Psyko Audio Labs is poised to break into big markets with its audio technology

Hildebrandt doesn’t have exact numbers for the size of the gaming market but he does offer examples of how lucrative the industry can be. One video game released in October 2009 reached $1 billion in sales by the following April. Another game – this one played online – boasts 11 million subscribers, each paying $15 per month to play.

But global companies with experience, name recognition and sheer numbers on their side dominate both the gaming and headphone industries. How does a little company from Calgary with one new technology break in?

“It’s the innovation that does it,” says Hildebrandt. “It’s the fact that we’ve got something that is really dramatically different than anybody else. If we were only slightly different from the others, it wouldn’t be worth it. You wouldn’t be able to crack in.”

Originally, Hildebrandt wasn’t even going to try. Instead, he approached the top headphone companies in the world about licensing the product. Initial skepticism on the part of representatives of the companies was quickly quashed when Hildebrandt put his headphones on them.

After a year of talks, tests and demonstrations, every company chose not to proceed. But Hildebrandt had discovered that there was a market for his product. He’d also learned that there was surprisingly little new or developing technology in the audio world; all the companies were using similar technologies and there was nothing like Psyko Audio 5.1.

“The reasons they did not proceed with the licensing deal were never reasons to not go ahead and build the business,” he explains. “I decided I just have to go and do this myself.”

Hildebrandt wasn’t new to business; he’d already built a successful engineering company and understood many of the difficulties entrepreneurs face. Still, he’s found that developing and marketing a technology is a series of never-ending and always changing challenges. “It was raising money for a while, finding the right people for a while, getting things manufactured in China for a while. Nothing really comes easy,” he says.

Financing came relatively easily when a group of private investors asked him and several other entrepreneurs to present to them in a Dragons’ Den type of situation. They liked what they heard and are still involved. Other private investors have since come on board.

Manufacturing has been a bigger hurdle. Originally, the company decided to get the components made in China and have assembly done in Calgary so they could oversee the actual construction of each unit and troubleshoot during the assembly process. That first batch went on sale in fall 2009 but customers complained about a couple of issues.

Today the issues have been dealt with, and both manufacturing and assembly are being done in China. Most of the finished products are sent to Psyko’s warehouse in Los Angeles, reducing the number of borders they have to cross and keeping shipping time to the consumer as short as possible.

Hildebrandt’s business model has worked well, but the company is far from smug about its efforts to date.

“We started a company from scratch, developed a new technology, and got the first product introduced to the market — and have a couple more models waiting to compete — for around $1 million,” says Hildebrandt. “That includes R&D, design and development, tooling for manufacturing, some marketing and PR, and initial sales. And we won a few awards.”

But he adds that he’s heard of companies requiring many times that amount to get up and running. And he warns: “I’ve heard this many times and unfortunately it is too true: The first 90 per cent of the project takes 90 per cent of the budget, the last 10 per cent takes another 90 per cent of the budget.”

Psyko recently added three people to its staff, bringing the total number to seven in Calgary and one in China. Finding someone to handle marketing has been particularly difficult. Hildebrandt is looking for someone who knows the gaming market, understands what gamers are looking for, and believes in focusing on the customer experience rather than on the technology.

Marketing to hardcore gamers first may help Psyko overcome what is possibly its biggest marketing challenge: it’s harder for people to understand the difference good sound makes than it is for them to understand the difference new visual technology, like HDTV, makes.

“We are a lot more visually oriented. The audible side hasn’t been fully appreciated because it’s a complicated, subjective environment. What does good sound sound like?” says Brendon Cook, a longtime gamer and an engineer who has designed speaker systems in the past. He’s used Psyko’s headphones and finds that the ability to hear sounds occurring off-screen allows him to concentrate on the task at hand, improving his game.

In a way, Psyko may have to sell a new concept – the importance of being able to know the direction of sound – before it can sell headphones. The company is confident it can manage both and eagerly anticipates the challenges of growth.

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