act from the point of view there’s everything to lose at the time I had nothing to lose. You know, here’s the interesting part of the story if you wanted the Santana story.
The roadie comes out and I wanted to show him (Carlos Santana) the guitar.
He (the roadie) said “no.”
I said, “well then you take it in the dressing room.”
The roadie said, “aren’t you afraid I’m going to steal it?”
I said, ”No, you’re not going to steal it.”
He wouldn’t have gotten himself into that position if he was going to steal something right and I didn’t expect an answer. He came back out about a minute and a half later and went like (Paul makes the come here gesture with his hand) and I walked in and there was a picture of Jesus and there’s a picture of his (Sanatana’s) guru and there is incense everywhere and he is rocking and rolling feeding every note back on my guitar and he wanted to know why he liked it so much.
You know Carlos is a king he doesn’t care what anybody else thinks. He cares about what he thinks. I like Kings. They make decisions on their own. They’re not susceptible to what this blog said.
“I like Kings. They make decisions” – Paul Reed Smith Interview
MC: And I heard he wanted to see another example to see if you could duplicate it?
PRS: No, he wanted something different. Humbuckers (a special type of guitar pickup) that sounded good through his rig and he wanted to have a curly maple top and he had a look about it that he wanted but he wanted two pickups, not one. It all worked out but he did not give me his respect he made me earn it and that was really cool. That part I’ve admired. I wasn’t a guitar maker in his mind until the double neck., the fourth guitar. Because if somebody writes you a hit song do you think it’s an accident?
And then they write you another hit song. And maybe it’s maybe it’s not an accident maybe he writes a third one. But the fourth one? Yeah, maybe you’re a songwriter.
“I wasn’t a guitar maker in his mind until the double neck., the fourth guitar.” – Paul Reed Smith Interview
Four Good Guitars Make You a Guitar Maker
MC: It’s the same in business. Success in the first business is often an accident.
PRS: It’s not an accident. You think that PRS guitars being successful as a startup is an accident?
I don’t buy it. I buy it’s the determination and the skill level and the vision and the honesty and all the other stuff combined made it happen. It’s all the mentoring and all the teachers.
If I had all the problems in one day that I had to conquer I’d have gone right out of business but God was nice enough to hand them to me one at a time.
MC: There are people who start a business and are successful despite themselves. This (PRS) is a sustainable success, that’s different.
PRS: NO! <emphatically stated> This group of people have found a way to get around the rocks in the road. This is not just me. It’s an entire group of people. I mean did you hear the snow put a hundred and fifty-foot hole in our roof three years ago (PRS Looking Positive after Winter Storm Causes Roof Damage).
That would have shut us right down. The fire marshall decided that there was a way we could reopen if we built this a huge tube. And we built this huge tube in two days and we were back open and people had to walk around in the freezing cold to get to their bench.
The Backlog And Business Cycles
MC: When I came on the factory tour. I wasn’t an electric guitar player. I’m not even a guitar player. I’m a dabbler but…
PRS: See this is better than these questions. <holding up the list of questions I intended to ask> You can print that.
MC: What impressed me when I did the PRS Factory tour was the people on the floor. So those questions, the ones you don’t like germinated from that experience. For instance, that’s where I learned about the huge backlog.
PRS: The question of the backlog. If you want to know about the backlog I can tell you about it okay. Let me draw you a picture. This is demand. This is my ability to adjust, okay? All the spots where I’m putting a circle is where everybody’s happy. Right? Everywhere else everybody’s pissed off. You’re giving them too much inventory or they don’t have enough. Okay? Welcome to the club.
Now if I was Brand X (I’m using Brand X as a proxy for the company Paul referred to. Brand X represents a company that is able to manufacture product utilizing low skilled labor). They would hire huge amounts of people to handle Christmas, Easter, and summer. They would have part-time people. I can’t have part-time people making guitars. It requires too high a skill level.
So to me, this is a natural ebb and flow of the world and our job is to try and adjust to it.
MC: How often do you get to have large backlogs?
PRS: As many times as the other way around. Do you think the mortgage crisis had a positive impact on the boat business in Annapolis? My good friend owned a boat dealership on the Chesapeake. He was bankrupt in four months. The boat business went down 90 percent in one day. That’s a hell of a dip.
