Tag Archives: Tech

The Power of Ubiquity

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An entry in the Minimum Viable Network series.

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I remember once telling an artist that if you want to be in the music industry, you need to be ubiquitous. Turns out the same is true for tech and startups. Who knew?

A few weeks ago, I attended a talk here in Atlanta during which Arlan Hamilton of Backstage Capital talked about how she broke into VC and how she’s driving her vision forward. As much as I enjoyed the talk, this post isn’t about that discussion. It’s about what transpired after.

After the Talk

Up until then, I’d been lucky enough to converse with a few of the amazing people at Backstage, other than Arlan. I’ve had a wonderful experience getting to know Partner & Chief of Staff Christie [Pitts] and Backstage podcast producer Bryan [Landers].

As neither Bryan nor Christie were in attendance at this event, though, after the talk wound down, I proceeded to go say hi to Dianne [Cherrez] and Chacho [Valadez], other Backstage team members I’d only interacted with briefly on Twitter. I received almost the same response from each (as if it was practiced ha!): “Adam…oh you’re Adam Marx! From Twitter!”

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Both were fantastic to meet, and clearly integral parts of the Backstage team. While other attendees asked Arlan questions, I spoke with Dianne about the normal stuff; how she got involved with Backstage, her role there, exciting things Backstage has going on, etc. During the course of our conversation, she matter-of-factly quipped, “You know, you’re just everywhere on Twitter…I don’t know where you find the energy.”

I’m paraphrasing, of course, but the point she was making stuck out to me: ubiquity matters — people notice.

Why Ubiquity Matters

When you’re setting out to build your network, whether it’s your Minimum Viable Network or a more mature version, ubiquity is a key factor in that network’s success.

It’s important to keep in mind that the term “ubiquity” might itself be somewhat of a misnomer; it’s not about actually being everywhere at once, all the time. It’s about appearing to be ubiquitous.

One reason that people remember ubiquity is precisely because of the immense time commitment it requires. Time is energy (and, as always, time is money)—indeed, time is ultimately your most precious commodity. Your time and attention are what businesses want, and what dwindle as you check off the basic boxes like your spouse, family, friends, coworkers, etc.

When people perceive you as ubiquitous in relation to their project or mission—especially when it’s characterized by a positive dynamic—it’s a (sometimes subconscious) recognition that tends to stick with them. 

Ubiquity and Reality

Of course, you can’t actually be everywhere at once, all the time. People are realistic and only an irrational person would believe otherwise.

Rather, it’s about creating a perception that you devote a significant portion of your time and energy (as much as one could ask, or even more) to something you’re really passionate about. This might be tuning in to a podcast weekly to tweet constructive thoughts (something I enjoy as well), volunteering one of your professional skills across a variety of projects (for me, editing and proofreading), or simply promoting a company whose product and/or mission really resonate with you. This type of long-term commitment to a mission creates the perception of ubiquity.

Ultimately, this is how you want people to think of you; as someone who just seems to consistently pop up at the right times. You don’t need to be associated with every project; but by being open to working on new opportunities, the natural side-effect is a quality of associated ubiquity. This creates a positive feedback loop of potential. 

The More People Create…

The wonderful thing about ubiquity is that as people create more things and start more projects, more opportunities are had to further one’s reputation as a thought-leader, team member, and colleague.

No doubt, many of these initial opportunities have the potential to germinate into extended relationships with the right cultivation. In this sense, the ubiquity becomes self-fulfilling; the more you “pop up” and people know you, the more people want to know you. This dynamic becomes naturally and iteratively expansive.

In the end, ubiquity is about a constant collection of “small victories” rather than pursuing a “one-and-done” approach to the opportunities before you.     

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Find me on Twitter @adammarx13 and let’s talk music, tech, and business!

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Three Questions Concerning Spotify’s Direct Listing Decision

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Originally published on Crunchbase News on January 3, 2018.

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As everyone was in holiday mode a few weeks ago in December, Spotify confidentially filed documents with the SEC to go public, likely in Q1 of 2018.

Previously, I discussed Spotify’s numbers and examined how those figures looked before an IPO filing. Now we can see how those numbers look in context.

This filing bolsters prior reports that Spotify would forego a traditional IPO in favor of a direct listing, a method of going public that has left many scratching their heads. For those unfamiliar with it, a direct listing is a way allow a firm’s shares to begin regular trading while avoiding the normal IPO roadshow process.

When asked about the direct listing strategy, IPO expert Barrett Daniels of Nextstep Advisory Services told Crunchbase News that there are a few reasons companies might choose to pursue the strategy. It typically boils down to the fact that the company may not be “strong enough” to transact a traditional IPO due to these reasons:

  1. The company’s growth (or lack thereof).
  2. The company’s size (in terms of revenue).
  3. The general climate of the industry.

So do these reasons provide Spotify grounds to go direct, especially considering how much money could be left on the table? Let’s find out.

1. Company Growth

Spotify has the kind of crazy growth that companies dream of. As its subscriber numbers have gone from 50 to over 100 million users, Spotify’s valuation has similarly been adjusted. It’s worth remembering, though, that while the total subscriber number sits somewhere north of 130 million users, approximately 60 million are paying listeners.

So Spotify is big enough to attract attention and generate a lot of excitement. In fact, because Spotify is such a well-known company to go public, an IPO roadshow seems to be precisely what it would want. More attention and more hype might mean more money on gameday.

2. The Company’s Size

This kind of fast-paced growth also contextualizes the music company’s size in terms of its revenue. According to Daniels, the size of a company’s revenue will dictate how larger institutions view it; if the revenue looks too small, larger institutions could deem the company too early or too risky, and therefore might be uninterested. But given Spotify’s outsized growth, though, perhaps this is a reaction to its continued unprofitability (as of yet).

3. General Industry Climate

Daniels also noted that in some direct listing cases, the decision to forego a traditional IPO could be something as simple as a timing issue. Industries go through hot and cold periods, and a cold period could convince a private entity to forgo the public process.

