As the four board members of the C.F. Martin Guitar Co. stood glumly in the elevator in a building at Lehigh University, they sensed that more than just the elevator was going down. C.F. Martin III, the chairman, along with his grandson and two top executives, had just voted to fire their CEO—C.F.’s son, Frank—after years of watching him nearly drink the company away. With the floor sinking below their feet, the 89-year-old patriarch turned to his 27-year-old grandson, Chris, and said, “Now it’s up to us to carry on.” In a radical move that may have saved the venerable guitar manufacturer, C.F. Martin III changed his will and gave a controlling interest to Chris.
The date was May 2, 1982, perhaps the lowest point in the 165-year-history of the Martin family business. Few people knew how close Martin Guitar had come to ruin. After riding the folk-rock music boom of the 1960s to unprecedented profits, the company endured heavy losses in the 1970s. By 1982, the company was some $9 million in debt—a victim of reckless diversification, sloppy management, and the disco music craze.
Frank Martin retired to Florida where he later died at the age of 60. Chris became chairman and CEO, the sixth Martin to lead the family company, after his grandfather’s death in 1986. He was only 31 and still in need of seasoning. At this point, Martin Guitar’s fortunes had sunk so low that after his grandfather’s estate was appraised, the appraisers recommended selling the company to salvage what was left of the value of the brand.
Today Martin Guitar is once again playing the right chords. C.F. “Chris” Martin IV, now 43, has matured into a capable CEO and corporate spokesperson, and deserves much of the credit for getting the company back in tune. Like most turnarounds, Martin’s was based on a combination of luck, skill, and perseverance. It was almost pure luck, for instance, that acoustic (non-electric, unamplified) guitars came back into style around 1990, and sales of Martin’s upscale guitars have undoubtedly benefited from the booming U.S. economy. Although guitar sales in the U.S. are declining, Martin’s continue to climb. The company expects sales of $52 million this year, up from a record $47 million in 1997.
Chris Martin is a living symbol of the resilience of a family tradition and a distinguished brand. Aided by a strong nonfamily president, Robert Hoch, 49, he restored the motivation of a workforce that was for years demoralized under his father’s erratic rule. Rather than being confined by tradition, as his grandfather was, or rebelling against it, as his father did, Chris has struck a middle path, consciously building on the best parts of his legacy and forgoing the rest.
Quality, not quantity
You don’t have to be an ex-folk singer or a Woodstock alumnus to be acquainted with Martin guitars. Built largely by hand in Nazareth, Pennsylvania, the instruments have been called “the Stradivarius of the guitar world.” A new handmade Martin retails for $900 to $9,000, while vintage Martins with fancy pearl inlays have been auctioned at Sotheby’s for six figures. Thousands of Eric Clapton-wannabes dream of the day they’ll deserve to own a Martin guitar.
Continuity in leadership may also have a lot to do with the company’s longevity. C.F Martin III came into the business when Teddy Roosevelt was in the White House and left when the Ronald Reagan was President. Just as important, there were long overlapping periods when traditions were passed along. C.F. III worked alongside his father for almost 40 years and lived long enough to alter his will and deliver the company intact to his grandson.
Frank Herbert Martin came to work for C.F. III in 1960, as the business was about to take off. Thanks to the Kingston Trio and the folk music revival they inspired, music retailers were ordering guitars faster than Martin’s woodworkers, who still fashioned the instruments almost entirely by hand, could build them. “The folk and rock boom had just collided, and when somebody played guitar, they had to have a Martin,” says Chris.
C.F. III and Frank were cut from very different timber. C.F.’s motto was ‘”non multa sed multum,” or “quality, not quantity.” He was a cost- conscious curmudgeon who patrolled the shop floor looking for pencil stubs and sandpaper that still had a bit of useful lead or grit in them. A 1979 Penthouse magazine profile described him as “an American capitalist of the old school—paternalistic, cultured, dedicated to his product, and ever mindful of the bottom line.”
By contrast, Frank was a rebel with a Vandyke beard and a penchant for self-destruction. Married four times, he fathered Chris Martin while still in college. His passion was European sports cars, and he might have opened a dealership had an early shipment of cars not gone down with the Andrea Doria in 1956. “He liked sports, women, and a good time,” says Carl R. Beidleman, a retired Lehigh University professor of finance who joined Martin’s board in the mid-1970s.
