The death spiral (or how the company almost went bust)
Author Jani Rajaniemi
I hope this post reaches as many of you as possible, because we have quite a lot of explaining to do.
2020 went very well. At the end of the year, we launched the VMK20 headphones, which were not only a critical success but also a sales success. For the simple reason that they are damn good headphones.
Well, the party didn't last long.
2021 was a disaster business-wise (otherwise it's been great, I had a baby and she's absolutely adorable) and I want to be open about what we've been through this year. When we started this company with Jani (and of course Raimo), we decided that what makes Valco different is that we are human. Unfortunately, it is also human to make mistakes.
First of all, from the beginning of the year onwards, the headphones did not arrive on time from the factory because of a shortage of components. When they finally arrived last spring, a very large number of pairs had faulty chipsets.
During 2020 and the first quarter of 2021, the VMK19 and VMK20 had a recall rate of 1-3% due to defective units. In the second and third quarters of this year, the defective rate rose to more than 20%. Even though we have a small sweatshop, it still means that thousands of headsets are returned because "bluetooth doesn't work".
Why did it go wrong?
This problem was impossible to identify in advance during quality control, as 99.9% of headsets work first. They just freeze randomly when an attempt is made to record to the corrupted memory location (and this causes the Bluetooth to stop working).
At first we just tried to quickly replace the headphones to keep customers happy, but that didn't work. We sent out hundreds and hundreds of new headsets, but because we didn't know the real cause of the problem, many of them were defective.
Instead of making customers happy by sending new ones, we made them (you) angry when a second or even third pair of broken headphones came out of warranty. That would have pissed me off too.
There was, of course, the side effect of this action, that the warehouse emptied out in front of our eyes when people were put new headphones straight from the warehouse.
Eventually we found out the problem and managed to fix it - the current models are reliable again and if a new pair is now faulty, you're really out of luck.
Customer service got stuck
However, improving the reliability of the headphones didn't solve the problem we now have. Hundreds of angry customers are still waiting for their headphones to be serviced and new ones to be stocked.
Our customer service, which is able to serve dozens of people every day with personal attention and love, suddenly started receiving hundreds of emails every day, and it's still receiving them. Now, of course, fewer and fewer and, as I write this, the backlog should be more or less cleared.
In addition to the staffing challenges, the technology also started to piss me off. Our simple email-based customer service system started to flag some emails as spam, and many people were not getting a response to their quite legitimate problems.
In addition, we have had ongoing logistical problems with COVID-19. The cost of shipping the headphones from the factory to us (and from us to you) has gone up by hundreds of percent, and reliability is close to zero.
Financially, this means that instead of making a profit on sales, we have actually lost money selling headphones all year. We should have just thrown in the towel and taken a long summer holiday.
This is how you get into a death spiral.
First you get a bunch of faulty products and then you accidentally pass them on to your customers. Then customer service gets backed up and the interest rate delays deliveries.
Even old ones can't be repaired when there are no components. Your customers will start digging for virtual torches and pitchforks and burn your business on social media. Eventually you go bankrupt because no one will buy your shoddy products.
This kind of death spiral easily leads to bankruptcy. This is the spiral we were heading into and we are determined to get out of it with the following steps:
1. Every single pair of defective headphones will be repaired (at best) - Our factory pushed the warranty issue to the chipset subcontractor, who refused to give us replacement headphones or money - instead we got (or will get) replacement chipsets to fix the broken ones. Well, it's better than nothing. Now we have people at work and as subcontractors to knock the headphones back into shape. Hundreds have already been repaired (and delivered to customers).
2. Upgrading customer service - I've been looking for a new customer service platform where we can receive all our email, facebook and instagram messages in one place and the system will make sure that no customer is left unattended. Tomorrow there is one promising one to test, but still feel free to tip if you know of any good ones. We've hired more people for customer service, and the previous employees are working as hard as humanly possible (without killing themselves, we love our minions and don't want them to suffer).
3. Improve communication - We were not prepared for a situation where everything is constantly late. Because of this (and the Aspa traffic jam) not enough information has gone out to people about where their order or service is going. We have taken some steps to make our customers more aware of what is happening. There should be a reminder about the order (starting tomorrow) and our repair service will continue to send reminders and updates so you know we are working on it.
Fortunately, we had some Death Star money saved up and we still have good relations with the bank, so financially the company is on solid ground. Now we are working around the clock to get rid of the backlog and get everyone a hearing.
The fire should now be out and we can start repairing the damage. In the meantime, I can only hope that you, our customers, will be patient with us. By now, the headphones should be durable and customer service should be in order.