The Argument Against Scaling (Part 1)
I’m Nick and I’ve spent the last 15 years working in different parts of the music industry such as management, sync, live, instore, and labels. This is an attempt to put a bit more of a strategic voice into our weird niche.
With Universal’s successful listing, Songtradr’s continued growth and a whole host of smaller companies launching it appears that there has never been a better time now to launch into a new music business but is aiming for aiming to to take over the world the right vision..
There has been an ongoing decrease in the trend of so-called “hustle porn” that has historically accompanied the VC-backed startup world. This has started to be balanced with those seeking to stay small and own their own destiny (perhaps also trying to have a better balance in life). There’s a range of people from different industries (art, literature, crypto, tech, etc) who are all taking on this new philosophy.
In this article, I’m not going to argue that this is a better approach (there is no one size fits all) but simply to explore what it takes, what you’re giving up, what you might need to succeed and how you monetise if this is your chosen path. This goes for a sync business, a record label, or even an artist themselves. The essential point is having a clear understanding all these elements, even if your business isn’t new, and how they permeate every part of your organisation.
The second installment in this mini-series will explore the exact opposite, the opportunities of scale, and I will then use these frameworks to analyse the current sync landscape as part of an article for SyncTank. Onto Part 1…
Why Stay Small
Previously staying small was the default option. Getting your marketing, operations, and logistics to scale was such a mammoth task that few outside the majors bothered to try but with the technological innovation of the last twenty years now it appears the opposite is true. Everyone’s favourite boardroom cliche is “but will scale” and the amount of capital that continues to make its way into the music industry doesn’t appear to be drying up.
So if all this capital is available then why wouldn’t you want to take advantage? Well, the inherent nature of music is something that could be considered a luxury good and therefore enables the opportunity to provide scarcity (in the catalogue or artists you represent) and charge a premium for this. The challenge of finding a thousand great artists is one that even the majors struggle with but historically a large number of independent record labels, publishers, and sync agencies have managed to find ten or twenty artists that meet a specific style or genre and built great businesses around them.
Business Model
The overarching business model still offers a huge variety of choices even if staying small is your chosen option. The factors that aren’t really up for discussion are the focus that is required and the quality you have to deliver.
The global distribution that the internet now enables allows a business to be far more focused than ever before, narrowing your ideal fans, client base or job to be done. A great example of this in the sync world is ClicknClear. An incredible insight into the challenges of licensing music for cheerleading teams allowed for a niche business to establish itself where much larger operations wouldn’t possibly consider this a worthy line item on the P&L. From this start there could be opportunities to expand and branch out but that doesn’t have to be the only option. This type of example is borne out across lots of other sync businesses where the investment and operations costs require them to serve TV, Advertising, Gaming, and many other licensing opportunities, never perfectly fitting the needs of any one client.
The point here is to look for opportunities that might be inaccessible to those larger companies, enabling you to meet a customer demand with much greater precision or quality.
Revenue Model
One of the major risks when staying small is relying too heavily on one source of revenue. Creating a range of revenue streams has been a long-standing approach of many small music companies and one of my favourites is US-based company TerrorBird. Representing a range of artists (although not too many) they then diversify the revenue streams for this smaller number of artists including sync, PR, publishing, and many more. There is a delicate balance to be struck to ensure, as James Clear says, to ‘reduce the scale, not the standards’.
Doing a range of complimentary services for a small number of clients still has its limitations and ensuring you do all of these things exceptionally well is very important. It is likely your price point will be less competitive compared to those that operate at scale and TerrorBird’s recent placement on the Apple Privacy Ad is a prime example of delivering quality to the catalogue they represent and quality to their clients.
Operations
A key tenant of successfully staying small isn’t just picking the right business model and product, it's considering how your processes, staffing, and cost structure to ensure costs stay low and the right skills are in place. There is no hiding behind the fact you will have less to spend on overheads and being creative about what you can afford to do from an infrastructure approach will be key. There is a SAAS product for literally everything now and ensuring you don’t eat up your profit margin on operating expenses will be a tricky process when trying to compete with those with larger budgets and investments. Evaluating what actually adds value to your offerings and allows you to deliver a better product or service will be difficult as there will be plenty of either-or choices.
While it might seem more obvious to become a cost-driven business when you are staying small, quite the opposite could be true. To go out of their way to find a boutique supplier a client might be happy to pay over what they could get elsewhere but the product or service has to reflect that price, leading to a value-driven cost structure. In addition to this, there may be a significant advantage in staying small now “software has eaten the world”. Whereas historically economies of scale were a big factor there are now occasions, such as SAAS products when chosen sparingly, where costs scale relatively with the size of the business, thus enabling smaller companies to get access to some of the same technologies as larger companies without breaking the bank.
In addition to the limited budget to spend on infrastructure, hiring and talent are critical when in a small operation. Finding generalists who will be able to do a range of activities well is essential. This could be from a hiring approach, a training approach, or simply having a great freelance network rather than an on-staff cost. Either way, where specialists reign supreme in larger businesses, having someone who can roll their sleeves up and work out how to do almost anything well will be a valuable asset to anyone wanting to stay small.
What You’re Giving Up
There is no way to hide the fact that unless by some miracle you have an investor who doesn’t care about the returns, staying small will limit the funding options you have. With most small music businesses starting bootstrapped and trying to work out how to deliver the quality you need will be a tough task. Hiring talent, investing in your product (or your artists), and setting up operations all cost money, and finding a way to fund this or having the patience to expand slowly is the hardest part. Starting incrementally could prove the key to success, reinvesting at the right milestones.
How To Not Need Growth
The last segment is one that could easily slip off the list of considerations. When choosing to stay small one of the big mistakes is to think you do not need new revenue or to seek out new opportunities. Although aggressive growth ambitions are definitely not part of the business plan, being more in demand than you have the ability or desire to fulfill is the position that anyone staying small should strive for. If you ask anyone at XL Records whether they have the opportunity to sign more artists, do more brand partnerships, and generally grow the business, I’m convinced the answer would be yes.
Learning to say no but equally ensuring the demand stays around is down to the quality of the output of a business. Although there is no guarantee of quality, establishing this reputation and upholding it in everything you do is so essential to always be able to replace any lost revenue and have the option to move in new directions as old ones decline.
Understanding what elements really determine the quality of the product or service your business provides is essential and then equally ensuring what investment or capital you have is directed appropriately to drive this forward to sustain for the long term.
Summary
As I pointed out at the very beginning, this article is not to say staying small trumps growing big but simply there are plenty of considerations when choosing your approach.
Having a clear vision for your business and then thinking about revenue model and operating system fit will make the difference between those that succeed and those that struggle. At every stage of a companies progression, there will be decisions to make, and rather than making them on a whim, having a clear list of compatible options and directions will make life simpler and your business more effective.