Unbundled, Part II: Shifting the Paradigm

How a new music paradigm is rising out of the wreckage.

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This is a continuation of the Unbundled series on music dynamics. Read the previously published pieces here:


The second act in the “bundled/unbundled” production is the “bundled” piece. It’s about exploring the bundling process as it pertains to music, and really trying to determine the proper scope of examination. Said scope, when broadened enough, shows a shifting paradigm of power and perception rising out of the wreckage of the previous music landscape. It’s similarly divided into three parts:

  1. Bundled in the Wrong Way
  2. Power and Paradigm Shift
  3. Sexy vs. Unsexy

The first of these is an exploration of what types of bundling already exist, and how it might not be the right kind of bundling to pursue. The nature of peoples’ interaction with music has changed, so it follows that the things bundled in music should change as well. This is a particularly difficult thing to accept because it requires a reworking of thought regarding something already perceived as “done.”

The second part is a discussion of how power naturally shifts during these seismic events, and how the new power should be held by a previously dismissed faction: the artists.

This flows right into the last part, which is an exploration of how many of the things which should be considered and bundled may not be the “sexiest” or most exciting of things to include. But “sexiness” and utility don’t always go hand-in-hand, and reality prevails at some point.

BUNDLED

Bundled in the Wrong Way

This is the biggy. Inasmuch as many things in the music universe(s) have become unbundled, so too are there a variety of things that have also become bundled. In the light of all the unbundling going on (Chris Saad blew through an extensive example list from everything including music and news to relationships and war), it appears somewhat unsexy to talk about the things going through the bundling process.

Where unbundling is fast and sexy and simple, bundling appears slow and outdated. But in music at least, this is far too simple an assessment.

The reality is that there are many things in music that have always been bundled, but bundled in such a way that they appeared to be unbundled. Many of the things which “music” apps are now trying to tackle separately—distribution, marketing, social, ticketing, analytics, messaging and/or communication, and live booking—have always been bundled under the banner of the record label.

The label controlled virtually everything, from distribution and radio play (yes, payola is real) to marketing and fan engagement. If you wanted to exist as an artist, you needed to be a part of this world in some way. Otherwise, you were relegated to the “independent” pile, which in the years prior to 1991, was much less glamorous than it is now.

Power and Paradigm Shift

When the digital age hit, the unbundling of the record labels’ power began. Since around 2005, major label power has seeped, and independent power has reached new heights. However, in their new-found power, independents were also sold a myth that everything they needed could be solved by partaking in a variety of unbundled services, from analytics to social platforms.

What this myth fails to address though, is the massive time-suck it really promotes. There are a great many things that should be bundled. Things like analytics, ticketing, distribution, radio play, social engagement, community, and marketing should all be offered under the same banner of a startup or new company.

But—and this is so important—done so in a way where the artists retain their power.

Sexy vs. Unsexy

The unbundling that has occurred has amazingly and unexpectedly taken much of the power away from the labels and delivered it to the artists. Artists now have the ability to control nearly every aspect of their operation, from recording through distribution through community engagement. But they don’t really have it all in one place, for free (yes this is huge), with the level of choice they need.

They have a variety of music discovery sites to choose from, a variety of analytics engines to use, and a variety of social platforms to post on, among other things. This is too much, and simplification is necessary. A music company should offer all of these types of functions under its purview, wherein artists can then choose to use them—or not—as they like. Choice and freedom remain intact while efficiency and simplicity are underscored.

But why stop there? Why not tackle the unsexy things that major labels have always done and give that power back to the artists as well?

Have a company that encompasses all the functions above, and then add (fan-driven) radio play, legal information and resources, management, copyright, and informational context. In making the experience of one site all-encompassing, you then succeed in changing the artists’ paradigm, thus changing the music landscape.

Giving artists access to these “unsexy” things is just as easy as (easier actually than) giving fans access to the music they want to hear.

The only difference is that instead of focusing on half of the equation, you instead complete the circle, and do so independently of the former rigid structure.


The Power of Knowledge

Whereas the points of the previous piece—choice and format—led to the overarching concept of community, the three points here point to something different, but equally important: knowledge.

If knowledge is power, then bundling things in a new way to give artists access to more knowledge clearly translates to a shift of power in their direction. This upends the previous paradigm immensely.

As artists gain perspective and knowledge on things like music analytics, marketing strategies, and engagement statistics—as well as “unsexy” things like legal resources and contacts—the power shifts significantly away from the major record companies. Their power has always been cemented in two main things: money and knowledge. But once artists and creators have access to the second of these two things (knowledge), they can apply it flexibly to attain the first of these two things (money).

This creates major fissures in the current music landscape, and opens up a splintering ecosystem of new opportunities for creatives at all levels of music creation and engagement.


The next movement in the symphony will be Part III: Democratizing the Future, which will take a look again at a new unbundled dynamic. Concepts discussed will touch on how the new unbundling will change music ownership and identity.

Stay tuned!


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

The Spotify-SoundCloud Supergroup Is Dead

Originally published on Mattermark on December 29, 2017. 


tl;dr: The SoundCloud and Spotify deal is dead. For Spotify, no deal avoids unnecessary headaches. For SoundCloud, the road ahead looks lonely as the platform heads into 2017.

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Cream. Bad Company. Temple of the Dog. These were some of the greatest supergroups that ever existed. The Spotify-SoundCloud union could have been next, but like many supergroup concepts, it only lasted a short time.

The real question is why. Ultimately, in my view, the deal died because SoundCloud tried to become something that it wasn’t, alienating its core fan base in the process.

It was easy to argue that a Spotify-SoundCloud combination could benefit each party: SoundCloud’s independent-heavy catalog and Spotify’s major label material are natural complements.

