Although the music industry is changing at a rapid pace, there is always a need for progressive record companies. A successful record company (or label) finds new talent, pays the recording and mixing costs, helps with tours, and promotes and markets its stable of artists.
Part 1 of 3: Planning the venture
Step 1. Determine the framework of your company
Be efficient as a start-up: target a specific genre to build a reputation. This framework is largely determined by what you want to achieve. If your goal is to make a lot of money, you should focus on mainstream music. If you want to be the leading label for contemporary post-avant jazzcore, the chosen framework and approach will be quite different.
Step 2. Write a business plan
You need this at different levels. The first (and most important) you need to build the record company skeleton: how do you plan to find and develop talent, how do you go about promoting and marketing, your understanding of the market and competition, the financing of the business and how you plan to turn it into a profitable business.
- If you are very wealthy you may not need investors, at least not when it comes to money. But you may still want to attract investors to help with your credibility in the market. For example, if you started a record company with your own money and convinced Paul McCartney to invest in your label, it would still make a huge profit. To do that, you need to be able to provide Paul McCartney with a credible plan to show him, or any investor, that you know what you're doing.
- If you do need lenders, you need to have a plan that shows that you understand both the rewards and the risks, and that you've found a way to grow. Then you have come a long way if you want to convince an investor to come over with his or her money.
Step 3. Specify all costs associated with starting your business
This includes everything from staples to electricity, shooting costs, production costs. Be thorough when you do this: people considering investing in your label will certainly be very thorough when they read your plan! Here are some things to watch out for:
- Administrative costs: the rent, office supplies, but also taxes and permits can be very significant. Don't forget to include costs for telephone, internet, printers, paper, computers and business cards on this list. Of course you also need a website and also someone who builds and maintains the website. Some costs are weekly, others monthly and some only once every two years. It may seem like a lot at first glance, but if you're writing a plan for the next five years, you should be able to see how these costs ultimately only make up a small percentage of the financial picture.
- Recording costs: as a record company you have to release albums by artists or bands. That means you are responsible for the entire recording chain: the rent of a studio, fees of any session musicians, the fees for the technician, the producer (maybe this is you, but you also have to be paid) and the technicians responsible for mixing and mastering.
- The marketing budget: a great record does nothing by itself, it has to be marketed. To do that, you need to sell your label and album through internet ads, magazine and newspaper ads, press releases, and your own website. You also need to work with designers to create a corporate identity, a recognizable style for the covers, just the overall design plan.
- Legal Services: While you are working hard to produce great music, someone has to take care of writing clear contracts for your artists and for your business deals. You also need a good accountant for all your tax matters. You need people you trust and build on.
Step 4. Prepare a liquidity forecast
Planning a liquidity forecast, or cash flow forecast, for one, three, and five years requires some skill and some solid guesswork. The first year should be pretty solid: you already have a good idea of the startup costs and you probably already have in mind which albums you want to release. Use this information to determine what the costs will be and the benefits.
- You can base this, for example, on how the bands you want to contact are doing now: are they selling out venues? If you are going to sign bands that are brand new you will probably have to spend more on promotion to get this band to market.
- If you sign more bands, the potential sales will also increase. When you're planning for years three to five in your forecast, you need to decide how you're going to bring in new talent and what you're going to do about promotion at that point. Here the prediction gets a bit more complicated: if one band does really well, it will be easier to promote your other bands. Conversely, a band that sells little can be a major drain on the entire company.
Step 5. Assemble your team
You have to gather a team around you, unless of course you are extremely talented in sales, marketing, music, business, art, conversation and also extra jobs as a lawyer. Here are some skills a successful team should have:
- Marketing and sales: someone who goes the distance to promote your label, who knows the market well and who has a good relationship with artists and promoters as well as potential investors. This is the one that can make or break your company: they are responsible for bringing in new talent and bringing feats of arms to the world. The better they perform, the more successful you will be.
- Production. You need someone who knows all the ins and outs of the entire recording process, who knows or can train good technicians, mixers and producers, and who can lead a recording session.
- Hiring freelancers. To keep costs low in the beginning, consider hiring other staff on a freelance basis. This could be useful for graphic design, contract assistance, accounting, and other things that don't need to be done constantly.
Part 2 of 3: Carrying out your plan
Step 1. Make your business official
Choose the right business form for your label so that you can officially operate in the market and to protect yourself. There are several options:
- The sole proprietorship. Here you do everything yourself. a sole proprietorship is easy to start, easy to end and easy to maintain. You may have advisors or friends to help you, but in the end it all comes down to your plate. This applies to both profit and costs. This is not useful to attract investors, it offers little protection for yourself: if the company goes bankrupt, you will go bankrupt. If you're planning to turn your record company into a real business, or if you're going to hire people as you grow, you'd better choose a different business form.
