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Entrepreneurship and the New Music Industry


Successful businesses models outside the music industry offer a window to success for entrepreneurial musicians.






 
  Eric Jensen is the president of Eric Jensen Consulting, which provides business consulting services to members of the music industry
  Phil Farnsworth

The music world is a complex, ever-changing mix of business models. All musicians are small (or large) enterprises, whether they promote their own work; pursue professional careers as players, composers, or engineers; or create products and services for others. Today's musician needs a strong foundation of broad business skills, along with an in-depth understanding of industry-specific practices. Studying successful businesses inside and outside the music industry is a great way to see what works.

Jason Fried and David Heinemeier Hansson, who are partners at the technology firm 37signals, have recently published Rework, a concise, humorous, and pointed series of essays that target hard-core entrepreneurs, small-business owners, musicians, and others who may be uncomfortable with the "business" side of what they do. It's a cookbook for building a successful, sustainable company.

In 1999, Fried and his colleagues cofounded 37signals as a Web design firm with just three employees. It has since become a robust business with a focus on simplicity, usability, and clarity. In 2004, 37signals was dissatisfied with the project management tools available in the industry, so the company created its own software tool Basecamp. Five years after its introduction, Basecamp generates millions of dollars a year in profits. Additionally, 37signals created Ruby on Rails, an open-source Web application framework that powers much of Web 2.0. The company's Signal vs. Noise blog is read daily by more than 100,000 people.

Despite having more than 3 million users worldwide, 37signals has intentionally kept its company small and avoided venture capital, large corporate structure, and high overhead, a story similar to that of musicians going it on their own outside the major-record-label model.

As the music industry continues to evolve, the insights in Rework have direct parallels to music careers. The keys to success in today's marketplace are staying true to your vision, understanding how to grow a business, and choosing the right partners.

That Vision Thing

In Rework the authors describe the dedication and vision needed to succeed in business. Their ideas should be familiar and well understood by musicians.

    Great businesses have a point of view, not just a product or service. You have to believe in something. You need to have a backbone. You need to know what you're willing to fight for. And then you need to show the world. A strong stand is how you attract super fans. They point to you and defend you. And they spread the word further, wider, and more passionately than any advertising could.1

Successful artists and businesses work from the inside out, clearly communicating what they stand for. This attracts customers and fans who believe the same things and who will wait in line for a new iPhone and tell the world about it.

Sales successes, managers, producers, and fans, can all pressure musicians to change their core vision. In a recent phone interview, Jason Fried noted, "My advice would always be, 'Do what you want to do.'" Fried continued:

    That's what all the great artists do. We [37signals] listen to a lot of people and get a lot of feedback. It's looking at that, and figuring out what we think makes sense, where we want to take the company, and what's in the spirit of the application and the product. [You need to] listen to yourself first. If you just keep doing what your fans are telling you to do, you're probably just going to grow with your fans, and you may never attract new ones. If you're not happy, if you're not really into the thing that you're making, you're not going to do a good job most of the time.

    Continue to ask yourself what you'd say no to. That defines where you are and where you're going. What you probably see in the music industry is that there are very few things companies aren't willing to do just for revenue now - not even profit, just for revenue. I think once you start going down that road, when the list of no's becomes shorter and shorter, then no one really cares anymore. There's nothing to care about except the bottom line.

 

Other people's failures are just that: other people's failures.



-Jason Fried and David Heinemeier Hansson, Rework

Another major buzzkill for starter businesses is pessimism. To sustain a career in music, it takes real commitment and a strong belief in what you are doing. 37signals has been in business for more than 10 years and seen two recessions, one burst bubble, business paradigm shifts, and countless doom-and-gloom predictions.

Through it all, however, the company has remained profitable. Fried describes how he avoids "inhaling" failure and pessimism. "A great way to do it is just not to pay attention to what everyone else is saying," he says. "There's always going to be people telling you that you can't do something. I tend not to really listen. I think you're better off isolating yourself, getting your vision out there, doing what you're going to do and then letting people talk about it. Too much talking early on can intimidate you or cause you to rethink what you're doing. I think it prevents a lot of really cool ideas from actually happening."

Making Money

Balancing the lifelong study of music and the hours it takes to build a profitable business is a unique challenge for musicians. "There is a difference between something you build for yourself and a product that other people are going to buy." Fried says. "I think it's useful to go into something with a clear purpose. Is this a product or an album that you're going to sell, or is it just something you're recording for yourself because you just want to? For example, when we built our first product, Basecamp, it was just for ourselves initially. We realized fairly early on that this could be a product for other people. We had to make some changes to make it easier for other people to understand."

Frugality and simplicity are key to staying on track for the long haul. Fried's company avoided early-stage venture capital funding and has intentionally kept the company small. "Fundamentally, I'm opposed to raising money up front," Fried says.



A business without a path to profit isn't a business, it's a hobby.



-Fried and Heinemeier Hansson, Rework
 

    The problem is that you have no leverage. You're probably not going to get a very good deal. The right kind of pressure to have on you as an entrepreneur is that which forces you into learning how to make money, and practice how to make money, right from day one.

    Less is always an option. Keep things manageable. People create things that make it hard on them. They build something that's too big or take on too many things or take up every opportunity that comes. Those things are potentially dangerous, because they don't allow you to do anything very well.

Marketing and distribution choices, and understanding which metrics to follow, can be overwhelming for musicians. "There are so many things you could do," Fried says.

    When it comes to music especially, you can put it everywhere and maybe that's a viable strategy. In general, I think you're better off picking your battles and focusing on just a couple of things. Put all of your energy into those things, and do them really, really well.

