Taylor Guitars: Kurt Listug and Bob Taylor. From $3,700 Shop to Global Icon

26:55And hope rings eternal. You know, we weren't as bad as the watermelon truck that lost money on every watermelon. So he thought he needs a bigger truck. You know, we had more sense than that. Not a lot. Not a lot. But we figured maybe one day we would reach a crossing point, a nexus, where it could start to work. So we still didn't pay ourselves a salary. We lived for free with family. We did all of that. And it was some time before we paid ourselves money. You know, you'd mentioned that when you bought this business in 1974, it was doing about 30 grand a year in sales. Were you able to substantially increase revenue by 1978, four years in?

27:38A little bit. Sometimes we have to think ahead to be able to think backwards. So eight years into it, we were doing about$120 ,000,$130 ,000 worth of business. So if you back up to put context, we had started by ourselves. We did two years with Rothschild. We quit doing business with them. So we were on our own by the time that had. It took us eight years to get up to that over$100 ,000. Which is really slow growth. And you know what I thought about that guy? I'll just say right now, it was taking forever. And I just said, this is my education. There are people in college right now studying to be an architect, and they're paying money for five years to learn how to do that.

28:25They're going to be a doctor. They're going into debt, and they're going to come out of it eight years later. So how's that different for me? Why do I think that as a 19-year-old, I'm worth money? I'm not worth money. And did you really, I mean, that to me seems very precocious. I don't think I would have been that optimistic. I mean, eight years in, I would have been like, what is going on? We've barely grown in eight years. We're still struggling. You really thought that way that, hey, you know what? This is like an education, a free education. Yeah. And the other way I thought is somewhere around six years, maybe it was five.

28:59I sat down with Kurt and Steve and I said, we have a bad habit of not paying ourselves. I want a paycheck every single Friday, and we need to remove the things that keep us from having that paycheck. And I don't even care what that paycheck is, but we have to develop that habit. And so we did our homework, and we decided we can pay ourselves every Friday, and that number was$15. Fifteen bucks a week. It's like, I want my 15 bucks. I want it. Gosh darn it, I worked two days a day. for a week, and I want my$15. When we come back in just a moment, a purple Taylor guitar shows up front and center on one of the most popular songs of 1985.

29:48Stay with us. I'm Guy Raz, and you're listening to How I Built This.

30:13Hey, welcome back to How I Built This. I'm Guy Raz. So it's 1979, five years into the business, and Kurt, Bob, and the partner Steve have ended their relationship with their one distributor. And they have to lay off the small group of guitar makers that were working for them. But meanwhile, the business is actually not doing so bad. That was actually a really good time because we were making so many guitars. We had all these guitars in process. We had one of the best summers ever then because it was still the three of us. We just worked on finishing up all those guitars and selling them. And I was calling on all the music stores that Rothschild had opened as dealers.

30:53You called basically the people that they were selling to, and now you're selling direct to them. Exactly, because we'd get the owner registration cards when consumers would buy the guitars, so we knew who the dealers were. I read that the last year you worked under this agreement where this company would distribute your guitars, you had 11 people, eight other people, helping build the guitars. That year you built and sold 448 guitars. It was 1978. The next year, 1979, you had to let everybody go. So just the three of you, you built and sold 399 guitars. So actually, your productivity went way up.

31:33Bingo. Even with eight fewer people. Well, that was also finishing up guitars that had been started when the guys worked for us. Yeah, it was. And I'm not sure what it was the next year. But you could see the progression of us getting better at this. Kirk got better at selling. He got better at his bookkeeping and his finances. I got better at how are we going to make these things and building a little a little factory. Yeah. I mean, but still, like the other thing I from what I understand is this is 1979. This was like a dark, dark period for acoustic guitars, like the next three, four years.

32:11This is the disco era. There's like punk and then there's rock. Like from what I read, like people just stopped playing acoustic guitars in the early 80s and late 70s. Well, also, you know, the Saturday Night Favorite thing, pre-recorded music. So bands weren't getting gigs like they used to. And then that led straight into sampling keyboards, you know, synthesizers. Yes, new wave. So like 82 was really a low point for the entire guitar industry. I read that even like Martin and Gibson almost went under during that time. I can't speak to that, but their production was very low. Sales were very low, but you can't kill a dead man.