But the prospect is no longer on the table. It recently became known that Spotify passed on acquiring the little orange cloud.

Let’s talk about why that happened.

Supergroup Not

2016 was not kind to SoundCloud.

Despite signing deals with major labels, securing its largest to-date funding round, and launching its own subscription service, key questions remain concerning its current operational results, where it fits into the M&A landscape, and what an independent SoundCloud looks like in 2017.

Fiscal Expense

Mattermark recently examined, broadly, who could afford to buy SoundCloud, now that Spotify has left the table.

To understand why Spotify might have passed—neither Spotify nor SoundCloud responded to requests for comments regarding this piece—on SoundCloud, it’s worth remembering the smaller firm’s P&L.

SoundCloud’s revenue quickly expanded from $1.8 million in 2010 to $9.6 million in 2012, to $19.6 million in 2014. Its losses tracked upwards, however, from $2.01 million in 2010 to $14.9 million in 2012, to $44.2 million in 2014.

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Much like Spotify and other streaming services, some SoundCloud revenue quickly passes through its books. In SoundCloud’s case, around 80 percent of its revenue from a portion of its aggregate top line goes right to labels. Spotify’s results are similar.

The context for those numbers is simple: SoundCloud has raised around $193 million to-date over a series of five rounds. Just comparing the company’s through-2014 losses, SoundCloud has spent around half its raise so far. And since we’re not including more recent operational results, that figure is very conservative.

The Sophomore Slump

If 2010 to 2013 was SoundCloud’s breakthrough album, then 2014 to 2016 was its disappointing follow-up.

Beginning in 2015, SoundCloud started to move away from its initial user base of independent artists and began courting major labels. The company inked a deal with Warner in later 2015 and Universal Music in early 2016.

Warner and Universal were joined by the last remaining holdout in March of 2016 when Sony signed on. That effectively marked the end of SoundCloud’s days as the independents’ playground.

Following the three major label deals, SoundCloud released SoundCloud Go, its entry into the music subscription wars. The company has yet to report major gains from the subscription product. I’d posit that it may be difficult for SoundCloud to entice music fans to the service. If potential subscribers are interested in mainstream music, they can already go to other music services.

Money Talks

While Spotify sports extensive independent material, its focus is major label artists. That fact did not escape those who made the argument in favor of the combination. SoundCloud’s huge base of independent EDM, acoustic, rock, and other artists could help balance the scales and provide a funnel into the Spotify nest.

If the argument for Spotify buying SoundCloud was that the latter could help the former pull in independent music, do SoundCloud’s operational results matter?

The answer is yes, as Spotify doesn’t want anything to threaten its impending IPO.

Earlier this year, I took a deep dive into Spotify’s own financials, examining the numbers and reasons that they already might have a tricky path to IPO. New cost centers could make that already difficult-looking trek nigh impossible.

Even with SoundCloud’s legal issues seemingly taken care of by major label deals, SoundCloud’s subscription service arrived to lackluster reviews, and its sizable debt may present too much of a headache for Spotify just before their looming IPO.

This is all especially stark considering SoundCloud’s desired price-tag of $1 billion. Even with Twitter’s most recent $70 million investment into the service, valuing it in the neighborhood of $700 million, Spotify would still need to pay an additional $300 million to close the difference.

2017

What does this all mean for SoundCloud’s future?

As with Spotify, the major labels now have a vested interest in SoundCloud’s existence. But that doesn’t mean that they have a long-term interest in its health. As I noted in my previous Spotify piece, the labels may not want to kill SoundCloud, but they also don’t have to go out of their way to help it. So long as it sends in revenue, who cares?

Some people will care. The danger could be that independent artists may care enough to go somewhere else more focused on them. (Since they operate independently, SoundCloud’s major label deals have no sway over their prospective decisions.)

SoundCloud’s challenge is that the faster it rushes to catch up with Spotify and Apple in the mainstream arena, the faster it may alienate its key demographic of independent artists; in working to compete with the larger, mainstream players, I wonder if SoundCloud has become what its initial user base—its core point of differentiation—was trying to avoid

We’ll see in 2017.


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

Unbundled, Part I: Reformatting the Barriers

How unwrapping the previous barriers is changing music.

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This is a continuation of the Unbundled series on music dynamics. Read the previously published piece here:


The first movement in this symphony is the “unbundled” piece. It’s all about “reformatting” the conceptual barriers that initially existed for decades. It’s divided into two parts: Choice and Format.

The former is an exploration of how choice has evolved with the changing technology, and how it’s taken on a power it previously lacked. The latter, however, discusses how new formats have changed music and broken down barriers which artists historically were—most times—unable to scale. Similarly, it’s given light and life to format types which for decades have been ignored by the broad base of music consumers, except perhaps for the most die-hard fans.

unbundled

Choice

The first and most obvious form of unbundling in the music industry is the industry itself; no longer is there simply one music industry to partake in.

Now there are multiple, and they exist as completely separate universes; the major label mainstream, the exponentially growing independent industry, and everything in between. Along with this kind of unbundling of different musical arenas comes a freedom for music fans to explore in new ways.

Where non-mainstream fans were once relegated to shoddy mixtapes and bare-bones independent releases (which many times meant lower quality), now they have a plethora of music sources to choose from, as do all music listeners.

This leads to a level of choice the likes of which has never been seen in music. Now, it’s realistically possible to exist as a music fan outside the mainstream in a holistic way. You’re able to not only find the music that you like, and which speaks to you, but are similarly able to take advantage of growing communities of people like yourself. With the free access to all this new material comes access to other like-minded people.

This is community.

