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Grace Riding a Big Growth Wave Atop Internet Radios, Electronics

Grace Digital Inc. seems to be winning the consumer electronics game.

Two trends — Internet radio and the proliferation of electronics for the outdoors — have increased the appeal of the company’s niche products, sending business partners Greg Fadul and Jim Palmer off to the races.

Poway-based Grace Digital sprinted from $4.87 million in revenue in 2011 to $9.86 million in 2012, then to $18.85 million last year — 287 percent growth over that span. Revenue should easily top $30 million this year, Fadul said.

The company produces Internet radios under the Grace Digital brand. It also produces waterproof Bluetooth speakers under the EcoXGear brand. Falling in the water doesn’t hurt the electronics, which are rugged and designed to float.

This comes as electronics increasingly head into the great outdoors. Witness the popularity of the GoPro camera — and the doubling of GoPro Inc.’s (Nasdaq: GPRO) stock price following its initial public offering in June — as well as Otter Products LLC’s move last year to buy LifeProof, the San Diego-based maker of waterproof cases for smartphones and tablets, for $325 million.

It is in that spirit that Grace Digital makes electronics that can survive a dunk in the water.

Costco Wholesale Corp. (Nasdaq: COST) is one of Grace Digital’s biggest customers. The business also sells through specialty retailers such as L.L. Bean, REI and West Marine Inc. (Nasdaq: WMAR). The business was able to launch its EcoRox waterproof wireless Bluetooth speaker in Apple Inc. (Nasdaq: AAPL) stores.

The Poway business also sells to online retailers; eight of the top 12 Internet radios on the Amazon.com Inc. (Nasdaq: AMZN) website are from Grace Digital.

Not all retail relationships make sense for the company.

Grace Digital turned down a deal with a major office supply chain, Palmer said. The big retailer wanted products under a consignment agreement, where Grace Digital would ship the retailer 10,000 units with the understanding that the chain could ship back anything it didn’t sell.

“A lot of retail is that way,” Palmer said, but Grace Digital prefers standard retail terms. Consignment deals can offer companies what looks like quick growth, but such deals can backfire: There is always the chance products can be returned.

Delivering on Relationships

Grace Digital designs its products in the United States and does engineering in England, Taiwan and South Korea.

Speedy product development is one key to the company’s success, Palmer said. The company also found a “boutique” manufacturer in China, which has been able to keep Grace Digital products under wraps — almost until the products appear on the streets.

Another key factor in the company’s success is quality. Grace Digital is looking for at least four stars in the Amazon rating system, Fadul said.

Also very helpful are strong relationships with retailers, backed by performance. Longstanding relationships with a retailer can get you a meeting, Fadul said, but a vendor cannot fail on execution. That includes being on time, hitting a price point, offering the retailer the right margin and coming through with a quality product.

“If you don’t deliver, there’s not a meeting after that,” Fadul said.

Fadul, 49, and Palmer, 48, have known each other half of their lives — since 1990. Both had stints at Motorola and Uniden America. They founded Grace Digital in 2007 and enlisted the help of an angel investor after a couple of years to help the company grow. Eventually, they bought the investor out.

Consumer electronics is “not for the faint of heart” as seemingly small issues can become large ones very quickly, Fadul said.

“Details are not the most important thing, they’re the only thing,” the CEO said.

Looking ahead, the company wants to explore international markets.

Fadul will not go as far as to say his company will double its revenue this year, but he did say it will reach the $30 million range. It all depends on the all-important fourth quarter, Palmer said.

GRACE DIGITAL INC.

CEO: Greg Fadul

Revenue: $18.85 million in 2013, $9.86 million in 2012

No. of local employees: 24

Investors: Greg Fadul and Jim Palmer

Headquarters: Poway

Year founded: 2007

Company description: Maker of consumer electronics, including Internet radios and waterproof Bluetooth speakers

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