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The world's coolest ear buds

Disruptors: Skullcandy is using fake alligator skin and rhinestones to shake up the headphone market, giving Philips and Sony a run for their money.

By Michael Copeland, senior writer
Last Updated: December 30, 2008: 12:50 PM ET

Skullcandy veered away from standard-issue black and white headphones - and struck gold.

PARK CITY, UTAH (Fortune) -- The half pipe tucked in a corner of the office is the first clue that Skullcandy is not your average company.

Other clues: In the teeth of the worst recession in generations, the five-year-old private company is growing like a weed. And it just scored a round of funding, from private-equity shop Goode Partners, at a time when investment dollars are scarce.

If the name Skullcandy doesn't register, it will with your kids (so will the term half pipe, which is a ramp, in this case for skateboarding, shaped like a pipe cut in half lengthwise).

Skullcandy's business is headphones, and they dominate the 12- to 25-year-old demographic with a line-up of gear covered in faux gator skin, gold foil, rhinestones and hip hop-inspired graphics. Pull back the hoody on any kid riding a snowboard in Park City, Utah and chances are pretty good, a pair of Skullcandy headphones, probably the top-selling "Smokin' Buds," will be pumping music into their ears.

Making electronics cool

From a distant No. 10 three years ago, Skullcandy is now North America's third-largest manufacturer of headphones by unit sales, behind consumer electronics giants Philips Electronics (PHG) and Sony (SNE), according to NPD Group. "We'll be No. 2 soon," predicted Skullcandy president Jeremy Andrus, legs dangling from the office half pipe. "My guess is some time next year."

After that, Skullcandy and the band of snowboarders, skaters, surfers and DJs that founder Rick Alden has assembled in Park City, will be gunning for No. 1. That is, if Alden, the CEO and creative madman to Andrus' operations guru, can figure out a way to do it without diluting the company's cool factor.

Skullcandy didn't invent headphones; what the company has done is make them into a fashion item. Kids don't want one pair, they want five. "We're like sunglasses," Alden said. "Except we sit on top of your head, and you wear them a lot more."

Skullcandy headphones are not the type you will hear audiophiles gushing about. They are mostly solid-sounding pieces of affordable gear that, unlike Sony's grey and black headphones, or Apple's white, don't disappear into the background. On the contrary, they make a statement. The snowboard, surf and skate inspired graphics and colors ask for attention, and speak to a lifestyle, or in most cases, a wannabe lifestyle.

Successful clothing brands are able to evoke that lifestyle magic, but it is the rare consumer electronics company that does it. Apple (AAPL, Fortune 500) with its iPod is the obvious and most successful current example. Skullcandy has pulled it off so far, and in doing so sent revenue from essentially zero to approaching $100 million in just a few years. Sales more than doubled in 2008.

To put in perspective Skullcandy's momentum, when many consumer electronics companies saw sales fall off a cliff in November, Skullcandy's quadrupled year over year, according to Andrus.

That success is obviously gratifying to Alden, but it also has him worried about overexposure. "I was at the mountain riding with my son the other day, and everyone I saw was wearing Skullcandy headphone, I mean they were everywhere," Alden said. "I may go back to wearing black Sony's just to be different."

He's kidding, but his concern is real. Alden and his design team need to keep Skullcandy fresh, so it doesn't fall out of fashion and black becomes the new black. Fortunately the Skullcandy team has a secret weapon when they seek inspiration, design-wise and business-wise.

"We head to the mountain," Alden said, checking for the latest snowfall report on his laptop. "No good ideas ever come from sitting in an office, not around here at least." To top of page

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