Analyzing Your Bands Potential For Profit

Last blog we discussed how to get funding for your band in the form of a business plan.  We discussed little pet peeves investors have with business plans, and what you can do to get yours read.

In season 3 of Shark Tank, a band called Cab 20 and their manager did just what the last blog discussed, they asked the investors for money.

The manager starts out his business plan pitch with a short introduction of the band and then presented the product--the band playing. Unfortunately the manager was not a cut throat aggressive business man and the sharks picked up on that, some dropping out because of him. Kevin O'leary, the shark mentioned in last blog, did step up to the plate and made an offer for 50% of the band for the $200,000 they were asking for despite him describing the music industry as"The crap shoot who the hell knows business".  The band smartly declined.

What we've learned from researching investors and watching countless episodes of Shark Tank is that it is all about the money, especially when pitching to Kevin O'Leary. The manger discussed what the investors would get out of the deal which would be 20% of all revenue streams except publishing for $200,000.   The manager never discussed the sales and financials the band was making. There were no talks about recent tours, number of albums sold, what makes them unique in the industry that would allow them to sell thousands of records. 

The most important piece of your business plan is going to be the financial statements showing how you intend to make money. Had the manager showed that in the six months he had been working with the band, show sizes had doubled, sales were up 80% and their YouTube videos were monetized and getting thousands of hits, Kevin O'Leary may have jumped on this band for a negotiable percentage of the band that they all could of agreed to.  O'Leary thought it would be cool to have a band in his portfolio, had he seen the potential for profit spelled out to him in his language of dollars and cents, he may have offered more money to the band and taken the deal at a lower percentage of control.

One thing you can learn from researching investors is what to change in your own business plans. Prior to doing research on O'Leary, my plan was filled with ideas of money isn't everything and it is all about the music and the community.  Hugs and kisses do not get financial backing, numbers and percentages do. Scatter your mission statement throughout as a binding agent that makes it uniform but discuss profit potential or loss prevention.

A band is a unique business, but you still need to analyze your bands potential for profit.  Keep track of how many people come to your shows, Reverbnation has a tool to keep track of your concert history, how many attended who you played with and an assortment of other details. Always track merch sales, and how much venues are paying you. These numbers help determine bands worth to an investor.  Having this value could just seal the deal with a huge investor like Kevin O'Leary or land you a record deal with one of the big boys.

Side Note to Bands: Do NOT try and replicate Cab20's website, this is a horrible example of how to present your band to the Internet world.  Auto playing music is one of the must annoying widgets a viewer has to endure. An About tab should discuss the band as a whole, not as individuals. There should be more color and pictures than texts that is plain and seemingly goes on and on. Show where your band is from geographically or where you will be right away so viewers know right away if they can make it to a live show, because live music is the money money maker these days. A website sells your band to fans, venues, and investors. With tools discussed in previous blogs you can produce a quality website with little to no web design experience.

Funding Your Music

We all know the saying, it takes money to make money, and sometimes it is true. Every business has start up costs, be it for overhead costs such as rent, insurance, or inventory. A band has the same hurdles to overcome, merchandise, instruments and parts, and travel expenses. For most of it the band pools together money or saves up money from gigs, but what about bigger purchases. What if your band was offered an opening slot on a world tour but pay was not given till after the first show...overseas. Or your band wants to record a ten track album at Ocean Way Studios in Nashville, but you only saved up enough for a bathroom recording by your wanna be engineer friend. These are times when you may want to look for an investor.

Investors come in many types with much small print to understand but when it comes down to it, besides a family or friend, they will require a business plan to even consider loaning you money.  The Music Industry is a very risky business for an investor and a business plan lays out all the elements of your band.  From your mission statement to your sales figures and projections. Before putting in even a few thousand dollars into a project an investor basically wants to know his odds of recouping his money and the potentially return on his investment. Is it a simple loan with interest or is he getting a portion of you business in return for his money. How long is it going to take for the money to be returned and does he have a say in how your business is run after the investment.

