Business of Art: The Entrepreneurial Mindset & Music

0:08This is Justin Richmond here with a bonus episode of Broken Record. It's a little bit of a different episode than we typically air, but I think it's one that the musicians that listen to the show will be excited to learn from. This is one where it's like, you know, you'll get some joy out of this too, I imagine, but also put on your thinking cap and think about how some of this relates to you and how you can use some of this. It's a conversation about finding success in the music industry through non-traditional means. You know, it's about artists and independent labels who found ways to forge their own paths to success outside of massive record sales, big ticket tours, thinking the Taylor Swift's here, of course.

0:50Right. And how you can innovate within the music industry, giving indie artists a way to thrive. This episode is sponsored by Chase for Business, and I'm joined by Ben Walter, who is the CEO of Chase for Business and the host of his own brilliant podcast, The Unshakeables. Ben, thanks for joining us for this episode. Justin, thanks for having me. I love all things music. So this is an exciting moment for me. I'm really glad to be with you. Good, man. This is like a really, you know, as media continues to evolve, this is something that I think is front of mind for everybody. And in the creative spaces, like a broken record, we don't often have these kinds of conversations about business.

1:31And I think they can be really insightful for creatives and for artists and musicians. So thank you. I hope so. So Ben, for those reasons, I'm happy to have you on to talk about this. You know, I think most people think about the artists they love. You know, we just had like a Will Smith on, right? You know, even a Billy Corgan on, right? They're more often than not a part of a larger system, like a major label, a major label group, Universal Music or Sony. But when you learn more about the industry and smaller artists, you realize there's a lot of other ways to make money and be successful in the industry, to make money on what you're doing and provide a living for yourself.

2:09People always think about the art of business, right? But we don't spend as much time, I think, thinking about the business of art, you know? I think that's a great line. Yeah, it's true. But you cannot sustainably have one without the other. Absolutely not. There's a label called XL Recordings out of England, and we had its founder, Richard Russell, on the podcast in its early days. One of the problems that Richard Russell felt he was solving when he started XL Recordings was he looked at independence and he realized, well, you know, the people running these labels, they have a lot of heart and soul and they really want to see their artists succeed.

2:48And they're identifying unique talent. but where he realized major labels were succeeding was obviously having the budget being able to drive distribution and marketing and he thought well those things are you know I guess there's a natural tension between those two things but maybe there's a way to solve this and the way he thought that if I started an indie the way he would solve it was just to sign less artists that way he'd have a bigger pot of money to distribute amongst a smaller number of artists and be able to grow sustainably does that seem like a sound first principles for starting a business of that sort Yeah, I think, look, in any business, when you think about the top line of the business, the revenue coming in, you always got this issue between product and distribution.

3:31In the case of music, content and distribution, but content is the product. So you pick your wording. But you have stuff to get to market, and then you have pipes that get it to the market. And in different industries, at different times, at different points, different parts of that value chain have more and less leverage over one another. So I think in the case of Excel, what they did that was smart is they realized they had great product but limited leverage on the distribution side. And so what they really did in essence by cutting it down is said, I am willing to take a bet on my product. And by limiting the product, I will maximize the number of resources I can throw at my real challenge, which is distribution.

4:14And so that's a really smart way in their case. Now, they were betting big, right? Because if the talent wasn't as good as they thought, they wouldn't be where they are today because they basically went all in on product. Now, you can do that when you're just starting out because you have very little to lose. Yeah, and it's funny. I mean, to your point, when you're that small and you're just starting out, you don't have a ton to lose, but it's still risky. But adjusted for the amount of money you're kind of making, that risk can feel big. And they really were niche to start. Like they were a rave and dance label right as that stuff was starting to kind of come out of clubs and maybe just touch the mainstream a bit.

4:53But one of their early artists was the group Prodigy. And, you know, the label starts in 1989. And by 1994, they have a, you know, the Prodigy have a number one album in the UK. By 1997, they have a number one album in the UK and the US. Right. And so that pot of money, I think, starts to get bigger at the label. And then what they did was reinvest back, again, same principle, thinking, let's take the money we have invested into a small number of artists. They just took that money, reinvested it into the artist. And eventually they grow that until they're releasing Adele's Album 21 and Vampire Weekend records and White Stripes records and Radiohead and Tyler the Creator, like artists who are really shaping modern culture.

5:36Ah, the White Stripes, yes. Well, look, a few things. One is it's always good to know where you think you have an unfair advantage. And by unfair, I don't mean a monopoly. I mean, in this case, their unfair advantage is they could pick talent better. That was like clearly they had an eye for it that the market didn't have because they could bet on a few artists who were better. But that is a concentrated risk. And so what I tell many new business owners is it's easy to forget this, but ultimately managing a business is primarily about managing risk. Even when you're in the growth phase, it's not like only big companies that have something to lose have risk.

6:16Because even small companies, as you said, starting out, you know, if they only got so much money in the bank, they have risk too. And so I encourage them to think of a triangle. You know, whatever you're doing doesn't matter. I'm promoting a new artist or I'm doubling down on my existing artist or I'm launching a new label or I'm promoting a new album. Whatever you're doing, you're trying to balance a three-legged stool because everything you do has some level of financial risk, some level of brand and reputational risk, and some level of operational risk, right? Because even you might say, well, there's financial risk if I take this bet and it goes bad.

6:48But there might be operational risk if I take the bet and it goes really well and I don't have the resources to fulfill on what I just sold. or both of those things go really well. But then, you know, the way it's received taints my brand in a way that I'm uncomfortable. You're always balancing sort of those three legs of the stool and trying to manage those. So that's one is to really think of when you're running a business, you're taking bets and you got to manage the risk around all of those things. And I would say the second one is know when you're playing to win versus playing not to lose.