32:54And we were so small, we didn't know the difference between not succeeding because we didn't know what we're doing or not succeeding because the market was low. The market could still take the amount of guitars that we were making. And we were aggressive out there showing those guitars. People liked it. And then we started putting pickups in our guitars. Pickups allowed you to plug in the acoustic guitar to an amplifier. Yeah, instead of standing in front of a microphone, you could plug it into the PA system. And our guitars started getting used in pop music. We managed to wiggle our way into that by the guitars that we designed.

33:31We repeated what was successful, and we managed to survive. And so part of our success is that that bad market brought competitors down to our size. Right. For a period of time. And we're ready to go when they were ready to go when the market turned around. All right. So about nine years into the business, this is 1983, I guess the two of you offer and then agree to buy Steve, your third partner, out. Tell me what was going on with Steve. I know he's not here to – we're going to be respectful, obviously, but I think there was tension. Was it the two of you versus Steve or was there tension between the three of you?

34:13Tell me what was going on with Steve. Bob and I discovered that we saw things pretty much the same way. And Steve had a different perspective on what he wanted to do and what he felt we should do. And Kurt and I, like, we moved fast. We could say, we have to stop doing this because it's not working and let's do that. And that was very hard for Steve to give up. Let's say you're dating somebody and you can never agree on what you want to do or what kind of movie you want to watch. so nothing happens versus you meet somebody and they're like, yeah, let's do that. Or let's go to that concert together.

34:49Let's go do this or let's plan a trip. It's that willingness and agreement. One can stop everything from happening and the other one, it just leads to getting a lot done. And was he game to sell his shares to you? Well, not exactly. We had a buy-sell agreement. And that really saved you a lot of headaches in 1983 when... Well, yeah, because it provided a path for a partner to be bought out or to sell his shares as opposed to having to dissolve the business and sell off the assets. So then I got back from being out on the road, and we hired an attorney to send a letter to Steve. And he got an attorney, and that was a real scary time because we thought, you know, this could be the end of it.

35:34But we had the buy-sell agreement and we had a good attorney and we bought out his share. And we went back to our families and borrowed that money after just having a few years earlier paid off the loans from buying the shop in the first place. How substantial was it? I mean, you had to take loans out to pay him. $30 ,000. Yeah, we'd value the business at$100 ,000 and Steve owned 30%. So we each borrowed$15 ,000. Okay. And that was a lot of money for you guys to pay him, right? Yeah, a lot of money. So we went into debt again, but we're excited. And then that first year, the business doubled. But what happened?

36:14Why? It just felt like the brakes were off. We could decide on things, just run with it, make changes quickly. I see. I'll give you an example. Yeah. I'm trying to build a factory. We have 1 ,500 square feet. A bunch of that factory had this part, that thing, these magazines, those stuff left over. and it's like, I'm throwing all this away. I'm going to make room for what our business actually does, which is make guitars. And then you have a partner who says, oh, no, you're not throwing that away. No, I want that there. We needed to move forward. You can't have somebody standing in the way of that.

36:50Yeah. By 1983, 84, so you're 10 years in, where were you making the guitars? Lemongrove, California, in our little shop. Still making them in a little shop. We'd added a little space. Okay, but you were making each guitar. So there was, and presumably there were people that you had to bring on to help you, Bob. But you would have to also train and apprentice everybody, right? I sure did, yeah. It must have felt kind of overwhelming, right? Because on the one hand, I imagine at this already by the mid-80s, I know word of mouth is getting around. People are getting excited and interested in your guitars.

37:28and you're limited in how many you can make because you, Bob, you have to touch every single guitar that is being sold. You have to see it and inspect it, right? Am I right about that? Yeah. I was on the production line for almost 20 years of our business. That must have just been like overwhelming and stressful. Guys, this is my jam. This is what I do. It never stressed me out. It didn't. Okay. No, it's what I do. Give it to me. Kurt, were you stressed about that though? I mean, It was one guitar at a time that had to be great. People had expectations. And it was one Bob. He was the guy. Like, if he got hit by a truck, that would have been a problem.

