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The Digital Skeptic: Making Millions From $1,000 Earphones

It's simple, stupid: Quality
The spooky part is how simple Grell makes getting paid sound in today's noisy global tech biz. When I asked him what kind of complex business processes are needed to actually create such groundbreaking products, there was no Apple-like zen mystery or GE (GE) Six Sigma quality-control consulting nonsense.

"It starts with a simple conversation with the boss," he said. "The IE 800s came about over meetings with Heinrich Esser, now president of professional systems." Grell said it was a simple series of chats about the company having to do something groundbreaking to compete with low-cost global audio component producers.

The key, Grell said, is that managers actually trust engineers to know what should be done. "Getting to a commitment was simple," he said "Esser said, 'OK, we do it. So do it.'"

Outsourcing, supply-chain management and global logistics -- the stuff that breaks the back of most global tech giants -- are almost ridiculously simple at Sennheiser.

"We design and create most of it all ourselves," he explained. A spokesman for the firm, Jeff Touzeau, confirmed the company has robust global manufacturing, with plants in Ireland and outside Albuquerque, N.M. But high-end items such as the IE 800 are made strictly in Germany, where quality can be controlled.

"The mission-critical parts we make ourselves," Grell said. "Our quality standards are very high. If we cannot find a supplier, we make it."

Remarkably, price is also not the barrier investors would expect. Grell made it clear that there's a floor in pricing to have proper quality. But it is not as low as you think.

"It is not necessary for it to be a $1,000 earphone. For $99 you can have a good headset," he said. "But $49 does not work. You start having to use materials you don't want to use."

Experience this
Grell's investor takeaway is, therefore, exactly this: Listening for profits in consumer tech is not about chasing the next bogus Web experience or cynically hacking the mind. But rather, artfully connecting a listener to a musician. Then getting the heck out of the way.

"The approach is that once the artists and producers have done their work, all those emotions are there in the recording," Grell said. "We offer as direct a connection to those feelings as we can. That gives them goosebumps, which happens with me sometimes when I listen to my products. Customers come back for that. They will pay for that."

Now that I hear it, Grell may not be so different from Steve Jobs after all.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
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