Chris Saad pointed to two distinct contributing factors which have lead us in this direction:

  • Reducing the cost of inventory and discovery to, in many cases, zero or near zero
  • Reducing the cost of direct communication and orchestration with more people at once—bypassing the need for manual mediators/editors/orchestrators/curators

Format

Saad’s post also mentioned this within the scope of musical format. What was once a record and CD has now become digital information, thus with more power to disseminate. Even the album format itself is restructuring, as fans looking for a single-song experience are abandoning the long form in favor of something musically shorter.

But this has a swing dynamic as well; while some argue that the album format is dying (or is already dead), many see the opposite.

The unbundling of the album format has actually given it more power than it had before. Now, when an artist chooses to create a full album, a fan knows that there is an artistic meaning behind that, rather than a record label’s fiscal bottom line.

It also lends long-overdue validation to releases that fall in between singles and full albums. EP’s and double-sides have long been ignored by most but the hardcore fans. Now, however, they exist with the same legitimacy as their gaunter and fuller peers.

The Ironic Thing

The ironic thing about these two points—choice and format—is that they’re inherently about one overarching concept: community.

As choice expands and begins to encompass formerly ignored genres and artists, new communities have the ability to coalesce and thrive. Choice isn’t merely about having new material for already established communities to engage in; alternatively, it can lead to a mixing of communities that otherwise might not happen.

Punks and jazz fans may begin to mix over a new punk-jazz fusion genre, and people who otherwise would never have met one another can now suddenly exist alongside each other. This leads to an increased level of creativity and an exponential production of creative material.

And this material is further disseminated throughout communities—splintering them and rebonding them—through new formats of information technology. Communities cease to be rigid and orthodox in their functionality towards music and instead become more elastic—they become living, breathing things which grow and continue to evolve.

This is the unbundling process within music as it should be: an unwrapping of previously rigid dynamics that lends more flexibility and power to the overall process of community cultivation.


The next movement in the symphony will be Part II: Shifting the Paradigm, which will take a look at the BUNDLED dynamic. Concepts discussed will touch on how bundling — but doing so incorrectly in the new era — impacts music consumption and community cultivation.

Stay tuned!


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

Unbundled: Introduction to the Bundle

Why the unbundling of the music universe matters.

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In recent years, the dynamics of bundling and unbundling have changed everything in media. But they’ve had an especially palpable effect on music.

This is an exploration of the bundling and unbundling dynamics taking place in the music universe right now. Because of the massive amount of information discussed herein, it is necessary to cover it in series of parts, each explaining a particular aspect of change and restructuring.

This series will appear as the following:

  • Introduction to the Bundle
  • Part I: Reformatting the Barriers
  • Part II: Shifting the Paradigm
  • Part III: Democratizing the Future

Additionally, all four pieces (including the introduction) will subsequently appear as a single, holistic text, entitled: Unbundled: The Story of Music.

This is the first entry in the story.

A New Emerging Dichotomy of Freedom and Reach

A few months ago, Chris Saad penned an article on the dynamics of bundling, and how they’re affecting a number of fields. In his piece, Saad addressed how concepts of bundling are impacting areas of creativity like art and music, among others. Ironically, it had a similar air to Joshua Topolsky’s earlier article on media companies, which itself prompted my response on music-startup realities.

Such examples were only briefly mentioned, but one can go deeper on them, particularly in the way of music. Things are happening now to the age-old structure of music that arguably haven’t changed for the better part of five or six decades. And even that is only the tip of the iceberg.

Part of what was so intriguing about Saad’s examination of these morphing areas is just how much change is going on which is not being discussed. In many ways, Saad’s piece shines a light not only on the changing bundling and unbundling dynamics taking place in music, but how these two different forms—yin and yang—are interacting with one another to shape a new musical landscape. What we see is an emerging dichotomy of freedom and reach that we haven’t seen in quite a while.

Three Trends in a Specific Order

Within the context of music, three trends—unbundling, bundling, and unbundling again—matter. And they matter in that sequence. This is so because each (un)bundling action touches a different area of the music arena, and thus their interaction together forms a new paradigm.

They lay out as follows:

unbundled

Covered in Part I, Reformatting the Barriers

  1. Choice
  2. Format

BUNDLED

Covered in Part II, Shifting the Paradigm

  1. Bundled in the Wrong Way
  2. Power and Paradigm Shift
  3. Sexy vs. Unsexy

unbundled

Covered in Part III, Democratizing the Future

  1. Power, Gatekeeping, Scarcity, and Democratization
  2. Ownership
  3. Money and Community
  4. The Expansive Powers of Identity

The music industry, like all other forms of media, is undergoing such a massive tectonic shift that we’re only beginning to now see how big the fissures are. The most interesting thing will be how these changing power paradigms affect the music coming out, and the communities which are built around the material.

Stay tuned!


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

Stop Telling Me I Need to Code

Originally published on my Medium on September 15, 2016.

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An argument for those of us who write best with sentences, not code.


I’m Not a Coder

Let me start off by saying that I am not and have never been averse to learning a new skill, even one outside my general comfort zone. In fact, I quite enjoy expanding my horizons and learning how to see the world in different ways.

But I’m not going to learn to code.

At least, I’m not going to learn to code well enough to build something completely on my own. I’ve done various courses on Codecademy and it was interesting to me to begin to see the possibilities of tech and information in a new light. But that’s not my background and not my wheelhouse. My wheelhouse is broad trends, analysis, synthesis, and communication.

In college, I studied a wide variety of non-tech/coding subjects. And I’m not alone. I studied:

  • Art (as did Brian Chesky)
  • Psych (like Jason Calacanis)
  • Sociology and philosophy (as did Chris Dixon and Stewart Butterfield)
  • English and Poli-Sci (like Jessica Livingston and Morgan DeBaun)
  • And come from a family of lawyers (something I feel Chris Sacca might relate to)

I also studied a ridiculous amount of history. These things—not code—are what help me put the world into a larger context.