38:07Well, that's true. And we made decisions early on, too, like not riding motorcycles or things like that. You did, really? Oh, yeah. You have to. I mean, we'd be out of business if something bad happened. Yeah. I lived a careful life because I thought if I break my wrist on a little motorcycle fall, we're out of business. Yeah. Fair enough. All right. I want to talk about what I think could be maybe pivotal. I don't know. But this happens in 1985, which I think is just so cool. You started to make like specialized guitars. I guess you had a technique where you would use watercolors and you could paint the wood and it would kind of look funky.

38:44And it was a way to get the guitars in the hands of more prominent musicians. And I guess Kurt or Bob, one of you guys wanted to get a guitar in the hands of Prince. Well, we were trying anything and everything to sell guitars. And part of that was at that time, acoustic guitars were very out of fashion and kind of associated with, you know, hippies and the hippie movement. Granola guitars. Yeah. So we thought, you know, let's try something different. I mean, electric guitars come in a lot of different colors. And then the Prince guitar came about when I got a call from a salesperson named Glenn at a music store in Minneapolis, and they serviced Prince.

39:32He got all his gear from him, and they said, you know, Prince is looking for a 12-string. He's tried a few guitars and hadn't found anything he likes, and you guys make killer 12-strings. Would you be willing to make one? But here's the deal. You're going to make something, and it can't say Taylor on it because he won't play anything. that's an implied endorsement by having the brand name on it. So every guitar he played had to be custom-made for him without anyone knowing who made it. Yeah, those electric guitars with those weird shapes, those are custom-made guitars for him. So we talked about it.

40:04We decided we're going to make a Jimbo 12-string, and it's going to be purple because, you know, that was his color. And it's going to have the same kind of treatment on the top. Like flames around the sound hole like you put on a hot rod. Yeah, kind of hot rod-ish. To describe it. Yeah. So we got the guitar done, and Glenn put it in the green room before a show, and Prince came in and looked at it and loved it and bought it. We made it on spec. And then the cool thing is it led to a relationship with him over the years. And then he would order guitars from us that said Taylor later on. Is that purple guitar that you made for him the same one used in the Raspberry Beret video?

40:43Yeah. And things like that don't directly impact sales. It's more like an impression and all the impressions add up over time. Okay. I want to stick to the 80s for a moment because I know that by 1988, so this is now what, 14 years in, you break a million dollars in sales for the first time. Yeah, finally. Finally. Big deal. Now you're starting to feel some momentum. I mean, from what I gather, in 1988, that year that you are doing a million dollars in sales, you're making eight guitars a day. And I hear that and I'm thinking, so you're selling all those guitars, right? There was demand. Each guitar you were making was basically spoken for?

41:27Well, there's always a back and forth between the number we're making and the number we're selling. And really, that's the story of the company is the balance between how many a day we want to make, how many a day we can sell, all the way up till now. And each – I mean, this was not automated. This was all – it was like table saws and hand saws and lathing machine, right? Like every – it was entirely handmade. made. Yeah, we had a fair amount of specialized cutting tools that I would make. It wasn't until 1989 that we were able to really get modern using computerized cutting machines. In other words, imagine I'm bending a guitar side and I'm doing it over a hot four-inch pipe with a barbecue lighter inside it to make it hot.

42:22And I'm steaming and moving and steaming and working. well, when I'm done, that side, it risks having been broken. It might not fit in the mold perfectly. Or I can make a machine that's that shape that automatically bends it. It does something in one minute that I do in a half an hour, and it's a better part. And now they're consistent. Yeah. We still have way more people working by hand than we have machines. It's not an automated factory. And if anybody here has ever gone through a car factory, the first step, they're going to be stamping car parts. And there's not even a person in there. It's all robots.

