decision-making analysis: chord buddy

Running Head: DECISION-MAKING ANALYSIS: CHORD BUDDY 1

Decision-Making Analysis: Chord Buddy

MGT 7400

Teresa Rothaar

DECISION-MAKING ANALYSIS: CHORD BUDDY

Decision-Making Analysis: Chord Buddy

Company Background

Chord Buddy is owned and headquartered in Dothan, Alabama. The company’s founder

and CEO is Travis Perry. The company’s primary product is the Chord Buddy, a device that

attaches to the neck of a guitar and uses color-coded buttons to allow people—even those with

no guitar or music experience—to teach themselves how to play guitar chords within about two

months (Brubaker, 2015).

Perry founded Chord Buddy after his real estate brokerage shuttered in the wake of the

real estate bubble bursting in 2007. Unemployed and desperate for some form of income, Perry

began giving guitar lessons at a local music store, where he found that 70% of students became

frustrated and gave up within the first two months. This prompted him to design Chord Buddy.

Entrepreneur Magazine said that the device is “to the guitar as training wheels are to a bike” and

noted a 90% success rate (Brubaker, 2015).

Perry took his show on the road, traveling the country and selling Chord Buddy units out

of the trunk of his car. In his first 18 months in business, he sold 2,000 units, or about $132,000

worth. In February 2012, Perry appeared on the ABC television series Shark Tank, where he

received an investment offer from Robert Herjavec, who agreed to give him $175,000 for 20% of

the business. Prior to the episode airing, Perry had 5,000 Chord Buddy units ready to go; he

hoped he would sell 3,000 post-Shark Tank to pay off his company’s debt. In the month

following Shark Tank, he sold 12,000 units, and at one point, ran out of parts to manufacture

enough of them to meet demand (Ussery, 2015).

Currently, Chord Buddy is sold online, as well as at Guitar Center and in numerous

independent brick-and-mortar music stores around the country (Ussery, 2015). Perry prides

2


himself on the fact that Chord Buddy is made in the USA, in Dothan, Alabama; he sells Chord

Buddy tee-shirts with the slogan “Your hands play it – American hands make it” (McGah &

Sowell, 2015).

Problem & Decision

On May 15, 2015, Chord Buddy was featured on Beyond the Tank, a series that follows

up on businesses that previously appeared on Shark Tank and examines how they have fared

since. As reported on Beyond the Tank, sales “went boom” after the Shark Tank appearance in

2012, and the company ended up grossing $1.9 million that year. However, sales declined to $1.7

million in 2013, and dropped even more drastically, to $1 million, in 2014, putting the company

in the red—and in danger of eventually failing. Robert Herjavec traveled to Dothan, Alabama, to

meet with Travis Perry, discuss why sales had dropped so rapidly, and determine how to fix the

problem (McGah & Sowell, 2015).

Herjavec sat down to talk with Perry and asked Perry why he thought sales had dropped

so dramatically. He noted that while it was normal for businesses to see an extreme spike

immediately following a Shark Tank appearance, followed by a drop-off, for a business to see

sales drop as much as Chord Buddy had was a matter of great concern; sales were down by

nearly 50% since Shark Tank, and this was a sign of a business in trouble. Perry said that he felt

sales had plummeted in 2014 due to the fact that he wasn’t doing as much marketing because he

was working on a new product for the educational market, Math Buddy. This product is a system

that uses guitars (and Chord Buddy units) to teach children how to solve math problems, and

Perry stated that he felt this product was the company’s true future, as it could, potentially, end

up in public schools nationwide (McGah & Sowell, 2015).

3


Herjavec expressed great concern over Perry focusing on a brand-new product for the

educational market (a B2G product) to the detriment of the core B2C product, Core Buddy.

Herjavec pointed out that if Math Buddy wasn’t adopted by an adequate number of schools, it

would fail, and the business would be in even more trouble than it already was. He then

discussed Chord Buddy manufacturing costs with Perry. Perry stated that the biggest expense

was for licensing songs for the booklet included with every Chord Buddy system, and that if he

switched to an all-public domain booklet—which he intended to do—this would save several

dollars per unit. While Herjavec agreed that this was a good idea, he asked if there was any other

way to get manufacturing costs down, and in particular, if Perry had explored having Chord

Buddy manufactured offshore. Perry replied that he had gotten some numbers for offshore

manufacturing, and it turned out that if Chord Buddy were manufactured overseas instead of in

Alabama, he would save approximately $3.00 per unit. Herjavec pointed out that, if

manufacturing were taken offshore, Perry would have gone from losing money in 2014 to

making a profit of $120,000. He implored Perry to consider sending his manufacturing overseas

to save the business (McGah & Sowell, 2015).

Perry balked at this notion, stating that his entire business was based on everything being

made in the USA, and in particular, in Dothan, Alabama. Herjavec pointed out that if Chord

Buddy folded, Perry wouldn’t be able to provide any jobs for the people of Dothan, and that it

would be better if the business survived with two to three employees than failed with a dozen.

Herjavec asked bluntly, “What’s more important? Having it made in America or having your

business survive?” (McGah & Sowell, 2015).

Perry insisted that he had an obligation to his community and his employees. He stated

that he had an appointment coming up with his state senator and state representative to pitch the

4


Math Buddy program for Alabama’s public schools. If they agreed to fund Math Buddy, Perry

said, he would earn enough money to get Chord Buddy back in the black and keep

manufacturing in the USA. Herjavec again expressed great concern over Perry’s focus on Math

Buddy, but told him that, at the end of the day, this was Perry’s decision. In the end, Perry did

manage to convince the State of Alabama to pilot Math Buddy in a small number of Alabama

public schools; he is optimistic that moving forward with Math Buddy will save Chord Buddy

(McGah & Sowell, 2015).

