Moses Avalon is one of the nation’s leading music-business consultants and artists’-rights advocates and is the author of a top-selling music business reference, Confessions of a Record Producer. More of his articles can be found at www.mosesavalon.com.
You’ve heard it before: “It takes money to make money.” But getting start-up capital requires more than just talent. It means learning to communicate with investors. A business plan is a basic requirement. Sadly, the daunting task of creating one keeps many musicians from their well-deserved success. How can artists, who are not known for their business acumen, get past this major hurdle without blowing their start-up budget or feeling like corporate beggars? Here’s how.
The following is a sample chapter/excerpt from the revolutionary tell-all book by music business veteran, Moses Avalon, called 100 Answers to 50 Questions on the Music Business. Enjoy.
I’ve heard it over and over again from my younger clients: “Do I really need a business plan?” Simple answer, yes, you do…and yes, I know this sucks. This is the part where they start bargaining with themselves: “Why do I have to write this down — isn’t it obvious how we intend to make money?” Another simple answer: no, not to your would-be investors. Their exposure to the music business is probably the mainstream press, who tells them the industry is crumbling.
Over the past few years, even major labels have had to justify costs and income projections to their stockholders with written business plans. So why shouldn’t you?
You have a great product (your music), but you need to think of your act just as any other start-up business. With banks failing and our economy in a state of trauma, your potential investors are scared out of their minds about what to do with their money. If they are even considering investing in a musical group, then they are brave. You need to make them comfortable.
One great side effect of a deep recession is that it forces investors to gamble for a bigger potential return than they might in “good times.” One thing everyone knows is that music is a gamble that can pay back big — if you know what you are doing. That’s why the moneyed folk are paying any attention to you at all. Once you get their consideration, you have to wow ’em.
A business plan is more than an advertisement that you’re competent. It’s a learning tool which will help you understand your business better than ever before. Experienced investors know this. The creation of a plan forces you to ask key questions that you may not have otherwise thought of. Answering those questions brings with it a magical transformation, a bonding between you and the data that could not exist simply by “knowing” it.
When completed, you’ll feel more powerful, talk with greater authority, and be able to look people in the eye with stronger conviction than those who are just sitting passively with their hand out, saying, “Listen to how great I am.” And between the artist with the hand out and the one with a strategic written plan, who do you think will get the nervous investor’s cash? You do. You’ve got proof; you’ve answered the tough questions. You’ve got a plan.
And that plan is the yeast that raises the dough.
But what will a plan prove?
Every potential investor really only has one key question they want you to be able to answer: How long? How long until they will get their initial money back? Five years? Three? Ten? Where is the “tipping point”? That’s the point where revenue will start to outweigh expenses and stay that way long enough to see significant returns.
If you have not anticipated every contingency as well as every source of revenue, how can you possibly answer that question honestly? Investors play a lot of real-life poker, and if you don’t know the answer to that key question when asked, bluffing is an option that will usually end the meeting and kill the relationship. The business plan puts it all in writing. It says, “Here, it’s not just how I feel or what I think — the data backs me up. Now give me the friggin’ money!!!”
Could you leave all this business-plan business to a business manager? Sure, if you’ve got one. But in my experience, friends and family investors want to know that you are in control. They want to feel that you are taking a scientific approach to your career and are not just basing success on social equity, hanging out, and writing great music. Another thing that the media has taught them: great music alone does not equal a great investment. You want to invest with an act that has it together creatively and business-wise.
How to do it and what to spend
There is a right way and wrong way to do a business plan.
In my book, 100 Answers to 50 Questions on the Music Business, I give you some exhaustive details on this, but for this excerpt, let’s say that there is only one right way to do it: hire a company that specializes in this service.
A full-on business plan for a start-up venture costs between $10,000–30,000. But for a musical group approaching friends and family for money, you don’t need to spend anywhere near that. Here’s why:
Full-length business plans are about 60 pages long, and they start with a 5–10 page briefing called an “Executive Summary.” This is what most investors actually read, saving the other 50 or so pages of legal junk for their financial managers and lawyers.
If you’re only trying to raise a few hundred thousand, in most cases, you only need an Executive Summary, even though you’ll be calling it a “business plan.” It’s OK to interchange these terms, as long as you know the actual difference. (But when talking to serious prospects, should they require the additional information found in a full plan, you should be ready to give it to them.)
A 5–10-page “business plan” for a start-up can be put together relatively cheaply. Many services will do it for about $5,000.
At one time, the Moses Avalon Company was charging that amount, but we’ve now done enough of them so that the price has dropped to $1,500. That’s the best price that I’m aware of for the quality of the work. You should shop around, as I don’t keep up on what everybody charges for this. But make sure, however, that whomever you’re considering is giving you all the following:
– Complete bios of the band and the entire team
– Mission statement (Harder to write than it would seem)
– Market research and analysis
– Micro-Marketing strategy
– Macro-Marketing strategy
– Competitive Advantage
And most important . . .
– Five-year projection P&L (Profit and Loss) Statement, done by a professional accountant on an interactive spreadsheet that includes every expense you can anticipate and every revenue stream you can think of.
This last item will be the clincher, and will probably put their price way above $1,500. This item will reveal the tipping point mentioned above.
Give me a break
I suppose this could sound self-serving and a bit crass — using my book to pimp my services — but I’m only doing it so that you know your alternatives and how much of your hard-earned cash you should be thinking about spending. If I never write another business plan, I’ll live. Believe me. But without a properly done plan, your career might not progress. I’m only giving you my price as a barometer. So if someone is quoting you something lower for a “complete plan,” you know to be wary. Make sure you’re getting everything mentioned above.
Think even $1,500 is too much to spend? Okay, no problem. In 100 Answers to 50 Questions on the Music Business, I give you some DIY tips that could reduce your costs to little more than zero — if you’ve got time to burn.
Business plans are a pain in the butt, but they will separate you from the thousands of bands, groups, and artists who say that they’re serious but can’t even tell you at what point in their seven-year plan they will break even. They have the “Dude, it’s about the music, not the money” plan.
In other words, the “no plan” plan.