Frank’s instincts were not always misguided. In 1963, he pushed for the construction of a large, modern, one-story manufacturing plant north of Nazareth at a time when the conservative C.F. III would have just as soon stayed in the old brick factory in town. “My father had the foresight to build this building,” says Chris, whose parents separated when he was three. “Otherwise there was no way to fill the orders.”
Even before he became president in 1971, Frank initiated an ill-fated campaign to buy other small music companies. “Dad and his cohorts decided they would use the Martin name to build a conglomerate,” says Chris. “At the time, CBS was acquiring Fender and Steinway, and Morland had bought Gibson [a close rival to Martin]. In rapid succession, they bought a guitar string company, a drum company, and [the AB Herman Carlson] Levin guitar company in Sweden.” Among Frank’s odder acquisitions was the Allentown Jets, a semi-pro basketball team. He also started a company that made software for veterinarians.
Unfortunately, this diversification overextended the company just as the U.S. economy was entering its worst period since the Great Depression. In fact, most of Martin’s troubles in the 1970s were “sheer economics,” notes Eric Shoaf, a columnist for Vintage Guitar magazine and an expert on older Martin guitars. “There was high inflation, high unemployment. Music is something that people do with discretionary income, and there wasn’t much of that. And, because of synthesized music and disco, there was a total loss of interest in the acoustic guitar.”
Frank’s response to adversity was to bunker himself in. “He pretty much abdicated his position as leader of the company and decided to sit in the bar,” says his son. He hired outside managers to put pressure on the employees, who, accustomed to a culture of “one big happy family,” bridled. In 1977, they staged a walkout that nearly destroyed the company and the town of Nazareth, where Martin is the biggest employer. At one point, Frank was mugged outside his home. The tires on Chris’s car were slashed.
The strike ended inconclusively after eight months but the company’s fortunes continued to wobble. By 1982, management was in disarray. After Frank was fired, his hand-picked vice president, a systems expert named C. Hugh “Tigger” Bloom, was made president over the objections of Chris. At 27, Chris was too young to take over himself. He opposed to the choice of Bloom, who he felt was one of the good buddies his father tended to surround himself with in management. He feared Bloom would continue the disastrous diversification policy and was incapable of making the changes that were needed.
Bloom couldn’t rally the troops, and the red ink continued to flow. “Our only strategy was not to lose as much each year as we had the previous year,” Chris says. Martin’s anxious bankers prepared to call in their loans. In early 1983, during the country’s inflation-killing recession, Girard Bank informed the vice president for finance, Robert Hoch, that their relationship was in its “waning days.” The company spent the next two years working out its debts, which had swollen to three times equity. Venture capitalists were circling overhead, hoping to pick up the company for a song. Chris, who became chairman and CEO a month after his grandfather’s death, remembers leaving a meeting with the accountants and experiencing a deep sense of frustration at his own and the management team’s chronic defeatism.
“We got back in the car and it hit us like a baseball bat. A business should make money, not just try to minimize its losses. And that was the beginning of the re-energizing of the company.”
During the workout period, Hoch visited more than 30 banks and talked to almost 150 loan officers before finding a sympathetic ear in Sue Perrotty, a young vice president from tiny American Bank in Reading, Pennsylvania. A specialist in troubled companies, she was impressed by Hoch’s plans for recovery. She decided that the Martin family and the town of Nazareth would not allow the company to die. “She knew that if the company went down, the whole town would go with it,” says Lehigh’s Carl Beidleman.
Perrotty, now executive vice president at First Union Bank, recalls, “I was betting that they had the people, the product, and the reputation to rebuild, if they were willing to do what had to be done.” Financing was arranged at a hefty six points over prime and the loans were asset-based; that is, the bank would advance only a certain percentage of the value of the inventory and receivables. The bank dictated other changes, such as sales of unprofitable businesses, layoffs, and a strict performance-based compensation policy.
Tigger Bloom left the company in 1992, and Chris Martin took over the presidency to go with his other titles. But he was relying more and more on Hoch, a former Peat Marwick accountant. The older man had known Chris for many years. He was trusted by the Martins, virtually family. His forebears settled in Nazareth in the 18th century and had operated a local inn. While Chris was an effective marketer and image-maker, he recognized Hoch’s strengths in finance and organization, and in January 1994 turned over the presidency to him.