MC: How many cycles have you gone through?
PRS: I’ve gone through about six cycles in about 30 years.
MC: So how long have you been sitting at a seven month plus backlog.
PRS: Years and years before last market fall. During this cycle, we’re at seven months plus for the last nine or ten months now.
MC: Your US made products are not inexpensive but you could manage backlog by raising prices?
PRS: So pretend you’re a retailer and you just ordered 60 guitars and I say if you want them at all you’re going to have to pay me more money than I sold it to you for. That’s breaking a deal. That sucks.
I could raise the prices today for the next order. But we have price increases from time to time but that’s not what’s driving the bus. Look there are three ways to get rid of a backlog. One is to make more, another is to sell less and the other one to raise the prices above the magic price. <He draws a graph on notepaper>
So I’ll pay that. <starts drawing and demand line on the graph> I’ll pay that. I’ll pay that. I’ll pay that. And then I get to where I won’t pay another dime.
See that can <Pointing at the much-maligned can of WhoopAss>? I’ll give you a dollar, I’ll give you two dollars, I’ll give you $2.50. I ain’t giving you five bucks for it. No way. There’s a point there’s a point, let’s say four dollars and sixty cents that demand dropped off. It’s called the magic price and if you go over the magic price, look out!
Business, Integrity, Management
MC: So here’s the sense I got when was on the tour and met the people working on the floor. Seeing the people, knowing the backlog, I thought that this business is not run like a short-sighted Wall Street stock price-focused business that solely focuses on profit. It seemed to me that this company’s focused on a deal of delivering a quality product to the dealer, the consumer and your employees and not breaking that deal. That this business is built on culture.
PRS: Yeah but we don’t think of it that way. We made fifty million dollars this year. Wholesale Revenue.
That’s a fifteen percent increase and when we got everybody together and told them we made fifty million dollars they all cheered. They want to be a part of the success. The weird thing here is that I grew up in Bowie and it’s all started in a bedroom and then it started a bedroom in Annapolis and people like making nothing into something and so this place has always had a little of that.
Where we made nothing into something. When you say it’s not run like a wall like a Wall Street business there’s plenty of Wall Street businesses of heart. Tremendous amounts of hearts and bonus. All kinds of stuff. I’m sure there’s plenty of them that don’t.
I mean what are you talking about. Do you mean a lack of integrity versus integrity? About using people versus not using people. People here trade time for money. There are some people just here so they get the health insurance for their families and they’re willing to give their time to do. It’s a complicated little equation and we don’t call it culture.
MC: The Wall Street question was directed more towards worrying about the daily value of the stock versus the value delivered to your consumers.
PRS: In a privately held business like this limited partnership, it’s more long-term than that. It’s not daily. It’s yearly, monthly.
MC: So who are the owners.
PRC: Do you have another question?
We’re a limited partnership. A limited partnership is a way in which somebody who’s a long-haired hippie can raise a half a million dollars and when he doesn’t have the land to support the loan. A limited partnership is a way many movies get funded.
I have a lot of limited partners. They are limited because they have no control over the business and they’re limited because if the business does something wrong, they’re covered liability wise and I don’t know anybody who puts out the list of limited partners.
MC: Do you have a board?
PRS: Yes we have an advisory board. We run ourselves like a corporation but I’m the managing general partner. So it all comes down to me. But I don’t run it that way. We run it much more like a democracy she <pointing to Jeanne Nooney who runs PRS’s PR and events> does not have a have list from me about who’s allowed in my office and who’s not. She decides. At NAMM (referring to the National Association of Music Merchants annual trade show), I basically did what she wanted me to do the entire trade show. Because she’s been hired to do a job well.
Some people will tell you I’m a control freak but I’m not. I let people do a good job. I get really crazy when a bad job is being done. When you’re doing a good job for me, I’m nothing but smiles. How can I help you? I like reporting to people.
MC: As a control freak, how do you reconcile yourself with the SE line (PRS’s SE products are manufactured under license in Asia by third-party manufacturers)?
