One of Bracken Darrell’s posts on his LinkedIn page makes you stop and think: “Success – Keep a safe distance.”
He says that success is great to have but is an irresponsible friend you should never count on. “Best to keep it as a good acquaintance… It makes you risk-averse, making you look backward instead of forward.”
Having taken charge at Logitech in 2012 as president and chief executive officer of Logitech, a Swiss company best known in India for desktop computer accessories such as keyboards, speakers and web cameras, Mr. Darrell has a reason to comment on success. For the year ended March 2013, retail sales for the company had fallen 7% annually and profits were at $64 million. Fast forward to March 2016… annual sales had grown 9%, while profits had more than trebled from three years prior to $175 million.
About 80% of Logitech’s revenues used to come from the PC accessories business. Research firm Gartner reported that in calendar 2016, PC shipments saw a 6.2% decline froma year earlier. Alarmingly, PC shipments have also declined annually since 2012, the firm said. Mr. Darrell’s focus on product design has helped Logitech shift focus to accessories such as Bluetooth-enabled speakers and gear for video collaboration using the cloud. The firm’s non-PC business now contributes to 50% of revenues.
In a conversation, Mr. Darrell, who came from Braun, a consumer appliances company, dwells on what he and his team did to turn Logitech around:
Logitech was almost entirely dependent on the PC business, which is declining. How have your priorities changed ?
I had really fallen in love with design and I wanted to create a design company. We essentially took the PC business and dropped the resources by 75% to put into new things.
We didn’t stop innovating there, though. The PC [business] was the big old tree, the new categories were the fast-growing plants and then we also invested in new categories that we didn’t tell anybody about – we called these seeds.
The ‘plants’ back then were our music products – UE Boom, UE Roll, then there were our gaming products which we really reinvigorated. Then came the equipment to enable cloud-based video–conferencing.
Our five focus areas are creativity and productivity which is mice, keyboards; music which is the bluetooth speaker business; the gaming business which was again mice and keyboards but for gamers; then video collaboration which is video-conferencing using the cloud and finally, smart home which for us is a really interesting universal remote control.
Which ones are growing faster than the PC-dependent business?
In everything other than the PC business, we could see that the markets were growing. For example, people don’t believe that the gaming business has grown by 15%-20% for 10 years in a row. Our market share is growing because we are really good in design and at engineering. We entered the bluetooth earphone business a year ago; we entered home cameras; we entered simulation for gaming.
Did you proactively change from a products company to a design company?
Around 2008 or 2009, the iPad was launched. We had grown double-digit for 39 quarters, both top-line and bottom-line up until 2008. But then things started to change.
The PC started to flatten out, it really started to go south. We tried various things that didn’t work. So we went through a rough time. And that’s when I came in, in April 2012 and it was wonderful because it’s easy when you’re in trouble. It’s very hard [to change] when you’re successful. Everybody was ready to do something different.
The first thing that I did was bring in a head of design (there was none before that). I brought in the former design head of Nokia on contract in the beginning because I wasn’t sure if the company was ready to have a head of design who was completely into products but then it worked well.
What was the influence of your own experience with consumer products?
I had had my own design team for the 8-10 years before I came into Logitech. So, when I brought him in…he came because he was excited about it too. So he decided to build our design group. So we had people from Ikea, Microsoft, Nike etc. We now have about 60 people in the design team in 4-5 offices around the world covering all kinds of different designs not just product design.
How do you spot new areas to get into?
The first things were video collaboration and music (bluetooth speakers) and when we got in to those categories, we followed the markets. We tried several different bluetooth speakers and we didn’t do very well. One of the reasons we underperformed was because we were trying to be a generalist in a specialist category.
If you’re a music brand, people come in because they want to buy a music product and if they want the best, they were buying Bose, JBL… all music brands.
So, we had a brand that nobody knew about, called Ultimate Ears which had zero brand equity. We had great technology in music because we had been working on speakers for PCs and earphones for stage performers for 10 or 15 years. We launched the Ultimate Ears brand and this time, instead of taking a product and trying to prove it, we started with the consumer. We said, ‘how are people going to use this category?’ – what we had done in the past was to put the speaker on the wall and just make it look beautiful. But this time, we said ‘what people want is to put it on the table, in the middle and to get similar sound from every angle.’ So we created a speaker that looked almost cylindrical. We were the first to do that.
We designed this product around the user instead of just creating a new product. We have grown to No. 1 position in Switzerland, Australia, New Zealand and the U.S., and are in the top 3 in Germany, the U.K. and France. So, it came from nowhere, no brand, no success story... it was all about the design.
What is the timeline before you decide that a particular product is going to work or is not going to?
I am more patient than most of the people in the company. I am really impatient for progress but I am very (so) for success. Jeff Bezos (of Amazon) once said, “we stay with a new seed or a category till the last passionate moment,” which I thought was the perfect description of exactly how we treat a trial. I’ve got a couple of projects that everybody else in the company is ready to kill but I’m not going to let them go.
Are new products giving you enough of your revenues? The PC business is declining.