However, this doesn’t typically apply to the music industry. Because of business with mainstream acts, music companies tend to be more well-known among public investors than, say, a company which perhaps works on tooling or shipping. Therefore, Spotify has no reason to think that the climate would change at all between now and an expected 2018 IPO date.

Going through Barrett’s list of reasons, we can see that Spotify’s direct listing doesn’t pass muster on these grounds. But there are two outside arguments that augment the viability of direct listing: saving money on the IPO process and stopping the clock on Spotify’s convertible debt raise.

Saving Money

Outside of Barrett’s outline for going direct, Spotify could limit costs by foregoing a normal, pre-IPO roadshow. However, experts have pointed out that this doesn’t make much sense. The money which Spotify would save on an IPO roadshow is negligible compared to the amount it would ultimately raise in a normal IPO.

But there are other ways Spotify can save money.

Stopping the Clock

Last year, Spotify took on convertible debt from Dragoneer and TPG, totaling $1 billion. According to David Golden of Revolution Ventures, by listing directly, Spotify could essentially “stop the clock” on these debt-conversions, and presumably, save itself tens of millions of dollars.

As a refresher, under the terms of these notes signed in 2016, Spotify was required to pay 5 percent annual interest, a figure that grows by 1 percent every six months for a total of 10 percent. Investors could then convert the debt into equity at a 20 percent discount of Spotify’s IPO price. If there were no IPO within a year, the discount at which investors could eventually buy back stock would increase 2.5 percent every extra six months.

The Questions Left Lingering

All of this leaves a lingering question: if neither of the two most-cited arguments hold water, does the decision to direct list have anything to do with Spotify’s $20 billion valuation? There have been, as of late, multiple sources which have raised concerns, expressing reticence and opining what a public Spotify will look like. Spotify did not respond to a request for comment.

The streaming market also faces stiff competition. Apple can subsidize its music service until the end of time through its phone and computer sales. Facebook just signed a major deal with Universal, and YouTube is gearing up for its own music service launch. Pandora has just created a Spotify clone, and its post-IPO performance doesn’t bode overwhelming optimism. All of this is now against the backdrop of a $1.6 billion lawsuit filed by Wixen Music Publishing against the streaming music company.

Additionally, here are a few numbers we don’t know which will impact Spotify’s business model long-term:

  1. What Spotify royalty rates are. It has been reported the company pays anywhere from 58 percent to 83 percent.
  2. How often Spotify needs to renegotiate royalty deals with the major labels.
  3. What the percentage stakes each major label owns of Spotify.

We’ll see how things roll out by the end of Q1.

***

Find me on Twitter @adammarx13 and let’s talk music, tech, and business!

2018: A New Year with New Goals

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Perhaps the last picture I’ll post with my trusty iPhone 4S

2017 is over and 2018 is now here. That’s a good thing; last year was a tough one. A few very close relationships ended, and after a few years, I closed my first company. But I also learned that there is life after failure.

So here we are now in the new year, and I’m excited to start working on a bunch of new things. Here are some of the things you’ll see from me in 2018: 

  • 😎 🎸 I’m working on a new music project (company? 😎 ). That’s right — after a badly needed six-month hiatus (maybe longer?) from actually running a music-startup, I’m gathering feedback on a new idea which is incredibly exciting. So far, feedback has been very positive. Discussions with a select number of artists as well as a few journalists, founders, and confidants have yielded an ever-clearer perspective on how this can grow. I’m excited to read more people into this as the year progresses.
  • 📝 I’m working on editing a very special document that I’m extremely excited to finish. I’m a word-nerd, and in editing this piece, I can honestly say it’s been one of the most challenging and rewarding things I’ve done in my professional writing career.
  • 📝 🤘 I have an avalanche of new music articles written and in the works which I can’t wait to see published. Some of these will shake things up (I hope), but hey, what’s the point of being a music journalist if you’re not a little punk about it? 
  • 📝 📽️ I’m working on writing a rough draft of a screenplay (no, really!). Last year, I was kicking around an idea which I thought could be fun to work on, and over the last week, I’ve started mapping out characters and basic scene dialogue. I’ve never done a screenplay, so I am more than happy to have collaborators!
  • 🙋 🙋‍♂️ 🙌 🤝 I will start driving harder towards being more central to the discussions on sexual harassment and how to fix the issues we have before us. This is less of a “me” thing, and more something I am incredibly passionate about; I am open to collaborating with anyone on projects which will help with the goals of creating a paradigm with more meritocracy, equality, and egalitarianism. 
  • 😎 🎙️ I’m incredibly excited (and flattered) to have an invitation to be on a few podcasts starting this year — because I don’t talk enough as it is ha!
  • 🤔 📝 I’m working on plans for a new guide which will (hopefully) excite word-smiths everywhere; more on this project in the coming months. 
  • 📝 📖 I’m writing a pseudo-review of a book I’ve been reading which has changed my perspective on so many things, and has similarly confirmed a lot of the mantras which I try to live my life by. This will be out by the end of January.
  • 📝 🤝 I will be releasing many new articles in my Minimum Viable Network series.
  • 🎸 😉 I’ll be doing more work with artists (some have asked me to manage ha!) — maybe there’s a producer-credit in my future.  
  • 🤔 📖  There are a few of my past articles which I have been toying with revising into a rough pitch for a book. Let’s see what the year brings. 
  • 😄 I will be exploring more speaking opportunities.
  • 😎 🤘With the 2017 list out, I’m ready to start working on the new “100 Awesome Independent Album and EP Releases You Probably Missed” list for 2018.
  • 😄 🙌 I’m excited to start having * Many * More * Conversations * — I’m all about creating new things, and I look forward to picking up new projects throughout the new year, both with current partners in crime and new draftees.

Thank you to everyone who helped me pull through 2017. Your support means more than you know. Now, on to 2018!

***

Find me on Twitter @adammarx13 and let’s talk music, tech, and business!