7:16You know, as a small brand, they were playing to win, right? They were going to bet on a few artists. You know, they were betting the farm and they were playing to win. And when they got bigger, my guess is now often they don't put quite as many eggs in one basket because there's a few places where they think they can bet big and play to win. And some other places they'll take a smaller bet not to lose. I don't know their strategies per se. But as companies get bigger, they start to think in those terms because you're making resource tradeoffs and investment tradeoffs all the time. That's interesting.

7:45So you start to think of the certain big bets as possibly subsidizing the riskier bets? That's right, because one of the obligations you always have, you have to make money today and tomorrow. You can't just say, well, I'll bet it all for tomorrow because then you don't eat dinner. And you can't just take all the profits today because then there'll be nothing paying you a dividend in the future. So you owe it to your business, your investors, and yourself to make money for today and for tomorrow. Speaking of unfair advantages, next one, I want to talk about Beats by Dre, which, of course, is started by Jimmy Iovine and Dr.

8:21Dre. I mean, the unique advantage, the unfair advantage here is fairly obvious. These are two guys who he's Dr. Dre. He's Dr. Dre. I mean, yeah, it's like, you know, in terms of sound and audio quality and production and Jimmy Ivey in the same, you know, working on John Lennon records and the Tom Petty records and then starting Interscope. It's like these are two guys that know music. They know quality sound, you know, and they start in 2006. So, you know, even though they're ideating around 2004, 2005, not too long after Napster's kind of Napster upends and peer to peer file sharing and iTunes kind of disrupts the record business overnight.

9:01There it goes. Right. And so Jimmy and Dre start to think, well, what are ways, other ways we can make money still in music? and they realize, well, not only are people stealing music, but the quality of the music they're stealing is terrible. We should give them headphones so they can actually hear what you're playing is terrible and start to train the audience to recognize good quality. And so they start Beats by Dre. I'll tell you what's really interesting about that, Justin. Look, it's not quite a complete analogy because no one's worried about either of those two guys' next meal. However, we see typically in economic downturns, when there's a recession, new business formation goes up, not down.

9:47It's counter cyclical. Why? Because people lose their jobs. And when they lose their jobs, they say, hmm, I can't seem to find a job I want. I'm going to go start a business and I'm going to do that idea that I always came up with. Or I'm actually going to take the plunge and see what I can do. And so a huge number of the entrepreneurs that we see on our show, in my business, are people who, you know, something went wrong. Something went in a way they didn't expect. And next thing they know, they're starting a business. That is not uncommon. Yeah. I think this is a question a lot of people find themselves running into, and especially artists, too, is the idea of needing to take on a lot of roles or jobs or gigs in order to make the income necessary to satisfy your lifestyle.

10:36Oh, yeah. When you're talking to small business owners, how do you help them navigate? Well, you know, yes, you can take these 10 things and all 10 things will net you X amount, but maybe that's not a good thing ultimately. You know, how do you know where to really reinvest your time? Yeah, I would say a few things. One is you have to take the first do no harm view, which is, you know, and if I take that to a music artist, you know, if doing anything else is going to degrade the quality of your music, your music, whether you're a singer-songwriter, you know, you write your own material or you're just a performer of other people's material, either way, if it's going to take away from that, then you're eroding your core activity for something else.

11:17and you better have an awful conviction, an awful lot of conviction in what that other thing is if you're going to undermine that. So imagine if you're a sports star and you start a clothing brand and in the process of focusing on that clothing brand, you become a much worse athlete. That's probably going to have not just an impact on your athletic career, it's going to have an impact on your brand. So you might've just released a great album and you think, you know what? I can trade on this album for a year and I've got more content in the waiting. And so I can go focus on some other things because I feel good about where the music is for a period of time.

11:51And I commit to coming back to it in this time so that I don't let it atrophy. You know, you can make decisions like that. But ultimately, if you're going to take, you know, you are going to be distracted no matter what you do. And so you really need to think about, of all the activities that I have, which one is going to protect my interests and which one's going to grow my interest? And how can I split my time between those things? That's sage advice. That's sage advice. I mean, it's easier. Look, it's easier said than done. I wish I could tell you there's a mathematical formula for it. There's not.

12:19I'm afraid even a banker will tell you judgment wins the day. You know, judgment wins the day. I mean, probably everyone should trust their judgment, but artists are people who work on their judgment every day. That's what they're doing. You know, they're creating things and trusting their gut. And so hopefully we can, you know, those of us who don't have business degrees, we can still figure out how to make things work for us. I agree with you, Justin. No one ever made a great piece of music by, you know, just repeating someone else's music. People make a great piece of music because they have the guts to do something original.

12:48Yeah, absolutely. Well, Ben, thank you so much. This is, you know, again, I don't spend a lot of time thinking about the business of music, but it's really instructive, you know? I mean, frankly, even though I don't spend a ton of time thinking about it, I'm doing it every day, you know? And so it's nice to actually spend some time prioritizing the business side of things. Well, look, I appreciate you having me on. I think, you know, I don't know a single person who doesn't love music and music makes our lives richer and music can't thrive without a successful business model underlying it. We need sustainable business models to help great artists make great music.

13:22So the more we can encourage and support artists having really sustainable, good business models, the more we all get to enjoy the richness of that music. Ben Walter, CEO of Chase for Business. Thanks so much for doing this. I really, really appreciate you. Justin, this was a lot of fun. Thanks a lot.