    In most cases, people aren't doing things really, really well. They're only doing them adequately. If you try and do all sorts of things, you're going to trend towards mediocrity or you're going to be like every body else. Pick a few things: maybe it's distribution, maybe it's your website, maybe it's your own fan newsletter. Whatever it is, just build it much better than everybody else. Then you're going to have a nice advantage. If you're focused on a few things, you have a much better shot at actually creating your own opportunities and not just waiting for luck to come around.

 

The easiest, most straightforward way to create a great product or service is to make something you want to use. That lets you design what you know-and you'll figure out immediately whether or not what you're making is any good.



-Fried and Heinemeier Hansson, Rework

Vic Firth, a timpanist with the Boston Symphony Orchestra, was unhappy with commercially available drumsticks and began experimenting in his basement. As a result, he built a company that now manufactures 85,000 drumsticks a day and has a 62 percent share of the drumstick market.2 Derek Sivers started CD Baby and revolutionized indie-music distribution because he wanted to sell his own CDs online. Fried suggests asking yourself what you want from the artists you admire, then trying these ideas out with your fans. "If I want X, Y, Z out of this band that I like, maybe my fans would want something similar," he says. This can generate new business ideas and build a stronger connection with your audience.

Every product creates by-products that can be exploited to increase revenue and build your audience. If you are a commercial composer, you probably have a stockpile of unused cues. If you own the rights to this material, the cues can be rearranged for demo reels and music libraries or become the seed for a new creative project. The band Wilco created the documentary I Am Trying to Break Your Heart while recording its 2002 record Yankee Hotel Foxtrot.3 Successful entrepreneurs regularly develop second and third careers as authors and keynote speakers. Singer Amanda Palmer made $19,000 in 10 hours on Twitter and her Friday Night Losers Club T-shirts.4 Palmer is also known for giving spontaneous, Twitter-fueled concerts in public parks when she is on the road.



When you make something, you always make something else.



-Fried and Heinemeier Hansson, Rework
 

There is another side to exploiting the by-products of your music: sharing your values and successes with your fans creates a strong bond. "Our byproducts are open-source software, our weblog [Signal vs. Noise], our books," Fried says. "The weblog is really the key for us in terms of building an audience. It was built by sharing and giving information away, our experiences and our opinions about things. It takes time, but it has a huge influence on our sales and on our ability to get the word out. It's incredibly valuable."

Finding the Right Partners

Musicians starting their careers with a singular focus soon discover that success may require band-leading or other skills, such as recording engineering, video editing, Web development, knowledge of tour booking, understanding of legal contracts, and the ability to manage marketing campaigns and to negotiate recording and co-branding deals.

As your career develops, you need to pick partners, managers, agents, cowriters, and so forth. Building the right team and understanding how much to do yourself are both incredibly important concepts to nail down for a successful music career. Choosing the right partners at the right time is also key. How do you know when you are ready for an agent or a manager and which questions to ask candidates?

"I think you have to master at least two things," Fried says.

    [First], understand the business and know how to make it on your own. [Second], you have to be really good at the skill you're working on. I like the old model of Thomas Jefferson or Benjamin Franklin. These people did everything. They were architects, business people, and inventors. I think a well-rounded skill set is the best.

    I also have a lot of respect for people who are superfocused on one thing. I don't think those people are good at being business people unless they're focused purely on business. It's good to have a few different skills. You don't have to be an expert at any one of them as long as you have some background in each one.

    My business partner David is a programmer. I'm not, but I knew enough about programming to understand what he was talking about and I knew that he was good. It's very hard to hire a programmer if you don't understand programming, because you don't know the right questions to ask. You can't evaluate quality in the same way.

    There's a lot to love about making all the calls yourself. There's also something really beautiful about having a true partner in a business to bounce ideas off, share brains, and fight a bit here and there. I think that this forces you into making better decisions, so it's a little bit of both. It's crucial if you're going to go into business with somebody, that you know the person pretty well beforehand. For example, we hired David as a contractor, then he became an employee, then he became a partner. We got to know each other. We got to work together, to understand how we each think about things. You have to make sure you get along in all the right places. That's really, really crucial. I would take it very seriously.

Going the distance

A career in music has never been easy. The massive shifts in the music industry over the past 30 years are unprecedented, and the speed of change accelerates every day. Success in turbulent times requires an unwavering sense of what you stand for, doing the highest-quality work you can, having a solid understanding of business, and choosing the right partners and collaborators. Remember, what you do and how you do it should always be manifestations of why you do it. 5

The principles on which Fried operates his business are sound practices for entrepreneurial independent musicians seeking to gain a toehold in the music industry. "Figure out who you are, what you really believe in, and stick to it," Fried says.

"It all comes down to having your own vision. If you have your vision, you believe it to be true, and it continues to work, then you're fine. We stay as small as we possibly can. Today we have 20 people, but we used to have 3 and for a long time we were under 10. We were able to weather the storm because our overhead was low and we shared an office space and all those things. We didn't just do that for economic reasons. We did it because it made sense to us. We kept our products simple. Things that are easy are always going to sell. Things that are clear will always make sense.

Those are the values that we have as a company and I think those values are enduring. We know where we stand and what we believe. When you do that, everything becomes a lot easier. Let's nail the basics. Let's have high quality. Let's keep things simple. You just keep doing it. It comes down to knowing who you are and knowing what you believe in."


End notes:

1 Jason Fried and David Heinemeier Hansson, Rework. New York: Crown Publishing Group/Random House Inc. 2010, 43.

2 Ibid, 35.

3 Ibid, 91.

4 "Amanda Palmer Made $19k in 10 Hours on Twitter" Hypebot.com (http://bit.ly/alldxF).

5 Simon Sinek, Start with Why: How Great Leaders Inspire Everyone to Take Action. New York: Portfolio/Penguin Group 2009.