The New Founder-Seed Reality: Cash, Vision, and Structure

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One of the pieces which made the rounds last weekend was Fred Wilson’s assessment of early stage startup funding. More precisely, the decline in seed funding over the last few quarters, down from the peak in 2015. This was followed by a post from Jason Calacanis, which expanded on Fred’s initial thesis and took a deep dive into how he applies those dynamics to his own angel investing strategies. I’m not going to rehash these posts. However, I will muse for a little bit on what I was picking up reading between some of the lines. 

Over the last few years, and in the last year especially, I’ve begun to think deeply on how augmenting one’s approach to networking and pitching can open up doors which otherwise remain shut. In this case, the doors in question are those into an investor’s or angel’s office. Part of what has been so difficult for founders in the recent climate is that with all the money that’s been sloshing around, it’s been all that much harder to differentiate oneself. So while the seed slowdown might fill some with dismay, it’s an opportunity.

As Fred and Jason point out that this is an opportunity for new investors to get into the game and fill the gap left by investors moving further up the river, I’m going to argue that a similar opportunity exists for founders, if not as clearly exhibited. In an industry where everyone knows everyone, sometimes standing out can be much harder when there are certain expectations (prerequisites?) flying around.

Let’s be honest; people pattern-match because it’s human nature. But this nature can create blind spots—these blind spots in turn create new opportunities. Nothing exists in a vacuum, and I think the things which Fred and Jason are pointing out here—expectations of and desire for revenue, cash efficiency, a maturing business structure—run in tandem with the opening of a door to be able to now differentiate yourself in ways which previously seemed more difficult. As Hunter Walk notes, you do this by being CRAZY. Part of it is having CRAZY numbers; if you don’t have these (yet), you better have CRAZY vision.

Vision is ultimately what makes any company; without vision, you have no mission, and you have no real reason to execute. People don’t execute like hell on something they’re ambivalent about—they execute like hell on visions they see clearly and problems they’re obsessed with solving. I think the posts from Fred, Jason, and Hunter work so well in tandem because they begin to identify potential parameters for what the new seed environment might look like:

  1. Vision
  2. Cash efficiency
  3. Maturing business structure

Without each previous component, the following ones would be lacking. The new environment we see developing before us will be leaner, grittier, and ultimately more hostile towards companies which can’t lock down cash efficiency and a structure which matures with their growth.

But my gut tells me that the kind of founders which angels and seed investors are really looking for—the hungry ones who have great, obsessive visions—are exactly the founders who thrive in this type of environment. It’s precisely in these types of gritty, lean environments that the CRAZIEST visions tend to germinate. I think this new landscape will be interesting to watch for those truly CRAZY visions and how the new crop of founders differentiate themselves to communicate them.  

Music for this piece:

  • Savage Garden – Savage Garden
  • Master of Puppets – Metallica
  • Head for the Door – The Exies

The Most Important Acronym to Your Networking

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An entry in the Minimum Viable Network series.

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Fun Acronyms

Acronyms make things fun. And things which are fun and useful? Those are the best. When it comes to building your minimum viable network, there is only one acronym that matters: A.B.C. 

What do those letters stand for? Simple: always be collaborating.

One of the most cross-cutting things I’ve learned from being at the intersection of music and tech is that some of the things which allow artists to amass huge, rabid followings is how they work off one another. There’s a similar symbiosis that is applicable not only to startups trying to grow their own communities, but also to individuals looking to build out a minimum viable network of supportive and engaged people.

Obligatory Musical Collaboration Examples

Think about some of the most successful artists in history; chances are whichever genre you’re focusing on, there are examples of collaborations which you may not have even been aware of. Sometimes these are some of an artist’s most well-known songs.

Eric Clapton played the lead guitar solo on The Beatles’ “While My Guitar Gently Weeps” off their White Album. Eddie Van Halen played the guitar solo on Michael Jackson’s “Billie Jean.” And all of this is to say nothing of the prevalence of supergroups in music: Temple of the Dog, Audioslave, Derek and the Dominos, Them Crooked Vultures, Blind Faith, Sixx:A.M., Mad Season—the list goes on and on. What all of these examples have in common is that they allowed artists to meet new people (sometimes serendipitously) and create new content (sometimes even more serendipitously).

Some of these collaborations resulted in a full touring band and multiple albums (as with Audioslave and Sixx:A.M.) and sometimes it was more an outlet for the artist to simply explore a new vein of their creativity, resulting in a single album and few, if any, tour dates (as with Temple of the Dog, Blind Faith, and Mad Season). Ultimately, it’s up to you to determine what kind of collaboration it should be, and what the end goal is.

Why Collaborate?

If the end goal is to disseminate your name and reputation more amongst a new network, view opportunities to collaborate on articles or podcast episodes as compensation in and of themselves. The prospect of someone opening up their network to you through a co-publication or guest spot is invaluable, especially in a niche industry. Collaborating well on such a project will also tell your contact that you’re reliable and can produce great content for their network. This is the end goal; to get them to invite you back to do it again in the future.

Other times, there may not even be a publication or launch date. It may simply be a project where someone has asked you to give some feedback on their new app or something they’ve written. In this, the goal isn’t to get your name out to their network, but to keep your name in their head. When someone respects you and values your input, they ask for your thoughts on their own content. In this scenario, there is absolutely no downside—say yes, and carve out the time to give them some thoughtful feedback.

When Collaborations Don’t Work

When you’re involved in someone else’s project, let them run the show and suggest feedback where needed and when it’s appropriate. Accept and respect that they may do things differently than you would, and may go in a different direction that you want. If that ends up being the case, simply state whatever feedback you might have in a respectful and reasonable manner, and then let it be. If it’s not your project, there’s no upside to having an argument over the details as if it is.

