Andrew: Hey there, freedom fighters. My name is Andrew Warner. I am the founder of Mixergy.com, home of the ambitious upstart.
I was going to introduce today’s guest as a founder of a company that’s very similar to Kickstarter, but it’s for music. Then I thought, “I wonder how he feels about the comparison to Kickstarter.” Both companies were launched in the same year, so it’s not like he saw an opportunity to bring the Kickstarter idea to his business. I’m wondering where his idea came from.
We’ll find out about that and how well he’s doing with his company right here in this interview with Benji Rogers. He is the founder of PledgeMusic. They are a leading international, direct-to-fan platform offering artists a way to engage their fans in the music making process. That’s a mouthful. Here’s the idea. You like a band like the Blues Traveler. You want to encourage them to create a new album.
Well, if you go to PledgeMusic, you can see what album they’re working on. You can be a part of it as they create it. You can help fund it by buying access to the music before they create it and in return, I think one of the guys from Blues Traveler will play harmonica on your music if you want. You can go and be the opening act if you pledge a certain amount. Anyway, you get how it works. We’ll talk to Benji about how he came up with the business idea and how he grew it.
It’s all thanks to Toptal. Here’s the idea behind Toptal–imagine you have a business idea and you need somebody to develop it, but your coders are all busy working on other projects or maybe you don’t even have coders. What you need is somebody who can dedicate their attention to your project. That’s where Toptal comes in. Toptal is a network of top developers, proven to be among the top three percent by their peers. They are vetted. They are screened. They are tested. They are really put through the ringer. Once they make the cut, they are on the Toptal network.
So, you go to Toptal. You tell them what you’re looking for. You tell the kind of language you want the developer to code in. You tell them what project you’re working on, how many hours you need, what you’re like–what are your idiosyncrasies? What’s the weird way that your company operates? They’ll go find the right person or people. You get to talk to them, screen them yourself and if you’re happy, you can often start with your developer the very next day.
That’s the magic of Toptal–proven developers available to you. Go to Toptal.com. Top like top of the heap, tal like talent–Toptal.com.
Benji: Thank you very much.
Andrew: Hey, how did you feel about me wanting to compare you to Kickstarter?
Benji: Better about it because I’ve had a few years’ run at this. I should preface it by saying that Yancey, the CEO of Kickstarter and Slava of Indiegogo are two of the most talented, driven, passionate people I’ve ever met. So, it’s actually quite an honor to be compared to Kickstarter in particular because I think, again, the first time I met Yancey was in Iceland, actually, at a festival. I recognized what they were doing right and I think that they’re a special, special breed of company that could have gone a lot of ways and they’ve chosen to stick with a path, so I admire them a great deal.
I don’t mind it. To me, it sells short the idea of what we do and what is truly possible out of the platform. We launched about three months apart from Kickstarter. I remember the first time we saw a Kickstarter campaign go out. It actually informed us of exactly the path that we wanted to take the whole time.
I believe that if you fundamentally say to a bunch of people, “Fund my project,” you’re placing the financial goal ahead of the content or the creativity that lies within. So, if you have a radically successful campaign, you become millionaires overnight and then all of a sudden you’ve changed the dynamic between you and your fans. If it fails to hit that target, you’ve radically changed the dynamic between you and your fans.
Andrew: What do you mean? Fail meaning fail to raise the money you needed in order to create?
Benji: Exactly. Yeah.
Andrew: I see. And now you look like a loser in front of your fans, you’re saying.
Benji: Exactly. So, technologically speaking, if you’re doing a tech startup, you basically move and change things because you figure out what works. Music is very different. So, basically you’re putting the brand of the company against an amount of money and a set amount of time. I couldn’t figure out why that was important.
So, the difference really is that we got rid of the financial targets and we made it about either 0-100 percent or just a straight pre-order. Rather than say, “Give me money, then I will go do,” what we say is your pre-order unlocks experience from walking in the studio to walking out of the studio and releasing the record.
As such, we’ve found that about 37 percent of the revenue from our campaigns comes from when a traditional crowdfunding campaign would have ended. So, you’re leaving all this money and opportunity on the table by shutting the campaign down in this squished limit of time and making it about the money.
Andrew: So, you’re saying that if I go to Blues Traveler’s webpage, I don’t see a goal that they’re aiming for. They’re not saying, “If we don’t get $100,000, we will not be making this album. You won’t get it.” They’re saying, “We’re about to make this. We want you to be a part of it. If you’d like to, here are different ways to participate.”
Andrew: You can buy the album before it launches for $30. You can also, as I said earlier, have all those other options. Actually, no. It’s buy the album if you want it on mp3 format form $12. Then there are all these other options including John Popper playing the harmonica on your album. Got it. That’s the difference.
Benji: Exactly. Also, one of the things I’d say is that we watched a few campaigns. A bunch of them fail on crowdfunding platforms because they weren’t basically helped through the process of getting these things right. They’re quite nuanced and complex. I’m from a family of managers in the music industry. I’m not a tech guy. I love tech. I was working with Myspace bots to up my play counts way back in the day. I come from that world of social networking.
But the idea for me was that super fans make up the bulk of spending in the music industry. They want to participate in things in various ways. The traditional music industry is creating fewer and fewer paths for them to participate. They’re just creating ways to consume. Kickstarter and Indiegogo created ways to fund. We create ways to engage with, which covers consumption and funding at the same time.
So, you get all the best results of crowdfunding, but none of the hassle or headache of showing financially what you’re worth, which can really sour the relationship.
Andrew: What kind of revenues are you guys generating with this?