First Coming to Tech

When I first got into tech, I felt overwhelmed. And I felt inadequate. It seemed that everyone knew how to code except me, though I resolved to find a way to learn. And I powered through a few Codecademy classes. But it didn’t stick in the way that would allow me to build an app or site myself.

I understood the concepts behind basic design, and had a better understanding of the work it took to make something materialize—but I knew I was never going to be the one to do it. It never got easier, and it’s still challenging for me.

Easy for me is sitting down for a couple hours and drafting, editing, and blasting out a solid, synthesized argument. But in those early moments, that didn’t seem to be on par with knowing how to code in java.

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While in the headspace of “I need to learn to code or I don’t belong,” I seriously underrated what I was good at. And that’s people.

I’m Good at People

I love networking; I never knew there was even a term for it—I just figured it was called talking. I love hearing the stories of others, connecting them to potential partners, and trying to identify mutually beneficial opportunities for both (or all) parties involved.

I’m better at reading people than I am at reading code. People are flexible and creative—code is not. (That is, it’s not to me).

I come from lawyers. I come from the mindset of there is never one right answer;” it all depends on how good your argument is, and how you can continually restructure your thought process. The notion that a line of code doesn’t work because one character is out of place is foreign to me. The same way that lateral thinking—that there might be multiple, arguable right answers—is foreign to others.

Unintended Microaggressions

Whenever I read the sentence “you should learn to code,” my first thought is “you should learn to write (well).” The concept that code is the new literacy is—frankly—bullshit. It’s undeniable that coding is a hyper-important skill in the 21st century—but it’s not the end-all, be-all of literacy. Literacy spans a variety of languages, communication tools, and colloquial, idiomatic trends. There is no “one” magic bullet.

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Treating it as such is short-sighted and arrogant. Arguably, it’s an—albeit unintended—micro-aggression that dissuades non-tech founders and Humanities majors from taking the dive into tech. Similarly, telling me that it’s “easy to learn” is a matter of opinion, not fact. And again, it’s arrogant.

How Good Is Your Writing?

I read staggering amounts of material online. Much of it is posted by super smart founders, investors, and thinkers. And from a writing perspective, a ton of it sucks.

A lot of it rambles, comes off as tone-deaf, is too splayed, and hasunforgivable grammar errors. In fact, some is so grammatically jarring simply because the writers use grammar rules that are ancient, while ignoring new colloquially correct dynamics. This makes the writing unbearably stilted. When writing an article in my world, you make it tight and you make it bullet-proof. I don’t understand writing that isn’t structured like this (creative writing aside, of course).

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Growing Into My Skin as a Non-Tech Founder

I’m not bitter, though. I know I’ll never write code like Mark Zuckerberg, and I’m ok with that. I have amazing team members and connections who can do a better job there than I ever could. So why not let them win where they naturally win?

I’ll continue to refine the coding skills I have as much as I can, but I harbor no delusions of coding grandeur. I’ve now grown more comfortable in my non-tech founder skin. I’ve grown more adept at identifying the real things in code that I need to understand, and the ones that are nice, but superfluous for my skill-set.

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Instead of telling me I “should learn to code,” lend to me a plethora of tools I can use, and articulate to me that I’m not inadequate and no less a founder if it doesn’t come so easily.

In an industry with such a high rate of failure, teamwork, communication, and vision should be prioritized above most everything else. That’s the only way any of us succeed.


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

An Ode to the Fallen Headphone Jack

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Dearest Jack,

You’ve fallen from grace this day

And tumbled low to the grave below.

You brought this on yourself (some say),

Your steely joint rigid and analog

In a wirelessly digital world.

 

Or were you killed?

Ripped from your 3.5mm womb

When you were breathing so steadily—

Confused by your newfound obsolescence.

 

I will miss your tangle

(Or will I?)

The cute frustration that I endured

All those years I got to know you.

 

I’m sorry, Jack—I truly am;

I would have loved to keep you on—

Provided you with utility into your old age

(Although some might say that 138 is old enough)

But I have no recourse here—

The game is set and I’ll have to accept fate eventually.

 

You will always be a fond memory

(For a few months at least).

And we shall write fine obituaries about you

(Until the next round of metaphorical beepers

Make their way to the front firing line).

 

The curtain’s pulled and the lights are dimming,

I suppose it’s time for a new beginning.

That’s a wrap, Jack.

Why Silicon Valley Is Rebuffing the Wall Street Journal’s ‘Andreessen Horowitz’ Piece

Marc Andreessen (left) and Ben Horowitz (right); image courtesy of Forbes

Marc Andreessen (left) and Ben Horowitz (right); image courtesy of Forbes

First Serve

Yesterday, the Wall Street Journal ran an article on the VC firm Andreessen Horowitz (hereafter, ‘a16z’). The piece took a look at the firm’s raise-rounds and returns, and was critical of a16z’s placement among other “venture-capital elite” like Sequoia, Benchmark, and Founders Fund.

While the article is quick to throw around numbers and buzzwords like “elite” and “blockbuster [investments],” the main premise is that a16z hasn’t yet earned the “premier reputation” that it has amongst those in the tech community.

Second Serve — Response

The response from the tech world basically ate up the rest of yesterday afternoon and night.

It started with a response blog post from a16z managing partner Scott Kupor, which was posted not long after the original piece went up: When Is a “Mark” Not a Mark?

One thing Kupor points out immediately is that “marks” and “returns are two very different things in the realm of venture capital. Further, “[c]ash or stock actually realized and distributed to LPs is the only real, non-manipulable measure of a firm’s interim success.”

