Founder Forum: James Demer of DemerBox

[Editor’s Note: Founder Forum, a weekly interview with a startup founder in Maine, is sponsored by the Maine Technology Institute. Read more about MSI’s sponsored-content strategy here.]

James Demer is a tinkerer. He likes to build things in his basement. He’s tried his hand at making his own bicycle frames, his own hot tub, his own speakers.

Most of his efforts remain hobby projects, and his makeshift speakers likely would have remained that way, too, if it weren’t for a co-founder who saw something bigger. The basement-built speakers are now the flagship project of their three-year-old startup, DemerBox.

It all began because Demer, a professional sound mixer in the film and TV industry, wanted a rugged set of speakers that could take abuse on the far-flung sets where he worked (he’ll often spend months on the set of Survivor, for instance). Being prone to attempting to build something before buying it, Demer decided to create his own speakers. So, back in his basement in Falmouth, he drilled some holes in a Pelican case—a brand of high-end storage boxes used extensively in the film and TV industry to protect gear—screwed in some old speakers and made the very first DemerBox. He took the speakers on his next job, which was on a set in Alaska north of the Arctic Circle, and used them as a playback device. They were a hit among colleagues.

Jayson Lobozzo, an acquaintance who also works in the film and TV industry and lives in the Portland area, eventually convinced Demer that he had something special on his hands and to think bigger about what he had created.

I’ll let Demer fill in the gaps of the origin story, but the pair now manufacture the $400, portable, rugged, wireless and Bluetooth-enabled speakers from a leased space in Portland’s Bayside neighborhood. Their goal for 2017 is to ramp up production and increase sales. In September, they received a $25,000 Business Accelerator grant from the Maine Technology Institute to help accomplish that goal.

In our conversation, Demer also discusses challenges of finding work-life balance, offers an admission that many entrepreneurs are hesitant to say out loud, and tells the story of how a tiny, $0.07 part almost sunk the business. This interview has been edited for length and clarity.

Maine Startups Insider: You got your start with a successful Kickstarter campaign. How did crowdfunding do as a launchpad for your business? Was it a good idea in retrospect?

Demer: The Kickstarter was ultimately a very successful thing for us, not only from a financial standpoint because we generated $85,000—I think it was $72,000 after Kickstarter took its cut—but because it gave us a lot of exposure, which was tremendous. It gave us a big confidence boost. We felt good. Enough people have said to us, ‘You’ve got something very cool and you’re going to be successful.’ It took enough people backing that up with their wallets to make us believe it was true.

I know the Kickstarter experience didn’t come without its challenges. You were actually forced to recall your DemerBoxes at one point. Tell me what happened and how you overcame that situation.

You know, when you’re two guys who have never owned a startup before—we’re both in the film and TV industry, so we both own our own businesses, but we’re just guys operating gear on film shoots—there’s so much to learn. We realized there are a tremendous number of ways to fail.

One thing that we know about our product—and we’ve always believed this—is it’s a no-apologies, high-end product. The parts cost us a lot of money, pretty much everything is made in the United States, everything is hand assembled and tested in our shop by us, and we care about every DemerBox we’re selling. It means a lot to us when the customer is happy. And we strive hard to take care of anyone who isn’t happy. Up to this point, of the roughly 1,200 DemerBoxes we’ve sold, I think we‘re now up to four returned for a refund. When we get a box back for a repair, almost inevitably it comes with a note that begins with the sentence: ‘I love my DemerBox.’ And then they tell us what the problem is and ask us to fix it. And we do.

So we sent out our Kickstarter DemerBoxes and we started getting a few emails from people telling us the battery life wasn’t as long as we had claimed. So Jayson and I scratched our heads and did some research with our electrical engineer and realized that we had misspecified a diode, one tiny little part on our circuit board that we got wrong. What was happening was it was causing the battery to drain even when the DemerBox was off. It’s a 7 cent part and we had already shipped virtually every Kickstarter box—I think it was over 300 boxes we had shipped. So we sent a letter to every single person who bought a DemerBox on our Kickstarter and said, ‘Hey, there’s a problem. We’re really sorry. We want to make this good, so we’ll send you a prepaid label, ship the box back to us, we’re going to replace that diode and we’ll ship the box back to you as quickly as we possibly can on our dime.’ Most people were really cool about it. Some people just shipped the boxes back on their own dime and said thanks for being cool and letting us know about this. Some people grumbled a little bit, but everyone in the end seemed to be pretty happy and we fixed pretty much every box. It was a hardship. It cost us a lot of money and took a lot of time, and potentially affected our reputation. But we knew we had to take care of that problem. If you don’t have integrity what do you have at the end of the day.

