MBW Views is a series of exclusive commentaries/reports from music industry luminaries… with something to say. The following op/ed comes from Vickie Nauman (pictured), founder and CEO of the LA-based boutique music technology consulting and consulting firm, CrossBorderworks.
Becoming an entrepreneur is never easy. Many first-time founders don't know how steep the mountain is when they first start. Running a music startup means even greater challenges, trudging through unfamiliar terrain filled with the ups and downs of the music industry. Building a successful product is difficult, so why are people willing to add music?
Technologists flocked to the music business because of the potential for platform adoption. Few mediums offer the power and personal connection that artists and their music provide. However, to succeed in music technology, a startup needs to find more than just product-market fit.
Product-market fit means that the product meets a market need, but also indicates that the young company has accurately identified the problem/need, undertaken product development, and approached successful target market. Once product-market fit is achieved, the startup is in the validation stage, which is ready to invest to accelerate growth.
So why isn't this enough for music tech startups?
Music tech startups are operating with the biggest double-edged sword imaginable: the music industry. One side of this sword is the benefits of artist-fan interaction, platform adoption, and rich personal entertainment. On the other hand is a very complex industry where problems are often difficult to solve and opportunities are costly to pursue. The value chain of artist-label-writer-publisher-PRO-CMO-distributor-manager leaves newcomers reeling.
Entrepreneurs also often forget that when participating in the music industry, you are leveraging someone else's IP in the form of recordings and compositions, and this intellectual property is closely held and valued. Music tech companies also need what I call Industry Market Fit.
I define Industry-Market Fit as having three driving characteristics: the entrepreneur has accurately identified a music-related problem or opportunity AND that the stakeholders want that problem solved; The company's business model calculates the cost of technology build-out and/or licensing to the value of the opportunity; and providing customers with enough value that they share their minds and share their wallets with the company.
This is not easy!
Industry-Market fit is often overlooked. Below are some common music startup errors.
PERMISSION: Many startups trying to solve music copyright problems are stuck needing a huge and expensive tech stack to solve the problem and sometimes without gold. They often get lost in a maze of entitlement issues, lose focus, and can't figure out why they exist.
LICENSE: Companies looking to license music often find a mismatch in the quantity and type of music they need and the amount of money they have to offer. They start a full catalog service as a startup or want a legendary rock band for a niche passion project. An industry based on relationships with trading licenses can also leave entrepreneurs completely confused, even after 18 months of hard work.
ARTIST-TO-FAN: Startups pursuing monetization of artist-fan relationships can be found pursuing individual artist managers, only to find that they need recordings from publishers and record label, or they discovered too late that most artists want to be artists and don't want to spend their free time on an app nor direct their fans to any any application. Pursuing demos or unreleased songs is also a dead end, as most artists are resistant to releasing unfinished work into the world.
MUSIC MODEL: Audiovisual companies may want to have a catalog with every song ever created but don't realize the enormity of this task, because audio and audiovisual DSPs involve different rights structures and carries different risks. Startups proposing revenue shares without realizing advances are a tough ask.
When a startup misses Industry Market Fit, they will also face Investor Market Fit.
There is a long and difficult history of traditional investors being reluctant to put capital into music. Some investors do not understand the industry well, so they do not ask the right questions and lose money. Other investors in the early days of digital invested millions in promising music startups, then they gave all that money to licensors and were left with nothing. to operate. Many of the music industry's problems and opportunities are too small for investors to care about. And finally, using third-party IP will actually eat away at your profits, so investors looking for high-margin, low-complexity businesses will find music attractive.
Can product-market fit, industry-market fit, and investor-market fit be achieved? Yes and examples of this include companies of all sizes and shapes that have started up and have grown and prospered, including Beatstars, LyricsSearch, YouTubeDefeat Saber, Spotify, EmpireUnited Masters, Kobalt, Baby CD, melodybeatBread, Sound of disease, SoundCloud, BandLab, Musiio, Yousicion, Soundtrack Your Brand, and more than I can list here. Has the path of these companies been easy – absolutely not! But they are all great examples of startups that have achieved Product Market Fit, Industry Market Fit, and Investor Market Fit.
Here are some tips for music tech startups looking to achieve all three:
Product-Market fit: There is absolutely no success without this, and it is a well-tested and documented path. If you are active in the music industry, you need to work on Industry-Market Fit at the same time instead of trying to catch up later.
Suitable for industry market: Read industry news and observe the market, but have someone in the music industry as an advisor who stays up-to-date and can help you check your assumptions.
- Don't just get into music licensing; Bring in an expert.
- You should have a pretty solid idea of your offer and model before talking to any brand or publisher. If you have an idea that has “never been done before,” you should investigate thoroughly because there may be a good reason why the idea has never been done, but that's your blind spot.
- Understand the complex value chain even if it gives you a headache. You may need an advisor to help you understand each stakeholder's key motivations and ensure that you are delivering something they value.
- Don't tackle music rights issues lightly. There is more than 100 years of history on these profound problems, and some will take another 100 years to resolve.
- Don't assume you need every song created. With the startups I advise, we implement a concept I call Minimum Viable Music to get to market and stay relevant faster.
- Network and meet people but use everyone's time wisely.
Investor-Suitable Market: Invest the least amount possible and keep ownership.
- For seed and pre-seed, identify friends, family, and individuals who believe in you and your vision. These are your champions and will most likely help you in the next rounds through further investment and/or referrals.
- Focus on early-stage investors whose strategies are aligned with music – they understand the industry and its issues.
- Be skinny; Venture capital is going to be tough for a while and so those with small agile teams will have an advantage. Let's say venture capital is only in its growth phase – investors lacking music knowledge will only consider proven and fully licensed companies.
- Achieve revenue as soon as possible – a few years ago it was about growth at all costs, then it was about viable business models and now one has to have a clear path to revenue.
- Think about your trajectory – is it acquisition, growth at scale or are you a niche business?
- Be aware of who you're talking to and your own goals to ensure you're not wasting time and effort on the wrong things. If you are in an adjacent field like gaming, AI or data and you want to use music, you must have a strategy in place to de-risk the music business and get it on the top of the list. own private.
- Investors looking for unicorns won't buy your product if your addressable market is only worth $20 million. If the problem you are trying to solve gets too deep into industry nomenclature and industry specifics, chances are investors will be confused and will walk away because they cannot grasp the problem let alone to your solution.
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