PRS: I’m not doing that Jack’s (Jack Higginbotham, COO) doing it and I meet with him constantly.
MC: Your name is on it.
PRS: Yeah, but it’s his responsibility. It’s Jack’s responsibility to make sure he knows exactly what I want. He has lists of things around the quality that I want. He’s telling me how much we can grow. He’s in Indonesia right now. Not me. He’s the one negotiating with them. He checks with me constantly. It’s more like he lets me know what’s going on and he asked me how I can help him grow it.
I’ve just agreed to a model that is going to drop everybody’s jaw. – Paul Reed Smith, Interview discussing the SE product line.
I’ve just agreed to a model that is going to drop everybody’s jaw. But he thought he could do a good job and to me having that model only be available at $2,800 was not the right thing to do. If somebody could buy one of those for 800 bucks, that would be very cool and I agreed to it and people will look at me like I have a rabbit on my head when we release it. But I think it’s a good idea.
I don’t care if we make toy guitars for Toys R Us. Just as long as they work. I just don’t want things to not play in tune, stay in tune or not operate. If a kid can pick up something that works well enough…
Look if you have a bicycle that has only one pedal, you got yourself a problem. Alright? You need a bicycle that works. You don’t want the chain to catch your pants. You want to make sure that if you hit a rock it doesn’t flip you over the handlebars.
Paul Starts Opening Up
MC: So, I have another question about the beginning and where you are now. You started as Luthier.
MC: Being a Luthier is a lot of art.
PRS: and a lot of jack-of-all-trades.
MC: How much time are you able to spend on the craft of guitar making versus the business of guitar making?
PRS: Right, so let’s go over what’s on my desk. The first thing on a desk is your pad of paper. The second thing is your can of WhoopAss which I want nothing to do with. Third, Jeanne’s notebook, Fourth the questions you proposed. The next thing is a top that I’m going to make into a guitar.
MC: Can I take a picture of that.
PRS: You could take a picture of whatever you want and a book on what Stradivarius maple looks like. I’ve just acquired <this part of the recording was lost>
MC: You’ve been at this for a while. What’s your workday like?
PRS: I’ve worked 50 hours a week. I worked late into the night last night. They’re going to want me to work late again tonight except I promised my son that would get help him with his new house so I won’t work late tonight. But if you’re trying to find out what my work ethic is versus my age, it’s just as good as when I was 30.
<long pause> Which is where you’re headed.
MC: Now your making assumptions. I have no doubt that you work hard. I have no doubt about that. As a matter of fact what I wondered was why do you work so hard?
Because this business gives me an ability to be good at what I’m good at. – Paul Reed Smith, Interview on Why Do You Work So Hard?
PRS: Because this business gives me an ability to be good at what I’m good at. When the economy was rough I had no choice but to do that to keep this place alive. When the economy is better and we’re growing like we have a backlog now, I better make sure that we don’t grow too fast and damage things. Also, we have some new models coming that are going to <face brightens and voice significantly changes> have their impact and I’m trying to make sure with everything in my bones that they’re okay.
Now, what you should be interested in Digital Harmonic (Digital Harmonic is company Paul founded and is separate from PRS Guitars. I’ll be writing about it another time.).
PRS: If you can help me with Digital Harmonics that would be great.
MC: I’ll help you the best I can.
PRS: Great then, I’ll try to make my answer more interesting then.
<ruckus laughter from Jeanne and Cranky>
PRS: It’s funny over here too.
MC: You don’t take any crap…
PRS: You see we’re in my office.
MC: Uh huh.
PRC: Just keep asking questions.
MC: Why? What were you about to say?
<very long pause>
PRC: <to Jeanne> I was as sweet as I could be everybody you brought in for the NAMM interviews
PRS: When I saw that list of questions you got a different Paul out of Paul. For instance one of these questions here is “why haven’t you raised capital in the public markets like Fender?” That’s a board question.
MC: It’s an interesting question to my readers.
PRS: Well alright so the head of Fender who did that, Larry Thomas, he is on my board.
I know a lot about that because I’m the one Larry called when they pulled the plug that morning. I know a lot about it. Larry and I are bone-deep… we go fishing all the time. I know so much about what happened and it’s not what you think.
