This post is part of the How To Launch a Music Startup series by Brenden Mulligan, which focuses on building a company that creates online products for musicians. Mulligan founded ArtistData, which was recently acquired by Sonicbids, and can be found on Twitter at @bmull.
Before starting this series off, I thought it'd be useful to lay out some fundamental truths I believe exist which have an enormous effect on the potential success of building a product to sell to artists. I wanted to bring this up immediately because I thought getting the conversation going in the comments now would influence how the rest of the series is laid out.
There are three metrics of a business's foundation/plan that investors like to know when looking at a potential return on investment: market size, willingness to pay, and exit potential. These are important to think about beforehand because they're generally tangible and based off of known numbers or historical performance. The quick overview:
- MARKET SIZE: How many musicians are there? Of these, which are relevant (potential customers?). This number is incredibly important to establish up front, because it shows you how big your customer base can be, which helps you make the decision of whether investing in building a product for them is worth it.
- WILLINGNESS TO PAY: What is the likelihood the market you are targeting is willing to open their wallets and hand you money. If they are willing to pay, how much? Are these $2/month customers or $200/month customers? If it varies, what percentage are willing to pay a lot vs. a little? This number is important because combined with the Market Size metric, it will show you how much revenue you can expect to generate if you do your job right.
- EXIT POTENTIAL: How will your shareholders get their money back? If you don't plan on getting investors, this means what's your end game? Are you going to build a business to run for the rest of your life and pay yourself a comfortable salary (investors wont give you money for this) or do you want to sell for hundreds of millions of dollars to Google? This is based on a number of factors, but one great place to look is historical exits from other companies in your market.
So that's the first part of this series. Regardless of your company, if you are building a product for bands to pay for, everyone's answers to these areas will be similar. As we unveil these answers, hopefully people who are interested in starting an artist focused business or raising money for one will have some research done for them.