Between the Rock and a hard place

Chris Griffiths has built a solid guitar maker in Newfoundland, but the rising dollar may cause his booming startup to hit a sour note.

Chris Griffiths' first electric guitar ended up in pieces on Boxing Day, 1986. The fact that a gift to a rambunctious 12-year-old boy would meet such a fate isn't much of a shocker. But Griffiths didn't smash the Series A guitar–a Korean knock-off of the famed red-and-white-striped Fender Stratocaster Eddie Van Halen was playing at the time–on the floor after a crunching chord. Instead, curious about how the thing worked, he methodically took it apart. Problem was he just couldn't get it back together again. “I was in a lot of trouble,” Griffiths recalls. “With my tail between my legs, I had to go to my parents and explain to them what happened. That week we took it back to the store where we bought it and paid a hefty premium to have the technician there bring it back to life.”

If Griffiths' mom and dad knew then where that attack of young inquisitiveness would lead, they might not have been so upset. Today, their son is the president and founder of Garrison Guitars, which is successfully competing with such big-name brands as Gibson, Fender and Taylor from a home base in, of all places, St. John's, Nfld. Garrison's relative isolation from suppliers and its primary markets in the United States makes it tougher to turn a profit, but Griffiths has one thing nobody else does: a high-tech way to make better guitars for a lot less money.

The patented Griffiths active bracing system is a composite molding that replaces the three dozen or so wood components typically used to stabilize an acoustic guitar so it can withstand the 150 pounds of tension each string exerts on its frame. Using an injection molding system, Garrison can build the necessary supports in about 45 seconds, cutting two and a half hours off the manufacturing process. That allows the company to sell its guitars about 25% lower than similar models produced by competitors. The system also makes the guitar sound better–an unexpected side effect caused by reducing the number of parts and their vibrations–and last longer, because there's less wood to be affected by humidity and temperature changes.

Although the one-piece brace gives Garrison a financial edge on the competition, the company still faces the same challenges any newcomer in an established industry does. Griffiths has had to overcome retailer skepticism about his technology, fight for shelf space with more established brands and spend a lot of time and money on marketing to musicians. Along with those headaches, Garrison is being hamstrung by the soaring loonie, since it exports 97% of its product in U.S. dollars. Two years ago, US$100,000 in orders gave Griffiths $156,000 to pay his bills at home. Today, he gets only $118,000–a $38,000, or 24%, hit to his bottom line.

So far, Garrison has managed to keep rocking, and the private company regularly turns an operating profit. In the past two years, it has switched to a lean manufacturing operation, called the Toyota production system, that has meant a 50% cut in labour costs and manufacturing space, as well as a 70% reduction in work-in-progress inventory. But if the Canadian dollar continues to rise against the greenback and stays high, Griffiths isn't sure Garrison can stay in the black. “If the currency moves again this year with the same intensity and speed with which it moved last year, I'm not 100% convinced that I'd know where to turn to find those types of savings again,” he says. “It's so hard to find savings in a startup company to justify that kind of change in the currency.”

Almost 30% of Canadian businesses share Griffiths' concerns about the rising dollar, says Ted Mallett, chief economist with the Canadian Federation of Independent Business. And it's not just manufacturers who suffer. The Forest Products Association of Canada maintains every penny increase in the exchange rate translates into a $507-million loss in annual forestry sales. But while a strong loonie hurts exports, it also makes buying equipment–including software and computers–attractive, and mitigates the cost of energy. In other words, it's a good time for manufacturers to strip down and automate. “Productivity improvements will help you wherever the dollar is,” says Mallett. “It's the first thing companies should be looking for.” Businesses can also try to hedge the buck, but that will only really help if the current upward swing is a short-term burst.

Offshoring production is another option. Garrison already manufactures its cheaper guitars in China–chiefly because that's what its competitors do as well–and that was always part of its business plan. However, Griffiths is adamant that he will not offshore any of his higher-quality lines currently built in Newfoundland. It is, after all, his home, and he wants to keep his guitars close. “When I get a suggestion, comment or advice from a particular end-user or music store carrying our guitars, I can literally walk 25 paces and I'm on the factory floor talking to the man or woman who installs that component or who can influence that design change,” says Griffiths. “That's what I love about having manufacturing under my own roof.”