Some collaborations simply don’t work, either because the idea leads to creative differences or because there’s just no chemistry between the individuals. This is ok. The worst thing you can do in this situation is to burn a bridge with an otherwise reasonable ally. The same dynamic that helps to balance your allies holds true here: until there’s a problem, there’s no problem. If the collaboration isn’t working, simply acknowledge it and move on. Most times, a collaboration that doesn’t work out well isn’t a reason to burn a relationship; it’s simply a sign that collaborating with that person in the future may not be the best move.

When Collaborations Do Work

When collaborations do work, though, they can change your whole universe. This may not—and usually doesn’t—happen overnight. It takes time for new relationship dynamics to gestate and the benefits of those collaborations may not be seen for months or even years. But once you have collaborated with someone on something, two things are indisputably true:

  1. You’ve now (presumably) had a direct interaction with that person, and
  2. You’ve now created something together with that person (in this respect, feedback does indeed count as something created, since it helps the overall creation process)

These two things ultimately shift the power balance; where once the relationship might have felt unequal, it is now arguably equal in new ways as a result of the collaboration. This has an elevating effect, bringing you closer to that person, whether they are a VC, podcast host, another founder, etc. Recognize that equalizing effect for what it is.

Ultimately, collaborations should be about relationships and learning. Creating something new and popular is always a plus, but it’s never a given. Keep your mind focused on how the collaboration can strengthen your relationship with your potential collaborators on the grand scale. Similarly, it will impact and shape your reputation among others, especially other potential collaborators. This is what will make the collaboration a success or a failure.

***

Find me on Twitter @adammarx13 and let’s talk music, tech, and business!

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Balancing Your Allies (When They Don’t Always Get Along)

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An entry in the Minimum Viable Network series.

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The Potential of Dual Loyalties

More than once in the last few months I’ve encountered a scenario in which one of my friends/allies has parted ways with other of my allies. Sometimes it’s been copacetic and sometimes not, but it did get me thinking: can you have dual loyalties without being deceptive?

Often in business and life, we’re faced with decisions that require us to take sides. Maybe one person is in the wrong, or maybe one path is simply better for them. Regardless, sometimes the prospect of needing to choose sides precludes any possibility of dual loyalties. But this need not always be the case. In building your minimum viable network, you will come across situations in which two or more people you are loyal to don’t really get along. That’s ok; people are people and that’s human nature.

Depending on the situation, there’s a potential in dual loyalties that can be utilized to the benefit of all parties involved. Many times, networking contains these situations and we don’t really realize them.

But how do you identify the scenarios in which having dual loyalties won’t actually work against you? You don’t want to become known as someone who is two-faced, but rather as someone who is level-headed in the midst of a breakup, even if that breakup is not your own.

This starts with knowing the personalities of the people who are going separate ways. Do they have generally amiable and opportunistic outlooks or are they petty and thin-skinned?

Note: if it’s the latter, you probably don’t want to be around them anyway.

Until There’s a Problem, There’s No Problem

A good rule of thumb to live by is that until there’s a problem, there’s no problem.

I’ve experienced this countless times in the music industry: I’m friends with multiple members in a band, and then for whatever reason, that band breaks up. Some times are worse than others, but the main takeaway I’ve always tried to articulate to each artist thereafter is that I am still their ally, even if they no longer wish to be allies with each other. There are some times when cutting ties completely is necessary, but it’s not an always kind of thing. You will know when it needs to be done.

Otherwise, like I said, until there’s a problem, there’s no problem.

Be Above the Drama

Building a network is like working with bands: people work together, and then they don’t. But by only taking sides when it’s absolutely necessary, you preserve your relationship with both parties while simultaneously cultivating a reputation as a level-headed ally who is not interested in drama. Drama is one of the things which kills relationships faster than anything else.

Understanding the balance of dual loyalties—and how that balance is different from deceptive networking—is an invaluable skill in building a broad and deep network very quickly. Simply do all you can to take yourself out of the drama. As I mentioned, there are times to take sides, but that’s for another post.

Preserve Your Relationships As Long As Possible

Consider this: two (or more) people working at the same company or on the same project. You respect both of all of these people, and endeavor to create positive relationships with each of them. Then, there is a difference of opinion or a diverging of interests, and those people part company. What do you do?

The first question is how to identify and differentiate between the situations where dual loyalty can be a good thing and the scenarios in which it’s not worth the effort.

The quick and much too easy an answer is pick a side. But until you know how and why the separation occurred, you’re only playing with half a deck of cards. In fact, you may never know the reasons. Perhaps the split was amicable and there’s no reason to choose a side and sever ties with the other. People part company for all sorts of reasons and not all of them qualify as “bad” or acrimonious. As such, the best thing to do in this moment is simply to do nothing. In theory, this sounds easy, but it’s a lot harder in practice, as we’re wired to want to “make a move.” 

In such scenarios, the right thing to do is to communicate support to each party without taking a side in the matter. You can do this through expressing interest in their new project or direction, offering to give them feedback on a new concept, or merely listening as they vent frustration. Typically, these neutral actions will make one party feel supported in their new direction without alienating the other. The key in all of this is to remember that this is not about the deception of either party. Rather, it’s about not choosing sides in the matter at all.

This is a good rule of life, especially when building your professional network: if there’s no reason to choose sides in something, then don’t. Keep your options open as long as possible.

***

Find me on Twitter @adammarx13 and let’s talk music, tech, and business!

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Without Majors, SoundCloud Had The Potential To Be A Better, Independent Music Space

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Originally published on Crunchbase News on August 21, 2017.

It’s no secret that SoundCloud is troubled. Last month, news broke that the music streaming service slashed 40 percent of its workforce (173 jobs) and closed two of its offices (London and San Francisco). Two weeks ago, it dropped its founding CEO to secure new funding on the back of reports that it could run out of money within 50 days or so.

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The developments weren’t without augur or portent.

SoundCloud’s current situation brings us back to our prior thesis: namely that the company’s shift into the major label paradigm was a tactical error. And due to that mistake, SoundCloud lost its focus on an exploding demographic in the form of independent music, which it initially showed signs of controlling.

