"Writing a Music Business Plan"
By
Peter Spellman
Director, Music Business Solutions
One thing I would never do is invite
friends to Boston without first sending them a map. More than most
cities, Boston (for the out-of-towner) is an urban tangle with few
rivals. I remember my first visit to the city back in '77. It was a
psychological and emotional roller coaster to say the least. And I
had a map!
Maps - they lay out the land and point us in the right direction.
A good music business plan is a lot like a map, though the "land"
you'll be dealing with here - the music industry - is both more
tangled than the city of Boston and can end up pointing you in any
variety of "right" directions at the same time.
A good music business plan is the map to the fulfillment of your
goals. Whether you're a band, soloist, production house or some other
business, a plan can turn foggy notions into operational strategies,
hunches into actions, dreams into reality.
Dreams. This is where it all begins isn't it? For this reason I
like to think of one's business plan as a "vision/mission." It starts
with vision. Before your first gig you envisioned yourself playing
it. Remember? Vision precedes mission and fuels it with the necessary
energy to go the distance. Mission implements vision and provides the
vehicle that moves you towards your goal. Together they're
unstoppable!
Why Write A Music Business Plan?
There are a number of specific benefits to writing a music
business plan.
A well-thought out business plan will:
Clear the way for creative thinking
Pinpoint strengths and weaknesses
Identify obstacles and problems
Expose hidden opportunities
Set proper priorities
Coordinate your marketing program
Take the guesswork out of budgeting
Allow for meaningful review and revision
Your business plan should never be viewed as a one-time draft
written in stone but instead as a provisional guideline to help you
take strategic and effective steps toward the achievement of your
goals. It is never really complete because it parallels and reflects
the dynamics of your own growth and development.
Besides the benefit of self-revelation, there is another important
reason to draw up a business plan:
To attract investors and secure loans. No one needs to tell you
how much it costs to launch a successful music career in the 90's.
Between equipment, insurance, taxes, travel, recording, mixing,
manufacturing, promotion, advertising and various fees and
commissions, today's musicians and bands are left with little else to
call their own. Enter investors.
Investors are willing to put up a certain amount of dollars to
launch your music project with the hope and expectation of a return
on their investment. The most important thing they'll need in order
to decide to invest in you or not is a well-thought out business
plan. The same goes for seeking bank loans. A plan reflects
professional responsibility to the lending institution and greatly
increases your chances of securing a loan.
How to Structure A Music Business Plan
A music business plan will have six main components.
They are:
I. A summary page
II. A description of your business
Ill. A marketing plan
IV. An operations statement
V. A project time-line
VI. Financial projections
We will look at each in turn. You may want to make a rough outline
for your own plan as you read this article. Don't be surprised,
however, if your complete plan ends up being forty pages long! This
should be expected.
Would you like some free help drafting your plan? Then contact
your local SBDC (Small Business Development Center). This is a
federal program that is part of the SBA (Small Business
Administration) designed to provide small business owners with
counsel and resources. Your tax dollars pay this so use it! The SBA
has a Small Business Answering Desk (800-827-5722). which can answer
many general business questions including the location of the SBDC
office nearest you.
While you may not find them to be experts on the music industry,
they are experts in creating and developing small businesses, and you
are one. Let's first get an overall sense of where we're going by
displaying a complete outline of a business plan:
I. Summary statement
II. Description of your business or project.
A. History and background
B. Management description
C. Business structure
III. The market for your product or service
A. Market description
1. General market information
2. Specific market information
3. Competition profile
B. Marketing plan
1. Positioning
2. Marketing mix
3. Pricing philosophy
4. Method of sales/distribution
5. Customer service policy
IV. Operations
A. Facilities and equipment
B. Plans for growth and expansion
C. Risks
V. Project time-line
VI. Financial information
A. Financing required
B. Current financial statements
C. Financial projections
I. Summary Statement.
Here you want to answer the following questions as succinctly as
possible: Who are you? What will you do? (goals). Why will the
business be successful? How will it be financed? - and When do you
think it will turn a profit? (Remember, a 'profit' is not how much
money you make, but how much you keep). Be ruthlessly realistic!
It is also in the summary statement that you list the products or
services being offered (e.g. CDs, tapes, performances, etc.) as well
as the names and positions of all personnel involved. The summary
should close with mention of anything that is unique about your
project.
II.Description of your business or project
This secton begins to flesh out the summarization above.
A. Begin first with the history and background of your project.
This provides the overall context in which to view your current work.
List all data that pertains to the various facets of your present
business. Don't pad it with your whole life story, just the pertinent
highlights that have brought you to the present moment.
B. A management description should follow next. How is your
business project organized? What does the leadership look like? (it's
style and command chain.) How are decisions made and facillitated?
What kind of ongoing business meeting schedule will be followed to
insure smooth operation?