So with the loonie rising, Griffiths, if you'll pardon the expression, is stuck between the Rock and a hard place. Taking on a challenge is nothing new for the Newfoundlander. Indeed, the fact his company exists at all is a testament to his perseverance and belief that he had discovered a better lightbulb–or, in this case, a better guitar. There have certainly been bumps along the way, beginning with Griffiths' botched attempt to dismantle and then reassemble his first electric guitar; but, more often than not, his instincts have proven correct, including his decision to eschew university and instead move to Michigan to become a guitar-building apprentice at the Galloup Guitar Hospital in Big Rapids. After finishing there, in 1991, Griffiths returned to Newfoundland, but found getting a job in his field difficult. So in 1993 he started Griffiths Guitar Works, which focused on repair work and building custom guitars.

Late one night in April 1995, while disassembling yet another guitar, Griffiths had a vision of a single bracing piece instead of the three-dozen separate internal reinforcements acoustic guitars typically have. “It was a simple idea that was easy to flesh out, but turning it from an idea into a corporation was a pretty lengthy process,” he recalls. “I often say it took me six minutes to come up with the idea, and six years to make it work.”

Part of the problem was that using wood to make a one-piece brace was pretty much out of the question. It would take years to whittle down a wood block into a single piece, but Griffiths realized a composite material that could be punched out using injection-molding equipment could perform the same trick. Again, simple enough to conceive–but it took three years before he had a solid business plan he could present to investors. Even then, Griffiths didn't have the $100,000 he needed to build a prototype, so he leveraged his existing business to the hilt, effectively putting the future of both companies on the line. Eventually, he convinced investors to pony up some seed money, and hit the road. At a Los Angeles trade show in early 2000, his guitar–lo and behold–was a hit, attracting lineups of people wanting to check out the new star.

Griffiths and a few friends he brought along to pretend they were employees took orders of intent–and generated enough interest that one investor came through with enough do-re-mi to get Garrison off the ground. Production started in mid-2001. Roughly $6 million has been pumped into the business during the past three years to keep it rolling. “We're still a startup, but we're acting like an operating company,” says Griffiths. The strategy seems to be paying off.

Griffiths hopes to sell 20,000 guitars during 2004 at Canadian retail prices ranging from $369.99 all the way up to $2,699.99. Many of Garrison's sales are beginning to come from Europe and Asia. Griffiths is even looking for other instruments that could use the Garrison bracing system, such as mandolins, bazookas, mandolas and even ukuleles, which, curiously, are hot items these days. He is also prototyping an acoustic bass guitar. “As excited as I am about these other instruments that we're looking into,” says Griffiths, “I haven't lost sight of the fact that as a three-year-old company we're just getting started with acoustic guitars–and it's really about building market share and brand recognition and reputation.”

Unless the dollar gets in the way, Griffiths would rather not have to rewrite his business plans. And if he can withstand the currency pressures until the loonie returns to a more harmonious trading range, he won't have to worry about reassembling his business like he did with his first electric guitar.

The Garrison file

The Company. Garrison Guitars is a three-year-old company in St. John's, Nfld., that makes a variety of acoustic guitars using an innovative fibreglass bracing system that replaces roughly 40 separate pieces of wood.

The Success. The company has a dealer network of more than 450 music retailers in North America and businesses in 28 other countries, and founder Chris Griffiths expects to sell 20,000 guitars this year. Its patented technology gives Garrison guitars a better sound and allows it to undercut similar products from powerhouse manufacturers such as Gibson, Fender and Taylor.

The Challenge. Garrison Guitars exports 97% of its products, so every upward bump in the Canadian dollar hurts the bottom line. It's already a lean manufacturer, and Griffiths says he can't skimp on marketing because he's a newcomer in an industry where some of his competition is more than a century old.