- Company Under Firm (VOF). A VOF is great for small businesses. It is easy and cheap to start and you can start the business with several partners. All partners contribute something and you do not need any starting capital. But even with a VOF you are personally liable for the debts. If you are looking for investors, this may not be the best option.
- Private Limited Company (BV). If you are planning to start a large company and you are looking for investors who like a formal structure, it is best to opt for the BV. The advantage of the BV is that it is a legal person. This means that in most cases not you, but the BV is liable for any debts. As a director you are employed by the BV and you act on its behalf. You can set up a BV alone, or together with others. If you're the laid-back type that doesn't want too much hassle, this probably isn't the best option…unless you're ready to kick it up a notch!
Step 2. Bring in the talent
Now that your plan is ready and you have a business form and the necessary permits, the graphic design is ready and you have investors, it's time to get to work!
Step 3. Get out there, listen to live music, but listen critically
Watch the audience and see how they react to the band. If they're dancing from the start and hanging on the singer's lips, it might be something special!
- Approach the band, go talk to them. Find out who they are, how long they've been together, if they've released anything and what their plans are for the future.
- Most importantly, find out if they've already been signed by a record company. That shouldn't be a problem, but for a starting record company it may be better to choose a band that has not yet been recorded.
Step 4. Meet the press
Your city is packed with journalists who can help you spread the word about your news, but they need to know you. Find them in the newspapers, music blogs, and connect. Invite them for lunch, or have them come to the studio. Keep in contact.
Step 5. Find the right studios
Find good recording studios near you and pay a visit. Some will be extravagant super-de-luxe studios, others will be modest in terms of space but also in the equipment available. That's important to consider, but the most important thing is the quality of the music coming out of their speakers.
- Get to know the technicians, talk to them about their recording philosophy, how they interact with bands, what annoys them. That's good to know if, for example, you have a rapper you think is going to score, while the recording engineer hates rap music. Ask them to showcase some of their best work and listen carefully.
- If you want to be really thorough, ask them for a CD of some of their work so you can listen to it on your own installation. Sometimes something can sound great in a studio, only to be very disappointing at home.
Step 6. Visit the record stores
Big or small, they are there to sell records. If you get to know the people, they will put more effort into selling your products. It may seem insignificant, but every little bit can help.
Step 7. Get to know the managers and bookers
These are the people who know what's going on in the music industry and ultimately you can help each other.
If you build a good relationship with a manager and one of his bands is ready to find a record company, he might say, "I know who to turn to!"
Part 3 of 3: Holding onto the success
Step 1. Distinguish yourself as a brand
Once all the practicalities have been taken care of, it's time to build, maintain and cultivate the image around your label. Make a good logo and make sure you use that logo on the album covers, on the website and on t-shirts, stickers, mugs and the like. Draw bands and acts that fit within the image of your record label.
For example, take a look at successful indie labels like Sub Pop and Matador for textbook examples of "brand management". These labels have an independent business plan that is also very diverse
Step 2. Market your label creatively
Over the past ten years, the rise of the internet has changed the way music is bought, listened to and distributed. If you opt for an old-fashioned model (touring and dependent on CD sales and airplay) you will probably have a hard time. YouTube videos and models where people pay what they want are becoming increasingly important in sustaining a brand's success.
Consider separate promotion methods, such as printing a T-shirt with a download code for a mixtape from your label. A label from Memphis in the US, Goner, gave free vinyl singles to anyone who had "Goner" tattooed on their body
Step 3. Build a fan base
Sub Pop started out by drawing grunge bands from the northwest of the US, but now they have all kinds of bands that are more mainstream, such as Iron & Wine and Fleet Foxes. Expanding their flavor in this way has greatly increased their success and market share. Even if you're only targeting a small subculture now, consider how you can incorporate other sounds and flavors into your brand.
In the early 90's, major labels took a lot more risk when signing unknown or "underground" bands. For example, Sonic Youth, an indie band from New York, was signed by the big label Geffen. The deal was appreciated by music fans and people from the "business" alike. If you're making good money from your label, consider taking a little more risk with the next project you sign
- Always stay alert! Always be one step ahead of the competition by finding new, unique talent.
- Hold on. Like other start-ups, starting a record company means hard work, you have to be constantly at it. If you work hard, find the right talent and market your label effectively, you're doing well!
- Never sell 'no' to talent. Stay in touch, even if you can't do anything with it at the moment!