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Monday
Jun272011

Why the Confusion? It Has Always Been About the Business

So much talk about the success, or lack of, making it in the new music business industry. But it really comes down to treating your musician career as a business.

Let’s look at some statistics. History shows that 80% of all small businesses started in the US fail in their first five years of operation and only 20% go on to succeed. Why? The number one reason for business failure is not a bad product or poor management but rather it is a company that has been under-capitalized. Some can emerge from this under-capitalized starting point to success but very few. It takes time to get a product to market, to have the cash flow cycle catch up and pass the expense side of your business. The only way to bridge that gap is with money, by either debt or equity financing.

BANDS BUSINESS

The reason most bands fail is the same, being under-capitalized. While some have goals to be “signed” by a record label, all that really is, is the capitalization of that business. When I hear someone say, “I want to get signed” what I hear is “please help me with my finances so I can do this music career full time”.

TRUTH

If you want to make enough money to sustain yourself, you will probably need to perform anywhere from 200 to 270 shows per year the first couple of years. You can’t do that many shows in your hometown. But, you say I don’t have the money to travel. Of course not, your company is under-capitalized to be able to cover the costs of your start up business plan. And if you fail to get capital, your business will most likely also fail.

Successful business owners today don’t look to work part time at their business idea or passion and then go to work at another job to pay the bills. No, they have a business plan that is capitalized by equity and/or debt financing which enables them to work on and in their business full-time.

That is what every career minded musician should be looking to accomplish. The best way to bring this about is to form a corporation where you can have an investor purchase stock or at the least a legal entity where debt can be leveraged by current and future assets.

There are some additional problems that emerge here especially as outside investors or banks look at your company structure. As the book “The E Myth” explains; the myth being that just because you are good at doing something it does not necessarily mean that you would be as good at running that as an entrepreneurial business. For example, just because you are a chef does not mean that you would be as good at running a restaurant or a good pressman able to properly run a printing company, and may I add being a good musician does not necessarily mean that you will be good at running a music business (i.e. band). So along with capital, you may also need a good management company that can help you run the business while you perform the tasks that you are good at, which is creating and performing music. Most sources of financing will take a hard look at your ability to manage, so if it is a weak link get a management company on your side.

So how hard is it to get capital? It’s ridiculously hard; for musicians as it is for any small business owner or entrepreneur. But, that doesn’t mean it’s impossible. How good are you? Or better yet, how bad do you want it? Look for help on forming your corporation and preparing a business plan. That will allow you to search for capital. There are many sources out there; the oldest one known for the music industry is called a record company. But in the new music industry there are many more emerging possibilites, they are taking on the form of management companies and investor groups such as Polyphonic and others.

CONCLUSION

So if you’re really serious about taking the long haul and making music as your career, then I suggest that you form a company and look for that capital. And don’t be afraid to ask for help. Even in a DIY business model, you need good people to help you along the way. But most of all ~ enjoy the journey!

___________________________________________________________________________________

Article written by Don Austin, founder of Launch Music Group, Inc. Chicago, IL www.launchmusicgroupinc.com

Reader Comments (9)

I appreciate what this article was trying to do, but it really comes off half assed.

Yes, every musician should treat their career as a business. They need to have a product that people like and want. They need to understand how and where to market their product. They also need to invest whatever they can to market themselves and their product.

Saying that musicians need to get financial backing from outside sources like small businesses is ridiculous. It's NOT the same. Almost every business offers a tangible product or service that after an initial investment is made can normally see returns is short time. Music is another thing completely. To say that a musician or band needs to play around 260 gigs a year is meaningless if they aren't getting paid to do so. If an artists plays that many shows with an initial investment from themselves and doesn't break even, that could be extremely detrimental to their self esteem and outlook. There is no promise that they will even see any kind of return for their hard work or monetary investment. It's especially hard to see any kind of returns while someone is first starting out playing shows because many places don't pay anymore and artists don't have fan bases when first starting out.

Coming from someone who has started their own small business while trying to expand their music career, I can safely say that it's all true. I'm not a good salesmen, but I am a good and likeable person. Selling a physical product that people can see and touch trumps trying to sell a product that depends so much more on recognition and word of mouth. Outside of record companies (which are extremely far and few between now) you can't just get a loan from a bank to invest in your business or private backers to invest in music.

The only person who is going to invest in you is you. If you're in a band, then that statement can possibly be multiplied, but otherwise the success of musicians being signed is extremely low.

Fee album download at http://www.facebook.com/chancius

June 27 | Unregistered CommenterChancius

Bands do have some capital. It is their songs and it can be their performance.
That can help you get started and build an audience and profile. If you have great songs you will get noticed and then get the management that can help you.

June 27 | Unregistered CommenterNeil Wedd

@Chancius -

First thank you for your comments and also for joining the conversation.