43:01There's one guy in a control room. But by the time they're making seats and dashboards, it's loaded with people, right? And it's the same with the guitar. We can make these parts on machines, but we have to put them together by hand. I'm curious, because we're going to get to the 90s in a second here. But But at this time, right, this is still the late 80s, you've broken a million dollars in sales. Compared to Martin, you're still small. I mean, Martin was founded in 1833 or something like that. It's been around for so long. It's an old company. And it's obviously a venerable, widely respected brand.

43:38I mean, this is like what Elvis played and Johnny Cash and Bob Dylan. I mean, they played Martin guitars, right? Hank Williams. So this is a storied brand. Absolutely. And you guys are kind of an upstart brand at this time, even 14 years in. Absolutely. We made it through the disco age. They also made it through the Civil War. Right. You know what I'm saying? Right. Exactly. Yeah. And they're still family owned. Yeah. Yeah. And we were doing something different. We were making a different kind of guitar that they didn't make. Martin was still making a traditional guitar that you played in bluegrass music or folk music.

44:17So we became symbiotic with a couple styles of music. One was acoustic guitar tracks in pop music. You know, so like when a band like the Goo Goo Dolls was really popular, they're all playing acoustic guitars, right? And they're playing our guitars. So we were chasing Martin as far as venerability, as far as brand. But truly, they were starting to actually chase us a little bit because we had the red ball that they wanted and they had the blue ball that we wanted. But you were definitely looking at them and saying, we have an opportunity here. Okay, so this is the late 80s, and something is going to happen because anybody, I mean, my age or anybody sort of over 40, let's say now, will have remembered a time when MTV actually was relevant and played videos and music and everybody watched it.

45:161989, they launched this thing called MTV Unplugged, which would be an unplugged series of concerts. The most legendary one, of course, is Nirvana's MTV Unplugged. And Eric Clapton. And Eric Clapton, sorry, yeah, which I think he won Grammys for. And this is going to, even though it wasn't like MTV Unplugged sponsored by Taylor, it was going to bring about a renaissance in acoustic guitars, right? For like all of a sudden acoustic guitars, like the disco era was disastrous. This was the opposite. What did the MTV Unplugged thing mean for your business? Well, the world changed and we started growing like crazy.

45:58Were you able to get your guitars into the hands of some of those musicians? Yes, we weren't as aggressive as other people have been. Our goal with that artist relations is to help artists get their music played. We're sort of like the pit crew for them and their race. But getting our guitars into the hands of artists takes going to those shows. You need to be backstage during, you know, the MTV video awards or the Grammys or those types of things. You have to develop relationships. And we try and honor that relationship. All right. So I read that in 1990s, you're 16 years in. I guess there was this feeling, you had about 40 employees at the time.

46:42And I guess there was this feeling that the two of you had that you didn't have a professional company, that you didn't have a professionalized workforce and that you hired a consultant to kind of help you guys. Maybe, I don't know if this is the right description, but turned you into like an adult run business. Is that fair to say? Yeah. Somewhere back then I read that when you have maybe a founder run company where you're making something, most companies get sold at around 45 or 50 employees, that's when the owner is starting to feel like they're just babysitting all day long. Tell me what you mean by that.

47:23What was the challenge that you would face on a day-to-day basis? You're just, I don't know, employee? Well, you don't really have an HR department, people that decide that they want to make guitars. They're not really thinking of themselves as a professional guitar maker. They're thinking themselves more as a, hey, this could be a cool job. You go into a department and they're all cutting up or laughing or choking. And I walk in and go, it might be nice if maybe what some of your conversation was about during the day would be how to build guitars, right? And so the problem's not with them. The problem's with me, us, our company.

48:05We have to learn how to become a good employer. We had to be able to offer better benefits. And so I wanted to get to where I felt like I deserved good employees. I mean, it seems to me that because you guys both got into this business because you wanted a job after high school, right? Like it wasn't like you were any different from the people who were now working for you were a couple of guys were like, this sounds like a cool job. And but you didn't really begin to care about it until you owned the thing. I'm going to say this. This is for me. I made a commitment early on based on the experience that I had being poorer than a church mouse for the first five or six years that we made guitars, and no one had ever heard in San Diego of such a thing as even being a guitar maker.

