Setting up a Small Online Business- How to Profit from Free

Steve P wrote to me recently and asked if I could write an article about how he could make money as a musician. Or more specifically, “…about setting up small Online businesses & how to ensure that the websites receive traffic?”


“Personally I create music which many people say they enjoy listening to… ideal for selling online you might think through downloads etc… but as we both know, most people like to download music for free rather than to pay for it!… I don’t know how to surmount this hurdle but I’m hoping that maybe you do know how to?!”


So we have some answers here about business in general, then online businesses, and finally a specific about the music industry.


Let’s look at the Generalisation:


Because it applies also to the specific


First, for everybody, decide if you are in business or pursuing a hobby. The first is about generating a profit, the second is not. Both options require passion and outstanding capabilities to succeed in any spectacular way – otherwise, you are pursuing a third option which is the dilettante. It’s called time-wasting among many other terms. Steve is saying he wants to be in business.


Second, If you really are in business then you need a business model to show how the profit is going to be generated. You also need a model of how you are going to co-create value with the user of your product/service. For who is going to pay you if there is no value in it to them (what’s in it for me?), or if a competitor offers better value in use?


Third, any business rests on a framework of four key elements –


  • the technical side of your product/service, its usefulness to your customer;
  • the marketing of that use;
  • the operations side of mobilizing your resources and capabilities, and
  • the administration of your business.


In each of these four areas, you require competitive advantages in capabilities and resources. Author Richard Gordon once wrote, “For success in this life you need three things: brains, beauty, and cash. If you’ve got one then marry the other two.” Same in business, you need four things to succeed; if you have one then outsource the other three. Sooner or later you will outsource all four and then you are a real owner rather than a slave.


Your business plan is about how you use your capabilities to co-create value. Without it, your most likely outcome is wandering in ever-decreasing circles, finally gazing at the back-end from where you started!


Marketing aspect of Online Business


Steve P wanted me to look specifically at the marketing aspect of an online business. I will get to that; I say get your house in order first. You need to be thoroughly legal and meet regulatory requirements. Murphy will ensure that just as you are going gang-busters you get chucked off the island. You need to have your financials recorded and able to give you simple-to-understand financial reports that tell you whether or not you are on track. You need to handle the administration of your business – your staff, your, property, your business licenses, your KITAS and so on. Depending on the business, you are going to spend between Rp 50 million and Rp 150 million to put all these bits together, so budget for it.


Nick O wrote me recently and said, “You would be amazed at the people I meet who are expert in their own mind on a particular subject. They have decided to move to Bali and use the money they have to set up their dream business. However, after a short conversation about their business plan (….what’s a business plan? ….don’t have time for that shit ) and the actual operations of their upcoming business, one finds out there is no plan, or method, or process or idea of how things work.“ Well, Nick, these people are the dilettantes. Avoid them like the plague. They are the tire-kickers who want to waste my time to discuss their ideas but balk as soon as they know they will be charged a fee for professional advice.


Let’s look at the technical side.


You can take it as a given, Steve, that your musical offering has to be exceptional for the market niche you have chosen to reach. As a rough rule of thumb, around 10,000 hours of actual practice makes someone an outstanding specialist in their given field. And there are so many genres of music so you need to specialize.  I’m taking that you have this sorted from your comment about how people like your offering. Not everyone has the same taste of course, but a sufficient niche group to encourage you.


Specialization brings us back to your marketing question!


In your business model you will have recognized the niche you are aiming to service, and in your strategy research (I know you did extensive market research, didn’t you!) you discovered the demographic that relates to your marketing niche. These people you want, where and how do congregate online? Facebook, Twitter, YouTube, Spotify are major examples. You will have to spend time learning how these conversations flow, the language used, the trends being followed. You will pick a couple of examples of how some artists went viral and search out all the references and resources they and their customer base used.


You will start putting up some free stuff on social media, and you will join conversations to demonstrate your authenticity and to build credibility. You will be telling stories that are hitting emotional buttons. You will build a website, but most of your activity will be via social media because (I’m assuming) that’s where most of your market communicates.


So people are starting to talk and share your great free offerings.


How do you go from there? How do you actually make money?


The key element is that your customers (in any business) pay for scarcity. This is a really important point. Once upon a time, like last year, you had scarcity because only people who bought your music could experience it; or they paid to go to a live concert and experienced it there; or they bought a concert DVD.  Now you have to create scarcity in other areas. And in these lie the different business model options, which can turn this growing interested groundswell into a model of scarcity that will see people perceiving value from actual use.


The first model is about 400 years old. Musicians like Mozart, Bach, Beethoven, and Haydn would call for subscriptions before they would write a new piece of music and then have it performed. Today we do the same sort of thing with crowdfunding. Google “Amanda Palmer Kickstarter campaign” for an example.

Second, there is the simple album sale. A very small percentage of your customers will like your singles enough to buy your albums, but it may be enough.


Those ancient musicians also had patrons or sponsors, and this is the third option, to offer scarcity through membership. Here you are in frequent contact with your most loyal customers who are willing to pay a subscription, and they accompany you on the music creation process through your tweets and postings, and small excerpts for them to experience. They share with you the joy of success. This might be extended through An eBook course that people sign up for, to help you show your fans how to create music your way.


Ultimately whichever model you use has to take into account the cost to you of giving stuff away for free versus the return from a small percentage of your fan base who are willing to pay for something that is scarce.  That’s what a proper business model and business plan will help you know before you start.


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