C. Decide on the business structure you will use (i.e. sole
proprietorship, partnership, corporation, etc.). This is one of the
first questions the start-up business person should ask. The answer
to this question has many legal and tax implications, varies greatly
from state to state and from time to time. Again, seek the advice of
your small business advisor at your local SBDC office.
III. The Market for your Product and/or Service Now we are
getting into the essence of what you're uniquely about. Marketing
means selling and it is an absolute truth that unless a start-up
business can sell its offering it will not survive. Getting orders -
selling your recordings or performances to paying customers - is of
crucial importance to a new business.
To compete successfully in the music business, then, you must
follow the same strategy that every successful business person uses.
You must:
* Develop a product- in this case, your music.
* Locate clients for your product - do market research.
* Bring your product to the marketplace - use sales technique to
convince potential clients to buy your music.
Does this mean you're "selling out"? NO! Or I should say, it all
depends on your attitude. If you have a killer recording or a hot
performance to sell and you market it accordingly, then you're not
selling out. You're simply bringing a desirable product to a ready
audience.
If, on the other hand, you would sacrifice your mother for a
chance to claw your way to the top, then yes, you're probably selling
out. Again, it's attitude. And you have to determine this for
yourself. O.K., now that we've cleared that up let's look at some of
the various facets of your marketing plan.
A.Description of the market for your product/service. The
first thing you need is information about your market in order to
correctly position your product and find your own unique niche within
it. This is called market research and, like all of your planning,
should be viewed as an ongoing process. You will need both general
and specific information about your market.
1.General Market Information. The general market for
musicians is the music industry. Without a general understanding
about this larger market context you will have a difficult time
trying to find your way within it. It is crucial, therefore, for
today's musician to have a grasp of such things as record company
structures, music publishing, recording contracts, distribution and
music media, and how all of these work together to bring music to
people. You can learn about the industry by talking with industry
people, taking courses and reading books and trade magazines (see
free resource list offer at end of article).
2. Specific Market Information. Here you will want to ask:
What part of this larger market do I fit into? In other words, who
are my customers? What is their general age, their sex, professions,
lifestyle and interests? This information will prove crucial to the
development of your marketing strategy.
In addition to your customers you'll also want to describe your
competition. Be as specific as possible. Gather information on three
or four successful competitors, assess the relative strengths and
weaknesses of each, and compare your product or service with similar
ones in terms of price, promotion, distribution and customer
satisfaction.
B. Marketing Plan
Now that you've gathered information on both your general and
specific market share, you're now ready to develop your marketing
plan or strategy. This too can be broken down into several component
parts.
1. Positioning - This is related to finding your market
"niche." No matter what products or services you provide, you can
carve out a niche for them based on your experience, skills, and
interests and then build up that niche as you work to serve it. Ask
yourself questions like: What do I do best? Who needs that the most?
Where can I provide that product orservice that will give me a chance
to expand what I do to utilize my other interests? What do I have to
offer that is special or unique? The answers to these questions will
help you "position" yourself to most effectively promote what you're
selling.
2. Marketing Mix - The particular combination of marketing
methods you choose for your marketing campaign is referred to as your
"marketing mix." Methods can include news releases, sponsorships,
networking, publicity flyers, contests and giveaways, classified ads,
trade shows, radio spots, charitable donations and literally hundreds
more.
When making your selection, keep in mind this fundamental rule of
successful marketing: The measure of a successful marketing campaign
is the extent to which it reaches at the lowest possible cost the
greatest number of people who can and will buy your product or
service. Generally speaking, the more of your time a marketing
activity requires, the less money it costs you, and vice-versa. For
example, networking costs almost nothing in money but plenty in time.
On the other hand, advertising in a city newspaper costs a bundle
while requiring little in time.
3. Pricing Philosophy - How much you charge for your
product or service will depend on many variables. Here is where your
research about your competitors comes in especially handy.
Undercutting your competition is one common way to gain market share.
But there is another approach. Research has shown that buyers, when
making a purchase decision, select what they consider to be the best
value - all things considered. And this suggests that value is equal
to the benefits they perceive divided by the price. Price, therefore,
is only one part of the purchase decision process. If you want to
increase your customers' perceived value of your product, you can do
so by either increasing the benefits or decreasing the price. It is
almost always preferable to work on the benefits, both tangible and
intangible, both rational and emotional, both large and small, that
will make it possible to sell at a higher price.
4. Method of Sales/Distribution - This is related to your
marketing mix and details the methods you will employ in implementing
the various parts of your mix. For a musician, one method might be
the use of a booking agent. Another might be a record distributor or,
perhaps, mail order.
5. Customer Service Policy : When considering customer
service it is always useful to ask yourself why you continue to
frequent certain businesses. More than price more than product
quality, you will often return again and again to these businesses
because you feel taken care of. The people of those businesses go the
all important extra mile to make you feel special. They anticipate
your needs and provide for them in the various ways they deal with
you.