48:52They'd say, what do you do? Well, I make guitars. Oh, really? Do you do that in your garage? No, I'm trying to build a factory. Oh, how's that working out? I'd be like, not very good. I was embarrassed. So that became a secondary goal that was every bit as important to me as the quality of the guitar and the market share we had. I wanted people to say, oh yeah, I worked for that company and I retired from it. It was an incredible career for me. And that's sort of what I felt during that time. Now I want to make this job a career for the people who want it to be a career. When we come back in just a moment, another tailor enters the picture.

49:34This one, probably the most famous tailor in the world. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

50:02Hey, welcome back to How I Built This. I'm Guy Raz. So it's the early 90s, and acoustic guitars are becoming popular again. And in a bit to drive growth for Taylor Guitars, Kurt launches an ad campaign. One of the ads I've seen, this is in the early 90s, it's very unusual, you put these in guitar magazines, and it wasn't even a guitar in the ad, it was a tree. It's a tree and it says, you know, here's a tree, it's a piece of wood, it can become a coffee table in one pair of hands, and in another pair of hands it can become a sweet-sounding guitar. Right, some trees have all the luck. Right, a very unusual kind of ad.

50:39Tell me about that approach. We were lucky in being approached by a San Diego agency that had some ideas. And it was not focusing on features of the guitars or artists who played them. It was really telling the story about the brand and the love of the guitars. That really made an impact on the industry. They were also double-page ads, which people weren't doing. And we had also started a quarterly magazine, which we still do today. Wood and steel, you started this. Yeah, wooden steel, yeah. And that proved to be a good, I'm assuming a good investment because it doubles as a catalog. Yeah, exactly.

51:21And it grew to over 300 ,000 circulation, which is bigger than any guitar magazine. Yeah. In 2002, you broke ground on a factory in Tecate in Mexico to increase capacity. and I'm curious I mean you know it's interesting because a lot of people think that inexpensive products from China have been around forever but it really they haven't I mean in the 90s it wasn't as common certainly not in the 80s there was a shift in the 90s when China became a member of the World Trade Organization a lot of U.S. companies and other European companies started to move production to China and manufacture in China did you guys also start to see a shift in sort of cut rate acoustic guitars coming into the U.S.

52:09market from Asia? Absolutely. We saw that shift. We've seen a lot of people copy our guitars, but you pick them up and it's like, this is not a Taylor guitar. All right. I know you're going to say that, but if I don't know anything about guitars, I'm like, hey, I can just get this off Amazon for 80 bucks. I don't care what it's made, but I can get yours for 250 bucks. Or let's just say I can get one for$200 from Asia and yours for 250. What is it about your guitar that sounds better. Why would I choose that guitar over a cheap factory-made one from China? The most obvious thing you're going to notice is what it is that we excel at and built our company on, and that's the playability of the guitar.

52:48Go back to the necks, the string height, all of that. We invented that. So people are going to notice that, and then they're going to like the sound. The sound's more vibrant, and that's, in a way, it's hard to copy in a way it's not. For example, if I try to make a guitar that sounds like a Martin guitar, which sounds different than our guitars, if I try to make that, it always turns out to sound like my guitar. Like your mom's spaghetti, no matter how much she tries, it just keeps tasting like her spaghetti. And then the other part of that is the brand. Kurt built the brand. Our guitars lived up to that brand, and people want to be associated with that brand.

53:25So we do have a little pricing power in that we can make that guitar there. And it's, to me, it's offering those guitars to people that get into the brand. And a lot of times they don't move up from that. That's their guitar for life. It's all the guitar they need. I, I, there are, I've spent so much time looking to see which guitars are played by which artists I love. And so I'm not going to mention some of them because they don't all play your guitars, but you have Jason Mraz and Zach Brown, Dave Matthews, Katy Perry, and most importantly, Taylor Swift. She plays your guitars, not surprisingly, because her name is Taylor.

