Death Spiral aftermath (and how we are still standing)
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Death Spiral aftermath (and how we are still standing)

by Henri Heikkinen

As many who have followed Valco know, last year (2021) we had a really bad setback.

Not only did the COVID-19 push up costs and we suffered from delivery problems, but a large number of the headsets had a latent memory failure due to a faulty batch of components.

A small component failure caused thousands of headphones to be recalled, customers were outraged (probably including you), and we were almost in a Death Spiral: Customers get angry, no one buys our headphones, and we run out of money.

We wrote a long blog post on the subject at the end of last year. If you're not familiar with it, you can find it here. In the blog, we went through what happened, why it happened and what we intend to do about it. Now, more than six months later, it's good to look back at our previous plans and see how they have been implemented.

At the end of last year, we had three goals:

  • Every single pair of defective headphones will be repaired
  • Upgrade customer service
  • Improve communication

Headphone repair

First, we tackled the issue of broken headphones. Before the component failure, we had always just replaced broken headphones with new ones because there were so few faulty ones. Over the summer and autumn, we replaced a truckload of headphones before we realised that this wasn't going to work - we were constantly out of stock and even the ones we had replaced under warranty were suffering from the same chipset issue and there was no money coming in.

Furthermore, as we only got replacement chipsets from the chipset manufacturer to make up for their mistake, the only sensible move for us was to start our own headphone service.

My dear little brother Hannes had already helped us before, including handling warranty returns, so we hired him full-time to repair the headphones. Hannes is an engineer and is talented enough to fix anything from a circuit board to a huge truck.

Hannes was the perfect match for the job. He has done the job with the enthusiasm only a little brother - who as a child is used to being told what to do by his big brother - can do. During the spring he has repaired ALL the headsets returned to us and delivered them to the customers. Hannes has been helped by his wife Aino, who helps us part-time through her own business.

In the worst of the rush, Hannes was helped by several "subcontractors" around Finland, to whom we sent hundreds of headphones to be repaired. Without their help, Hannes would still be shivering under a headphone pile.

Upgrading customer service and improving communication

I don't know if we managed to improve our communications enough - there's always room for improvement, but we created (i.e. I coded) a few automations that should send a reminder to the customer when their headphones have arrived for repair or a delivery has been delayed. After that, the number of "where are my headphones" messages from customer service dropped significantly.

We also introduced an application called Gorgias, which allows our customer service agents to work efficiently and respond quickly to messages. It's basically a system that collects messages from different channels in one place, so they shouldn't be lost, at least in theory. Indeed, the previous email-based system started to mark customer messages as spam when thousands of customers tried to reach us at the same time, which of course made the customers even more annoyed.

When the service queue was several months long, there were also delays in replying to emails. We worked as much as we could, but still we were constantly delayed by about a week or more, which of course was not much consolation to a owner of broken headphones. So there were thousands of messages coming in from all over Europe.

We quickly recruited three new minions whose sole job was to respond to customers as quickly as possible. Now the only delay comes when someone messages me and my ADHD kicks in and I can't remember the whole thing. Most messages should be answered in almost real time. Our minions have complete freedom to work when and where they like, which is why replies can come at odd hours.

In addition, we have opened a Discord server where customers can chat with our minions. It's not an official customer service channel, but most problems have been answered there.

Was it that easy?

So the plans came to fruition and succeeded, but not without some pain. At the beginning of the year, it became clear very quickly that the Death Star money was not enough. The first thing my partner and I did was put our asses on the line. We had to take out a huge loan to break the death spiral. If the company fails now, our families will live under a bridge.

Secondly, our expenses have increased. It's not just staff costs, but also shipping costs and all the other costs have gone up (as you might have noticed). This is where we should raise the price of the headphones, but we don't want to. We would rather bring in a new model at some point in the future. It would seem unfair to customers to raise prices for the same product.

Of course, a reduced margin would require more sales. Since the products themselves can stand comparison, the reputation of defective headphones must still be haunting somewhere. For some reason, our international sales have recovered very poorly. We also could not spend extra money on mega-massive marketing campaigns, and besides, before now it would not really make sense, given that the delivery problems have been going on all spring.

Overall, however, I'm quite pleased with myself (and Jani). As an entrepreneur, it's easy to brag when everything goes right and there are no problems beyond your control. But what if everything suddenly falls apart? I would argue that fewer people have survived almost certain bankruptcy, and even fewer by increasing costs and telling the public how badly they have done everything.

What next?

Lately we've been working hard to get the next model of headphones ready, which we're internally calling "gaming headphones".

They will not replace the current VMK20, but will come alongside it as a different alternative. Maybe as VMK30 or something. The gaming headphones will not only have ANC and BT connection, but also a lag-free 2.4 ghz connection via a separate dongle to be used with, for example, a computer or a Playstation 5. For office use, the headset even has a detachable boom microphone.

It's too early to say when the new model will be available.

There is light at the end of the tunnel now, because actually for the first time in two years, we have pretty much every model in stock, and there is no queue for warranty service. Also, there are now very few headphones coming in for warranty service, so the defective batch has mostly been dealt with.

All the issues we faced last year have been handled, now we'll just have to sell more headphones (to construct a Death Star).