Benji: The average spend per fan is $55 per transaction.
Andrew: $55, and total for 2014, what was that?
Benji: No, no, no, $55 per transaction.
Andrew: Right. And so how much revenue overall for 2014?
Benji: We don’t reveal our numbers.
Andrew: You don’t. Okay. Are you guys profitable?
Benji: Sorry? No. We are reinvested into it. So, basically right now we’re actually investing to grow in a big way.
Andrew: Can you say how much money your artists have all made together?
Benji: No because again, we don’t publish that number.
Andrew: Okay. The only metric that I have is 850,000 subscribers.
Benji: Yeah. That’s actually 910,000 at the moment.
Andrew: So, it’s grown since the time of my notes.
Andrew: What does it mean to be a subscriber?
Benji: So, basically that means someone has pre-ordered something from our site from one of our artists. So, we have about 4,000 artists who have done campaigns with us. We’re doing about 110, 115 per month at the moment. About 400,000 have subscribed to our newsletter alone. So, it’s a very actively engaged base.
Andrew: So, pushing 910,000 subscribers–that means 910,000 people bought something or paid something. Wow. That’s a huge number of people.
Andrew: I had no idea.
Benji: It’s pretty awesome.
Andrew: I didn’t even know about you guys until you came across our system here, until you came on my radar.
Benji: It’s a funny thing. We weren’t VC-backed. I bootstrapped this from basically a half a million dollar seed fund.
Andrew: Your own money, half a million dollars.
Benji: No, no, no. It was actually raised through an angel investor. We basically bootstrapped it all the way through. It was a really interesting journey because I’d had no context for it. So, it was three of my best friends and a lawyer I met in a bar one night in Amsterdam. It sounds like crazy, but that’s actually how it happened. But I was driven by this fact that I’m a super fan. I cannot spend the way of my choosing on any of the artists that I love. It’s impossible. That’s a really strange thing.
Andrew: What do you mean? Take me back–the year was, what, 2008 when you came up with the idea?
Andrew: What did you see? What did you want to do that you couldn’t do back in 2008?
Benji: So, I was an artist myself. I wasn’t making as much money as I wanted to because I was reliant on iTunes and, at that point, Myspace, for my basic outreach to people. I kept seeing that I would get $6.30 from every iTunes sale. But there was no way for a fan to go beyond it. So, I played a show.
Andrew: When you say go beyond it, what do you mean? You wanted to do what?
Benji: It’s just as I was saying–I wanted to have a scenario in which I could record a CD, sign a bunch of them and sell them that night. When I did it on the website, I found that I sold 25 CDs in four hours, but at $50 because it was one-off job. And then people would come up to me and say, “What are you working on now? Are you working on any demos?” So, I could put those up for free in various places, but it wasn’t monetizing.
What I wanted was an elegant solution where I could say to my fans, “Pre-order now, it will fund the entire recording process, but then you get to watch the fun part in the studio.” Most humans on this planet don’t follow their dreams. A lot of listeners will do, obviously, because it’s an entrepreneurship thing, but most people don’t. So, they want more from their artists. But the artists have basically sold all of those spots to brands now into all of these various interactions. So, the fan actually gets shortchanged 90 percent of the time.
So, what I wanted was for my fans to be able to pre-order the record, unlock access to a specific stream of content which I was going to provide. We built a tool that allows for that content to be shortened into a 30-second clip and syndicated to the fans’ Facebook and Twitter. So, the fans become a beacon for whatever you’re doing, but they haven’t heard the album yet. They’re buying something that literally does not exist. So, each point of the album making process–doing guitars, tracking drums, recording vocals, choosing the song titles, putting in the artwork–all that becomes part of the journey.
Again, what we found was fans will spend around $55 to unlock that process if it’s offered. There was nowhere to do that. It was like I could put something up on my website and have a PayPal button. I could go to a crowdfunding site and ask for the money, but it didn’t tie in this experience part. The key is 110, 115 artists a month offer their fans sometimes a six-month or a yearlong journey into their process. It’s not for everybody. It’s not designed for everybody. But the hardcore few are the ones that always supported the music industry as a whole anyway.
So, Nielsen estimated that there’s $2.6 billion a year in this type of interaction left on the table because the music industry is so focused on dissemination, not on creation when the reality of it is we have this pool of fans who want to spend and they literally cannot. What I saw back then was I never saw it really as people spending $1 here or there. That was kind of very much a donation model. I saw this as people spending $10.
I didn’t anticipate that they’d want to spend $55. I didn’t anticipate that there were so many of them. But they’re also a real odd bunch. They want the vinyl version. They want flack. So, when we started to send out mp3s, the first thing they email is, “We want flack. We want wav files.” So, we changed the business model to accommodate them and go into deeper levels of customization.
Andrew: Let me break it down so we go through this step-by-step how you came up with the business. I see the problem that you as a musician had. You wanted to have more of a connection with your fans and you wanted it to be an ongoing thing beyond the sale. You didn’t want iTunes to be the intermediary, which kept you from even knowing who your customers were. So, that’s the idea. As I understand it, you tried to convince other people to create this site so that you could use it as a musician, and everyone said, “No, you do it, Benji. You do it.”
Benji: I begged them to. Yeah.
Andrew: So, when you decided, “Alright, maybe I’ll do it,” one of the first people you went to talk to is John, an IP lawyer, right?
Andrew: Why did you talk to John? Why do you need an IP lawyer?