So that was our first big hurdle we had to overcome. We learned you just have to suck it up and say you’re sorry and take your licks.

Tell me a bit about your origin story. How did you and Jayson take your basement hobby project and turn it into a full-fledged business?

That was almost all Jayson. I built the first one in my basement and I brought it to Alaska on a sound gig and everyone on set loved it. So I made one here, one there. I made one for my daughter. I gave one to my wife. Friends on set would ask for one and it would take me four days to make it. I probably lost money on every one I made, but I was having fun. They were gaining a reputation as being this cool thing.

So one winter, I’m guessing this was four years ago now, my now-business partner Jayson came to my house to borrow some x-country skis and as I was handing the skis out the front door he said, ‘Hey, what’s going on with DemerBox?’ And I said, ‘I don’t know.’

He said, ‘Well, what do you need to make it happen?’ And I said, ‘I don’t know, ten thousand dollars?’ I was just sort of joking around.

So he left with the skis and came back an hour later and said, ‘I don’t need these skis, but I have my checkbook in the car. Let’s do this.’ It was one of those moments where I think we both realized this is something that could work for the two of us. It just felt right, so we trusted our instinct and started picking away at how to reduce the amount of time to make a box from three days to three hours.

When I was making DemerBoxes, they weren’t waterproof, so Jayson figured out how to make it waterproof. That was all his idea. We had an electrical engineer design a circuit board for us. Then we rented a space in Portland and we started thermo-forming our own covers for the circuit boards with a $100 thing I bought on eBay, a vacuum cleaner basically. So things were pretty rudimentary. I went to CES, invited by our Pelican rep, and realized that the way we were doing things was so rinky dink and we were never really going to make money until we upped our game. So I came back and told Jayson we have to get real about this. That’s when we started looking for money from MTI, developing a business into something that could be sustainable for at least the two of us and our families, and make a product we could make easily, reliably and with a decent profit margin. So we just started picking away at that.

What other resources did you seek out? Did you seek out mentors? Who did you speak with?

I talked to the head of marketing at Pelican. We sat down at CES and basically he said, ‘You know, you need to grow this idea really fast and sell a lot of them within the next 18 months or someone’s going to steal your idea.’ So that sort of put a little bit of fear and fire in me. And I came back and talked to Jayson about that. That’s something we’ve heard from a couple people who are in the business of developing new ideas. It’s the Shark Tank crowd. And I used to believe it, but I don’t anymore. I don’t believe that that’s the only way to create a successful business.

I think what I realized a year and a half ago is that if someone wants to come along and build what we’re building and do it better, then more power to them. The work we’ve put into our products and building our core customer base, I just don’t think it would be that easy for anyone else to do what we’ve done. You can’t just go to China and manufacture something that looks like a DemerBox, but costs a lot less, and expect to sell the daylights out of them. Maybe you could, but it won’t be the same product. And I don’t think they’re going to take our customers, frankly. So we believe the growth we’ve had has been just right for us, because we both have full-time jobs and it’s allowed us time to get our product right, learn about what customers want from our product, and to make it the best that it can be. And now in 2017, we are ready to take it to the next level.

Tell me about that.

So the first grant we got from MTI was a Techstart grant, and that was to learn about our market. We learned a lot about who our customers potentially are, what they want, what they like, what they don’t like. You know, what colors they’re interested in. Is color a factor? All that stuff. So we took that information and we applied for a Seed Grant with MTI to make injection molds. So instead of thermal forming parts with a vacuum cleaner and a homemade heater, we actually hired an industrial designer to help us improve the inside ergonomics and work-ability of the DemerBox. And then we spent about $40,000 making injection molds for what we call the inside plate. It’s what holds the battery and the circuit board and the speakers in place. It allows us to have absolute consistency in our product. We’re having them all made in Minnesota by a company called Proto Labs. It’s expensive, but the quality is perfect. And assembly times is dropped from a few hours to where we can now put a box together in 30 minutes.

