Larry thomas is chief executive and director of Fender Musical

L arry thomas
is chief executive and
director of Fender Musical
Instruments Corp.
Pictured with a vintage
Fender Telecaster guitar.
48
b r i e f i n g s o n t a l e n t + LEA D E R S H I P
Q& A
Connected Leadership
M
ore often than not, the sound of rock is the sound of Fender. The
products of Fender Musical Instruments Corp., including the iconic
Stratocaster guitar, the Precision Bass guitar, and the Bassman and
Bandmaster amplifiers, are as ubiquitous in rock ’n’ roll as a backbeat.
The Fender sound is also integral to jazz, country and Motown music,
as well as a host of genres loosely identified as world music.
Like Harley-Davidson, Fender is a brand that customers and admirers tattoo
on their skins. From its humble beginnings as Fender’s Radio Service — named for
founder Leo Fender — in Fullerton, Calif., Fender has grown to a global company
that also owns such storied brands as Gretsch, Guild and Ovation. Today Fender
has headquarters in Scottsdale, Ariz., with manufacturing in Corona, Calif., and
Ensenada, Mexico.
But even the most hallowed of heritage brands can run into a rough patch. In
early 1965, Leo Fender sold his companies to the Columbia Broadcasting System
(CBS) for $13 million, almost $2 million more than CBS had paid for the New York
Yankees a year before. CBS acquired many other fine names in music, including
Steinway pianos and Rogers drums, but cost-cutting and quality issues marked
their ownership. Pre-CBS Fender instruments became valuable collectables.
Fender got a comeback tour in 1985 when it was purchased in an employee
buyout led by William “Bill” Schultz, who had been president of CBS’s musical
instrument division. Schultz rebuilt the company, but it struggled again after his
death in 2006, as new management emphasized making the numbers at the expense of musical innovation. A flood of Asian imports and young peoples’ shifting
allegiance further weakened the brand.
Enter Larry Thomas, a guitar player and self-professed enthusiast, who had
risen up the ranks from shipping and sales to chairman and chief executive of
Guitar Center, Inc., the largest chain of musical instrument retailers in the world.
Under Thomas’s leadership, Fender has reclaimed its position as the pre-eminent
brand in amplified music. Korn/Ferry’s Briefings on Talent & Leadership interviewed
him at Korn/Ferry International’s offices in Los Angeles.
Connected Leadership
By L awrence M. Fisher
Fender owns the most iconic musical instrument
since the Stradivarius violin, the Stratocaster. How
do you maximize the return on an asset like that without
diluting it? There once was just the Stratocaster, now there
are many variants.
THOMAS: It’s the only instrument to be recognized as an
American icon by Rolling Stone magazine. An interesting
thing about the Stratocaster is that it really hasn’t changed.
Typically, things change over time. Either technology changes
them or its form and function [evolve], and there’s a function
the product needs so the form changes. When we grew up,
in most homes there was a black telephone, and then later
Pickups: Three expressive single-coil pickups;
often modified with various combinations
of noise-cancelling pickups and switching
configurations. From sparkling to soaring to
screaming and beyond, the versatile voice of
the Stratocaster remains unequaled.
Tremolo Bridge:
Now as always,
Stratocaster guitars are
revered for the innovative
design, tonal stability and
solid reliability of their
tremolo bridges.
on it became a colored telephone and then it became a wireless telephone, and today my kids don’t even have landline
telephones. The Stratocaster hasn’t changed in 60 years. It
was created in 1954, and it has not changed since in terms of
its form or its function, the way that it looks. I bought a 1954
Stratocaster for the company last year; I paid $110,000 for it,
and you have to try hard to find ones that are still authentic.
Q: How do you keep the new ones authentic?
THOMAS: My role as the custodian of a brand is to honor
the past, as well as look at the present and design towards the
future. In today’s world our consumers’ tastes are very fragmented. There is no one-color telephone. As a manufacturer,
we don’t do long runs like Henry Ford did, where everything
was black. We do short runs, and we change things. We want
to offer the same authenticity through which the brand was
developed, but we want to reflect changing technology and
tastes to offer more choice. In the past you didn’t have much
choice, but today we make small guitar necks (the fretted part
of the guitar where the guitarist plays the notes), we make big
necks, we make fat necks. We shape them differently. We have
guitar pickups (the part of the guitar that converts the notes
from the strings to an electrical current) that are hotter, we
have pickups that are not hotter, we have humbucking (noisereducing) pickups, single-coil pickups. All of those things are
a smorgasbord of what we offer the customer, so that he or
she can use those tools to express his or her creativity.