Some bands who are established are able to go to a bank and get a loan, these are generally ones who have established a bank account in the bands name, have a good paper trail of income and can prove it can be repaid in a given period of time.  More than likely this will not be the case so you are going to want to turn to professional investor capitalists who will demand a well thought out business plan.

Mark Zwilling is a contributing writer for Forbes. He specializes in content to help entrepreneurs be more successful in a competitive world  In a recent article Top Ten Investor Turnoffs Around Business Plans, Zwilling walks us through the worst things to do or send to an investment firm. As stated, the Music Industry is a hard sell to any investor which is why I believe Zwilling's second tip is the most important for a band.

"Send the plan without a summary. An Executive Summary is a one page elevator pitch of the whole plan (may be separate from the plan), which gives an investor a net perspective on the key business parameters. Too many plans don’t have a summary section, or the summary is all you get. You lose in either case.?" (Forbes, 2011)

Zwilling also talks about how not showing the financials can lead to an immediate no, and how bugging the investor will lead to him probably not reading it. Some investment capitalist are obligated to review your business plan, well maybe on four of them. The show Shark Tank on ABC has a line up of investors who hear your business plan in a verbal and visual pitch. The business owners start out with an executive summary that hooks in the investors with the plans benefits and a summary of the companies sales and value. Then they ask for an investment for a percentage of their company. Kevin O'Leary is one of those investors and is known for being a little bit of a hardball player.

O'Leary sold his software company for billions of dollars and since has invested in hundreds of companies and products. He has no problem putting owners in their place when they have a stupid idea or are over estimating the value of their company. One of his questions always will revolve around the price point and the size of the market. In his blog on his website he listed Five Business Lessons Learned from Steve Jobs, one of the lessons was to know what your audience wants.

"Business is fundamentally about creating things that people want. But to do that, you have to know your customers inside and out. Do they want simplicity? Lower pricing? A better experience? More convenience? The answer is different for every business, but every business has to know the right answer for itself." (O'Leary, 2011)

As a band your product is generally music or merchandise, but you still need to know what they want. In a previous blog I talked about creating the correct merchandise for your audience and knowing how to price it as well. Take those tips when developing a business plan and the words of wisdom O'Leary has to offer.  For someone like O'Leary, funding your music isn't about if it is good or not, its about the money. Can you get your audience to pay ten dollars for a CD rather than just seven, can you make those CDs more cost effective. Do you have the ability to expand to other geographical markets and there for raise your potential for profit. The market analysis portion of your business plan will need to include information like this. Luckily this is not hard to do, Facebook Insights and Google Analytics help track geographic information of who is checking out your band.  Keeping a tour history that includes turn outs at each venue is also helpful.  Back Zwilling's list of things not to do is to say "see attachment" throughout your business plan.  Include the basic info but go ahead say see attachments for the break down of markets.  Again, funding your music is going to be more difficult than any other business, do what is necessary and include the selling points to help make an investor feel confident in what they may be giving a large chunk of money to.

A final comment is to play off an investors likes, research each investor to know these things.  For instance O'Leary calls him self an eco-investor, meaning he loves going green products.  So for him maybe push your ideas to tour eco-friendly, and produce recycled CDs, or how you rigged your equipment to run off a bicycle generator your road hands power. A business plan that has a hook is going to make you unique from other businesses looking for an investor.

References

O'Leary, K. 2011. Huffington Post. Five Business Lessons Learned from Steve Jobs. Retrieved 

      from: http://www.huffingtonpost.ca/kevin-oleary/steve-jobs-business-lessons_b_1001669.html

O'Leary, K. 2011. Kevin-Oleary.com. Five Business Lessons Learned from Steve Jobs. Retrieved 

      from: http://kevin-oleary.com/posts/mentor/five-business-lessons-from-steve-jobs/

Zwilling, M. 2012. Forbes. Top Ten Investor Turnoffs Around Business Plans. Retrieved from:     

      http://www.forbes.com/sites/martinzwilling/2011/02/04/ten-top-investor-turnoffs-around-business-   

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