“It was Hoch who held their feet to the fire,” Perrotty says. “He laid out the financial plan. He reduced the workforce. He made sure all of those things happened.” Chris, however, gets the credit for picking capable executives like Hoch and Richard Boak, director of artistic relations, to lead the company. Like his grandfather, he was a good judge of people—and he knew his own strengths and limitations.
Back to the future
Because he was born “C.F. Martin IV,” Chris always knew he’d eventually inherit the family business. But he grew up rather remote from that whole world. After his parents were divorced, he lived in New Jersey with his mother. He attended three different high schools and worked summers at the company. He went to UCLA for a year, and was graduated from Boston University with a degree in business administration. After joining the company full-time in 1978, he lived for a time with his grandfather who unquestionably became his mentor and model.
Because his father and grandfather were still active, and because he was so young, Chris was not a major presence at first. Even after the board fired his father in 1982, Chris wasn’t considered a prime candidate for replacing him. As he recalls: “If the board had been asked, ‘All in favor of making the grandson president say aye,’ nobody would have raised his hand.” Says Eric Shoaf of Vintage Guitar magazine, “Because of his age and because he had kind of a baby face, Chris had a hard time getting people to take him seriously.”
Later, when he became a vice president of marketing and then chairman and CEO, he still felt that “everybody was checking me out to see if I ‘had it.'” To help him understand what leadership was all about, he went on an Outward Bound expedition to Leadville, Colorado, where he and a group of other executives had to learn to work together climbing a mountain. It was an experience that he says drove home the truism that a team is like a chain, only as strong as its weakest link. Leaders could not operate alone but needed a capable team to be effective.
Together with Hoch and others, the new CEO decided to refocus the company on its core competency: high-end guitars. “We were asking ourselves, ‘What should we do, what should we do?,'” Chris says. “And then it came to me. I said, ‘This may sound naive, but all I want to do is make guitars. Nobody ever said Martin makes great drums. But everybody knows that we are the coolest thing in the world when it comes to making guitars. And I don’t feel comfortable doing anything else.'”
Chris’s grandfather had made ukuleles and mandolins when those instruments were fashionable, and his father had recklessly diversified into drums, electric guitars, and software. Chris decided to concentrate on producing guitars inspired by, if not direct copies of, the deep-bodied “Dreadnought” Martins of the 1930s and 1940s, which were so prized by musicians and which sometimes fetched astronomical resale prices. Although his grandfather had been slightly embarrassed by his guitars’ flashy mother-of-pearl inlays, Chris and his team created The Custom Shop, where customers can have their Martin guitar tattooed with as much abalone as they can afford. While his grandfather had scorned automation—and so couldn’t produce a moderately priced guitar—Chris installed a half-dozen robotic milling machines at $100,000 each. They control the most laborious production steps, such as shaping the graceful necks of the guitars. This enabled the company to make a $900 guitar which, by Martin standards, was affordable. (Chris, by the way, never learned to play a guitar; he took lessons as a boy but didn’t stick with it.)
With a $900 product at one end of its line and the Custom Shop’s $20,000 products at the other end, Martin was now capable of hitting every price-point in its target market. C.F. III had never fully exploited the power of the Martin brand, but his grandson recognizes it as the company’s most valuable asset. He attends trade shows and drops in on “pickin’ parties” at Martin dealerships, to autograph guitars and tell the company story. “Chris reminds people that there’s still a blood Martin in the company, and that it’s an American-made line of guitars—that’s important to people,” says Eric Shoaf. Indeed, one of the models for Martin’s turnaround was Harley-Davidson, a company that lost market share to foreign competitors in the 1980s, but emphasized its distinctively American brand in its comeback.
Chris and his director of artistic relations, Richard Boak, found a way to associate Martin with famous guitarists without breaking his grandfather’s policy of never paying for endorsements. Martin still considers it crass to offer cash for endorsements. Instead, the company requests permission from celebrities to reissue signed, limited editions of their favorite Martin models, and offers to donate profits from the sales to a charity chosen by the musicians. Martin has such relationships with Johnny Cash, Arlo Guthrie, Joan Baez, and others.
