Two Business Plans Experts: Part 2

Posted by Japheth Campell | June 26th, 2011  

In the previous post, we looked at two business plan experts and the advice they offer for building a plan. To aid in understanding how to incorporate their advice, I’ll use my business plan as an example. I’m writing a business plan for the record label start-up that my brother and I are forming.

Lemonade StandCreative Commons License photo credit: maubrowncow

Reaching a Massive Audience

Reid Hoffman explained that business today is about distribution. Our record label will skip the physical forms of distribution and focus on the Internet and digital distribution. The digital age of music commerce thrives on the sale of singles, while profits from albums continue to shrink. (See 2010 RIAA Music Shipment Data)

With singles being sold for 99 cents, bringing in roughly 70 cents profit, a large number of sells need to take place. (See TuneCore sales and payments data) This can only take place by building a massive audience. Being that interaction with customers on the Internet mainly takes place through a third-party (such as iTunes), we must put an effective marketing plan in place to build a customer base.

Unique Value Proposition
As a record label, the buying customer is not necessarily the main target of sales efforts. Potential music artists are what is most important. If the right artist and music is signed and presented as a product to customers in an easily discoverable fashion, sales will more than likely be generated.

A record label is selling the company and abilities to a music artist to generate profits from customers. What unique value can the label bring to artists who have sworn off from being involved with record labels? What unique value can the label bring to artists who are already building a fan base online and making money using do-it-yourself methods? Creating a unique value is an important part of the business plan to set the company apart from the rest and to attract the desired types of music artists.

Repeatable and Scalable
David Skok explained that one of the keys to showing investors that a startup is valuable is displaying a sales model as repeatable and scalable. For success to occur in our record label, we want to grow our base monthly, with the current base purchasing new releases and with the additions to the base purchasing both old and new releases.

Marketing equaling an amount of new customers being added monthly displays the repeatable element of our plan. The customer base continues to grow as marketing continues and grows in proportion to the marketing efforts. Thus, the sales generated by marketing is not only repeatable, but scalable as well.

Important Business Plan Sections
I believe there are a few sections of our record label plan that will be most important to the investor reading the plan. Since marketing is our largest expense as an Internet company and the most necessary expense for generating sales, the marketing section is very important.

The sales section is also highly important because without revenue a business cannot survive. The sales section is directly connected to the marketing section. Marketing efforts should show an ongoing increase in sales. The marketing and sales sections together are of high importance to investors.

The most important section is the start-up costs which displays the amount of capital needed until breaking even. The company needs enough money invested to keep the business afloat until sales are able to overtake costs and begin generating profit. Investors want to know at what point the company expects to be able to operate from profits and begin to pay a return on investment.

Your Business
To be truly successful in music, you must treat music as a business. Some type of capital is usually required to create a quality product and to gain the needed exposure for profit. Whether looking for investors in a traditional business or simply raising funds on a site such as Kickstarter to finance your music career, it is a good practice to have a business plan in place to help guide you toward your goals. Knowing your plan and sticking to it will help you maximize your money and efforts.

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