Craft Guitars Established 2015 Company History ✓ Solved

Craft Guitars Established 2015 Company History: Craft Guitars

Craft Guitars (CG) manufacturers musical instruments and was founded in 2015 by Mary Garcia. Ms. Garcia has an extensive background in music, her father and mother are both performers in local bands, and she has been a guitar player since age 4. She graduated from California State University San Bernardino with a BA in marketing in 2004 and was hired by Gibson Brands in Nashville, Tennessee to work in their marketing department. Gibson manufactures guitars and other instruments including the iconic Gibson Les Paul guitar.

In 2009 she moved to Guild Guitars (owned by Fender Electric Instrument Manufacturing Company) in Scottsdale Arizona as the VP of marketing and promotions. In 2014 Fender sold Guild Guitars to Cordoba Music Group in Santa Monica, California and Ms. Garcia remained with Cordoba during the transition but left at the end of 2014 and launched CG the following year. In 2019 Ms. Garcia received a Master of Science in Entrepreneurship & Innovation degree from CSUSB.

CG manufactures guitars including custom orders, acoustic, and electric models. Custom models are designed for and by the customer with prices from $2,500 to $10,000 depending on material, with the average being $5,400. Standard models are priced from $800 to $2,000, with an average of $1,300. The company currently leases a 15,030 square foot production facility in San Bernardino, California and employs 78 workers. CG was started with an investment of $200,000 from Ms. Garcia and a $300,000 private stock sale to family and senior management. Sales increased rapidly in the first six-years of operations, but growth has begun to trend slower.

The company has successfully been able to maintain margins despite the rapid growth. Management meets weekly to discuss production, suppliers, labor issues, and review financial results. A few weeks ago, the owner of the building CG is leasing offered to sell the property. After negotiating a sale price of $3,450,000 the company began working on a business plan to request a loan of $2,760,000 LTV from their bank.

CG began as a custom design shop and has built a reputation for innovative and unique creations. The company’s big break came when noted guitarist and Black Keys front-man Dan Auerbach was photographed with his custom CG guitar for the cover of Guitar World Magazine. In 2018, influential guitarist Nita Strauss ordered a custom acoustic model from CG. Strauss, who had previously never owned an acoustic guitar, has a signature Ibanez electric guitar.

The CG brand quickly became a sensation in the music industry after Strauss used the guitar for a video and song on her solo album “Controlled Chaos.” The custom shop continues to produce creative models using exotic woods and the highest quality workmanship. At least six unique designs are introduced each year and production is strictly limited to no more than 25 guitars per design. These guitars are typically sold out before they are manufactured despite having a significant cost (up to $10,000). The typical buyer is a guitar collector, and CG’s customer base includes people who have purchased multiple limited production models.

Some custom CG models are made-to-order with customers using the company website to design their guitar. The website is highly interactive, allowing the user to create whatever instrument they want. It allows uploading of pictures or hand-drawn images. The customer can choose the wood and other materials and see a rendering of what the finished product will look like. Once a design has been completed, the customer can discuss the guitar with an experienced craftsman to complete the order. This is typically the employee that will craft the guitar.

Beginning in 2017, CG began producing a line of standard guitars (both electric and acoustic) to appeal to a broader base. These models still feature excellent workmanship but use less expensive woods and have a more traditional look. The CG standard line is priced lower than the custom models and sold at various retail music stores as well as the company website. CG’s sales growth has been primarily through this line of products which increased from 1,835 units sold in 2018 ($1,835,000) to 2,132 units in 2020 ($2,771,600).

The company is focused on continued brand development, improving their website and social media presence. The workforce will see a modest increase over the next 5 years, and CG will continue to add efficiency improving equipment to the factory. The company is discussing hiring a full-time sales force (4 people) to make personal calls on smaller music stores to promote their line of standard guitars. The company is also exploring the development of a bass guitar model, both electric and acoustic. Other projects may include a branded clothing line (t-shirts and hats), instrument cleaning products, stands, cases, and other accessories.

The company estimates annual sales will reach $25,000,000 in 12 years at which time they will seek a buyer. Senior management is hopeful that CG will be purchased by a larger company that will retain the employees and continue to utilize the production facility. Ms. Garcia and her officers have extensive contacts in the music industry and are confident their company will be an attractive acquisition, allowing them to negotiate an acceptable sale, with a goal of 5 – 7x EBITDA (between $22 to $31 million). Additionally, the company will have the commercial property that will add value and another $3 to $4 million to the sale price.