Benji: Basically, I was playing a show in Amsterdam. He came up to me afterwards. It was a second show. We actually met. He was just a fan of the music. We started talking. He said to me, “What’s next for you?” I said, “I don’t know, but I’ve had this idea.” He said, “Don’t tell anyone else this idea until you’ve signed a nondisclosure agreement. I want to help you bring it to market.”
Benji: As it turns out, he was into transactional law and what not. So, he had to tell me what an NDA was. I didn’t know. I didn’t know was a Ganntt chart was. As fast as he was talking, I was Googling. What it convinced me of was that there was another way to do this and that part of what made a company’s heart beat was its founder, or at least its founding principles. I think if you build a great company, it can survive beyond you and grow beyond you.
But when I would email Derek Sivers from CD Baby or other people and say, “Listen, I had this idea. You should run it.” They kept saying the same thing, “Build it, build it, build it.” So, when I met with, again, my best friend and the drummer in my band, I said, “You’ve been to business school.” He’s like, “Yeah, I’m almost done.” I said, “What do you think of this idea?” He goes, “15 percent? That sounds good. I’ll help you with it.”
And then my other buddy who “built websites,” the conversation I had with my first developer was, “Hey, I’ve got this idea for a site. You build websites, right?” He says, “No. I’m a developer. I code in Ruby on Rails.” “Okay. So, you build websites?” “No. I build databases.” I’m like, “Do you put a freaking website on the internet, right?” “Yes, I do.” “Okay.” But it took that translation. I think to the advantage, I asked every kind of stupid question because I wasn’t subject to knowing all this stuff.
So, quite often I came off as naïve, but the other thing was I got to learn and also kick in the tires on it. Originally PayPal basically said I couldn’t get a merchant acquiring account. I couldn’t open a bank account within which to receive money because every credit card company said it doesn’t work that way. It doesn’t work that way.
Andrew: You can’t take money first then go create.
Benji: Yeah. There was no Kickstarter. They were too small at that point. And so, the bigger they got, the easier it actually got for us. When we narrowed our lane between them, they wanted to do every type of vertical. We specialized in music.
Andrew: Who’s they?
Benji: Kickstarter and Indiegogo.
Andrew: I’m sorry. We’re bouncing around to so many different things that I want to make sure the audience understands every part of it.
Andrew: You had this idea. You got together with John. You got together with your friend who was a Ruby on Rails developer. All of this was starting to lead to a project that was actually going to get launched and you were going to be the founder of it. You then went to raise money before you even launched a site, right? That’s when you got the half a million?
Andrew: Where did you find the angel investors who funded this and allowed you to actually bring it to fruition.
Benji: It was somebody I knew. I basically pitched them the idea and I said, “Who should I send this to?” I sent out, I think, five business plans originally and I said, “Who would you send this to? Who do you think this is a good idea for?” One guy wrote back and he was like, “I love this. This reminds me of how Obama was elected.”
Andrew: Who was the guy?
Benji: He was just a friend. He’s a private guy. He doesn’t want to–
Andrew: He doesn’t want–can you tell us what he does for a living that he can suddenly do this? Is he a musician? Is he an entrepreneur?
Benji: No. He’s in a totally other space. He’s in a totally other space. He’s a very private lad. I don’t want to–
Andrew: But you can’t even say what his background is?
Benji: No. He went to business school.
Andrew: That’s it?
Benji: That’s what I will say.
Andrew: Is it his dad’s money? His parents money?
Benji: No. It’s his.
Andrew: Wow. Alright. So, you raised the money. You now had some people around you who could potentially build the site and you were starting to say that accepting credit cards is critical because the idea is to help musicians get some money. Where did you find a processer who was going to allow you to do this thing? I know even Kickstarter had trouble.
Benji: So, basically, our default was that we would use PayPal and that we would have to basically hold a balance in reserve, which we did as well. But eventually we found a credit card processing company. They were called VoicePay at the time, I think it was. They were like, “Yeah. We’re up for this. We can do it.” And we had the example of booking a hotel. That was the example that was kind of given–you book the hotel and you’re not in the hotel and you can charge it.
Andrew: I see.
Benji: You get a zero sum. Yeah. But we also had to hold a huge amount of our balance over. I’ll say this, for all of the PayPal mess, they’ve been amazing. They really did–once we got to the point at which we were proving that the model worked and we basically had to just mitigate risk, right? Ultimately, if we’re taking in $1 million of money for something that does not yet exist and the band breaks up, who’s left holding the bag? But we also screened for the types of projects that would make sense.
Andrew: What would happen with if with PayPal, you raise money and the band broke up?
Benji: So, the way that we got around was we don’t pay out 100 percent of what we raise until we do it, but we also vet the bands on the way in. So, we’ve only had one project go catastrophically wrong on us. That was when literally the musician was attacked and put in the hospital. We ended up pivoting the project into a fundraiser to help him get better.
Andrew: I see.
Benji: So, really it’s a combination of knowing what you have going in and also being obsessed–and this is an interesting one–being obsessed with the success rate. What I saw was the reason crowdfunding was so risky was because they didn’t really care what went up. As long as it was technically possible, it was find. Whereas what we looked at it is you can’t raise $50,000 in pre-sales from your 200-person Twitter following because we did a risk analysis on the way in. We did it looking at email, Facebook, Twitter.
And then you get to work with that team and you understand how it works. If we just accepted anything and launched it, it would have gotten bigger faster. But our success rate would have dropped and dropped and dropped. Then you’re starting to mess with people’s lives. As a musician myself, I couldn’t handle that.