Q: Looking at your Web site brings to mind HarleyDavidson and some of the ways they’ve capitalized on a
heritage. You have factory tours, you have involvement
with the community, you keep the designs going.
THOMAS: You have to be authentic and people see that. I
came to Fender about three years ago, and I’m the first guitar
player to run the company in all of its years. What I saw locked
up in the factory were all the things I could express my passion
with, all the things that I loved about the brand. I saw a story
that needs to be told. My phone is filled with photographs
sent to me of people with the Fender brand tattooed on their
bodies. When you have that kind of an association or dedication to a brand, it charges you with a sense of wanting to share
that story. I knew if we opened the factory up to tours, people
would come, and they come from all over the world.
Q: Increasingly, this is an online business. People go to
Musician’s Friend or other musical instrument retailers’
Web sites. How have you changed to accommodate online
instrument sales?
THOMAS: Our business is balanced between the independent
dealer channel and the Guitar Centers, Sam Ashes and other
big retailers of the world. It’s also balanced between brick and
mortar and online retailers. Guitar Center acquired Musician’s
Friend when I was CEO of Guitar Center, so I understand the
value and the need for online sales. Trying to build and sustain a brand, I find that the customer experience is even more
important to me in the physical sense. You cannot communicate how a golf club or a guitar feels online. But there’s a big
place for online business where people either don’t have access
to go out and try products, or because their jobs and busy lives
make it more convenient to go online. Online is a great place
to do research because you can get a sense of what might or
might not work. But increasingly, we want to take ownership
of the message. So we have invested a lot of resources over the
last three years in our Web site, in our own Web experience.
We want our Web site to be an educational source because it’s
hard to get staff in stores with enough knowledge of the differences in our products and our history.
Q: How you deal with changes in demography? Today’s high
school boys don’t aspire to be Eric Clapton. They aspire to
be Mark Zuckerberg. Or if they’re into music, they might
prefer electronic dance music or hip-hop, which aren’t
really electric guitar-centric.
THOMAS: I believe what you’re saying is true, but I don’t
believe it’s really changed. I think there were always guys like
Bill Gates or Paul Allen around who pursued computers and
software. But as the CEO of Guitar Center, I traveled to a lot
of Silicon Valley companies, and while you have a lot of golf
clubs floating around these offices, there are a lot of guitars
TIMELESS Classic: The Stratocaster
The Stratocaster is an archetypal instrument — among the
world's most popular guitars and an elegantly versatile creation
that is both a musical and cultural touchstone. At its heart,
though, the Stratocaster remains a fantastic tool — with
unmistakable sound and timeless design that have made it the
first choice among players worldwide, many of whom have used
it to create much of the most important music of our time.
Sleek Body Shape and Contours: Stratocaster guitars have a sleek
and balanced two-horn design, with well-placed forearm and body
contours that make for a comfortable playing experience.
Neck and
Fingerboard
Stratocaster guitars
are known for
comfortable and
easily adjusted necks
with a variety of
profiles, eminently
playable fingerboards
and an unmistakable
headstock.
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“I bought a 1954 Stratocaster
for the company last year;
I paid $110,000 for it, and
you have to try hard to find
ones that are still authentic.”
CONTINUED
F ROM PAGE 33
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1983
1985
Commercial rap is born when the
single “White Lines (Don't Do It)”
is released by Grandmaster Flash.
“We Are the World” is recorded to
raise money for African famine relief.
The song tops charts worldwide.
b r i e f i n g s o n t a l e n t + LEA D E R S H I P
Connected Leadership
too. There are a lot of closet guitar guys and girls, and they’re
of all demographics. I do think the tools we use to create
music today are quite different. When I was growing up,
you had an amplifier and then some pedals, and you could
change the sound that way. Last Christmas we had Fender
instruments online at Apple that you plug directly into your
USB and the guitar would track into GarageBand. Fender
has partnered with several different companies on iPad
apps, so you can plug your guitar into an iPad and/or your
computer and there’s virtual effect pedals so you can change
the sound of your pedal or change the sound of your amps.