You know something, these are very probing questions. Yeah, you know it was one thing in here about whether I’d retire. Why haven’t you sold the company? I told you that answer because it gives me an ability to do what I’m good at.
Quest For Perfection
MC: Have you made the best guitar you can make?
PRS: I don’t Know.
MC: Are you trying to find out?
PRS: Maybe. I don’t know and maybe.
I don’t know. We just bought a hundred and fifty tops out of a graveyard on top of the mountain and we know the trees are older than the graveyard and the graveyard was 1883. These are really old trees and we bought another 200 Master Grade tops from the same forest that Stradivarius got his wood and I’m looking forward to making guitars out of those two batches of wood.
It’s okay for you to say that I got this stuff. It is alright with me. We haven’t announced what we’re going to do with it yet.
MC: Is there a difference in the top of the tree versus the bottom?
PRS: There is in swamp ash but not in curly maple. In swamp ash, the stuff that grows out of water is really heavy and the stuff that grows in the water when it drains is really light. So you can have a board that’s 16 feet long cut it in half and one out of the board twice as heavy as the other. But with curly maple, it’s up to the first branches.
And by the way, curly maple is not genetic. The loggers think that you have a big canopy of trees and if daddy tree falls over, baby tree just got a whole bunch of light and grows really quickly and that tree goes curly. When it’s been starved for light and then finally it gets the light it’s the one that goes curly. I think it’s stress-related because they planted curly maple seeds at the University of Washington forest and they didn’t get one curly maple tree. It’s not genetic.
Which is why these curly maples were found in this graveyard because they did this clearing and all these baby trees got a light.
Look we can sit here for hours and hours and talk about the what’s going on in this business. We do more for 50 million dollars then most companies do for 150 million dollars.
The Business of Guitars
Jeanne: Maybe Glen would need to know what we did prior. Because I think it’s astounding that we hit 50 million considering we were at 43 in 2016. That’s a huge jump.
That’s impressive considering Guitar Sales, have taken a hit in the last few years (see this Quartz Media article). IBISWorld’s research predicted that in 2017 the guitar industry would grow 1.4 percent. PRS Guitars grew over 10X that number.
MC: It seems to me like you’re actually gaining on Gibson. That you’re nipping at their heels.
PRS: They didn’t even go to the trade show (referring to NAMM).
MC: They went to a different trade show, CES.
PRS: Why would you abandon your core business? I don’t think abandoning your core business is a good idea. I’m not sure I want you to print that. But you can. Why would you abandon your core business? I guess you can print it.. it just doesn’t make sense to me.
MC: Why don’t you sell direct? When I was at the Gibson Factory Tour, I could buy a guitar at the factory.
PRS: Fender did that too and the percentage of business they lost, in my opinion, was greater than what they gained. You need to be really careful about going around your dealers. I’m selling to you. I’m selling to you, and now selling the Internet? Apple pulled it off. I guess.
MC: I find it interesting how your SEs (manufactured by a third party in Asia) are getting closer and closer to your regular US-made stock?
PRS: Closer… how?
MC: Closer in sound, playability, look, and design.
PRS: That’s all very carefully calculated. The day we put birds on the SEs (PRS uses their trademarked PRS birds for fret marketings instead of dots) on the necks of PRS guitars. They are our signature feature was the day we decided to do it (the first SEs didn’t include this feature).
MC: Birds on the neck and your signature on the headstock. (See picture below. The guitars on the left were older SE’s and on the right the newer models that more closely resemble the more expensive US made models )
PRS: We decided to do that.
MC: Which is a careful decision.
PRS: Very careful decision.
MC: Does it involve backlog?
Did the market give you permission. – Paul Reed Smith, Interview
PRS: It involves whether the market gives you permission. That is a saying that we use around here, “Did the market give me permission?” It actually came from a Doug Chandler (former head of marketing for PRS). He was the one who taught it to me. Does the market give you permission for that product and for the SE the markets have given us permission? There are products where the market hasn’t given us permission. We got permission for the MT 15 (new Amplifier that won best of show at the 2018 NAMM). We wrote 1,500 orders at the show. They gave us permission. I didn’t have one dealer say “No.”