See if you can translate elements of this customer service policy
into your own. Write down your philosophy and then list all
applications you can imagine related to your business. How can you go
the extra mile with your clients? Find ways of distinguishing
yourself from your competitors in this area and you will insure a
faithful clientele for years to come.
IV. Operations -
This has to do with the overall physical and logistical
manufacturing of your product or service. It typically has three
parts to it:
A. Facilities and Equipment will encompass such things as
your rehearsal space, office space, studio, manufacturers you use,
your instruments, sound and light equipment and vehicles you use to
haul it all around. A brief note on equipment insurance should also
be included here. Investors like to see the founders of a company
have a cash investment in the buisness in addition to "sweat equity".
B. Plans for Growth or Expansion - Here is where you
project your more general goals three to five years into the future,
What will you need when you progress from local to regional success?
Regional to national? National to international? Perhaps you'll want
to develop sub companies within your primary company. Maybe a
publishing wing, or a video branch, or perhaps a recording studio.
Think it through as clearly and completely as possible.
C. Risks - This is another very important part of the plan.
Not only does it show you're being open and honest with your
financing source, but it forces you to consider and assess
alternative strategies in the event your original assumptions do not
materialize.
V. Project Time Line -
Here you want to articulate the schedule for your goal
achievement, both short-range (e.g., obtaining radio airplay, booking
high-profile gigs, procuring management, etc.) and long-range (e.g.,
signing a recording contract, having your song performed by a
mega-star, etc.). Think through the essential steps needed for the
attainment of each goal.
VI. Financial Information -
No matter how wonderful your plan is it isn't going anywhere
without capital investment, whether it's yours or someone elses. This
final section of your plan should be broken down into three
sub-sections:. The financing required, current financial statements,
and a three-year financial forecast. Needless to say, this is the
part of the plan potential investors and lenders will concentrate on
the most. So the following is written primarily with seeking
investors in mind.
A. Financing Required - While your first thought may be to
ask for cash exclusively, there may be other resources that would
help you even more. Perhaps what you really need is some people power
assistance, or a touring van, or a new computer. These can sometimes
be provided more easily than cash.
Whatever you decide you need, make sure it's based on a
hard-headed and realistic assessment of the true costs of achieving
your goals. A basic rule of thumb in estimating costs is to add 15%
onto whatever figure you come up with. This covers all those
additional "hidden" and unexpected expenses which inevitably accrue.
B. Current Financial Projection: Financial projections are
a key part of a businessplan. They provide the reader with an idea of
where you think the business is going. Perhaps more importantly, they
tell a lot about your instrinsic good sense an d understanding of the
difficulties your company faces.
Often, financial projections are optimistic to an outlandish
extent. They are usually prefaced with words like, "Our conservative
forecast is..." Do not use the word "conservative" when describing
your forecast. Be careful also not to use the "hockey stick" approach
to forecasting, that is, little growth in sales and earnings for the
first couple of years followed by a sudden rapid upward surge in
sales and totally unrealistic profit margins. Excessively optmistic
projections ruin your credibility as a responsible business person.
Include monthly cash flow projections, and quarterly or annual
order projections (e.g. for studio time, CO manufacturing, etc.)
profit and loss projections, and capital expenditure projections (see
your accountant for explanations of the above terms). In making
financial projections it is usually a good idea to include "best
guess," "high side," and "low side" numbers. Sensible investors want
to know what returns they can expect and especially how they will
achieve liquidity. Tell them. Again, include alternative strategies.
Don't worry if you feel a bit overwhelmed by the avalanche of
detail your business plan requires. Who wouldn't? Give yourself time.
It's helpful to set yourself a goal for completing the first draft of
your plan - say three months from now.
Begin with one section at a time and meet periodically with your
small business advisor to review your plan's development. He or she
will be able to discern blind spots as well as affirm the plan's
overall direction. If you're thinking of foregoing the effort
altogether and just "winging" it, just remember that no planning
inevitably leads to wasted time, money and energy - all three in
short supply.
Remember too that the musicians you currently respect rose to
their success with strategic planning and a keen sense of what "doing
business" really means. Furthermore, today we are seeing the smarter
bands being brought home because they know the inner workings of the
music business and how to best organize their limited resources in
order to penetrate it. How about you? Are you planning for
success?
Peter Spellman is Director of Music Business
Solutions, a provider of music business info products, training and
consulting, and Career Development Coordinator at Berklee College of
Music in Boston. He is author of the book, Music Biz Know-How:
Do-it-Yourself Strategies for Independent Music Success (Bootstrap
Press Intl.) and percussionist for Friend Planet, a multimedia
world music ensemble.
success@mbsolutions.com
