In the first installment of this article on music business plans, I mentioned that there is no one-size-fits-all format. Nevertheless, every business plan should convey certain "standard" information. I have found that incorporating the following sections into a business plan ensures the inclusion of the most critical information:
1) The Executive Summary. This should be the first section of the business plan (although it is typically the last section actually drafted). As the name implies, this section is a summary of the key points discussed throughout the business plan. In the context of a music business, this section usually includes, but is not limited to, information about the types of products and services to be provided (e.g., recorded music, live performance, composition, merchandise, etc.), the applicable musical genres, company goals (often broken down into short-term, mid-term, and long-term goals), and information about the target markets for the company’s offerings.
2) Mission Statement. The mission statement often appears second in the business plan. The mission statement should paint a picture of the company’s goals, ideals, and business philosophy. Because the mission statement often provides a persona for the company, the creator should take great care to develop a message that accurately reflects the character of the company.
3) Company Overview. This section provides information about the basic structure of the company, including its legal structure (e.g., sole proprietorship, general or limited partnership, corporation, or limited liability company (“LLC”)). If the company requires special licensing, it is advisable to also include that information here. This section should also include a description of the basic management structure and company hierarchy (sometimes including a flow chart can be helpful) and provide descriptions of the various positions in the company. Also include a discussion of the interaction among internal personnel and between the company and individuals and organizations outside the company, such as vendors and consumers.
4) Marketing Analysis. I generally recommend describing in this section what marketing professionals call the “marketing mix.” The marketing mix contains four elements, which are often called the “four Ps”: (1) Product, (2) Price, (3) Place (i.e., methods of distribution), and (4) Promotion. Without going into too much detail, this section should provide rather detailed information about the precise goods and services that the company plans to offer, pricing for those goods and services, the methods of distributing the goods and services to the consumer, and how the company plans to promote the goods and services. This is an extreme oversimplification of the marketing mix. In reality, each of the four elements contains sub-elements, each of which deserves careful analysis.
5) Financial Analysis. This section should include basic pro forma style estimates of financial performance. I strongly recommend consulting a CPA for assistance. This section should also contain preliminary budgets for the company and its various departments. I also generally recommend including a breakdown of upfront capital requirements and how the company plans to raise those initial capital requirements (e.g., debt or equity financing).
6) Risk and Opportunity Assessment. As the name implies, this section should contain a realistic assessment of the various risks and opportunities for the company. I recommend preparing a “SWOT” analysis prior to completing this section. In a nutshell, a SWOT analysis is an analytical framework for assessing a company’s internal strengths and weaknesses and external opportunities and threats. It is generally prepared in graphical form for ease of use and to facilitate a quick understanding of a company’s position. For purposes of the business plan, I recommend translating the data into standard paragraph format.
7) Exit Strategy. Although no one likes to talk about ending a business before it even begins, it is important to include a road map for getting out of the business, for whatever reason. This section is particularly important if you plan to take on investors or seek outside financing.
Again, business plans come in all shapes and sizes. The sections I have described above are some of the more common issues to address in a business plan. Ultimately, each company must adopt a style of business plan that works best for its needs, as well as time and budgetary constraints.
Finally, don’t forget to look up from the plan from time to time. Do not become so obsessed with following your plan — or, more accurately, trying to force your company to fit the precise contours of the business plan that you developed initially — that you overlook changes in the market or in various areas of your business. The business plan should not be a static document. Rather, it should provide flexibility to permit the company to prepare for, and ultimately weather, the changes that might come down the road.
Entrepreneurial musicians — like all business people — often find themselves in quandaries regarding their daily business operations. If only there were a magic book to which one could refer when faced with a particular problem or new opportunity. If only. Unfortunately, no such book exists (believe me, I’ve looked). Even if there were a book that could tell you how to operate your music business, it would take at least half of the fun out of running the business. True entrepreneurs enjoy the ever-changing challenges that come with any venture, but that doesn’t mean you shouldn’t have a game plan in place at all times.
Enter the “business plan” — that intimidating sounding document that casts fear in the hearts of start-up business owners everywhere and, sadly, has created more stress for many individuals than the actual day-to-day operation of their businesses. The good news is that, while there are certain issues that all business plans should address, there is no absolute format for a business plan. In fact, a comprehensive and workable business plan could be jotted down on a napkin. However, if you plan to submit your business plan to other parties for securing financing or some other purpose, I suggest that you avoid the napkin method and prepare a more professional document.
Remember that there is no one-size-fits-all business plan. True, there are model business plans available, many of which are quite good. But there are no perfect “off-the-rack” solutions in any business. In my next post, I will provide additional information about business plans, including the type of information they should include.
With advances in recording technology and that great leveling factor known as the Internet, today’s music industry provides business-minded musicians with opportunities unheard of just a few years ago. But any opportunity comes with its fair share of risks. One very real, yet rarely discussed, risk is the threat of complacency. I won’t bore you with the now tired clichés like “thinking outside the box,” “disruptive innovation,” etc. However, I will encourage you to never stop thinking about the way you do business and asking yourself a simple question: “Why?” “Why am I doing it this way?” “Why did I start doing it this way?” “Why should I continue doing it this way?” You get the picture.
Does the music industry look different than it did in 1920? Without question. 1950? Absolutely. 1980? Of course. How about 2010? You bet it does. The music industry has survived to this day because of individuals who recognized they could not merely accept the status quo and had the foresight to develop and capitalize on the “next big thing.” Want proof? Just look at the opportunities that the recording industry’s initial failure to embrace digital distribution as a viable method of distribution created for independents. Had the established industry jumped on the digital bandwagon immediately, would there be as many different digital services today or would there be only a few mega-outlets? Would it be as easy, or even possible, for an independent to enter distribution deals with those outlets? Maybe so, maybe not. (And don’t even ask me to address the touchy issue of commercial viability in a digital market.) The point is that the industry’s initial reluctance to change the established model created opportunities for independents that continue to develop.
I challenge each of you to set aside ten minutes each day to think about your business and how it will operate in the future. This should be a workable exercise, so don’t allow yourself to get too bogged down in details. Think in terms of today, this year, next year, five years from now, and ten years from now. Don’t worry if your thoughts change over time – that’s precisely the point. There are no maps in life or business. However, a business that continues down a particular path simply for the sake of seeing it to the end rarely will survive. Keep your notes in a journal and review them periodically to see how well you were able to predict changing trends. This is one of the most critical abilities that you can develop in your music career, as well as life in general.
Welcome to The Levine Entertainment Law & Business Monitor. When I set out to create this blog, I asked myself a critical question -- "How many words can I fit in the name without losing readers' attention before they get to my first post?" After weeks of intense research, I settled on six. And after significant internal conflict over whether ampersands really count, I decided to add "the" to the beginning -- an addition that I'm sure you'll agree communicates authoritativeness and class, with just enough pomposity to remind you that it's a blog written by a lawyer.
But seriously, my primary goal was to create a useful source for information about the legal and business aspects of entertainment, delivered in a casual, easily understandable, and frequently irreverent style. I hope you will subscribe and share your suggestions for topics. Thanks for visiting.
P.S., My research also suggested that including cat photos on my website would boost its search engine rankings, so please enjoy this picture of my assistant, Buddy. What he lacks in motivation, he more than makes up for in loyalty.
L. Kevin Levine is the founder of L. Kevin Levine, PLLC (go figure), a boutique entertainment, copyright, trademark, and business law firm in Nashville, Tennessee. A lifelong musician who grew up in his family's music store, it was inevitable that Kevin would build his legal career in entertainment and business.