First Quality Music as a business study

First Quality Music was profiled in yesterday’s Small Business section of the New York Times online edition.

But it wasn’t really the sort of story that every businessman wants to see splashed across the pages (screens?) of such a major publication. The article tells of how the small, family-owned business – which has served the bluegrass community for 40 years – very nearly slipped into bankruptcy in 2010.

First Quality started in 1970 when Bill Sullivan began to offer banjo parts and luthier supplies from the basement of his home in Louisville, KY. Within a dozen years, he was making necks for Gibson along with his two sons, Jeff and Eric, and selling strings by the thousands at heavily discounted prices, shipped all over the world. In 1999, they moved to a large industrial park and expanded operations.

But the picture of success quickly darkened. From the article…

Sales kept climbing and, in 2000, the family decided to build and sell a line of banjos under the Sullivan name. But overhead was growing, too, and it started to swallow the profits. By 2006, First Quality had 28 employees and $5.5 million in revenue and was barely breaking even. “We were on a path to grow ourselves out of business,” said Eric Sullivan, who is 39. “Before long, you had so much overhead that if there’s any dip, you can’t survive it. There were several days when I was like, ‘Wow, that basement was really nice.’ ”

Two more huge hurdles arose when in 2007, Bill Sullivan passed away suddenly, removing the institutional memory of the company – not to mention their guiding focus – and in May of 2010 when the Cumberland River flooded Gibson’s banjo production facility in Nashville, taking 40% of First Quality’s annual revenue with it when production of Gibson banjos ceased.

I spoke this afternoon with Jeff Sullivan, wondering whether it was hard seeing his family’s dirty business laundry on display so prominently. He laughed, and said that yesterday’s piece only tells half the story – the ‘before’ segment.

“When we first thought about being part of this series, we weren’t really sure if it would be a good idea. But we realized that the dire straights that are described in the article was from a year ago, and we are in good shape now. So Eric and I decided, ‘what the heck?’ The more positive, success story part of the feature will be in next week’s paper, showing how we restructured to come back out on top.”

Jeff said that working with some top flight business consultants, and making some tough decisions, has brought them back to a leaner and dependably profitable footing.

“We just had to be brutally honest, and focus on what we could make money doing, and try to keep emotions out of the mix.”

One thing they are doing now is focusing on producing their own banjos, instead of building components for someone else’s instruments. Sullivan Banjos was Bill’s baby, but the boys have picked up the concept of a banjo built fully in their Louisville facility, including obtaining a furnace to smelt metal for tone rings and a sophisticated computer assisted lathe to shape necks.

“With our Sullivan Vintage 35 line, we have a phenomenal proprietary product which we were almost ignoring before we shuffled things around in 2010. We spent a lot of time researching what goes into the ‘prewar sound,’ and now can offer a banjo as good as we were helping Gibson make for less than it cost to buy the Gibson.

Plus, we started up another company to use our scrap wood to make turkey calls. These were pieces of high end premium instrument wood that we were burning because they were too small for us to use in a banjo, and now they go into a cane call that sells for $79.95. It started as a hobby, but now we are selling tens of thousands of these calls, which get rave reviews because you can tune it like you do an instrument.”