The company has primarily used traditional print media to advertise the website and products. CG runs half-page or quarter-page ads in Guitar World Magazine, Premier Guitar, and Acoustic Guitar Magazine a few times a year. The company also has a limited budget for advertisements in online publications including Guitar World Magazine, Rolling Stone, and Billboard. A few amateur guitar players have posted videos using CG models to YouTube, TikTok, Facebook, and other platforms. Despite this, the company is just beginning to explore expansion into social media.

CG is a member of the National Association of Music Merchants (NAMM) and has attended their trade shows over the years. The company has a custom booth that they use for this and other similar events including concerts, fairs, and conventions. The company website is a featured sales tool and allows users to design a custom guitar, interact with company craftsman, and follow the production of their guitar. Virtually all custom-made guitar orders start with a website visit. Orders for standard models also use the website.

The marketing budget will be $180,000 in 2021, $225,000 in 2022, and $280,000 in 2023. CG has additional money for IT and maintenance of the website. CG has the following management organizational structure: The management committee meets weekly to review plans, sales orders, supplies, production, and marketing.

The board meets monthly to review financial information, approve projections, assist in resource management, provide feedback on products and production. The company is seeking a commercial real estate loan of $2,760,000 or 80% of the purchase price ($3,450,000) to buy a 15,030 SF building in San Bernardino, California. The building sits on 0.80 acres and has 2,760 SF of dedicated office space, 4 loading docks, and is zoned industrial.

The concrete tilt-up construction was completed in 1988 and the building has a newer (1-year old) roof. Shareholders are contributing $150,000 (stock purchase) and the remaining $540,000 of the down payment will come from the company, along with an estimated $62,000 in closing costs.

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Craft Guitars (CG) has emerged as a noteworthy player in the musical instrument manufacturing industry since its establishment in 2015. Founded by Mary Garcia, a seasoned musician and marketing expert, CG specializes in crafting high-quality guitars that cater to both individual customers and guitar collectors. Emphasizing customization and craftsmanship, the company blends traditional techniques with innovative designs, resulting in a diverse portfolio that includes both standard and custom models.

The journey of CG started with a modest investment of $200,000 from Garcia herself and an additional $300,000 raised through private stock sales. With its headquarters in San Bernardino, California, CG focuses on quality production while offering a unique customer experience through their interactive website. This platform enables customers to personalize their guitars by selecting woods, materials, and shapes, and even by uploading designs, thus fostering creative collaboration between the craftsmen and clients. Custom guitars range from $2,500 to $10,000, reflecting the intricate work and personalization involved, while standard models are accessible to a broader audience, priced between $800 and $2,000.

Despite facing a slowing growth trend after an initial six years of rapid expansion, CG maintained its margins through rigorous management and strategic production meetings held weekly. Recently, the company negotiated to purchase its production facility for $3,450,000, reflecting its commitment to securing a stable foundation for future growth. CG's reputation skyrocketed when renowned guitarist Dan Auerbach showcased a custom CG guitar on the cover of Guitar World Magazine, marking a pivotal moment for brand recognition in the music scene. This was further strengthened by influential guitarist Nita Strauss, who ordered a custom model that led to significant buzz upon its use in her solo album.

CG's approach to marketing heavily emphasizes traditional print media while slowly incorporating digital platforms. With a budget allocation estimated to increase annually for marketing initiatives, including social media engagement, CG aims to enhance its visibility and reach potential customers effectively. The company has exhibited at NAMM trade shows and invested in featuring their offerings through online advertisements, gradually adapting to the digital marketing landscape. The planned increase in budget reflects a strategic move toward recognizing and capitalizing on social media's impact on consumer engagement.

Looking ahead, CG's strategic plans involve enhancing brand development, expanding product lines, and increasing production efficiency to meet the anticipated growth in demand. The addition of a full-time sales force to establish personal connections with smaller music stores aims to bolster retail presence, complemented by the exploration of new product lines, including bass guitars and a branded clothing line. With expectations of reaching $25 million in annual sales within the next 12 years, CG positions itself for potential acquisition by a larger company that could further its mission while retaining its workforce and facilities.

The management of CG comprises a diverse and capable team, including professionals with extensive experience in entrepreneurship, finance, law, and manufacturing. With a strong board of directors actively involved in strategic decisions, CG is poised to navigate the complexities of the musical instrument market effectively. The company aims to obtain substantial funding through a commercial real estate loan to secure its production facility, further solidifying its operational base.

CG’s meticulous planning, combined with its commitment to quality and customer experience, offers substantial promise for sustained growth and success in the competitive musical instrument market. The emphasis on innovation, customer interaction, and strategic marketing positions CG as an attractive brand in both the immediate and long-term scope of the music industry.

References

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