Kupor is articulating that the data which the WSJ published is somewhat misleading because it chose the metric of unrealized returns to match the title of the article. He further fleshed out this argument as the post went on.

Then the flood began.

Mark Suster wrote a great response of his own here: What to Make of Andreessen Horowitz’s Returns?

One of Suster’s most intriguing points is when he plots the line of thinking lot of VC’s have had about a16z over time, from “ ‘We love Ben and Marc’ and ‘they raised how much’ to ‘…they sure are hiring a ton of staff…’ and ‘How can we hire more staff to keep up with the services they offer?’. ”

More importantly, though, Suster puts into context a reason why a16z might already have the reputation that it does — that most entrepreneurs perceive it as a place of great connections and services, and that he himself has had positive experiences with the firm when they’ve done deals with Upfront Ventures (oh which Suster is a part).

Twitter Thoughts

All the while, I was intrigued to see the flow of responses over Twitter:

 

 

 

 

 

 

Why the WSJ’s Focus on a16z’s “Rivals” Is Misplaced

Part of what I find so intriguing is the direct aversion to a dynamic that is perpetuated in the original piece. Whereas the WSJ article paints a broad picture of a16z in relation to its “top rivals,” here are numerous responses from VC’s who run other funds seemingly going to bat for Andreessen Horowitz. In my opinion, this is something exceedingly important which the article skates over.

Yes, these different funds and investors compete for the best deals and the best founders/companies to work with. But most don’t do in a way that makes it easy to label them as rivals.

The term “rival” has a finality to it, as if it’s a forgone conclusion that those two parties will always be on opposite sides of the table. Yet inasmuch as everyone in this business wants to “win” at deals, the metaphor I see is more of a music one than a sports one. In the latter, there’s one winner, one champion. The former, however, creates a paradigm where multiple winners can exist, and where there is a fluidity regarding partnerships and mutual benefits.

Funnily enough, the WSJ added this little blurb to the original article not long after, though really without restructuring its initial argument to account for Kupor’s points:

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So what’s the takeaway in all of this?

  • First and foremost, understand the numbers, terms, and dynamics you’re working with and writing about. That seems to be a point of disconnect between the original article and the response pieces.
  • Second, things are rarely ever as simple as they appear to be.
  • Third, there is a way to write hard-hitting journalism without [publically] making enemies; if you don’t know how to do this, you should alter your writing strategy.

While I wouldn’t call the response to the initial article “biblical” by any sense, it nonetheless provides a good window into the dynamics of venture capital thought and strategy. If nothing else, founders have now been given a good variety of response posts to read and understand, particularly with regard to VC fund calculation and long-term plays.

I know what I’ll be doing this weekend.


If you enjoyed this, find me on Twitter @adammarx13 and let’s talk music, tech, and business!

Takeaways from AngelList Radio’s Podcast with Tyler Willis and Jason Calacanis

Yesterday I listened to Tyler Willis have Jason Calacanis on the AngelList Radio podcast. Despite the fact that the episode was recorded a couple of months ago, I couldn’t stop listening to it. In fact, I was about halfway through it the second time when it occurred to me that I should take a few notes on it to summarize the incredible amount of information that Tyler and Jason discussed (it is an hour and a half long, after all).

Jason Calacanis; image courtesy of the AngelList Radio podcast

Jason Calacanis; image courtesy of the AngelList Radio podcast

The sheer amount of important information covered makes summarizing all of it challenging, but I’ll give it a try. I should note, though, before delving in, that some of the most poignant things covered were in the form of life stories and philosophies from Jason, a summarized transcription of which does not do them justice. To really soak up the underlying meaning of what’s listed below, you really need to listen to it for yourself. Possibly multiple times.

Moving along though. The points which Tyler and Jason hit can most aptly be placed within a number of areas of thought and consideration.  

These are:

  • People
  • Mentalities
  • Entrepreneurs and Founders
  • (Angel) Investing
  • Democratization

I’ll do my best to tackle each one of these, but keep in mind that these are just a few of the points which struck me as the most powerful. I will discuss some in more depth than others, as a number of them are self-explanatory.

People

Jason’s view of people in my mind basically splits into three main veins: human calculation, relationships, and arguably the most important one, empathy.

Human Calculation

This goes to “Jason’s Law of Angel Investing,” which according to Jason is: “I don’t need to know if the idea’s going to win, I [just] need to know if the person’s a winner.”

Jason looks for and reads the things that other people might miss: body language, personality, and interactive cues. As he mentions, he will talk about the [founder’s] idea through the lens of trying to figure out if [s/he’s] a winner or not. This sort of human calculation sets Jason up for the long game, something which he discusses as being a part of his overall strategy.

Relationships

Jason is extremely bullish on his relationships, wanting to be the first call a founder makes when things are going wrong, when the situation looks dire, or just when founders are having a hard time. He discusses understanding that being a founder is lonely, and sometimes all one needs is an ear to vent to; someone to “shoot the shit” with. Perhaps this goes back to Jason’s major in psychology; certainly his ability to read people and situations benefits from such a thought process. 

Life is relationships, pure and simple. Everything else is secondary, and Jason aspires to (almost obsessively) cultivate his relationships. (That’s a good thing, by the way).

This however, leads into what I consider to be one of the central theses of the discussion: empathy.

Empathy

Startups are hard. Actually, that’s a lie; startups are fucking hard. And sometimes the best thing is when someone will just sit and listen while you vent and fume for a little while. Loneliness kills, and having a friendly ear can make all the difference on those tough nights.

One quote seems to capture what Jason’s mentality would be during those nights on the phone with a founder having a hard time: “When I invested in you, I knew the odds were against you, and I still believed in you.” That pretty much sums up all that needs to be said.