When I started in 2012, we were about 80:20 in favour of PC-peripherals and today we are 50-50. I haven’t given up on the PC at all. Everyone in this room will go back to their offices and there is a PC waiting for them. We are only just not buying new ones because of storage which is now in cloud. Because you don’t need a new PC, the thing on your desk is getting old and if you’re looking for new experience and with the K480 keyboard (into which you can dock your mobile or the tablet), I can use it for my phone, PC, tablet with just a switch. So we can do very low-cost innovation for you. But it’s profitable for us. And that’s why our keyboard business has grown for 6 years in a row, (even though) you didn’t buy a new PC. I still love this business but it would go down as a percentage of our total because we are doing so much outside of it now.
Will you manufacture devices in India?
Our Harmony (remote) control business is supported completely out of here. The team that we have built here, they were first doing data entry and they just migrated from that to software engineering. Our most sophisticated engineering is done here. We have grown from zero in 2009 to 150 people in Chennai today. We are also going to move jobs from contract in to full-time here.
This is the point for cloud-based engineering for us. Today, we do almost all of our manufacturing in China. We don’t have plans to manufacture in India but I would never say ‘never’. I think the world’s manufacturing is shifting to making things that are powered on the cloud. So I think India is ideally positioned to be that kind of manufacturing centre.
Anything whacky that the India team has done for you?
The team here was the first to get us in to a relationship with Amazon’s Alexa – ie, voice-enabled integration with the Harmony (remote) control. This is a first for us, to work with a personal assistant.
How have you categorised what you really want to pursue and things that you want to put on the backburner?
When I came in I was really in the position to make quick decisions and some things that I did not understand so I made a lot of mistakes. The first thing that we did though which was not a mistake was that we were in to too many products. So I think we had a 350 product family at that point and we went through rationalizing of the product portfolio. We went from 350 to 185 in about 15 months. When we did that our mantra was – fewer, bigger products. So our biggest products in the company now are Bluetooth speakers and we only have like 4 products in that line so fewer but bigger products. Now we made some mistakes during that too. We got a really big gaming product and 9 months in to that somebody was like why didn’t we get rid of that controller. Ya we made a few mistakes but overall we did pretty good. So how did we decide what to get out of. It was generally either those products which from a market potential stand point looked that they won’t grow. And if they didn’t look like they will grow and they weren’t profitable so they would go.
Your vision for the next 3 to 5 years?
I’m a very long-term person. When I came around, the board was looking for a very quick turnaround but I was like I’m not here for a turnaround. And now I am even more excited than I was when I got here. I wouldn’t say next three to five years but the goal here is to create a multi-platform, multi-brand company using the consumer technology that is increasingly very low-cost, to reinvent categories and enter new categories. And that’s what we are about and we are still at the very beginning of that.
Which is the fastest growing market for you globally?
We don’t break that up regionally but if you look at our regions right now we’ve got very strong growth in Asia, we’ve got very strong growth in Germany and Eastern Africa. So all our markets are growing. The wonderful thing is that we are seeing strong growth in developed markets as well as emerging markets like India. We think both of those things working at same time is pretty exciting. It’s not about getting into strong markets but systematically entering new categories and expanding our presence. I don’t see a reason why we won’t grow in developed as well as emerging markets.
From a branding perspective how have things changed for Logitech? I have never seen an ad for Logitech in India, though your accessories are easy to come by here.
We are doing a couple of things. We breathed a new life in Logitech by changing our logo. We also brought a new colour scheme which is pretty radical. Our retailers, e-tailers, consumers love it. The second thing that we have decided we are going to have distinguished brands – Ultimate Ears for music, Jaybird for Bluetooth earphones, we took Logitech and we kind of created a new brand – Logitech G for gaming which you might think of as a sub brand but it actually operates as an independent brand.
Too many brands can confuse a consumer, so you will stick with some? I thought four was optimal.
We will very stubbornly add brands where we feel like we need to. We will try very hard to use the brands that we have as best as we can but I would never hesitate to add a new brand. I think brand creation is quite different today as it was when I started when we were given like 200 million dollars to create a brand globally over 3-4 years. Now it’s a very different world that we are in where brands could be created through social media and PR. Brands can be created much faster.
This is probably every brand manager’s nemesis, but can you link brand-building to the amount of money you make, over a period of time?
Rather than doing that it comes back to one thing which is it’s about experience. You can create superior experiences that are meaningful. You create more value and if you decide to do on a path that’s authentic and differentiated, you can create a brand from it. That’s the Holy Grail. I give you an experience and you associate that with a trademark and you fall in love with the trademark because it gave you that experience. That’s what brand-building is all about. The kind of brand building I hate is where you advertise to prove that you are 1% better than something else. I want nothing to do with that. But I do think there is a lot of opportunity. I will finish with one thought – This is the best time to be in our business. Actually it’s the best time to be in the consumer business. When people like P&G started they were constricted to physics and chemistry, mostly chemistry. So they brought different ingredients and they created solutions. Today, because the cost of microprocessor is approaching zero and the cost of sensors is getting lower and lower you can take those ingredients and put them in any category. So you can reinvent any category. That’s why I’m so excited about where we are because we have so many options – we can get in to so many categories or try to build something.
