Business Spotlight: National Audio Company

by Clarissa French

SBJ Editor

cfrench@sbj.net

Steve Stepp's National Audio Company is a high-tech operation, but you won't find a computer on Stepp's desk, and you won't get a voicemail system when you call his office. While technology is great for some things, Stepp said, customer service is best left to human beings.

"We do not believe in voice mail. The phone is not answered by a machine; it's answered by a person. And you may get put on hold, but you're going to talk to a person. Our customers tell us that one of the reasons they like to deal with us," said Stepp, president of the 35-year-old company.

NAC is an assembler of audiocassettes and seller of recording media and equipment, and its nationwide clientele includes schools, churches, government agencies, recording studios and radio and television broadcasters.

The family-owned company is small, employing 31 including Stepp, but there's more to it than meets the eye.

As far as Stepp can determine, NAC is the largest manufacturer of blank audiocassettes in North America, producing 100,000 tapes a day or approximately 25 million a year.

The company also sells blank videotapes, CDs, DVDs, data cartridges, recording and duplicating equipment, cases, packaging and labels targeted to the professional user.

Starting out

NAC was started in 1969 by Steve Stepp and his father, Warren W. Stepp, who died in 1994. From 1969 until the late '70s, the company mainly assembled four-track broadcast cartridges, used by radio and television stations, and sold reel-to-reel audiotape.

"Then, about the late '70s, audiocassettes really came on the scene in earnest," Stepp said. Automated equipment came on the market that enabled small companies like NAC to manufacture large quantities of audiocassettes at low cost.

The company installed its first audiocassette loader in 1980 and by the end of the decade it was running 16 loaders.

"That business has really expanded and continues to expand. Even as CDs take over the music industry, the use of spoken-word audiocassettes is increasing, and more rapidly than sales are decreasing in the music market," Stepp said.

The reason, he said, is "the audiocassette is the single most flexible, dependable recording medium in the world. You can use an audiocassette in a battery-powered recorder or player in the middle of the Sahara Desert and in the middle of the Artic Ice fields. You can bump it, drop it, throw it; you can't scratch it; it doesn't matter if it gets above 90 degrees or below 30 degrees; it isn't as fragile as a CD; and the equipment that you use audiocassettes in is much more forgiving of rough treatment and of uncomfortable conditions than most recording mediums."

History lessons

In 1970, shortly after the company was started, Stepp became the first person to undertake a master's thesis under the new graduate program in history at Southwest Missouri State University. His topic was the Springfield Wagon Company.

What he learned about that highly successful company, which dominated its own industry, he has since applied to NAC.

"The Springfield Wagon Company was known for building the best product on the market and selling it for the best price they could. It was never the lowest priced vehicle on the market, but it was always the best," Stepp said.

Investment in technology is another area where historical research paid off.

"What I have learned in studying the Springfield Wagon Company was that the best time to make investments, the best time to retool yourself on good products is when the market is down and people are trying to come out with innovations and new equipment to sell," Stepp said.

Stepp said 1991 and '92 were bad years for the recording supply industry, and '93 wasn't looking any better. "Our industry was hurting, people were trying to run the capital equipment way past its prime, spending a lot of money maintaining it and driving up the cost of manufacturing by doing that," Stepp said. "We had the opportunity to invest in new product and make an investment in new equipment, and we did that counter to what a lot of people do."

In 1993, the standard technology was the King brand loader. Another company, Concept Design, came up with a new, faster loader and asked NAC to Beta test it.

"Once we had that machine debugged, we realized what we had, because one of these machines could do what about four of the old King loaders could do," Stepp said.

Also, while one operator could run two King loaders, a single operator could run four or five of the Concept Design loaders. NAC bought the new technology and sold its old machines, mostly to its competitors.

"That technology advance allows us to compete very satisfactorily with Sony and TDK and Maxell and the popular Japanese brands that you may see. We can actually manufacture a better cassette in a shorter time for less money than they can, and we compete very successfully with them for contracts with state governments and other nonretail applications," Stepp said.

His company's reputation for quality is its best advertising.

"We still get more new customers by referrals from existing customers than any other single means," Stepp said. NAC also sends out about 250,000 catalogs a year to targeted, high-probability buyers.

These days, the industry's greatest challenge is the economy. "There are three major manufacturers of (tape used to load audiocassettes) left in the world; all three of them are either in or near bankruptcy at this time. The major challenge to our industry is the poor condition of the United States economy, and as a result the poor condition of the world economy," Stepp said.

For NAC, "our greatest challenge, I think, is to survive this period and to foresee changes coming in our industry in technology and be on top of those changes. That's been our strong point in the past, we've been ahead of the curve; we've got to be ahead of the curve in the future."