Death Spiral (and how we survived)

In late 2020 we bought VMK20 headphones to the market. They were very well received in the media (https://www.kopfhoerer.de/test/valco-vmk20/) and customers loved the product - until suddenly our headphones were shit and our customer service sucked. That almost took us in a death spiral, but we survived.

The year 2021 has been a disaster business-wise (otherwise it has been great, I got a baby and she is perrrrfect). We want to be open and honest with everything we are going through. When we founded this company with Jani (and Raimo of course), we decided that the difference between Valco and others will be the fact, that we are human. Unfortunately, to err is human too. 

First of all, since the beginning of the year, our headphones were not delivered in time because there were component shortages. When they finally came last spring, almost every single pair had a defective chipset. In 2020 and Q1 2021 we had 1-3% of defective VMK20 headphones, in Q2 - Q3 the rate went up to 20%. Even with our humble sales, this means thousands of headphones returned because the "bluetooth doesn't work". 

This issue was impossible to find out in quality control, because 99,9% of the headphones initially work. They just freeze randomly when a corrupted memory slot is accessed (and it causes the Bluetooth to stop working).

First we tried just replacing the headphones with new ones to keep our customers happy, but it didn't work out. We sent out a lot of new headphones but because we didn't know the actual reason - many of them were also defective. So instead of getting new sales, we made customers angry when they got their second or even third pair of headphones that broke. That would've pissed me off too. Of course because of that, we run out of stock again.

Eventually we found out the issue and managed to repair it - the current models are reliable again and if a new pair has an issue now, you are really unlucky person.  

However, that didn't solve the problem we have now. There are thousands of angry customers waiting for their headphones. Our customer service, capable of serving tens of peoples every day started suddenly getting hundreds of emails daily and keep getting them. Our simple email based customer service system started to label some emails as spam and there were lots of people not getting a response for their quite valid issues.

Money-wise this means that instead of getting a profit from a sale, we have actually lost money selling headphones. We should've just stopped and went to a long summer vacation.

In addition we have had continuous logistical issues because of COVID-19. The cost for shipping headphones from our factory to us (and from us to you) has increased by hundreds of percents and the reliability is close to zero. 

This is how you get into a death spiral.

First you get a shitload of defective products and accidentally pass them to your customers. Then your customer service is backlogged and shipments fail. Your customers start getting their virtual torches and pitchforks, and burn down your company in the social media. Finally you go bankrupt, because no one buys your products that have a bad reputation.

This kind of disaster easily leads a company to go bankrupt. This is the spiral we are going in and I am determined to get us out from there in the following steps. 

1. Every single pair of defective headphones are being repaired as we speak - The manufacturer passed the warranty issue for the chipset subcontractor who didn't agree to give us replacement headphones - instead we got replacement chipsets to repair the broken ones. Fair enough, we have hired people to do that and they have successfully restored hundreds of headphones so far and are doing it as we speak.  

2. Upgrade customer service - I have been sourcing for a new customer service platform, where we can receive all our messages from email, facebook and instagram to same place and the system takes care that no customer is left unattended. We have hired more people to do customer service and the ones we had before are working as hard as humanly possible (withouth killing themselves, we love our minions and don't want them to suffer).

3. Improve communications - We were not prepared in a situation where everything is constantly late. We have added some measures to let our customers know better what is happening. There should already be a reminder about your order (from tomorrow) and there will be reminders from our repair service so you'll know that we are working on it. 

Luckily we had some Death Star money saved and we still have good credit terms with our bank, so financially the company is stable. Now we are working 24/7 to get rid of our backlog and to get everyone their headphones.

The fire should be under control now and after it has been exhausted, we can start repairing the damage. Meanwhile all I can hope is that you, our customers are patient with us. 

Now (Christmas 2021) the headphones are reliable again, the customer support backlog is getting smaller and everything seems to be getting better. Let's hope 2022 will be easier for us.

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