Andrew: So, wait, the reason you were able to work with PayPal–and PayPal was freezing money of other crowdsourcing options, not just platforms, but individuals who did it–they were holding money back from entrepreneurs and you just said, “You know what? We’re going to accept it. They’re going to hold money back from us, from PledgeMusic, we’ll also hold some money back from the artists and once everything gets launched, everyone will get paid and that’s the way we’ll get started.” That’s how you worked with PayPal.
Andrew: You launched the site. You were the very first person to be on your own site, Marwood, is that the name of your band?
Benji: Marwood. Yeah. I haven’t played in a long time. We’re about three years since our last gig.
Andrew: Yeah, on your webpage, 2011 is the last thing.
Benji: But I get people coming up to saying, “Hey, are you playing again? When’s your next show?”
Andrew: You’ve got to run a company. You’ve got to help other artists. So, it’s not leaving you a lot of time.
Benji: That’s exactly why I stopped.
Andrew: So, you put it up on the site and you told April in the pre-interview that the first version was a mess.
Andrew: What was messy about the first version?
Benji: What was messy is we didn’t think about what happened when it hit 100 percent, like does it go over that? It was just learning on the fly. Also, we didn’t think to put t-shirt sizes in. So, all of a sudden you sell 100 t-shirts, what size? And then you’ve got to go back to the fans and email them and say, “What size?” And if they don’t get back to you, what do you send them? That’s when we recognized that there were going to be some major difficulties with the fulfillment side of it. Getting things sold is easy. Getting things in the boxes is hard, but again, knowing that the types of artists had been looked at.
I basically walked into the studio with an EP that normally would put me out of pocket and everyone was already paid. The studio was paid for. The musicians were paid for. All I had to do was deliver the record.
Andrew: How did you get so many fans to pay up front?
Benji: Just by offering it to them.
Andrew: But how did you have contact? You had a mailing list of your fans?
Benji: That’s the absolute irony. We had email, Facebook and Twitter. Yeah. Email, Facebook, Twitter and Myspace to a certain extent back then was still relevant. But I basically toured for years, so I had about a 3,500 person email list that I would tap on when it was time to do something, so, whether it was letting them know about shows or a new iTunes release. And enough of them showed up and wanted to watch these weird videos that we would make from the studio.
Normally, that stuff would be given away for free and then you try and sell the finished product. But with this, every song had a demo that was heard, every song had a rehearsal take and every song had a rough mix and then a final mix. So, they literally got to watch this process. I found it very freeing when I was doing the campaign. But again, I was also running the company.
So, the tech deficit was huge at that point because we were just learning. It was three months from, I think–we started coding February 14th and we launched on July 28th, I think it was.
Andrew: That’s 2009.
Benji: Yeah, 2009. It was quite tight.
Andrew: Okay. I see here you were offering signed CDs, $20. You had 500 of those. You were offering t-shirts. I can see the problem. You had 500 t-shirts available. That would be a lot of work. Private songwriting lessons, private voice lessons, house concert anywhere in the world for only $1,500–I don’t know how you can make that payoff, but I see what you’re going for. You do their show, $175.
Benji: And to be honest with you, I view this as a tool for artists at my level. But then one of the first artists we worked with in a bigger capacity was a Danish artist. She did, I think it was 1,300 fans–sorry about that. I’ll turn that off. It says “Mom’s cell,” whoever that is. Apologies. She raised, I think it was $98,000 from 1,300 fans. Oh, hang on.
Andrew: What did she do that allowed her to raise so much?
Benji: She had a rabid, dedicated fan base. I’m going to unplug this phone. Hold on a second.
Andrew: Sure. Go for it. What was it? She had a big Twitter following? She had a mailing list?
Benji: She had a mailing list, Facebook and Twitter. Also, she was offering some really cool items. So, you could get like handwritten lyric sheets. You could do private house concerts. The type of stuff that basically is a dream for a fan that never gets offered.
Andrew: I see. Her name was Tina Dico.
Benji: Tina Dico, yeah.
Andrew: Can I say this too–tell me if I’ve got this right–I think your investor is a guy named Doug Barry.
Benji: No. He is one of them.
Andrew: But he is not the investor.
Andrew: I thought I had it. Okay. So, it works well for you. How do you get other artists to join your site?
Benji: Basically we do it through a combined thing. A lot of artists will sign up and they come to us because they’ve been referred by other campaigns. Also, we’d go out and get them. So, we have an A&R team all over the world, from Australia, Canada, UK, US.
Andrew: You mean you hired A&R people to go out?
Andrew: Talent scouts essentially.
Benji: Because A&R people have the relationships. They’re also the ones that care the most about the artists. Nine times out of ten, they would sign people to deals that are a little depressing, to say the least.
One thing I mention too–and this is kind of an important one–we designed Pledge to be this thin skin between artists and fans. But then the plan in my head was to become a super fan community. But the data created is owned by the artists who come in. This is a really pivotal moment in the music industry. If you get a million streams on Spotify, that Spotify’s data. If you get a million streams on iTunes, that’s iTunes’ data. You get a million pre-orders on Pledge, that’s a million pieces of customer information that belong to the artists that put it in.
So, you’re empowering the next generation of artists to go to their next level. What happened when Myspace was dying and Facebook was becoming what it was is artist data was being owned by other channels. This is one of the big moments that we realized was when we drop a new artist into our ecosystem with our recommendation engine, with the fact that we’ve got like newsletter abilities, we’re going to be able to–when we get to a certain size–influence what artists get heard, sold and ultimately become the next successes.
Andrew: Because if I’m a musician who puts my stuff up on PledgeMusic, when someone buys, I get their email address and I get to connect with them and say, “Hey, you know what? I know that you’re in New York. I’m going to be appearing in New York. Come out and watch me,” or, “I know you’re into my music. Do you want this new t-shirt that my girlfriend created that I think is really interesting?” That’s what I get.