Decision Analysis

Perry faced a decision on a very controversial issue: to offshore or not offshore. The

episode and the exchange between Perry and Herjavec sparked much heated debate on the

Beyond the Tank Facebook page. Many posters applauded Perry and condemned Herjavec,

mainly from an emotional stance; one poster wrote, “I thought Robert was the most caring Shark;

after this episode, I feel he is just a manipulative as any other Shark.” However, others pointed

out that, often, businesses have no choice but to offshore manufacturing so they can survive. As

another commenter put it, “Do you shop for the lowest prices? If you do, then you are part of the

problem. … It's not that Robert doesn't care; it's just a fact they will go out of business, and then

there would [be] ZERO jobs.”

By Perry’s own admission, the primary stakeholders he considered were his employees

and his community, who he feels a great responsibility toward; he pointed out that three Chord

Buddy employees had previously worked for him in his now-defunct real estate business, and

that he was thrilled to be able to offer them jobs again. Perry also had to consider Robert

Herjavec, who, as previously noted, owns 20% of the business. In addition to being Perry’s

investor, Herjavec has also become his friend (McGah & Sowell, 2015).

5


Did Perry make the right decision when he opted to keep manufacturing Chord Buddy in

the United States? It’s difficult to say at this juncture. I felt bad for Perry as I watched the

Beyond the Tank segment. Clearly, he is a man with a strong moral center who feels that his

business is not just about earning money for himself and his family, but also bringing jobs to his

Deep South community. That area of the country was hit particularly hard by the economic

crash; Alabama is currently the sixth-poorest state in the nation (Kirby, 2015). Alabama

desperately needs jobs, and Perry wants to help provide them. I also feel he believes his Math

Buddy product will help children learn math. STEM education, and US students falling behind

the rest of the world in STEM, is a hot topic, so he’s not wrong about wanting to enter this

market.

Despite the prevalence of offshoring, it is not a panacea, and there are issues that the

Beyond the Tank segment did not address. While 50,000 jobs were offshored last year, 60,000

jobs were added in the U.S. as a result of “reshoring” (bringing previously offshored jobs back to

the US) or foreign companies moving production to the US. This is due to rising labor costs in

other countries combined with other hidden offshoring costs, such as environmental issues,

political instability, import duties, and shipping costs (Cheng, 2015). It could very well be that

offshoring would not have solved Chord Buddy’s problems at all, especially if sales keep

declining. Why have sales declined so rapidly in such a short period of time? Perry blamed a lack

of marketing, but is that really what happened, or is there something else going on?

I agree with Herjavec that it was very risky for Perry to take his focus off of his core

product, Chord Buddy, and put so much of his time and resources into a new, unproven product

with no application outside the educational market. Herjavec asked Perry if he had a “Plan B”

should Math Buddy fail in the B2G market, and Perry did not. While the episode indicated that

6


the State of Alabama agreed to fund a pilot of Math Buddy the size, scope, and timeline for the

pilot were not noted. It is unclear whether the pilot of Math Buddy will be big enough to solve

Chord Buddy’s financial problems. Perry seemed to think that it would be, but, when re-

watching the segment in preparation for writing this paper, I thought of this week’s reading from

the Harvard Business Review on “Delusions of Success.” The reading spoke about people having

a tendency to assume the best possible outcome for a particular decision without considering

other possible outcomes, including negative outcomes (Lovallo & Kahneman, 2003). Perry

appears to be assuming that Math Buddy will be a huge success, but he apparently did not

consider what he will do if it fails.

Perry erred when, instead of asking why Chord Buddy sales were declining, he decided to

create a new product, targeted to a completely different market, to make up for the decline. This

decision was the one that set the stage for the decision regarding offshoring that he had to make

in the Beyond the Tank segment, and, arguably, that decision was made prematurely and without

enough supporting evidence either way. Perry should have determined why Chord Buddy sales

were declining in the first place before launching any new products, deciding whether to keep

manufacturing in the United States, or making any other decisions.

7


References

Brubaker, J. (2015, January 25). How History and Adversity Pushed an Entrepreneur to Shark

Tank Success. Entrepreneur Magazine. Retrieved from

http://www.entrepreneur.com/article/242002

Cheng, A. (2015, May 1). Record number of manufacturing jobs returning to America.

MarketWatch. Retrieved from http://www.marketwatch.com/story/us-flips-the-script-on-

jobs-reshoring-finally-outpaced-offshoring-in-2014-2015-05-01

Kirby, B. (2015, May 16). Inside the numbers: 5 startling observations about poverty in

Alabama. AL.com. Retrieved from

http://www.al.com/news/index.ssf/2015/05/inside_the_numbers_5_startling.html

Lovallo, D., & Kahneman, D. (2003, July). Delusions of Success: How Optimism Undermines

Executives’ Decisions. Harvard Business Review, 81(7): 56 – 63.

McGah, T. (Film Editor), & Sowell, D. (Film Editor). (2015, May 15). Episode 1.2 [Television

series episode]. In M. Burnett, L. Garvin, & C. Newbill (Executive Producers), Beyond

the Tank. Los Angeles, CA: United Artists Media Group & Sony Pictures Television.

Video link: https://youtu.be/q15I__5k0kI

Ussery, P. (2015, February 14). Chord Buddy sees growth helping others make music.

DothanEagle.com. Retrieved from http://www.dothaneagle.com/lifestyles/local/chord-

buddy-sees-growth-helping-others-make-music/article_9a7c4f16-b3b7-11e4-a8ac-

bf8303c5a6cd.html

8