Jason’s philosophy of accomplishing close relationships simply by being a nice human being—“buying [the founder] a cup of coffee, buying them dinner, or just saying ‘I believe in you’”—is exactly how I see the world as well. Cultivating relationships means doing what you can for other people because you can do it, not because you see some reward at the end of the tunnel. In the long run, good relationships do tend to reward people in often unexpected ways, but that should never be the crux of the relationships. Relationships are empathy and positivity. It’s about being magnetic.

Mentalities

Within the context of mentalities, Jason hits on a number of notions, though the one that sticks out to me the most is his focus on the “journalistic mentality.” Clearly a holdover from his time as a journalist, Jason discusses how he looks for people who exhibit great journalistic skills: an inquisitive mind, good communication skills, and being able to read situations well. In many ways, this connects with a lot of his poker metaphors. (There are lots of poker metaphors).

As he points out: “What happens when you interview [people] for a long time is you start to understand when they’re full of shit and you start to tell…who’s full of greatness…” Bluntly put, this is very true. I experienced it a lot during my time as a music journalist, speaking with artists and other industry professionals. Being a journalist is one of the best ways you can get to know the industry you want to be in.

“[A journalist] equals an inquisitive person who can communicate well.”

Entrepreneurs and Founders

Jason spends a lot of time talking about how he identifies great founders and what anyone should be doing and/or thinking about if they want to be an entrepreneur.

Know “Why”

First and foremost, know “why.” Why are you doing this, what is the underlying reason?

For Jason, answers like “the market seems open” or “I wanted to try being a founder” don’t cut it. It speaks to the authenticity if a founder is doing it for a larger reason than just trying to take advantage of a particular market situation. There needs to be a certain inevitability to what they’re doing, and how they see the world (something which Chris Sacca has also touched on).

As Jason sees it, there needs to be a real sense of purpose in the founder(s), a mission: “The world needs to evolve in this way, and we have the solution, and we NEED to implement our solution to change the way the world works.”

Jason: “Really talented people tell you where the world is going, and then you get to be part of it. And then you get to help them launch the rocket.”

Don’t Screw Your Supporters

They need to have the integrity not to screw the people who supported them early on. This is exactly in line with a well-known adage in the music industry which I always quote: “For those who forget us on the way up, we’ll see you on the way down.” Don’t forget the people who made your rise possible.

Be a Punk

Founders need to be punks.

Ok so Jason didn’t actually use this word, but as I explained in my post here, that’s really the type of mentality he is describing when he articulates what he looks for in people.

Additionally founders need:

  • To have an armor; a relentless drive, and be relentlessly resourceful
  • Have maniacal execution skills
  • Unstoppable determination

(Angel) Investing

Jason relayed a lot of information about investing and investment strategy. He discussed a lot of his personal strategy as well as how new investors can get in the game and start to learn the ropes.

For the sake of time (and because a lot of this is fairly self-explanatory), here’s a rundown of what he discussed:

  • Tips (for Angel Investing)
    • Spread your bets
    • Start by making investments slowly over a year
    • Even if you lose money, you’ll learn something
    • Always try to learn before diving in head first
    • Join syndicates
    • Get in the game and start
    • Double and triple down on your best bets
    • Meet with founders as much as you possibly can
    • Play the cars of the best investor at the table if you’re new to investing
    • Do the work, be proactive
    • Play the long game
    • Be patient and learn
    • Financial performance will come; focus on a portfolio strategy
    • Investing is a fight/struggle
    • Don’t ever discount anybody
    • Make a 5-year plan
    • Pro-rata rights
    • You want the “difficult” people; these people “mix it up”
    • Focus on being the most valuable and helpful person to the founder
  • Need to Have
    • A comfort losing a lot of your money (which you invested)
    • A comfort with the “shitshow” realities of investing
  • Don’t Be an Investor If
    • You’re annoying
    • You’re a control freak/obsessive person
    • You can’t remain cool and calm
    • You can’t remain classy in the face of defeat
    • You can’t deal with bad news
    • You can’t be a mensch

As Jason articulated: “I have to be the most valuable [person] to the founders. [I ask myself,] ‘Am I doing the most for that person?’”

How did Jason get to this thought process? When he started investing he made a list of all the things he could do for founders to provide value to them. Then he did them.

Democratization

The last major point which Jason discusses is democratization. In this case, he’s referring to the democratization of knowledge and power, and how dynamics have totally shifted in the last 10 years, allowing for entrance into entrepreneurship for tons of people who previously had very little recourse.

Interestingly enough, as he’s discussing the democratization of knowledge which can be used for growth, development of new skills sets, and other such things, I’m just reminded of an article I wrote a few months ago on the democratization of music. True, Jason is describing a different type of democratization process, but the parallel works. In the same way that scarcity has become an obsolete mentality for music, so too has scarcity of startup and entrepreneurial knowledge become obsolete in the worlds of business and tech.

I said it once and I’ll say it again: scarcity is obsolete; democratization wins.

“[Entrepreneurship is] stumbling around in the dark room, fumbling around, until your hand hits the wall, and flicks on the light switch.” – Jason 

Jason also briefly touched on the differences he sees between his LAUNCH incubator and Y Combinator, but that’s a whole other discussion for another time.

All in all, the podcast was intriguing enough for me to listen to it twice all the way through, and then take notes on it for a post. I give it up to Tyler Willis for conducting a great interview, and look forward to a hopeful follow-up with Jason again.