54:09How did that relationship begin? I have to hear the story from the horse's mouth, because this is a big deal. So our receptionist rang my desk, and she said, Bob, I've got a guy on the phone who's called a couple times. When was this? Do you remember what year? I'm going to say Taylor's 35. She was 14. 20 years ago. Okay. First record came out in 2006. It was, I think it was named Taylor Swift. Yeah. Okay. So it was just right around then, just kind of just before then. So yeah, I picked up the phone and hi, my name's Scott Swift. I know that every dad thinks their daughter's special, but my daughter really is.

54:49And I sent a cassette tape with some of her music on it. And he's also calling record companies. He's putting every iron in the fire. But he's calling thinking maybe you guys could also be part of a promotional thing. Absolutely. And so I listen. It's like, yeah, it's great. Well, we have a trade show coming up. We have a little stage at the trade show. She could play at that trade show. Where was this convention? Anaheim, California. Anaheim. Okay, the convention's there. So you have Taylor Swift. She comes out, sitting on a stool, playing some songs that she wrote. Nobody's in the room. I literally walked out into the foyer, all these trade show, and I'm like, Guy, do me a favor.

55:30Come in here and sit down. I got a girl that's playing. I don't have anyone to listen to her. I don't have a crowd. Can you please? I'm embarrassed. Can you come see? Her name is Taylor Swift. I need a crowd. Come in. And I'm like, Bob, I don't have time. I'm like going to see Jason Mraz down the road. I filled that room with people and she plays and people like, wow, she's good. And then the next time she played in our booth was a couple of years later and it kind of closed down the convention center, just getting her in and out. And then she released her album called Fearless. That was her second album.

56:01Yeah, that has Love Story on it. I know this because I've seen her in concert. So I went on the air show and it was, yes. She ran a contest in the United States and picked, it was a radio contest. and two winners from every state won, and they all got to bring a guest, and she paid for their air flights and their hotels to come out and get a 200-person private concert from her at Taylor Guitars. In San Diego, in El Cajon. Yeah, in our factory here in El Cajon. And so she had her album released here at the factory. We set up a chance. There was a big... We've had a pretty close relationship with her for all that time.

56:40She also has split her guitar playing between Taylor guitars and Gibson guitars, so she uses those now, too. We're the first and the longest, so a lot of people just think of her as playing Taylor guitars. Okay, respect Gibson, too. But her most famous guitar, which she brought on stage during this last tour, I think is the guitar a Koi Fish guitar you guys made for her? Well, what happened is we started a series called The Gallery Series. And the first guitar I made, I named it Living Jewels, and I had koi fish swimming around it. And we had this relationship with Taylor, and her birthday is just before Christmas.

57:22And I took that guitar out and sent it to her for her 18th birthday slash Christmas present. And she loved that guitar. I remember she called me on Christmas morning. But she played that guitar and she put it in the Country Music Hall of Fame in her display. And then it disappeared out of there before the Aorist tour. And all of her fans started online talking about what happened to that Koi Fish guitar. What happened to the Koi Fish guitar? It's not there anymore. I wonder if she's going to bring it out. And her dad actually wrote me on the first concert when she brought it out and sent me a little video of just people going nuts when she pulled that guitar because her fans follow every move she makes.

58:06All of these tiny little, like, factoids and nuances, they know everything. It was crazy. Yeah, they know the Kansas City Chiefs now, too. Yeah, exactly. You know? Exactly. They know all the stats. They're playing fantasy football. Yeah, exactly. Yeah. Yeah, she's a force that truer words were never spoken than the words that Scott Swift said to me on the phone that day, which is every dad thinks their daughter's special, but mine really is. She is. You know, I'm curious. There's so many questions I have about guitars, right? Because it's not like a subscription. It's like diapers where you're buying them every week, right?

58:42Or, you know, a shaving cream, right? It's a product that most people probably buy once. Obviously, if you're a very good guitarist, you might buy a few guitars, maybe more than that. But most people buy one guitar. And the other thing is, to what extent does this industry just depend on cyclical trend? Is it cyclical? I mean, we've talked about the disco era, the MTV Unplugged era. I mean, it seems like there's things that are out of your control, that there are just going to be periods of time where people aren't interested in acoustic guitars and when they are interested in acoustic guitars.

