Petaluma ukulele maker Kala Brand Music riffs revenue past $20M

“Wake up, you need to make money, yeah.”

That line from Stressed Out, a uke-accompanied song released April 27 on YouTube by Tyler Joseph of Ohio-based rock duo Twenty One Pilots, rings like a theme in the anthem of millennial entrepreneurs. It’s also the business plan of Kala Brand Music, which strummed its way from its 2005 launch through years of double-digit growth to 2015 sales of $20.2 million from about 400,000 instruments.

In the past year, Kala revamped its Petaluma headquarters to expand custom manufacture of high-end ukuleles - the kind used by Twenty One Pilots singer Joseph. About 40 of the company’s 50 employees are in Petaluma.

Mike Upton, Kala’s founder, got into the business as a musician - bass player - who “morphed into sales,” he said. “I needed to make more money (possible lyric to Twenty One Pilots sequel, Stressed Out2?). I had a family going. I just needed to make more. I started selling and did really well” for Hohner music company, he said.

Upton helped develop Hohner’s Lanikai line of ukuleles. He had lived in Hawaii from 1989 to 1994, and started selling ukuleles there in about 1998. “Ukes were hot,” Upton said. “The potential was there for business. I saw the need and sourced out the product, worked with people to get it built” in China.

Now Lanikai is one of his main competitors.

His father played the ukulele. “I got a picture of me as a baby with a ukulele,” he said. “I grew up playing rock and roll. Being a musician is a big help, knowing what a quality product is.”

Though Kala started in Petaluma, its first warehouse was in Honolulu. Hawaii initially was 100 percent of the business, and now accounts for about 10 percent. About 60 percent is from the U.S. mainland, and 30 percent is international - some 50 countries, with Canada, the U.K., Europe, Australia, New Zealand and South America in the lead. “We just started in India,” Upton said.

Hawaii serves as a test market, said Dave Cafiero, Kala’s vice president of sales and operations since about 2010 when the company had about 15 employees. “Hawaii is so particular about this product, this category.” With any new product, “if they say yes, then it’s going to be a winner.” Cafiero plays guitar and ukulele.

“Ukulele” is a Hawaiian word meaning “jumping flea.” The four-stringed instrument evolved from Portuguese instruments: the timple, rajão, machete and cavaquinho. Portuguese immigrants came to Hawaii in the 1800s to work in sugar-cane fields.

“If it works there, it will work anywhere,” Upton said. Nearly 95 percent of Kala’s sales come from ukuleles. Most of the business is wholesale through distributors to nearly 2,000 U.S. retail dealers, and half of overall sales are online to those retail outlets.

Its U-bass, introduced in 2009, is a rubber-stringed ukulele designed to sound like a bigger upright bass. The U-bass is priced at $360 for imports to $2,000 for custom models manufactured in Petaluma, some made of “pheasant wood,” a hardwood also called Thailand cassia, with coloration and patterns that resemble tail feathers of pheasants.

“People have copied it left and right,” Upton said of the miniature electric bass. “To do it on that short of a scale in a portable instrument is a revolution. The strings are very stretchy, and the vibration is strange. There was a lot of work we had to do with the pickup to get it to sense the vibration. String tension pushes down on the pickup and activates it. These have very low down pressure. You have to have a very sensitive pickup, which causes problems because it is sensitive to everything,” he said.

“It sounds like an old Motown bass,” he said.

“We do small batches of handmade” ukuleles, Upton said, in the Petaluma plant, which launched in 2015 with 7,000 square feet dedicated to production. “It’s still very small,” Upton said of the custom operation, which builds 80 to 100 instruments a month, priced from $700 to $3,000. Cheaper models are made in China; most sales are in the $100 to $200 price range.

Kala uses an old tanning bed to cure the lacquer that coats custom ukuleles, rotating instruments as they soak up ultraviolet light. “It’s very low outgassing,” Upton said. “The result is a super-high-gloss mirror-like finish” with only three or four coatings, and sanding in between. He holds up an instrument that sells for $1,500. Another custom ukulele is made of a fusion of hardwoods: maple, walnut and koa, a native of Hawaii and part of the Acacia family of trees. “We’re making one for Tyler Joseph” of Twenty One Pilots, he said.

In April 2015, Kala opened a warehouse in Ashland, Va., in part to provide an alternative to use of Oakland ports, where a January 2015 strike constricted cargo volume. Kala’s original warehouse remains in Honolulu. Half of mainland sales come from east of the Rockies.

The ukulele is a “gateway product,” easier to play than a guitar, Upton said, and allows people to start playing music without much skill or training. The cheapest plastic model sold by the company is $40.

“Customers graduate to instruments with more robust components and exotic woods,” Cafiero said.

“We were the leader in this category,” Cafiero said. “Tons of people jumped in,” including Fender, with cheaper models of the ukulele.

“There’s a lot of competition now,” Upton said. The National Association of Music Merchants estimated U.S. ukulele sales at about 1 million in 2012. Kala’s sales flattened out in 2013, Upton said, even declined a bit.

Cafiero sees a sales strategy modeled somewhat after what Apple did, putting its product into schools, partnering with Guitars in the Classroom, a San Diego-based nonprofit that promotes music education. “There’s a big interest from schools,” Upton said. “We donated a ton of instruments to schools and charitable organizations, seeding the market with plastic ukes.”

“There will be a return on that investment,” Cafiero said.

Large retail chains have approached Kala with the intent to carry its products, Upton said. He is wary of selling huge volume at slim profit margins in such places as Wal-Mart, Kmart, Costco, Amazon. “You are growing so fast, you have to ask, can I keep up with that? I haven’t said no, but we haven’t said yes,” he said. “There’s a lot of demand, but can you sustain that with production and not compromise other loyal dealers?”

Discount stores may devalue the product by selling for the lowest possible price, Upton said. “Think about the impact on the market,” he said. “You don’t want to cannibalize your other business. The music industry is very traditional, old-school.”

“We’re open to it, but with limited SKUs (stock-keeping units). Let’s do a lot of volume at high margin,” Cafiero said.

Online sound samples boost sales of ukuleles online, Cafiero said. Video of instruments being played also helps.

So far, Kala has chosen to stay with distributors that serve dedicated music stores, resorts and surf shops. “Profit margins are big,” Upton said, “and service is easy.”