Every time there’s been a shift in technology, there’s actually
been a new opportunity to create music in new ways. Music
is inherent in society, and the reason Fender is the brand that
it is is because the body of work in Westernized music, where
Fender has been an integral part, is so vast.
Q: Let’s talk about finance. You attempted an IPO in 2012,
and it didn’t fly. Why didn’t it work?
THOMAS: The timing was the main reason there was no
public offering. The company was ready to do an IPO, but
almost 50 percent of our business has been in Europe, and
Wall Street was really afraid that Europe was going to fall in
the ocean — you had the bailout, Greece, lots of noise. We
felt some pressure to do it because our private equity firm
had been in the company about 10 years and were looking to
move on. We also wanted to renegotiate our long-term debt,
which was coming due in ’14. We knew the market was rocky,
but we were gathering advice and information from several
banks that forecasted market improvement. At the time,
the strength of the Fender brand coupled with an improving
market showed positive signs. However, Facebook went
public and we all know how that played out. It wasn’t the
right timing, so in the ninth hour we pulled it.
Q: What did you do as an alternative?
THOMAS: As an alternative, later in 2012, we found TPG
Growth as a partner, and between them and one of the guys
on our board, his company, we took out our private equity.
TPG and Bill McGlashan, who is a partner there, sees the
world kind of like I do, and TPG really sees the opportunity
for Fender to be a big lifestyle branding company. They
owned Ducati at one point. They’ve owned J.Crew. They’ve
owned some other big brands, and they’ve done a great job.
When we sat down and brainstormed what can this brand be,
there were really no boundaries.
Q: Did that deal give you capital to invest?
THOMAS: Yes, we did in fact renegotiate the debt. It gave
us some dry powder. It gives us the opportunity to look at
acquisitions. It gives us a chance to look at strategic growth in
various categories where we may not be, opportunities to look
at the world with a bigger lens.
Q: How has revenue grown since you arrived?
THOMAS: Our growth has not been high on the top line.
We’re in a recession. The dealer channels are just trying
to get through this economy. So our revenues have been
pretty stable, but really low single-digit growth in the last
couple of years. I would tell you that in our business, that’s
good growth right now, because a lot of companies that we
compete with have been on a decline for the last several years.
Everybody’s still waiting for this thing to be over with, and
it’s not over. There’s still high unemployment. But I do expect
with all that we’ve done, we’ll come out of this with a big
tailwind. A lot of competitors in business tend to batten down
the hatch and just try to ride it out. I tend to be opportunistic.
Q: You have what the computer industry would call a huge
installed base, millions of Fender players around the world.
How are you going to take advantage of that?
THOMAS: Well, you know, the question is, “How many
guitars do you need?” And the answer is always, “Just one
more.” So we’re working hard to build our CRM (customer
relationship management). We want a direct response. Apple
has been the great leader and teacher. They have a direct relationship with their customer base, and those companies that
have direct relationships with their customers have the pulse
of their business. They know where to go. They understand,
because of that relationship, what their customers need.
When I got to Fender they had been in business since 1946,
but there was very little customer data. It was not something
that previous management looked at as a strategic priority. I
look around and see what other companies have done having
1987
1990
1991
Nike uses “Revolution” in the
first commercial to feature an
original Beatles recording.
The world’s first
Web site and
server go live.
Grunge goes mainstream
with the release of Nirvana’s
“Nevermind” album.
2 0 1 3 : Q 4 k o r n / f e r r y IN T ERN A T ION A L
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the data, and it’s not only Apple. It could be Ducati, which
is a very small company. It could be Ferrari, who knows a
lot about their customers. It could be Louis Vuitton. These
lifestyle and luxury brands, these companies, see opportunities quicker and execute towards them better. We’re putting
a lot of money today into consumer data and building that
relationship with the customer. We’ve sold through channels
all these years, and customers weren’t really incentivized
to come to our Web site to give us data, but we’ve made a
focused shift in the last couple of years. We’ve now got close
to 1.5 million people on Facebook, and we’ve got a lot of
people coming to our Web site for both product information and lifestyle content. We ask customers to register.