But you also get that same contact information. So, you get to mention the same audience that keeps growing and growing and say, “We have this new musician. You’ve got to come check him out.”
Benji: Yeah. We do that via our newsletter but also via our recommendation engine. So, we built a recommendation engine that not only takes into account the music type and genre, but also product type. So, we can say someone who buys 7-inch singles is also going to like this boxed set by so-and-so, even if they’re slightly off-genre, vinyl collectors are vinyl collectors. So, they’ll buy everything from Beach Boys to Paul McCartney.
Andrew: Right. I want to understand how you go to this because that’s a really big leap to go from saying, “I’m selling my own stuff and connecting with my own audience to now I have this whole algorithm that’s designed to match you and so on.” So, you got yourself on there. Then as I understand it, at first you were going for one artist a month. My guess is so that you can focus in on that artist and help get as many fans for their work as possible.
Andrew: How did you get the next artist?
Benji: It’s also about allowing them to reach their fans. That’s the key. A lot of these artists have had their ability to reach their own fans shut down or they get charged in order to do that. So, the way that it works is artists sign up to us on the web all the time and we basically help them and we go through their project. The types of questions we get are, “How much should I charge for a signed vinyl?” Nine times out of ten we’ll say to them, “How many people do you email on a monthly basis to tell about your projects?” If they say, “None,” we have a problem, right?
Andrew: When we start talking about just where you are today, I feel intimidated as a listener and I know my audience does too because we feel like, “Boy, this is incredible. How did he do it? How did he get to this point? If I understand how you got to this point, maybe I can come up with a couple of ideas that I can use myself to grow.”
Benji: Got it.
Andrew: So, where did you go next to get the next musician who was part of your site?
Benji: So, I’ll tell you exactly. Because we decided to specialize in music, we started to hire music people. Music people come with a depth of knowledge about the industry that’s unlike anything else. So, Malcolm Dunbar was the first person we hired. Originally, in my head, we were going to be a little more techie, but we ended up going in and hiring Malcolm Dunbar, who’s run labels, who’s been head of A&R for labels and he said very presciently, “We’re going to have to get music industry buy-in.”
The music industry is very scary to investors, just so you know. They go, “Oh, licenses,” on and on. But what I also understood being from a family of managers is you’ve got to get the managers over the line, the artists over the line and sometimes the labels over the line. So, I had to go in to meet with people on and on.
So, in the initial early days, I would sit with an artist/manager and I’d be like, “You can make more money and you can engage with the fans and you keep the data.” And they would look at me like I was from another planet. Literally, they would look at you like, “But I’ve got a record deal. They take all the risk. They give me money and then if my album does well, it’s up to them.” I’m like, “Okay. That’s worked for a little while, but remember, the music industry was just shy of $40 billion 15 years ago. Now it’s just shy of $16 billion.” So, that’s not a good curve, right?
The music industry is not very professionalized in certain areas. So, it was a process and it was one-by-one. It was really tiring. There were times that I won’t lie to you, I wish we had gone into other verticals because it would make it easier, right? But I kept winding down at–our success rate was at 75 percent. I’m like, “We can get this to 90 percent.”
Andrew: 90 percent of what?
Benji: Of campaigns that come into our system will achieve their goal and then some.
Andrew: Okay. And the goal isn’t publicly stated. It’s internal?
Benji: No. It’s not. It’s internal, yeah.
Andrew: It’s an internal goal that you have for them.
Andrew: Okay. So, I see how you started to get more and more musicians on board. Actually, I see CompleteMusicUpdate.com said on October 21st 2009, it had an announcement that Malcolm Dunbar joined. I see how he’s bringing in musicians. How are you getting their fans to know about the site and to come in and trust your page, your site and your company enough to pay?
Benji: They trust platforms more than they trust websites is why. Because when they check us out–so, basically an artist says to them, “Be a part of it. Come to PledgeMusic.com/ArtistName.” When they land there, they’re more likely to make commerce with us because we’re trusted than they are to commit commerce with a band’s own website that’s got a store that’s kind of running through an iframe that’s a bit buggy.
So, knowing that direct-to-consumer is going to be challenging and that we were dealing with a level of super fan–some of them, I’ll be honest, will just crawl through broken glass to get anything. I’m one of those guys. I will go through any amount of hoops to get to the bit that I’m looking for. But a lot of the more dedicated fans are a bit tired of that, right? So, they want to go into a place where they get recommendations. They want to be a pledger.
What’s amazing is I’ve seen bands make t-shirts that say “I pledged” on the back. Literally at the record release show, there are hundreds of people with these things. What I recognized is communities want to form around processes. They want to belong. So, when you’re starting one, you have to go one at a time, literally one person to the next to the next to the next. Because we built this beckoning technology, what we found is one super fan, if we get to influence what goes out to their Facebook and Twitter feeds, they seed others.
So, if you saw a gig from 10,000 Maniacs in 1992, your friends were also there with you. They conglomerate on Facebook. So, our networking technology basically unlocks one of them. The others see it.
Andrew: I see. So, you’re saying you make sure that the band promotes it using their social media. But also, when a fan comes in and pledges, they also are posting on their social media platform.
Benji: They auto-syndicate the artist’s feeds. So, picture it this way–bands essentially are saying, “Hey, thanks for pre-ordering our album. Thanks for being a part of this. Here’s me hitting the drummer over the head with a grapefruit.” When they click, that update gets squashed into a preview and syndicates out to the artists’ Facebook and Twitter and also to the fans’ Facebook and Twitter. So, each fan becomes a beacon for the next one.