Investment comes in many shapes and sizes depending on the needs of the business. Taking your music to a lifetime career level is indeed a business. There are also many forms of investors, anywhere from a traditional record label to fan funding sites.

But there are many other types of management and investor groups and; hard to argue with Radiohead’s manager. I submit look here: http://tinyurl.com/3cg5st4

Just one more thing; if you believe that "the only person who is going to invest in you is you", then why do you have a kickstarter account? Is that not looking for investment? Based on your very strong comments above I’d say that's a bit hypocritical, Chancius. But again thanks for joining the conversation and I wish you all the best in your music career.

June 27 | Registered CommenterDon Austin

I appreciate the post...I think it's time for all of the artist who wish to be picked by the Labels need to read this..Plan/Invest/Re-Invest.., The reality is that if you build your audience the labels will invest but with a price..(CONTROL)

Being a business owner I had to save work two jobs to get it off the ground...If you want to make money at anything you have to be will to invest 1st..The music is not enough..

June 27 | Unregistered CommenterRhythmHub

This post is right on the (A'hm) Money!

Although most artists have been forced to go DIY it is extremely demanding in that: (1) artists do not have the necessary skills to be expert at marketing, booking, licensing, merch etc etc etc (and don't want to); (2) all of the business tasks take enormous amounts of time and therefore away from the music; (3) money is absolutely required to get things done and most importantly to hire experts to help out.

This is what labels used to bring to the table: their money and their team of experts. For the major record labels, those days are over. But watch-out for independent labels: they are soon to come on strong and revolutionize the business. Watch my blog at www.thejazzlawyer.com for a big announcement in that regard soon.

Remember, without great music - its all a waste of time.

Everyone, good luck with your music.

When I was working with EWF, we were asked by program directors if there was one piece of advice we could leave with their listeners in one sentence, what would it be, "Learn the business of the business you are in". And that advice has stuck with me even in this new digital era of the business.
There is a learning curve in all things new, you must whether the storm of that curve and then BAM! you will have a skill set that is not only good for the music industry, but great for Social Media management offers (hint hint).
Who am I? The Silver Conductor @ www.thesilverconductor.com, Facebook, Twitter, Yotube & itune to name a few.
Remember: "Always know who loves you"
The Silver Conductor

Hm. While I agree that a lot of artists and bands are under-capitalized, I'm not convinced that artists have to close a series A round of angel funding in order to do well. I'd keep that fact out of the biography and Wikipedia page :)

Until you've established that you're valuable, there's really no point in seeking investor funding. I suppose if your plan is to launch the next Jonas Brothers, it's not inconceivable to pitch that idea just as you would a software startup (i.e. vaporware). But almost any other style is going to draw scrutiny: do you have fans? Do you play shows? Do you have merch? How much did you make last year? There's a baseline of work that's expected to be done in advance, and a VC isn't going to give you play money to figure it out. You're expected to do that experimentation on your own dime.

Never mind that lots of musicians make terrible, terrible purchasing decisions when given access to money. So yeah, get a manager you trust to talk you out of buying new gear because you don't want to appear poor, and talk you into fixing your van so you can play more shows.

Frankly, I suspect that people prefer artists who bootstrap. People like underdogs.

June 29 | Unregistered Commenterscottandrew

Very interesting post. I have a couple things to say on it.

The guys at http://tinyogreent.com/ have got the best model I've seen in years, and one I think will actually work. They don't just sign a band, they form a partnership with a band. I mean, an actual company. An LLC or an Inc. and then they go to market together, with their interests perfectly aligned. They understand it's about the business. TinyOgre brings the capital and the business know-how and the band brings the music, the talent, the "product".

Secondly, I wrote a post a while back on my blog called: What Does It Take To Break An Artist? A Solid Team & Cold Hard Cash: http://www.mikemccready.com/2010/05/11/what-does-it-take-to-break-an-artist-a-solid-team-cold-hard-cash/

So, I know not every musician wants to be a business, but if they want to make a living at it, they pretty much have to be one. That's my 2 cents.

June 30 | Registered CommenterMike McCready

As a musician my solution to this problem is to create an economical way to tour. I play electronic music with a full band live, but if needed I can use backing tracks and just play with my drummer. Our plan is to buy a cargo van, deck it out with carpet and a bed so we can live in it, then travel the country. We will rent out our apartment and essentially be living for cheaper than ever before.

Of course my situation is unique because my drummer is also my boyfriend so living in a van together won't be a problem. But if you can afford a cargo van somehow, anyone can do this and play shows every night, make money, and make new fans.

See pics of awesome converted cargo vans on my blog... if you're into vans and that sorta thing ha!

roniit.tumblr.com

July 13 | Unregistered CommenterRoniit

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