If you enjoyed this, follow me on Twitter, where I talk tech, music, and funny junk 😀

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Why Ignoring the Independents Means Thunderstorms for SoundCloud

SoundCloud logo

TechCrunch published a post recently, the premise of which was SoundCloud’s recent tapdance with major labels. The post discussed SoundCloud’s $35M in debt funding, and newly signed deal with Universal Music Group. The fact that the aforementioned funding was actually finalized last May notwithstanding, the piece concluded that the upshot of the whole situation is that SC would end up being worth more than rival Spotify. Here’s why that’s not exactly the case.

The Background: Courting the Mainstream Players

While the TC piece makes some astute points, its most important argument—that SoundCloud has the opportunity to become the YouTube of audio—doesn’t exactly stand on its own. SoundCloud has a major issue in that it’s caught in between two completely different paradigms—that of the independent and that of the major label—and doesn’t seem to know how to resolve those differences. Up until now, the ill-fated balancing act it’s been trying has been somewhat workable, but going forward it will be tenuous at best. As such, the real story here is how SoundCloud is evolving, and not in a way that is wonderful for the independent artists who have historically been its core constituency.

As SoundCloud moves further into the major label fold, it simultaneously does two things:

1) It resolves (at least for the moment) the issues which the music service is having with some of the labels over licensing and royalties. The new deal with Universal clearly comes with it an agreement that the label will drop any pending legal action against the service, as music will now be licensed directly to SC. (It does, however, do nothing for the mass of pending litigation  between Sony and SoundCloud, as the former is that last major label holdout to strike a deal with the service).

2) It effectively continues the alienation of the independents upon which the service has historically built its core and more loyal following.

Leaving the Core Content Base

To be clear, there’s nothing wrong with serving the mainstream. However, most every one of the major music companies already does that, leading to an already crowded crawlspace of competitors vying for mainstream supremacy. While the major music companies set their collective focus on mainstream material, the independent demographic is left languishing in the wind time after time. Initially, SoundCloud was an exception in this respect, cutting its teeth in the independent arena long before it signed deals with any of the major labels (starting with Warner Music Group last year). Since then, however, SC has been moving further and further away from the paradigm from whence it rose and closer towards the crowded party at the mainstream table.     

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The music pipeline

While SC battled other services for mainstream consumers, it had for a while been the favorite among independents and underground artists looking to cultivate their fanbases from the ground up. Even Alex Moazed in his guest TC piece acknowledged that this is what makes SC win: the fact that this is where the content stream starts for a lot of new artists (a rapidly growing demographic) and where they begin to build their initial fanbases and cultivate their followings. That SoundCloud is not only moving away from that, but seemingly shunning it in the long run, is a palpable kick in the face for a lot of independents.    

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Growth of independent music between 2003-2012; image courtesy of Techdirt

What Moazed doesn’t address in his piece is exactly what I discussed last spring: why independent artists should essentially kiss SoundCloud goodbye, why their subsequent deal with the NMPA was irrelevant for independents, and ultimately why the precarious high-wire balancing act was leading them down a difficult path. Independent artists, unlike major label performers, are not locked into any required loyalty as a result of record label contracts. They can come and go as they please on any variety of services, and thus are free to explore any new ( and better) opportunities that might arise.

SoundCloud’s error in judgement here is assuming that the independent demographic (arguably its only real unique demographic of content producers) will stick around when the winds change, and the focus of the platform shifts to mainstream desires. Already there were grumblings in the independent underground when SC premiered its new layout early last year. The simple reality is that SoundCloud fundamentally cannot serve two masters (the independents and the major labels) because each is moving in an opposite direction, with desires and mentalities divergent of one another. Now, with the Universal deal, I see only one way SC can continue to struggle towards profitability, and that is in the major label direction.

That, however, presents another can of worms.

Money and Equity

As some have already pointed out (or could simply guess), the Universal deal could not have been cheap by any means, particularly as it meant Universal dropping its legal action against the music service. Furthermore, as Warner gained around a 5% stake of the company when it licensed its own catalogue, one can calculate that Universal settled for nothing less than a similar deal (likely pushing for more equity in order to drop the legal suit).

That’s a huge premium to pay for Universal’s recording and publishing catalogues, and doesn’t yet take into account all the royalties SC will now have to cough up on the backend. The real hard hitting numbers come when one imagines what Sony, the last major holdout, will demand for its material. Seeing as it currently has legal qualms with SoundCloud, it’s conceivable that Sony could demand even more cash upfront and equity in order for access to its musical coffers. At a minimum, one could calculate the collective equity of the major labels to total somewhere around 15%—at a minimum.

Though not listed specifically, the chart below gives one a good idea of where SoundCloud will inevitably fit within the royalty paradigm, and just how much friction it will cause between both the service and artists, and the service and the labels. Two different (divergent) interests make for a massive headache in the long term for SoundCloud.

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Royalty rates, minimum wage, and reality; image courtesy of informationisbeautiful.net

This may seem like a paltry price of doing business until one considers the fact that the relationship dynamic is not an equal one: the major labels hold the keys to the material which SoundCloud wants (and desperately needs, in order to win the mainstream game), but are not equally in need of SoundCloud itself. They similarly license the same material to a variety of competing music services, and essentially can dole it out to the highest bidder, through contracts which then become renegotiable every few years. Thus, SoundCloud (and others) are beholden to the major labels for their lifeblood, but the opposite is not true. SoundCloud has entered into a paradigm that’s nearly impossible to backtrack from. They’re tying their own concrete shoes.

Operating in the Red

All of this firmly underscores the uncomfortable news recently that SoundCloud took a $44M hit in 2014, making their raise of the above-mentioned $35M almost irrelevant. That the raise of the $35M in debt financing will essentially have to go to cover SC’s 2014 losses must be a bitter pill for investors to swallow, particularly as much of their customer base uses the service for free. The simple truth, as it appears to be, is that SoundCloud is hemorrhaging money with no clear path to take to fix things, either quickly, or in the long term. That being the case, it’s fairly probable that SoundCloud will need to start raising another round of money somewhat soon, even if it’s just to weather its current storm.