We also invested in a CNC router so we can cut our own lids. Another thing that has taken a lot of engineering is the switch. The on-off switch is built into our label on the front of the box. It’s a membrane switch that’s built into that sticker. And part of the problem with a Pelican case is it’s made from polypropylene. Polypropylene is an excellent plastic because nothing sticks to it. That’s why Pelican uses it. We were having our old switches manufactured in New Hampshire. But we were having a lot of failures that were costing a lot of money. And it was probably our single least reliable part, which was interesting because it was a U.S.-sourced part. We weren’t happy with them, so we found a Chinese manufacturer who is now making a better quality part for us, and the cost has been reduced by 25 percent. But even with that we’ve had some problems to overcome. We realized the adhesive we were using was heat sensitive, so if the temperature of the box and the switch isn’t just right when you apply them, then there’s a big potential for failure. This is another issue we just recently discovered and we’ve had to recall maybe 40 boxes so we could reapply the switch. It’s the little things. So now we’ve built a special oven where we get the temperature just right on both the switch and the lid so that we have proper adhesion. It’s such a simple product. You’d think, how difficult could it be to make a boom box? But it’s hard, there’s so many things that can go wrong.

I think a lot of these unforeseen challenges you’ve faced—the wrong diode, the adhesive failure—may seem small, but are likely the kind of small things that could end up costing a lot of money and send a startup over the edge into total failure.

It’s so true. I’ll say that Jayson and I actually for the first time paid ourselves at the very end of 2016. It wasn’t much. We wrote each other a check for a very small amount of money, but it’s the first time since we started our business that we’ve actually gotten paid.

We stopped putting our own money into this business less than a year ago. So, you know, it’s been a lot of work for no money. And that’s a tough thing because people say, ‘Oh you must be making a killing on these $400 boomboxes.’ But the truth is there’s a lot of R&D. There are a lot of hidden costs that any new business owner might not consider, like maybe 10 percent of the circuit boards you get might not work properly. Or your battery order gets delayed by the Chinese New Year and suddenly you can’t ship those 20 boxes you’ve committed to shipping because you don’t have batteries to put in them. So we’re learning to overcome these hurdles. We are learning to anticipate Chinese New Year and other Chinese holidays. We’re learning to negotiate better with companies like Pelican.

We’re also utilizing our own time better as opposed to spending all of our time in here and less time with our families. We’ve learned that we just can’t do that. We have to have lives in order to stay passionate about DemerBox. And it’s an ebb and flow and we’ve learned to recognize with each other when to say, ‘Hey, Jayson, why don’t you go take the afternoon off, go for a bike ride.’ And he’ll say the same thing to me. And we value that with each other. We spend more time with each other than we do with our own families at this point. And we have a 100 percent trust in each other. We’ve both made colossal mistakes with this business, whether it’s ordering a bunch of the wrong color Pelican cases that we’re never going to sell or trying an idea that we thought was going to be great and it just wasn’t great. But we’ve learned to just let it go and chalk it up to being human and not being perfect and accepting each other for who we are and moving forward. That’s kept us working well together as long as we have.

You mentioned before that you’re ready to take it to the next level. What does that mean?

So, we got another grant from the Maine Technology Institute that we’re using for marketing. We basically interviewed eight advertising agencies and we picked Blaze, which is in Portland, and are working with them to increase our exposure. The proposal we wrote to them was, we’re not looking for brand identity or brand awareness. We’re looking to sell products. And so they’re helping us with things like fixing things on our website, they’re helping us with website retention and getting more sales conversions.