Chris and his team also introduced fundamental—and at first threatening—changes inside the company. They attacked his grandfather’s hierarchical structure and avoided his father’s remoteness in favor of participatory management. Managers now share financial information with employees. Teams of employees develop new products (such as a new guitar designed for women); each year, a small group of employees goes on an Outward Bound expedition at company expense. A company that was once virtually all male began hiring women in large numbers.
Lest he appear to be just “talking the talk,” Chris reinforced his reforms with the firm’s first profit-sharing program. After earmarking a certain portion of annual profits for employees, Martin distributes 25 percent of it in each of the first three quarters, while simultaneously holding 30 percent of each payment in escrow until the end of the year. This policy enables management to distribute profits at Christmas even if the fourth quarter is a bust.
“We knew that if we succeeded in turning this company around, and didn’t share the fruits of that success, the employees would be resentful,” Chris says, adding that the quarterly payments “get people pumped.” By the late 1980s, the company had returned to profitability and was well-positioned when MTV, featuring Eric Clapton, revived America’s interest in the acoustic guitar with a new show called “MTV Unplugged.”
Resilience and renewal
The Martin Guitar Co. is more successful than ever, with annual average sales growth of 10 percent since the late 1980s. In 1997, according to The Music Trades magazine, the company posted record sales of $47 million. It is the largest maker of acoustic guitars and the 29th largest instrument manufacturer in the United States. Martin expects to sell about 40,000 guitars this year, an all-time high and a vast increase over the 3,153 sold in 1982. In the spring, the company broke ground for a $6 million facility where new guitars will “settle” for two weeks before shipment.
How much of Martin’s turnaround has been due to smart management, and how much to circumstance? Looking back over the decades, it’s obvious that the company’s fortunes have closely tracked the performance of the U.S. economy. Like a lot of other firms, it boomed in the 1920s and 1960s, and slumped in the 1930s and 1970s. “In fairness to everyone,” says Carl Beidleman, referring to the recovery in the late 1980s, “I think that what really helped was that the market turned around.”
At least part of the company’s current success can be attributed to the bull market of the 1990s. Judging by the information gleaned from warranty cards, a lot of wealthy professionals in their 40s and 50s are purchasing the guitar they had wanted as teenagers but couldn’t afford until now.
Still, Martin survived a number of economic downturns while other, less resilient family businesses did not. Even during recessions, the quality of the product did not falter (though, like fine wines, some vintages of Martins are considered superior to others). Each successive generation of Martins has attempted, with varying degrees of success, to gain stability through diversification. With his strategy of concentrating on flat-top guitars and covering every price point in his target market, Chris now seems to be betting that the family enterprise will become unbeatable in its chosen product niche and better able to withstand cycles in the music industry.
Clearly, Chris has been a catalyst for the family firm’s new direction. At a time when company executives were still thinking of making violins and other products, Chris was saying, “Let’s just make guitars and guitar strings.” Chris summed up his role this way: “I’m not sure how an atomic bomb works. But I think it starts with an implosion, then an explosion. In a similar way, I forced us to look inward [and focus on guitar-making], and, in the process, I’ve unleashed a lot of energy.”
The only thing that seems lacking in Martin Guitar’s current success is an heir who will one day carry on as the seventh consecutive Martin to lead the company since 1833. Chris married only eight years ago. His wife, the former Diane S. Repyneck, is a local district judge whom he met when he was arraigned for a traffic violation. They do not yet have children. Even if C.F. Martin V were born today, he or she would be only 17 when Chris retires at 59, as he hopes to do. Nevertheless, a family dynasty that has lasted through 165 years of booms and busts, producing guitars beloved by generations, has always found a way to renew itself and is likely to be born again.
Kerry Pechter is a business journalist in Allentown, PA. He is a former Wall Street Journal reporter and the author of two books on career management.
C.F. Martin Guitar Co.
Business: Manufacturer of acoustic guitars and guitar strings.
Location: Nazareth, PA.
Founded: 1833, by Christian Frederick Martin Sr.
Revenues: $47 million.
Growth: Approx. 10 percent annually since 1986.
Employees: 550 in Nazareth, plus contract workers in Mexico.
Ownership: Chris Martin IV and his aunt, Pamela Tourangeau, together own more than 51 percent. Other shareholders include an employee stock ownership plan and Princeton University.
Family managers: Chris Martin IV, chairman and CEO.
Claim to fame: A grandson has led the renewal of one of America’s oldest musical instrument makers by refocusing on the core product and building the brand.