Rising Red Ink

Let’s run the numbers quickly. As I noted in my previous piece, Soundcloud’s revenue has grown for years. In 2010, the company recorded $1.8 million in top line; in 2012, $9.6 million; and, in 2014, $19.6 million.

But those gains came with rising losses. Soundcloud lost $2.01 million in 2010; $14.9 million in 2012; and $44.2 million in 2014.

The trend of impressive losses continued into 2015, when SoundCloud’s revenue increased by 10 percent to $22.5 million. Unfortunately, for the company, its losses grew by a larger 23.5 percent to $54.6 million in 2015.

And according to a recent Music Business Worldwide analysis, even post-cuts, Soundcloud won’t cut expenses to fully ameliorate its rising costs and royalty payments.

Major (Label) Gamble

Its cuts in staff are indicative of a larger problem. Namely, SoundCloud’s royalty payments are expensive. If Soundcloud’s payout to the major labels is similar to Spotify, it could reach the 80 percent mark of its subscription-sourced top line; in related topics, SoundCloud has consistently declined to comment on how much the major labels own of the company.

Adding to its financial picture, SoundCloud opened a $70 million credit line to keep its doors open.

While major label deals grant SoundCloud access to the world’s most popular catalogs, the royalty payments accompanying that catalog can be a Sisyphus-like experience.

The accompanying costs are high. For example, growth only accounts for one factor in determining a royalty payment. Other factors can range from the labels’ own fiscal bottom lines (which no streaming service can control) to the labels’ employment of a Most Favored Nation clause in their streaming contracts.

Major label content is also available through an array of streaming options: Spotify, Apple, (now) SoundCloud, Pandora, Tidal, and so forth. Given the number of services offering major label tunes, access to that content doesn’t make a streaming service unique. Rather, it gives the major labels outsized influence on a streaming service’s content offerings.

In Soundcloud’s case, the new major label paradigm likely impacted the now-beleaguered music streaming company in two ways:

  1. Major label deals changed SoundCloud’s value proposition. Due to its major label deal, Soundcloud could sell the same major label content as Spotify and Apple. SoundCloud would no longer be the home only for independent audio,  putting a pin in what arguably made the streaming service unique.
  2. The major label deals now required SoundCloud to pay the same piper as Spotify, Apple, and others.

All of this amplified SoundCloud’s already-noted strategic shift, and potential misstep: moving away from the independent music demographic—a group that it had performed well in previously.

Up until autumn 2015, SoundCloud primarily subsisted on independent music and user-generated content. But in the time it took SoundCloud to switch paradigms from the independent universe to the major labels, the market had changed. Whereas independent material up to 2015 was considered disinteresting to general consumers due to niche appeal, by the end of 2016, independent music streaming revenues made up $5.1 billion of the industry’s total haul of $16.1 billion. In fact, the independent market outsized Universal’s cut by more than $500 million.

Multiple arguments can be made about what has led the independent demographic to become the largest pie of the streaming-revenue pie. What’s clear, though, is that the old trope that’s been widely circulated about independent music—that nobody cares and it doesn’t make any money—is likely false.

From 2003-2012 alone, the independent landscape exploded in terms of participants. And it’s that market that Soundcloud likely ceded ground on due to its deals with major labels.

What Ifs And Takeaways

All this underscores SoundCloud’s decision to start down the major label path.

If it had made the same job cuts and office closures in 2015 that have now been enacted, then Soundcloud might look very different. The company might have been able to close the gap long enough for the numbers to show—as they are now—that independent music is a real area of growth in the music universe.

If that had happened, it might have given financial-credence to its massive independent catalog, independent-enthusiast userbase, and independent reputation. But the major label paradigm is like a lobster-trap; it’s very, very hard to back out of once you’re in.

Of course, all that assumes that Soundcloud would have been able to settle lawsuits and figure out a way to monetize its gigantic repository. Assuming it could, SoundCloud might now be the clear frontrunner in its own arena of music, almost completely removed from the whims and dynamics of the major label world which Spotify and Apple have to contend with.

What’s important to recognize now is that the music universe is multidimensional, and, with the explosive growth of independent content, it’s adding new layers by the day. SoundCloud’s plight should encourage—not dissuade—future would-be music-tech startups or entrepreneurs and investors. Let Spotify and Apple battle it out for the major label world; the independent universe is growing quickly anyway.

Whether it’s too late for Soundcloud to take advantage of that growth will depend on its ability to navigate its choppier, less-funded, waters.

The Streaming Wars Continue, And SoundCloud Is In The Balance

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Originally published on Crunchbase News on May 17, 2017.

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It’s been a challenging year for SoundCloud. And its last quarter hasn’t made things any easier on the music-streaming startup.

Amidst a streaming war between Spotify, Apple Music, Pandora, and others, SoundCloud’s orange cloud is greying. Spotify passed on buying the company in December, it’s seen a patent dispute, a high-level shakeup, and multiple reports (here and here) have explored the possibility that it might run out of money by the year’s end.

The news has not been good for SoundCloud. (When contacted, SoundCloud declined to comment on its financial situation.)

So what comes next for the music company? The answer to that question is anchored on three points:

  1. The economics of streaming for non-label players.
  2. SoundCloud’s efforts to expand past its original, core user base.
  3. Its efforts to stabilize allegedly difficult financials.

We’ll approach each topic respectively to get a handle on how it will impact SoundCloud.

Streaming 101

To understand SoundCloud’s current financial situation, we have to understand streaming economics.

Streaming companies license material from two main sources: major labels and independent artists. In SoundCloud’s context, it’s the first content source which matters. Major labels set the standard royalty rates which services like SoundCloud must pay for access to their critical libraries.

It is notoriously difficult to pin down what a private music streaming company is paying in royalties. For companies like Spotify and Soundcloud, royalty payouts can total in the neighborhood of 70-85 percent of a company’s revenue.

To that point, rates released in reference to Spotify over the last few years have been all over the map. In 2013, Spotify released (via Stereogum) its own accounting of its royalty payout structure, which detailed that ~30 percent of generated stream revenue stays with Spotify while the other roughly 70 percent went to labels, publishers, and others. There was no mention of any additional costs.