So, if you go to my Facebook feed, you would get to see certain artists making an album on my wall. Literally, that’s without me pushing a button. So, 17 percent of our traffic comes from fans literally sharing with other fans. It’s a truth growth hacker strategy, right? It’s basically saying you’ve got a whole bunch of people with major affinity. Let them do what they want to do without pushing a button.
The other thing I’d say is once you get to a certain size–it can be in the thousands–not in the hundreds of thousands. We see that our own in-built community can account for 30-40 percent of pre-orders.
Andrew: So, your mailing list counts for 30-40 of the orders.
Benji: Our mailing list and our recommendation algorithm. Yeah.
Andrew: I see.
Benji: So, what that means is if you’re not in that network, you’re just missing it. It’s a bit like if you’re not in iTunes, people won’t find you, right? So, you’ve got to be in there. But the thing with iTunes is, again, they take 30 percent of your revenue and keep your data, whereas with us, we’re 15 percent and you keep your data. It’s immense power in that.
Andrew: At one point, you were a little concerned about the future of the company or at least the present of the company and you had to fire four people. What were you going through internally when you had to go through those cuts? What happened?
Benji: It was the hardest thing I’ve ever done. Basically, we were burning hot. There were just some performance issues. Again, never having done it before, I had never understood it. It was all friends and family and cool. Then all of a sudden it was like, “Oh, now you’ve got to make a hard choice.” And I had to fly to New York. I was green at the gills. But ultimately, it was just we needed to go in a different direction and we had to make a very hard decision.
That’s something that anyone who’s listening who’s going to a first-time entrepreneur here–understand that it’s a hard thing and nothing is going to make it easier. But being honest about why it’s happening and just saying, “Listen…”
Andrew: What was happening and why did it happen back then?
Benji: Ultimately it was just basically a strategy that we’d taken in marketing was not working.
Andrew: What was the strategy?
Benji: It just wasn’t effective. The specifics of it were that we were paying out more than we were receiving from that channel. What my accounts team and what the founders basically were saying basically is, “Look, we can love people all we want, but if you pay out $5,000 a month in salary and you’re not getting back $15,000, it’s broken.”
Andrew: What was the marketing channel that didn’t work for you guys?
Benji: It was a series of channels. And it was also just timing-wise. We were just at a point where we needed more campaigns in. Marketing should have brought more in. It didn’t. So, then we ended up going more hardcore into more sales and A&R-based way of doing things. To be clear, in tech companies, they will cut things off very quickly.
Video game developers or people in social networks, if that track isn’t working, end it. When you’re in a more music-y, creative industry, you don’t have that same attitude. I will battle for anyone that works for us to the last fiber of my body because they are your team. You live by them. Some of the people that we’ve brought on have just excelled above and beyond. Sometimes it doesn’t work out. Sometimes there’s a personality clash. There are a whole bunch of things.
But the greater good becomes really important when you hit a certain size. We were hitting that certain size where it was like, “Look, we have to make a better call here.” When you’re the CEO, you’re the one that has to make that call. Often the board will help you with that. You can go, “Board decision, not me.” But the reality of it is, that’s shit. You have to go in and say, “I’m making this decision. It’s the right thing. My board is right.”
Andrew: One of the people who you fired refused to quit. Why?
Benji: Because he wanted another shot at it. He wanted to prove that he could do it. So, he basically did the amazing thing, which is that he worked for us for free and then proved his worth. That was a big one.
Andrew: What did he do? What was his role?
Benji: Sales, A&R, basically bringing people in.
Andrew: And he said, “I think I can go and get you the kind of musician who will actually produce more?”
Andrew: I see. Got it.
Benji: And it was also about opening up contacts. We were like coming from Mars to the music industry, in the same way that iTunes was, right? But the difference was that iTunes had Steve Jobs and a whole bunch of money behind him when he did it. When you come into a music industry that is rife with, “No, no, no, you don’t understand, kid, this is how we do things…” But then I was watching it going, “But it doesn’t work.”
So, if it doesn’t work, why would you not fix that problem? “Oh, you don’t understand.” Every entrepreneur is going to hear this, right? A thousand people are going to tell you, “You don’t understand. That’s not how it works.” That’s when you know you’re doing something right.
Every time I was told no, I would definitely hear it because you don’t want to ignore it, but at the same time it was, “Okay, why are you telling me no? Explain to me how it works. I’ve watched you lose half of your business over the last 15 years. Digital sales are down 17 percent. Explain to me how that’s working.” The music industry is also a wild west. So, there are huge disruptions coming in this space and it’s going to be really exciting.
Andrew: Your dad was Tony Smith. He managed Phil Collins, Genesis.
Benji: He’s my stepfather. Yeah. My mother and father are also managers also.
Andrew: I see.
Benji: So, all my life I’ve been in this business.
Andrew: The whole thing. What was it like to grow up in the business?
Benji: Crazy. I grew up in the hay-day of it. Literally at peak music business debauchery and craziness, I was growing up.
Andrew: Tell me, what’s one of the stories that you remember from back then?
Benji: Oh, there are a thousand. I remember being on tour with Def Leppard in 1983. I was actually posting some pictures of that. There’s a picture on my Instagram feed of me behind the wheel of the tour bus of, I think it was the b-bus–sinful things I saw–Frisbees turned upside down full of cocaine and special tour passes for pretty ladies. You name it, I’ve seen it.