59:18Or am I wrong about that? You're right about that. Yeah, I think that's true. Also, you know, if people get into guitar, they buy more guitars. And we call that GAS. That's an acronym for Guitar Acquisition Syndrome, where they're buying and selling guitars. I got this one. I got that one. They're looking for the new one. So there's that hobby. They don't necessarily play well. But you are correct in that if somebody bought one of our full-size guitars that we make in our Tecate Mexico factory, that's really enough guitar to last them their whole entire life. And so we wonder about this, too, because, Guy, we make 700-and-something guitars every day.

1:00:00That's amazing. Where do they even go? You know, sometimes people say, man, I see your guitars everywhere. where I go, well, yeah, we've made two million guitars. You're bound to see one. Yeah, but you're right, Guy. You know, what's going to happen as the baby boomers who came back to who really grew the guitar market all get older and die off? Are younger people going to come in and take up the guitar? I know that by the 2000s, I think by 2002, you cleared$50 million in sales. Is there, I mean, I'm jumping ahead for a sec here, But in terms of sales now, are most of your sales direct to consumer through your website or is it still mainly through retailers?

1:00:42It's through retailers. Yeah. The direct sales is very small. Interesting. So it's almost like running shoes. Like running stores still have a lot of pull, a lot of weight in the running shoe business. It sounds similar to guitars. Like you need to go to the shop and really talk to the people there. But you're saying the majority of your sales by far are still through retailers. Absolutely. By far. When we say the majority, we're not saying 51%. We're saying 90%. 90 plus percent. 90 plus percent. You know, the thing about direct sales, even like Nike, you know, I read in the last year how they had really pushed their own direct sales.

1:01:17And then they took that so far and now they're going back and, you know, embracing retailers again. Yes. Except for Hoka got in while they were gone. Right. Right. Yeah. There's not just one way of doing it. Yeah. Right. I think Nike's doubling down on wholesale again. because they've seen how it's been successful for other brands. I want to ask you about a very anomalous, weird period in the history of Taylor Guitars, the history of every business, which is COVID. And it's interesting, you know, we've done some businesses on this show now over 10 years, we've done a lot, but there are a few that we've done that were really crushing it during COVID.

1:01:56There's one in particular, I'm not going to mention the name, but they're having some major challenges now because they bought way too much inventory in the post-COVID period thinking that that was the new normal. How did you guys, I know that guitar sales went up like by an order of magnitude during COVID, like crazy numbers. Like you guys had your own, you're fully integrated. You have your own production facilities. What was the demand like for you and how did you deal with it? A thousand guitars a day. A thousand guitars a day. Yeah, just like stop and think about that for a second. And we're still recovering from it, the up and down of COVID and inflation.

1:02:37And you had to hire tons of people probably quickly. Yeah, we did. And we were ripping boards off the wall to make guitars out of, you know. And it was good. We knew that it wouldn't last. We tried our very utmost to protect us ourselves. We really tried for a soft landing, and it wasn't exactly that. It was a hard landing. Kurt and his sales team got on the phone and spent four months canceling, from our end,$50 million worth of orders, knowing that those aren't real orders. They weren't going to be real, no. And if we actually made the guitars and filled the channel with all those guitars, then the retailers were going to have a big problem, and we wouldn't be able to sell guitars because they'd be overloaded.

1:03:21That's what happened with other companies that made too much stuff. Yeah. And you know, the last several years have been at least as hard as any other years going all the way back to the beginning. Why? Because cost just ratcheted way up. But guitars, you can't just raise the price. What's gone up? I mean, you've got wood, you've got... Labor. Okay. All the labor, all the overhead. Yes. And wood always costs more. The very best day to buy wood is today because tomorrow it's going to be more. Yeah, because there's less of it. We're doing things about that, but we have to have another show in 35 to 100 years to see how that turned out.

1:04:03Right. You guys have planted all these trees in Cameroon, but they take like 70 years to mature, right? These ebony trees. Maybe 100. And then also in Hawaii, but we can use that wood in 30 years from now, koa wood. You know, all our costs are up due to inflation, but that doesn't mean that products that are price sensitive, you can just raise the price to make the same margin that you were. It just doesn't work that way. You know, I'll just say it here. We go into a taco shop down here, buy two burritos and two Cokes, and you ask yourself, how did I just spend$41? Right. So that's what happened to our profit.