In August 2016, however, Music Business Worldwide calculated that ~84 percent of Spotify’s topline went out the door for “royalty distribution and other costs.” Again, those other costs were not defined. Music Business Worldwide then followed up on its first statement and calculation with the note that Spotify’s precise royalty payout is believed to be just under 70 percent.

In 2017 alone, TechCrunch reported that Spotify’s royalty payout was 70-72 percent, except when other factors—like catalog geography and free vs. paid streaming—could bump the royalty payout as high as 84 percent. All this was before Spotify’s new deal that supposedly lowered royalty payouts in exchange for windowing. The aforementioned “extenuating factors” are so important to acknowledge precisely because they affect so much of any music company’s catalog.

So is Spotify’s royalty payout less than 70 percent, 70 percent even, 70-72 percent, greater than 70 percent, or even up to the low 80s? No one really knows except Spotify and the labels. Even using Spotify as a bar for understanding SoundCloud’s royalties leaves us convoluted

Of course, streaming services have an interest in limiting their payout rates, but streaming companies don’t have much leverage due to an imbalance of power. If SoundCloud or Spotify don’t have a major label’s catalog, either one could immediately start to shed subscribers to competing services not locked into the same label fight. In music streaming, platform diversification only flows in one direction.

Shifting Priorities

The streaming cost matter puts SoundCloud’s recent strategies into context.

SoundCloud cut its teeth licensing content in the independent world, a much different paradigm than Spotify or Apple Music. Because it built its success on independent material, SoundCloud wasn’t beholden to the major label oligarchy for material.

Priorities shifted when SoundCloud changed direction and pursued major label content on top of its independent catalog.

It signed deals with every major label, leading to a new direction for the company. When pressed last year, SoundCloud responded with the stark “no comment” on how much equity it may have provided to labels for access to the respective catalogs. Additionally, most of the deals hinged on SoundCloud releasing an on-demand premium service to directly compete with Spotify and Apple.

By summer 2016, SoundCloud had evolved into another major label distribution platform. This effectively posed the conundrum of potentially alienating its initial userbase, which might not have been inclined to see another mainstream music service as necessary in the first place.

Compounding the mainstream content conundrum, SoundCloud’s new catalog was the same mainstream content that its direct competitors were distributing. Further, SoundCloud was now compelled to build a new product to directly compete with Spotify, putting it in a position where it held less power for the content it licensed while burning money at a ridiculous rate.

Challenging Financial Realities

All that sums to the company’s current financial situation.

In order to understand the company’s fiscal situation as it stands today, it behooves us to remind ourselves what we know about its past performance.

As I previously wrote, SoundCloud’s financials in December of last year were as follows:

Revenue tracking upward (source):

  • 2010 – $1.8 million.
  • 2012 – $9.6 million.
  • 2014 – $19.6 million.

With losses ballooning (source):

  • 2010 – $2.01 million.
  • 2012 – $14.9 million.
  • 2014 – $44.2 million.

Based on the new numbers, SoundCloud’s revenue saw a 10 percent increase from $19.6 million in 2014 to $22.5 million in 2015. Its losses, however, increased dramatically by 81 percent, from $44.2 million in 2014 to $54.6 million in 2015.

Debt and Irony

Most recently, SoundCloud raised an additional $70 million in debt funding. With this round of debt funding, it’s likely that SoundCloud is trying to follow Spotify’s example by doubling down on their growth numbers long enough to find an exit. The problem with this strategy is that SoundCloud is nowhere near as big as Spotify, perhaps lowering its M&A potential. While this strategy presents challenges for Spotify as well, the analogy ends right there, since SoundCloud’s debt is barely a pittance of Spotify’s $1 billion debt raise.

Spotify’s delayed IPO casts a shadow of doubt on its smaller rival as well. If the company most obviously in line to acquire it has its own challenges to contend with, it’s clear that its attention will be on its own IPO, rather than a bail-out acquisition of SoundCloud—even at a fire-sale price.

Unfortunately, the reality for SoundCloud is this: the company has extremely unwieldy financials, and its main competitor—the company most likely to acquire them—just delayed its own IPO in order to figure out its own financial situation.

Uncertain Future

The faster that SoundCloud tries to shift to become more like Apple Music and Spotify, the more it runs the risk of highlighting it wasn’t trying to be like the standard streaming services at all.

Whether or not the summer will bring back the orange in our grey cloud remains to be seen.

There’s Life After Failure

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Four Cofounders (from left): Myles, Michael, Shelley, and me

 

Two weeks ago I shut down my startup.

I called my team members, notified our users, and made the decision that it was time to bring Glipple to a close. Retrospectively, the writing was on the wall. Now is the part where you wait for me to share some zen philosophy that I could only learn through failure.

Don’t hold your breath.

Don’t Gloss Over the Emotional Toll

Yes, I did learn a lot and in the end I’m glad I had the experience. But I’m not about to write another diatribe of cutely composed “tips for closing your first startup” which you will inevitably skim through until you read the next such post-mortem blog post on Medium…probably in about 30 minutes. Because in startups, it’s become the epitome of chic and cliche to write a post-mortem blog post when(ever) your startup fails.

Ultimately, though, so many of them gloss over the emotional toll it takes on you, so I’m going to write exactly what I’ve really wanted to know every time I read through one of these posts. Frankly, I’ve only seen a few people actually brave enough to publicly tell it how it is. If you haven’t already, I highly recommend reading this post from Andy Sparks and this one from Poornima Vijayashanker.

I’m not really 100% sure why there’s such a fascination with failure in our business. Probably because people shape that perception of failure into a positive reflection thereafter and attempt to use it as a drive for the next idea. That’s not a bad strategy, objectively speaking. But I sometimes wonder if it creates a flippant attitude toward failure which unintentionally misunderstands human behavior.

