I wrote this post eighteen months ago. I am slowly rewriting and moving some of my posts from my old blog to Music Think Tank. My apologies to those of you that don’t like getting reruns in your newsreader.
The day the band (the company) was formed, band members voted to split ownership evenly; now you find yourself doing much more work or creating far more value than your bandmates. Perhaps you started out as a band, but the band has also become a business. You don’t want to appear greedy and it’s not your style to change the rules once the game has started. However it doesn’t seem fair that everyone benefits evenly when you’re doing more work than everyone else.
This is one of the most common problems in small businesses - ownership and reward is divided evenly, but the work and/or the value creating capability are not. Here are eleven easy steps to fix the problem.
Step One - Form a plan and create a presentation of your plan.
Read the following ten steps and create a plan. Your plan will call for a simple presentation of some basic math. Before revealing the plan to anyone, do the plan math yourself first (download this spreadsheet - further explained below). Determine if your plan is fair and just by presenting your plan to an outside businessperson that can impartially advise you.
When you present your plan, consider asking a facilitator/advisor or an impartial/experienced mediator to attend the meeting(s) with your bandmates. The no-boyfriend/girlfriend, no-husband/wife rule should be enforced on the day(s) of the meeting(s).
Step Two - Valuate the band.
Days or even weeks prior to presenting your plan, come to an agreement on the present financial value of the band/business. The band should do this annually. It’s a great exercise for bands that are looking for investors, for bands that are looking for a record deal, and for artists that may be compensating others with equity. (Tip - assign a value to each fan, to each song and to your brand, or multiply your annual profits (revenue minus expenses) by 5.) I am going to call this value the Band Value (used in the calculations below).
Step Three - Revisit day one.
Revisit the day you divided ownership evenly. Sit down with the band and talk about that day. List all of the things that were collectively on your agendas when you formed the band. If that list had more than five things on it, you planned more than most.
- Have fun
- Rehearse as needed
- Record an album
- Put on a great live show
- Build a fan base
When you created the day-one list, dividing ownership evenly made perfect sense, and if 100% of your current activities were still confined to that list…it still makes perfect sense. However something happened since day one, the list has grown to ninety-five things and you’re doing eighty-five of them. The deal (the game) has already changed. So you’re not changing the rules midstream, you are asking to update the rules based upon the ‘game’ that is being played now.
Step Four - Revert to day one.
Express you willingness (and happiness) to revert to the original deal that was negotiated the day the band was formed - nothing more and nothing less; your not renegotiating, you’re reverting to the beginning (to the day when the original short and simple to-do list was created).
Step Five - Present some logic as follows…
- Talking point: You never realized how much work goes into the business of being a band.
- Talking point: Organizations work far better when everyone feels they are justly compensated.
- Talking point: Creativity flows when stress is reduced.
- Talking point: It’s far better to fix things now than to wait until the day when the band is bigger.
- Talking point: Friendship is more important than ownership or compensation; therefore you find it necessary to revert to day one - the day when friendship and music were the basis for forming the band.
- Talking point: The energy required to do all the things you are doing for the band is taking time and energy away from the other things you need to do to move your own life forward.
Step Six - Present your list
Unfurl the list of things you are currently doing for the band which are over and above the list of things you never bargained for on day one. You should be perfectly willing to discontinue doing the things on this expanded list, as you are about to give your bandmates the option of outsourcing or delegating everything on the list to someone else.
Step Seven - Assign values/costs to each item on the list
Work with the band to assign a value/cost to each of the items on the list.
Tip - What would it truly cost you to outsource each item annually? Assuming the quality and the time commitment obtained from others would equate to what you provided when you did the tasks.
Once again, you should express your willingness to give these items up to someone else - although that probably won’t happen.
Now add up the total value of all of the items on your list. This total should represent the true annual cost/value of the services you perform. I am going to call this number the Service-Value.
Step Eight - Create a multi-year deal.
I recommend putting the subject of what YOUR time is worth to the band - to bed for no less than two years and for no more than three years. You should not have to renegotiate with your band every year, so a two-year deal seams reasonable. Three years works - however the value of the band should have changed significantly by the end of year three (you will understand why the value of the band matters to your deal when you do the math below).
Take the Service-Value number from step seven and multiply it by two or three (years) to get what I will call your Multi-Year-Service-Value.
Step Nine - Receiving cash for the extra work you do.
To receive cash for the Multi-Year-Service-Value you provide - divide the Multi-Year-Service-Value by the number of months in the deal (24 or 36) to come up with a Monthly Service Value Fee (call it whatever you want).
The band should pay you this Monthly Service Value Fee prior to dividing up ANY revenue between ALL band members.
When I say ALL band members, this also includes your equal or proportionate share. Just because you are getting paid the Monthly Service Value Fee, this does NOT mean that you should not receive your proportionate share (of revenues) after the fee is paid. After all, you are the Service Provider in this instance AND you are an owner and participant in the band.
Remember, you expressed your unflinching willingness (in steps 6 and 7) to compensate an outside contractor, manager or service provider, but you’re just doing the extra work instead.
Step Nine - Receiving equity (stock) for the extra work you do.
Alternatively (to cash), to receive equity (stock) for the services you render - divide the Multi-Year-Service-Value by the Band Value (step two) to arrive at the additional percentage of the company/band that you should receive.
Every owner, including you, will have to shave off this percentage to give you your additional percentage points. Why do YOU have to shave off points? Once again, look at yourself as TWO people - owner and employee. All owners should share the burden of dilution equally when you make deals that use your equity as capital/compensation. And, if the band does additional equity deals - the “TWO” of you (see example) will have to burden the dilution required by any new deal that uses equity as a form of payment or compensation.
Example (you are Fred)
Current Ownership: Fred 20%, Barney 20%, Wilma 20%, Betty 20%, Dino 20%
Multi-Year-Service-Value = $30,000 Band Value = $300,000 (30,000 divided by 300,000 = your additional 10%)
New Ownership (notice Fred as ‘two’ people): Fred 10%, Fred 18%, Barney 18%, Wilma 18%, Betty 18%, Dino 18%
Click here to download a sample spreadsheet.
Step Ten - Handing publishing revenue…
Unless you have agreed to direct some percentage of publishing revenue into your corporation, division of publishing revenue is a separate matter. I do recommend channeling publishing revenue into a corporation that is owned by the band (read this post for more information). This is something investors will prefer. Seek qualified legal counsel when setting this up.
If your lead singer is also playing an instrument, perhaps he/she should be counted as 1.5 or 2 people when dividing (on day one) ownership/compensation (vocal = an instrument + a second instrument), especially if he/she is also the songwriter. Once again, this depends on how you are all dividing publishing revenue.
Step Eleven - Maintain proper perspective…
The current situation may be putting a strain on your friendships or on your ability to be creative. You are restoring balance to the situation so that everyone can move forward without brain lock. If your motives are honest and your valuation of the band and your services are just, you shouldn’t have much of a problem adjusting your compensation or obtaining additional equity. If you expect one of your bandmates to be headstrong about changing the deal then I would advise you to bring in an advisor that this person trusts. Finally, don’t try to accomplish all of this in one meeting. Set the Band Value in week one and wait a couple of weeks to calculate your Multi-Year-Service-Value.