1:04:42That$41 lunch of a couple of burritos, those costs have moved throughout all of society and into our manufacturing process. Yeah, for sure. And, I mean, you guys have made some pretty big changes to the business over the past few years. Because, I mean, Kurt, I know you stepped down as CEO, I think, in 2022. And then you promoted your head of guitar development, Andy Powers. He became the new CEO. Uh-huh, yeah. And I'm curious about this other thing you decided to do around that time, which was you created an ESOP. And for people who don't know what it is, it's an employee stock ownership plan.

1:05:22Cliff Bar did it. New Belgian Beer did it. I think like King Arthur Flowers and ESOP company. Bob's Red Mill. Bob's Red Mill, which means it's employee owned. It really does give the employees – I mean they have a stake now in the business. They're not just like paid a wage. They actually have real equity in the company. And so they're incentivized to increase the value of the company because if the company ever gets sold, I mean, I think when Clif Bar was sold, I don't know how many millionaires were created by that sale to Mondelez. Yeah. And so all your shares were sold to the employees. They were sold.

1:05:58We're both on the board. We're co-chairs of the board. And I work every day. I still come in all the time. Yeah, we work for free. We work for free. It was the best choice of all the choices. And I always, one of my sayings is invest in the inevitable. And one thing that's inevitable is I'm going to die. Yep. That's inevitable. And so I'm going to sell this company, my shares of it by accident when I die are on purpose before that. Unless you're in real estate. Yeah. And so knowing that that's going to happen allows us a chance to do it in the best way. Yeah. When you guys think about the journey you took, how much of where you guys got to today, the success that you have had, do you attribute to the work, the grind?

1:06:47And how much do you think has to do with just luck and good fortune? I want to put that to Kurt to you first. Luck and good fortune? Well, there's a little bit of that. And as I get older, I see more of it. I'm less maybe egocentric about it. For example, we were lucky when we started that there weren't as many guitar brands. And obviously, we've worked very hard. We've kept our relationship from blowing up. Well, I think that we're lucky that we have good enough chemistry. And I've been very happy with my partnership with Kurt and the work that we've accomplished together. And I could tell you that right now, I could still work, but I can't work like I did then.

1:07:31Yeah. You know, well, you know what? Maybe I could. I just don't want to. It's nice to be able to take a nap in the afternoon if you want. Yeah. Bob, I think you are 70 and Kurt, maybe you're 72, 73. 73, okay. I mean, I know you're still involved in Taylor, but now you're not operationally involved in the day-to-day. You've got more time on your hands. What are you doing? Well, I love being here. I want to be here as long as I can. We still have a lot of responsibility here to make sure things stay on track. I have a car hobby, and my wife is president of her local Bichon Frise Club of San Diego.

1:08:12Wow, the Bichon Frise Club? Yeah, and she bought this good little dog and trained it, and she's known her handler, and she's been to the Westminster competing. Wow. So she's got the leash in the perfect U shape, and she's like walking, and the dog is trotting? Exactly. Yeah, the whole deal. She's been there. And yeah, the dog has over 70 ,000 Instagram followers. The dog? That's incredible. Yeah, it's amazing. You're going to put a Taylor guitar in that dog's hands. Pause.

1:08:45That's Kurt Listig and Bob Taylor, co-founders of Taylor Guitars. Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And if you're interested in insights, ideas, and lessons from some of the world's greatest entrepreneurs, sign up for my newsletter at gyros.com or on Substack. This episode was produced by Alex Chung with music composed by Ramtina Ablui. It was edited by Neva Grant with research help from Ramel Wood. Our engineers are Patrick Murray and Maggie Luthar. Our production staff also includes Casey Herman, Chris Messini, John Isabella, Sam Paulson, Carrie Thompson, Catherine Seifer, Nora Gill, and Elaine Coates.

1:09:23I'm Guy Raz, and you've been listening to How I Built This.