Longtime music industry player Brenden Mulligan discusses the challenges of launching and running a music startup, and some important dos and don'ts for those planning to start the music business's next game-changing company.

My music industry experience

So what is my experience? I’ve gone from music fan to music exec to music startup CEO. I’ve experienced the industry from a bunch of different angles.

In the ‘biz

Over 10 years ago, after a childhood of loving music, I started working in the music industry. I started by organizing and running a 3-day music and arts festival at my college, where I was in charge of hiring all the musicians who played. I then worked for a semester at one of the largest booking agencies in the world. In the summers I worked for a festival promoter and did a small internship at a music venue in Nashville.

After college, I worked for a record label and artist management company. Three years later I moved on to work for an online music retailer (now defunct) for a year. During that time I also managed a folk rock band and spent a few weeks tour managing for a pop artist when he went on his first arena tour as opener for a grammy winning artist.

Music Startups

At the same time, I was starting my first music startup, which after three years of driving me into debt, I eventually sold to a company who helps artists find gigs to play. The exit made me even financially, and I was able to write off the few years I spent on it as an amazing educational experience. After a year with the acquirer, I launched a side-project that turned into my second music startup, which I sold to someone more interested in making something substantial out of it. (They haven’t.)

I’ve also written for one of the most prominent music blogs. I even did a whole series about building music startups.

Building a startup for musicians

Coming from the music industry naturally led me to build companies where musicians (and their teams) would be my customers.

In general, there are two revenue models to consider when building for musicians: charge them to use a tool or help them generate revenue and take a percentage as a fee.

Charging them for a Tool

Unfortunately, the businesses your customers run put them in a position that makes it very hard for them to spend money on services.

In other words, your customers have an extremely low willingness to pay.

New musicians don’t have the money to pay for non-critical things. Their money must be spent on touring, gear, food, and shelter. And unless using your tool guarantees (not just promises) them additional money, they’re unlikely to pay for it.

Established (read: signed) musicians also wont pay you. Actually, it’s their record labels who won’t, because even though the musician seems to be doing well, your customer is no longer the band, it’s the label. And record labels have an unenviable business model right now. It’s hard to get them to agree to pay for anything, and since it’s most likely an unpaid intern who’s using your tool, they won’t be the one making the purchase decision.

Unless you have created something that’s truly revolutionary, asking this set of customers to pay for a service almost never creates a scalable business.

Exceptions to this rule are services musicians need: email management and website hosting. And when done well, selling music and merch.

But can these businesses become enormous exits worthy of external investment? Rarely.

Taking a Cut of Revenue

Okay, so you can’t charge them. Instead, you’ll help them make money (by selling their music/merch online, creating a digital fan club, etc…) and just ask for a small cut. This model has its share of problems too.

First off, smaller bands don’t make enough money for the cut you take to turn your startup into a meaningful business. And volume isn’t an option because trying to make money from the long tail has rarely worked. Again, there are edge cases (CD Baby is a great example), but overall this approach won’t generate a lot of money.

What about bands who make a lot of money on their own? Asking for a cut from them also has its problems. Generally, if the musician is established, it’s because they’ve built their own audience. They don’t want to share that money with you. They’ll talk your rate down to a point where your margins no longer make sense.

Again, you can build a small business here, just not a very big one.

But what if you have a great idea?

Build it!

Dos:

Charge your users. And as soon as you can, get musicians to pay for it. There’s no better validation that what you’re building is actually valuable than musicians actually paying you for it.

Decide what the goal is. If you have another job and this idea is just a fun side project, aim to make it cover your costs and provide a little extra spending cash for you. If you want to do it full time, figure out how to get it to pay your bills and quit your job as soon as possible.

Enjoy it. Your tool is helping musicians bring more music to this world, which is an incredible thing. Enjoy and be thankful for your role in this process.

Don’ts:

Don’t ask friends and family to invest. The goal of taking money from friends and family is to return it back to them many times over. This most likely won’t happen, because it’s likely to be the last money you ever raise.

Don’t try to raise money from venture capitalists. It’s going to be very, very hard to convince the right kind of investors to give you money. I know this from experience. With Onesheet, I had amazing traction, amazing connections, and a solid background in music tech, yet investors that I knew very well turned me down. And they were right to. It wasn’t a VC business.

Don’t expect to get rich. I know there are of course the edge cases of people who have sold musician focused companies for millions of dollars (CD Baby, MusicToday, etc..) but this probably wont be you. For the handful that have worked, there are thousands and thousands that haven’t [anecdotal, but probably accurate].

I’m a pessimistic bastard

I know. Of course there are businesses that will work. There are many examples I’m forgetting.

I’m okay with that. Because in 10 years being very close to this business, I haven’t known a single person to start a musician focused business and sell it for a meaningful amount in that timeframe. The examples I can think happened over 10 years ago. So, I’m a pessimistic bastard, but hopefully at least sharing this experience will help you set expectations.

Now, go prove me wrong.

Brenden Mulligan is a product designer building LaunchKit, a set of tools to help mobile makers launch apps. He also works on Cluster, enabling users to create private social networks around interests and experiences. Brenden previously created and sold music tech startups ArtistData and Onesheet.