All these post-mortem blog posts make the whole process seem relatively easy; ok we failed, but here’s our end-of-the-run coffee party, and we’re off to better things tomorrow.

That’s not where failure gets you—not in the immediate moment.

The 3AM Blog Post in the Dark

You wanna know where it gets you? Right here, sitting in the dark at 3AM, typing out your bitterness and frustration in a draft as quietly as you can because you girlfriend is sleeping in the next room and there’s no point in waking her up to share your misery. It’s not perpetual bitterness, but temporary bitterness bristles just the same. Failure leaves you temporarily raw, and if it doesn’t, you didn’t care enough in the first place.

Emotional pain is the normal reaction. There’s a part of you that now feels lost, and grieving is a major part of the process. That emotional toll is what makes startups different than hobbies.

It’s ok if—for a moment—I sound like one of “those” entrepreneurs who couldn’t hack it. I’ve got news for you: chances are you’ll experience this feeling too at some point—I’m just choosing to be very public about it. Because in the end I’m human, and to pretend that everything’s ok and that I’m impervious to extreme disappointment and disillusionment isn’t being strong and resilient—it’s being fake.

Tech’s “Failure” Failure

In Silicon Valley—and in tech at large—failure is a great thing. It means that you took a shot, that it didn’t work, and that you supposedly learned something very valuable to draw on for your next venture.

And hopefully these things are true, but the reverence with which we look at failure—with which we make it a club that people should want to be in or be happy to join—is pretty ridiculous. To construct a system where failing is revered—almost required—is remarkably jarring. There’s just something about it that doesn’t seem realistic or dialed in to human emotion. 

To Feel Like an Abject Failure

I believe in my heart that most if not all of the people who write the positive tweets that we read mean well. Usually they’ve been in similar situations and figured out ways to surmount challenges and failures and move on to greater successes.

But sometimes, that unbridled optimism and pragmatism—well-intentioned though it may be—comes off as disinterest and disconnect. As if one has somehow forgotten what abject failure feels like. True, it may not actually be abject failure, but it sure feels like it in the moment.

And the worst part? When you feel this level of failure, it pulls you into a place where you don’t want to speak to anyone—don’t want to admit to anyone—that your failure is real, and that your need for help is even more real. You’re even more determined to strike out again on your own and prove to yourself and everyone else that you are a “real” founder—a “real” entrepreneur—and that you can pick yourself back up by your bootstraps. Those of us who struggle with depression feel this even more acutely.

But this is a mistake.

When People Are Your Strength

In the lull during which my startup started to fade—and during which I knew in my heart there seemed little recourse to keep it from doing so—I began to pull away from people. This was a mistake, especially for me. I’m a people person, and I gain so much of my energy from talking to people and helping people. When I started to pull away, I began to lose a part of myself. Actually, I began to lose another part of myself, because I was already losing a part of myself in losing my startup.

Only through recognizing that the disappointment and disillusionment which follow failure are part of the entrepreneurial fabric can we begin to open ourselves up to other people and possibilities after failure. This is the danger in fetishizing failure and spectacular flameouts: it is devastating for those of us who draw our energy from other people. Bragging about failure in a proud way is something distinctly Silicon Valley and very much of startup tech DNA; outside that realm, doing this is simply not done in such a way, and certainly not done with such gusto.

It’s equally important to emphasize to founders that failure isn’t simply a milestone that they should mark on their startup belts as they would raising a fund or releasing their 2.0 product. Failure is debilitating and it is in these very fragile states that founders need the most support from each other. Everything is easy when it’s easy; but when things go to hell, you need to be open to grasping someone’s hand when they offer it.

When people are your strength, it’s important to remember that heading back to that harbor is precisely how you recharge your batteries after a defeat. If you’ve done anything right along your startup journey to that point, you will have formed at least a few solid connections with others in your network who you can speak with candidly. If you’ve done at least this right, all the rest will fade into background noise.

Coming Back from the Brink

And after all of this—all the nights spent in cold sweats with stomach pains worrying about money, looking yourself in the mirror wondering if you’re a failure (are you even that?), skating over the “so what do you do?” question at parties and family holidays—you find a way to crawl back. You’ve stood on the precipice of failure and looked into the depths—spat it in the face—and somehow stomped your way back onto solid ground.

The funny thing about the failure precipice? It doesn’t ever exist as starkly in reality as it does in your mind. You stepped out over the edge expecting to fall a thousand miles into darkness, only to find yourself ankle-deep in a deceptively dark pool of water. So in the end, crossing over to the other side—finding solid ground again—isn’t as hard as it seemed before. The haunting chasm was only miles-deep in your mind.

Taking the Leap Again

There’s life after failure. That’s what I’m learning. Slowly but surely I’m learning it.

Will I do a music-startup again? Probably. Will I do a number of things differently now that I’ve learned new things? Absolutely. Am I as scared of my next potential failure as I was of my first one? Not even in the same ballpark.

I started drafting this piece in my apartment, sitting in the dark at 3AM, alone with only my thoughts of failure because I thought that’s how it had to be. Or how it was going to be regardless.

But I’m finishing it now, sitting in a bustling Starbucks in downtown Atlanta, drinking a large coffee, listening to Eve 6, and emailing people, looking for my next leap. I have drafts open of the next few articles I’m writing, and my phone is buzzing every ten minutes with new possibilities.  

Startup life isn’t easy, and failure isn’t fun. But it’s also not the end. As Eve 6 put it:

The monster in the closet, when the light’s turned on/

Is just a jacket on a hanger and the fear is gone/

And the world keeps turning, sun keeps burning/

We are the lost and found, gonna make it through another day.

***

Thanks

I’m so grateful to my cofounders for taking this journey with me. I know we’ll have another one together some time. To all those in my support system who have listened and helped me through this dip, you know who you are, and I am more grateful than you know. You took so much time out of your busy schedules to support me, and that does not go unnoticed. You all are a huge part of the reason I can write this post with a determined smile on my face.

Lastly, to my parents and siblings who are always my biggest support network.