Andrew: Really? Did you get to date–you’re musician. Did you get to sleep with any of these fans?
Benji: No. When I was a musician, I definitely…
Andrew: But as a kid, when you were going on Def Leppard–
Benji: Not as a kid.
Andrew: You were just watching it.
Benji: I was just watching it.
Andrew: You weren’t doing any of the coke off of the Frisbees?
Benji: No. I was nine. So, that would have been something else. It took a little older until I got into the party mode.
Andrew: According to celebrity access your mom is Susanne Rogers.
Benji: Susan Rogers, yeah.
Andrew: Sorry? Susan.
Benji: Susan Rogers and Mike Rogers, yeah.
Andrew: And Mike Rogers is your dad. Probably Googling Mike Rogers, who’s your dad is–
Benji: I’ll tell you what was really interesting was someone like Seymour Stine at Sire Records, pretty legendary in the business, he knew me when I was a baby in his office. So, I was the brat. What was funny was when we first got together again, it was like, “Oh, yeah, I remember you. I remember your mother.”
It’s very much in that world. A lot of it was I would have to negotiate with people who knew me when I used to come to the office and photograph my ass on the photocopier. So, it was weird. I remember I was in a meeting with a manager and she’s like, “I can’t take you seriously. Literally you were the little skateboarding shit that would go all over the place.” But at the same time–
Andrew: How do you turn someone around then? First of all, the fact that you can get in the door is helpful. But how do you turn someone around who sees you as a little kid?
Benji: You have to know what you’re talking about and believe it to every fiber of your soul that it’s the right thing. They’ve got to trust you. One of the things about when you’re dealing with someone’s intellectual property or the art that they make, you’ve got to realize how seriously they take that.
Being a manager is a hard job. Being a great manager is a really hard job. Managers are going to control huge amounts of the music industry coming up. They are literally going to be the owners of this and the gatekeepers. So, you’ve got to come in with such a compelling story and say to them, “Okay, this is the way it works.” And then you start to show them data. And then you sit there and say, “Our average fan spends $55 per transaction. There are 400,000 of them that we are going to email next week. Do you think your release should be on it?”
The answer is not no. The answer is, “Yes, it should,” because you think about it, some of these massive, massive albums that come out are selling 100,000 or 200,000. So, the super fans have been left out. If you come in with a passion for it–not to found the company and stand behind the idea because normally only you can sell it, only you can be that entry point.
The managers–to their credit, they didn’t throw me out of the room. Some of them used to look at me like I was from another planet. But every time I was told no, I was convinced that I was doing something right. Change is hard for people. They don’t like it. It’s very uncomfortable.
Andrew: You were able to get musicians up on the music charts. Does that mean the Billboard chart?
Andrew: So, if a musician is on PledgeMusic, essentially you guys are their record label.
Benji: No. The record label owns the rights. We are basically a facility by which they sell it. So, I’ll give the ultimate example. Artist says to their fans, “Be a part of the making of my album.” It pre-sells 10,000 copies. Then a label signs them and the combined label and our sales contribute to their first week’s chart position.
Andrew: I see. And then the day that the music is released, all those fans turn into buyers all on the same day. That’s how you can help the musicians chart so fast. I think I got that, but I think I also lost you.
Benji: Think of it this way–every sale that you do in advance counts towards your first week because it counts upon when it’s released.
Andrew: I see.
Benji: So, basically if I buy it in June, but it comes out in February, all those sales continue all the way through. So, at certain points, we’ve been 20-30 percent of the first week’s chart position. Lindsey Stirling was a huge campaign for us–amazing artist. She’s a dubstep violinist from Utah.
But again, her manager Troy Carter, one of the smartest in the business–Lady Gaga’s tour manager–he was like, “I see this as a channel.” And then you’ve got Lindsey Stirling in our office signing pink vinyl for her fans, planning her SXSW show. So, almost our first number one in the US–she was number two, beaten by “Frozen,” the “Frozen” soundtrack.
Andrew: Yeah. I get that.
Benji: That’s what it is. The other thing is is it takes a while to prove your credibility when you’re an entrepreneur because you have to sit there and stand behind certain successes, even if they’re small. Had we gone to someone like Troy Carter in our first year and said, “You should use us,” again, that’s a hard sell for him because his value is in what he brings to his artists. But we got there artist by artist–our first number one in the UK, our first number one in Australia, our first number one… So, it grows.
Andrew: On your Wikipedia page, I see Dweezil Zappa.
Benji: Yeah. Frank Zappa’s son.
Andrew: He is listed under PledgeMusic as the label. So, are you sometimes considered the label or are you the placeholder until they get a label?
Benji: It’s a Wikipedia mistake.
Andrew: I see. Okay.
Benji: We aren’t a label.
Andrew: I also see here in my notes that when a band doesn’t do well, when musicians struggle on the platform, you do something to help turn it around. What have you done to help turn around someone who’s struggling on the PledgeMusic platform?
Benji: Yeah. So, quite often what we do is we will do a campaign health check. What we’ll do is we’ll look in and say, “When was the last time you emailed your email list? What was the open rate of that? What are you messaging out to your socials?” We then start to look at price points. Did we get the price points wrong? Is the vinyl too expensive? Are you offering only CD when if you read your comments, they’re asking for vinyl? So, we adjust things midstream. It’s not like you put it up and it’s cemented.
The other thing is quite often a campaign will launch with ten products and then we’ll add five more at various points. So, it’s a long haul, not an immediate thing, which is why in crowdfunding, when you’ve only got 30 days, if you get anything wrong, you can’t adjust. You’re kind of committed, whereas we might have three or four months to raise half a million bucks.