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SoundCloud losses (in Euros); image courtesy of Music Business Worldwide

And then there’s this, the Reddit thread that must be the most painful thing for SC right now. Titled “SoundCloud could close after $44m losses,” the thread spent a few nights recently blowing up, and had an upvote-percentage of 96%. What does this mean in reality? It means a lot of people were reading this conversation, and the commenters are not wrong. In fact, many of them are quite astute and know exactly what’s going to happen:

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These comments highlight the discussion going on regarding SoundCloud not only among its general consumers, but among the artists who create the content on which the service was built. It’s important to remember that before SC had any major label deals in place, it was doing quite well because of the huge influx of independent material coming in from independent artists and DJ’s. In moving further and further away from this core demographic, SoundCloud is quite aggressively biting the hand that feeds it. SoundCloud’s response to the Reddit thread was equally underwhelming and unpersuasive.

The loyalty of such independent artists is a complex thing; on the one hand, they aren’t tied to any one particular party, and thus their loyalty to any one service may be thought of as ephemeral. On the other hand, however, their loyalty has the potential to be ferocious and dogged if and when they find a service which works for them, in their favor. SoundCloud used to be that service, but it isn’t any longer. They’ve traded the long term loyalty of these smaller—but much more numerous—independent artists for the short term benefit of being able to peddle major label mainstream material. The same exact mainstream material which all their major competitors are already selling. They’ve traded the long term benefit of being unique for the short term “benefit” of being just like everyone else.

Short Term Gain, Long Term Loss

The big kicker though, is that SoundCloud didn’t start as Spotify of Apple Music did, with deals with the major labels. It doesn’t come from that part of town. It comes from the less expensive, more experimental street of independent artists, covers, and remixes. It blew up among independents long before mainstream listeners got wind of it, and now it’s moving away from those early adopters towards a more corporate clientele.

As far as I can see it, this is incredibly ironic: the independent music universe is just now starting to mature and expand rapidly, while the major label world is getting cramped and hideously expensive. Over the last decade, independent music has grown immensely while major label-signed content has actually decreased. Put simply, the number of expensive, mainstream artists which big music companies are fighting over is shrinking while the number of free and/or inexpensive independent artists is actually growing at an almost exponential rate. Insofar as the independent universe might not be as lucrative as the mainstream arena in the short term, it nonetheless is where the most growth is happening.

So where does all of this leave SoundCloud? In the short term, the Universal deal is a great breakthrough, and certainly will help them more aptly compete with Spotify and Apple. However, it’s clearly been overshadowed over the last few weeks by their financial woes and discussions of possible paths forward.

In the long term, though, they will end up dismissing the demographic and core base that made them special to begin with. Someone else will pick up that gauntlet and run with it, and that’s where the growing independent base will go.  

Empathy, and Creating Value for Others Before Yourself

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Speaking with Chris Sacca and Erik Torenberg on Product Hunt LIVE

Empathy and Humility Are Disarming

Earlier this weekend, there was a great Medium post on Chris Sacca, and how he asks questions in a particular way. Phrasing it as “people-hacking,” a term which I found as quirky as it was vague, the post described the Q&A session which Sacca held following his most recent appearance on ABC’s Shark Tank, and which was moderated by Matt Mazzeo.

What I found most intriguing about the whole post was the ease with which it captured Sacca’s approach to not only answering questions, but asking them. The post itself seemed modeled on Sacca’s “ask vague, unloaded questions” approach, getting right to the heart of how and why someone in Sacca’s shoes (as a well-known investor) still seems approachable and down to earth. Humility is disarming and positivity is magnetic, whether you’re a founder, VC, employee, or customer.

Empathy—for other founders and everyone around you—seems to be a key trait which Sacca looks for. The focus on empathy falls directly in line with the thesis of Sacca’s earlier posts and Periscopes: karma, and creating value for others before asking for value for yourself. Last summer, I examined this focus on empathy and creating value for others within the greater context of relationships.

Creating Value for Others Before Yourself

I was fortunate enough to be able to speak with Sacca on these concepts a few months ago during a Product Hunt LIVE discussion he did. During the course of our short back-and-forth, he mentioned as an example how Mazzeo appeared on his radar simply because he created value for what Sacca was doing.

It was this initial value-for-nothing that then coalesced into a working relationship between the two (sans any formal interview); an example that underscored (at last for me) how important it is to continue to be a positive force for others even if the benefit for yourself is not yet clear. Good karma begets more good karma.    

Asking intentionally open-ended questions like “What does success look like?” and “How do you envision success with this product?” (from the original post) enable Sacca to do two things:

  1. He is able to maneuver the conversation away from stock answers and see how the founders really relate to their products, and
  2. He allows an element of freedom to flow through the process which eases the pressure and arguably allows him to see how a founder thinks when not completely flustered.

Relationships → Communities → Identities

The real takeaway from both the Medium post and Sacca’s initial Periscopes and articles is a focus on, and underscoring of, people. Understanding how people think, and being able to relate to those thoughts and emotions are what build relationships, which then turn into communities, and then into identities. Great companies cannot be built without these things, no matter how well everything else might work. Life is relationships, and there’s no substitute for knowing how to relate to people in empathetic and positive ways. These emotions in turn inspire trust and loyalty.

As they continue to build great things, I would encourage other founders to take these things to heart. They ring true regardless of whichever industry or walk of life you come from.

Thanks to Chris Sacca for taking time to answer my question, and to Erik Torenberg from Product Hunt for making it possible to do so!