***

If you’re struggling with your startup journey, feel free to reach out and let’s talk.

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Find me on Twitter @adammarx13 and let’s talk music, tech, and business!

 

Unrolling the Unroll.me Conundrum

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TL;DR: The Unroll.me scenario highlights the need for more discussion on legal and TOS

Blowup

A couple weeks ago, NYT journalist Mike Isaac wrote a piece on Uber CEO Travis Kalanick that inadvertently gave legs to another story: Unroll.me. I’m not going to restate the facts of the backlash—you can go to multiple sources to read those. I will, however, point out something that I think was missing from the overall conversation, which I think is important for the tech community to assess as much as anything else about the story.

The exact implications of the backlash notwithstanding, it brings up two main points, both of which are connected, and one of which I’ve only seen any real discussion. In short, here’s why Unroll.me CEO Jojo Hedaya’s apology doesn’t solve the underlying problem:

  1. It placed all of the culpability on the Unroll.me team, and
  2. It presented “lack of TOS transparency” as the main problem, while the bigger problem as I see it is a lack of discussion and knowledge of TOS in general.

The first was a misstep because it painted Unroll.me as the villain in the narrative. It’s true: Unroll.me could have been much more transparent about their TOS practices, as plenty of people have already pointed out. In particular, Hunter Walk and Steve Sinofsky presented valid points on this in our tweet conversation. As Hunter pointed out, the company’s suggestion that users simply “Read the TOS” was at best insufficient and at worst callous. Steve also tweeted that trying to write an explanatory text of a contract (TOS) in plain English may well not hold up the same legally. Both are correct. But I also see something deeper.

The Precarious Balance

However, the full, unequivocal admission of guilt left Unroll.me holding the whole bag, while only a portion of any perceivable guilt actually lay with them. The cold reality of the entire situation is that the Terms of Service are there for a reason, and that reason isn’t just to take up space or peeve users when downloading a new app. It’s to protect and indemnify the company against any possible legal action; to assert that the company is in the right, and that some responsibility has to rest with the user.

Is the company always right? No. Is it always clear of indiscretions? Of course not (just look at Uber). But the point is that the TOS exists for a reason. And contrary to what many users might want to believe, that reason is not to please them or give them warm feelings inside. It’s to make sure that the company is legally protected.

But what about transparency? Is that not equally important?

The answer, more and more, is “yes,” it is important. But it’s also important that users don’t conflate transparency—of TOS, for example—with a lack of responsibility on their part.

Legal knowledge shouldn’t be seen as a dark art, and—companies’ TOS should be sufficiently clear so users understand and accept the terms outlined therein. It needn’t be a good/bad scenario—just one where all parties are clearly informed. In the context, the legal concept of “good faith” applies almost without question.

The Real Point

All of this leads up to the real point which should be central to everyone’s perspective: that the tech press and blogosphere should cover legal matters, especially those related to TOS, far more than they already do. I read countless articles and posts, and listen to numerous podcasts on fundraising, user-acquisition and retention, hiring, firing, going public, etc. But for all of that, I see only a handful of posts or podcasts where legal knowledge is discussed with as much vigor and depth as new funding rounds are. Sure, those posts and podcasts exist, but they don’t get tweeted nearly as much in the tech mainstream as others on the aforementioned topics.

Why? Well, frankly, because legal stuff is perceived as boring. It’s not “move fast and break stuff”—it’s “move slowly, and make sure you read every word.” That’s not fun, but it is necessary. The larger lesson one should take away from the Unroll.me incident is that founders, VC’s, accelerators, and tech journalists should all turn around and discuss the Terms of Service as much as any other metrics. After all it’s the legal footing upon which the financial relationship between companies and customers ultimately rests. Well-done TOS should be emphasized just as much as raising a Series C round. After all, many companies won’t even get to Series C, but they for damn sure won’t get to Series A without a rock solid TOS.

Firsthand Experience

I learned this firsthand when I was starting my first company, a music-tech startup. What’s the first thing anyone thinks about when they hear “music company?” Getting sued. And I knew that.

So I read every TOS and license I could relating to music—I read Spotify’s, Apple’s, YouTube’s, SoundCloud’s, and even Rdio’s before they went under. I read every single word, and took notes on where each license and TOS assumed too much responsibility—some of which was unrealistic. And then I made sure that our own license and Terms of Service didn’t invite unwanted legal exposure—I wrote it that way. I knew everything in our TOS, and could run it over, forwards and backwards, in my sleep, to artists, founders, VC’s, or anyone else who asked.    

Of course not every person is equipped for feels prepared to write their own TOS. I did, but then again, I can’t code, so we all have our strengths and weaknesses. However, because I spent so much time researching, reading, and refining our license and TOS, I was intimately familiar with everything it said. You don’t need to be a lawyer to prioritize knowing your TOS. This is a massive advantage.

You Should Know Your TOS Forward and Backward, Inside and Out

Knowing what your company does and doesn’t do—what you’re allowed to do as written in your TOS—is an advantage because it’s something you can then share with your users. This gives you power. When you are well-versed in the legal aspects of your company as well as the financial or technical ones, you are able to paint a full picture for your customers and control the narrative that is told. It’s not about being deceptive—I would never advocate for that.

But people feel a whole lot less deceived when they’re able to have a real conversation about what they’re signing. Fear and doubt tend to dissipate when questions are welcomed, and people feel respected as customers and users.

This is what the takeaway should be, and where we focus future discussions. Yes, Unroll.me made some mistakes, and companies should try to learn from them and be open and honest with their TOS and other licensing agreements before anything questionable comes out. But we as an industry should similarly prioritize legal knowledge and versatility the way we do engineering prowess and marketing brilliance. In the end, it’s all required to make and run an amazing company.

***

Thanks to Jason Rowley, Nick Abouzeid, Alex Marshall, and Eric Willis for reading drafts of this.

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Find me on Twitter @adammarx13 and let’s talk music, tech, and business!