We also decided collectively that in 2017 we’re going after one market segment hard and heavy. It’s called overland. It’s basically, for lack of a better word, it’s glorified car camping. It’s people who take their Land Rover Defender and put a tent on the roof and a winch on it and pack it with their Yeti cooler and then go on some journey. It’s a growing movement, and it’s perfect for DemerBox because it’s the right age demographic. They’re generally affluent, educated people. They like to buy gear. They like to post on Instagram and Facebook. When an overlander with a lot of Instagram followers posts a picture of a DemerBox, we always see a bump on our website. Always. So Blaze is helping us create an overland campaign to hit that market.

DemerBox has been a passion project for you. You worked several years without getting paid, spent a lot of time away from your family. Is it sustainable or do you need to get it to another level to to make this work long term?

Great question. It’s definitely not sustainable. You know, the best thing that MTI has done for us is they hooked us up with Kerem Durdag, who has been a mentor. He has been so good to us. He is the big-picture guy that Jayson and I aren’t. He has startup experience. He’s smart. He gets our products. He sees a lot of potential in our growth and he’s helping us create a plan to sell some equity in the third quarter of 2017 so that we can really quit our day jobs and do this full time.

Talk to me about selling equity. Giving up some of your company to raise capital is a decision most founders likely consider at some point in their company’s lifecycle. Tell me about your thought process and what you think are the pros and cons of taking that route.

You know, I think—and Jayson would agree with me on this—that we’re looking for two things. We’re looking for money so that we can grow our business, we can expand our product line, and we can have more purchasing power, sell more boxes. But we’re also looking for guidance. Jayson and I, we’re not the guys with the big-picture vision on how to make this happen. So I think we’re looking for money, but we’re looking for people who have experience and knowledge in how to do it right. So, someone like Kerem Durdag, who knows what he’s doing. Or possibly someone who worked for Bose in development or in a high-level management position who can say, ‘These are the choices that you need to make at this point. This is how you’re going to leverage the best deal you can on circuit board manufacturing.’ Things like that.

Jayson and I are less interested in risking our homes and our families by getting big bank loans. That’s not something we’re really interested in. We’re more interested in finding a group of people who we’re willing to give a decent part of our company to so that we can all grow this thing and make a bunch of money, and hire a bunch of people in Maine. Because that’s really what we want to do. We want to hire people in Maine. We want to stay here and we want to have a great quality of life. And if that means giving up a portion of our business, that’s fine.

Last time I spoke with you guys, Jayson said you sunk about $30,000 of your own money into the business. Has that grown exponentially or has revenue allowed you to stop pouring in your own money?

I’d say we probably each put closer to $40,000 of our own money into this business at this point. We were pretty thrifty. We don’t spend money on things that we don’t have to spend money on. For instance, if we go out to breakfast to talk about DemerBox, Demerbox almost never picks up the tab. Jayson and I split it with our own money. We have a fairly inexpensive space. We don’t turn the heat up unless we have to. We re-purpose a lot of things. We make things instead of buying things if we can. But we’re not afraid to spend money on things that matter, like really, really good equipment. Like a really good CNC router. Or the best injection molded parts that we can buy. Because we want our product to be the best that it can be.

Given everything you’ve gone through, what are a few pieces of advice or lessons you’ve learned that you think would have been helpful knowing going into it.

I mean, I guess the first thing I’d say is if I knew how hard it was going to be, I would never have done this.

Really?

For sure. And I loved doing it. I’m so happy that I have this company. But, man, it’s hard. It is hard work. And scary.

Also, I would say be kind to everybody. You know when you have a customer who has a complaint or someone is saying something not nice about you or your product, you know smile and be gracious always. When someone tells you a ridiculous idea you’ve heard for the 400th time, like, I don’t know, make a box in purple or put a radio in it, smile and be kind to those people as well.

Listen to people who know a lot more than you. I’ve gotten to know some great people like Steve Fuller who’s the former chief marketing officer from L.L. Bean. Don’t think that just because someone you know is a high-powered business person that they’re not going to give you the time of day or to help you. People like to help startups. That’s what we’ve learned. That’s what’s great about doing business in Maine. Maine people want to see other Maine people succeed. And maybe it’s true wherever you are. I don’t know. But it really seems to be true in Maine. I love it.