We do surveys with them on social media. We’re very much
involved with the artist community, and we ask them to look
at new products and evaluate them before they’re released.
We do a lot of signature models with artists. That part of our
business is important because, again, we’re an aspirational
brand. So if we can inspire people through the artists to
want our brand, then we can create products that satisfy the
inspiration as we build on it.
Q: When you were playing guitar and getting into this as a
kid, did you see yourself in business or did you see yourself
in a rock band?
THOMAS: No, I was like everybody else. I wanted to be a
rock ’n’ roll star. I got into the business by working in a music
store. Once I realized I wasn’t going to be a rock star, I knew
that I needed to get a job. I ended up in a store called Guitar
Center in San Francisco and because I had a good work
ethic, I quickly moved through the ranks and became store
manager. I went to night school, and took accounting and
finance classes. I’ve never finished college. I was in college
during the Vietnam War. I lost my deferment with the lottery
and then I did alternate service during the war. Back then I
wanted to be like Dave Mason from Traffic and I wanted to
play like Eric Clapton. Those were my two biggest influences.
But the interesting thing is that Dave Mason became one of
my best friends, and I’ve got pictures of Clapton at home with
my wife. He’s got his arm around her and she’s having a drink.
I’ve met all of these heroes and then some of them have gone
on to be some of my best friends.
54
Q: Have they influenced you in what you do in business?
THOMAS: No, I’m a coach. In some ways, I’m a player-coach,
but I’m the head coach. I have flattened out the organization. I’ve broken down all the silos. To the extent I can, I’ve
gotten rid of the politics. And we’re creating a transparent
culture so people can say what they want to say and they’re
not in fear. I’m one of the oldest guys in the company and I
have a lot of experience in the industry, and I have friends in
the industry, contacts. So I’ve brought a lot of relationships
to the company. I try to be a mentor. I’ve had great mentors
in my life, so I think mentoring is really important. I try to
spend a lot of one-on-one time with my VPs, with my product
managers. I don’t sit in an office all day like I did when I was
much younger, staring at a computer screen. The biggest
thing about leadership is the ability to shape people’s thinking
about the journey, about accomplishment. It’s about what you
can get done, and you recognize there’s no “there.” Because
when is “there “? As a rock star, you think if you make that
record, it’s going to happen, and yet they find out that after
the taxes and after everything else, they have to go back to
work the next day because it didn’t happen yet, right? I’d been
retired for five years. I retired from Guitar Center at the peak
of my career. I had five years to play golf and enjoy life, and the
Fender thing came along and it appealed to all of my boyish
senses. It was a chance to go play in the chocolate factory. But
when I got there, I found this team of people that were pretty
disillusioned. But I relished the opportunity to coach people,
not to tell them what to do, but to coach them on how to think
about what they need to do. What’s been wonderful about
Fender is the opportunity to let people be creative. When I
got to Fender, the offices were in Scottsdale, and nobody ever
went to the factory. Today, three years later, the creativity
comes from every corner of the factory. I’d rather hang in the
factory because you get to watch all this process, and you get
to see the cool stuff coming off the line. I always look at this
like I’m building my very own guitar. But the most rewarding
part for me is helping to empower this incredible group of
passionate Fender employees to build upon the incredible
legacy that Leo Fender began. It’s about harnessing all of the
power and potential of these wonderful products and sharing
all of the stories, creativity and joy they continue to bring to
the world. That is really important to all of us. K /F
1991
1995
1996
Compact discs surpass
cassette tapes as the preferred
medium for recorded music.
The Dow Jones Industrial
Average closes above 5,000
for the first time.
Spanish duo Los Del Rio
have a smash dance hit with
the single “Macarena.”
b r i e f i n g s o n t a l e n t + LEA D E R S H I P
Connected Leadership
Left, Fender American Vintage 1952
Telecaster; right, Fender Custom Shop
1960 Jazz Bass NOS
1998
1999
Google files for
incorporation in
California.
Napster’s peer-to-peer file-sharing service is
wildly popular until it is shut down by court order,
becoming the poster child for copyright reform.
TIMELINE
CONTINUES
ON PAGE 60
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