Paul The Man
MC: By the way, I assume that’s your parents back there. <pointing to the picture of a couple sitting on a bookcase>
When my dad was alive I thanked him all the time. I still thank my mom.
They trained all the kids well. They produced two doctors, a guitar maker, an audio engineer and a lawyer. Two moms, but one dad. The audio engineer and the doctor were from the first mom and I was the first of the second batch and my mom’s still alive.
MC: Will you have the same legacy with your kids.
PRS: I have no idea. One of my sons is a leveraged buyout guy in Charlottesville, one of my sons works in the civilian-military space and my daughter is a USC theatre graduate. Jonathan’s a drummer and he’s really good and Kristina works in a hospital in Pittsburgh as a nutritional specialist with a degree from Alabama.
So it’s all different. Are they going to all be guitar makers… eh uh, eh uh <pauls impression of a dolphin saying no>. That ain’t going to happen.
I spend a lot of time with a lot of kids. I spent a lot of time with interns. I go teach in the schools a lot.
Jeanne: Paul will take his whole band to schools.
PRS: We taught all the Anne Arundel County teachers how we thought you should teach music and it’s still being spoken about. We went and got all these kids in room and we taught them how to play bass to this tune, then drums to the tune, then singing and then finally guitar. One at a time we replaced each member of the band until it was all kids playing the same song my band started playing and it sounded the same.
What fun was that! I mean I was on the mic saying, look we’re preaching to the choir I’m not telling you people anything. It was all music teachers but this is how we do it and they loved it. The place howled when we got all the kids playing the tune.
MC: When I hear all this the thing that keeps coming up in my mind is why do you do what you do?
PRS: I told you that and you keep asking me the same question and I keep giving you the same answer because this place gives me an ability to be good at what I’m good at and you keep not liking my answer. What answer would you like? Why don’t you invent an answer? It’s a really good answer.
MC: It’s a much better answer than, to make money.
PRS: If we don’t make money this place doesn’t exist. The number one goal of a business is to be profitable because, without it, none of these other pieces work. you don’t start a business to save an art.
MC: Yes but if you focus on the profit and profit only then your business…
PRS: That doesn’t take a long-term view.
We gave out some extraordinary amount of money as Christmas bonuses, you see this year because I told the employees for eight years if when it gets good again we’ll share. We put the 401k match back in place we gave out over three hundred thousand dollars just to the people work on the floor in Christmas bonuses.
If you were only about profit you wouldn’t give them a dime then they all quit then you would have no profit. I mean it just doesn’t make any sense.
We’ve always tried to do well while doing good because it pays forward.
We work really hard with Hopkins (Johns Hopkins Hospital) we raise money. We’ve raised money for Hopkins with Carlos Santana, the Doobie Brothers, Journey and other bands. We do everything we can possibly do to give back.
MC: Why do your people work here?
PRS: They work here because for some reason they think that being a part of this machine is something they want to do or they’re trading time for money or I’m sure you’ll get a hundred answers from those guys. There are 290 people here. They will all have a slightly different answer.
MC: Those guys in the paint shop appear to love what they’re doing.
PRS: Some of them do. Look, what they do is heroic. They do the same thing over and over. What they do is heroic. I get to do something different. Believe me, I’m not going to do the same interview next hour. That’s not going to happen
I hope that was a good argument.
and he finally accepted a can of WhoopAss. Consider that can opened up on Mr. Cranky.
If you enjoyed the Paul Reed Smith, Interview and you want to learn more about PRS, check out the upcoming Annual Experience PRS festival. This year’s festival is scheduled for June 8 – 9, 2018 (learn more here). You can find information on prior festivals here.
Update April 12, 2018: Atomic Music I visited a client and across the street was this giant used music store. I asked if they had any PRS guitars and they pulled out this beauty. It’s a Paul’s Guitar which is a commercial version of the guitar that Paul plays (see the title picture above). Say hello to my little friend.
Update: November 2018 – In November I attended a Paul Reed Smith event celebrating the 50th anniversary of local DC legendary music store, Chuck Levin’s Music where Paul spoke and behind him on the stage was this little beauty which is now mine.