It’s about this kind of tangible readjustment of what’s there. We know going in certain assumptions. They’ve got 20,000 Facebook, 5,000 Twitter, this many email. So, it should do this. When you’ve got a whole bunch of data to sit on, that makes a whole lot more sense. Whereas when we started, we just didn’t know.
So, now we get to sit here and say, “Oh, this campaign, it should be at 4,000 pre-orders. It’s only at 2,000. Why?” And you start to go in, “Oh, they’re messaging on their Facebook to iTunes.” So, it’s little things that will go wrong that we tend to look at because we want to basically a) keep our success rate as high as it is and b) it makes more money for everybody.
So, if you’re going to make $55 from Pledge and you’re going to make $13 from iTunes, which one are you going to be favoring? If you get to keep the data from one and not the other–again, it also comes out on iTunes and Spotify. It’s just when you send the artists to that. That’s the key. We’re playing for that creation point, not the dissemination point.
Andrew: Alright. The website is called PledgeMusic. I had no idea how big you were. I’m also, by the way, I’m checking out a lot of what you’re saying as you’re talking to see, “Is the company really that big?” Yes. According to SimilarWeb, your traffic is somewhere between 1.5-2 million hits a month. Is he getting these top-level bands? You are. You’re getting some of my favorite musicians on there. I see Plain White T’s have a current campaign going right now. I can think of a bunch of others. I’m checking out your family as we were doing this. This is fantastic. I can’t believe it.
Benji: Thank you.
Andrew: So, you know what? This is another thing that I keep learning over and over in my interviews. I’m living in my own little world. I’m living in my own little world where Meerkat, for the week, is the hottest thing. Tomorrow, people forget and they move on to something else. I’m not realizing that there are all these businesses, including and especially yours, that are bringing in huge fans, huge revenues, partnering up with bigger names than most startups ever have access to and you’re doing incredibly well.
Benji: Thank you. What I’ll say is that quite often, as an entrepreneur, what I’ve learned is you can get really distracted by other people’s successes. But everyone has got their internal problems, right? So, I see this a lot because I’m blessed to be able to mentor some startup entrepreneurs, you get the panic phone call like, “Oh my God, the CEO just quit. What do I do?” Once you’ve gone through a few years of it, you see the problems. They’re quite often the same. I think you need to read a lot of books.
Andrew: Which book do you recommend?
Benji: “The Hard Thing About Hard Things” is amazing, Ben Horowitz’s book. “Rework” by Jason Fried, wonderful. An amazing one is by Nick Bilton is called “I Live in the Future and Here’s How It Works.” Superb book.
Andrew: Oh, I didn’t read that one.
Benji: He’s the technology correspondent for The New York Times. It’ s a book every entrepreneur should read because it contextually puts you in the shifts and changes. Carlotta Perez’s book is a little more out there, but it’s on technological change. It’s “Bottles and” something, I can’t remember the name. It’s a real in-depth book. It’s about $35 on Amazon, but definitely worth a read. It puts your startup in the context of where it will be in the deployment phase or in the insertion phase. The other thing I’d say is get mentors and people around you that you trust who will tell you the truth.
Andrew: How? How do you get a mentor?
Benji: You approach them. You go to tech meetups. You go to business meetups. You go to conferences, festivals.
Andrew: What do you say to someone who you admire who you want to be a mentor? You can’t come over and say, “Will you mentor me?” That’s like saying, “Will you sleep with me?” to someone you’re interested in dating. It’s a little much.
Benji: Have the question ready to go.
Andrew: The question that you’re challenged by.
Benji: Yeah. Absolutely. What I find is there are two types of CEOs and of entrepreneurs. There are the ones that feel so lucky to be where they are that they are open to it. Right now, I’m at capacity. But I learn a lot from it. A lot of entrepreneurs will understand that we’ll never know enough. Sometimes helping people is how you learn because you’re going to go through that saying nothing is better than teaching people the lesson as you’re learning it because it really crystallizes in your head. And then you’ve seen it a bunch of times too.
So, what I’ve found is every time I’ve come to an entrepreneur and asked them a question or engaged with them or had a meeting about it, they’re incredibly giving and open with their time because quite often someone gave them their shot.
So, if you’ve got a great idea and you know it will change the world, you may get told to, “F off” a bunch of times. I had that, for sure. But something burned within me. If it’s created in your head and you can visualize it, all you’ve got to do then is externalize it. That’s really the key. An entrepreneur is literally buzzing me right now with a question. I can see it.
Don’t take no for an answer. If you do get a no, understand why it’s a no. If it’s not a fit, find that person and make it your goal to sit down and have coffee with them. They might give you five minutes of their time, right? I’ve learned more from helping people than I have–it’s just an immeasurable gift to have what I have. The ride was unbelievable, but at the same time, I’m able to give more to entrepreneurs and learn more because of it. So, it’s a blessing, an amazing situation to be in.
Andrew: Well, it’s amazing to have you hear on Mixergy. Hang on with me after I say goodbye with the audience. I have a question for you about how we publish the interview. Everyone out there, thank you so much for being a part of Mixergy. I’ve always said this–if you got anything of value out of the interview or frankly if it’s on my site or anyone else’s site, find a way to say thank you.
Life is not about being in the audience. It’s about being a participant. The easy way to get in is to just say, “Hey, you know what? Thank you.” I’m going to do it right now. Benji, thank you so much for doing this interview. Everyone out there, the website is PledgeMusic. Thanks a lot for doing it.
Benji: Thank you.
Andrew: Thank you all for being a part of it.