The following is a guest post by Brian Halligan, my co-founder at HubSpot. Brian recently released a new book titled “Marketing Lessons From The Grateful Dead”. The book is a brilliant condensation of some strategic insights that should be useful to startups. Brian is currently the co-author of 2 of the top 10 marketing books on Amazon (the other one is “Inbound Marketing”).
The following article is excerpted from one of the chapters of the book.
Create a Unique Business Model
Before the Internet, bands promoted their new albums by scheduling tours across the U.S. and around the world. Fans paid huge bucks to attend sold-out shows where they were treated to pyrotechnics, light shows, and of course the music. Concerts were the same every night and included the bands’ “best of” songs, with cuts from the new album mixed throughout the set. The goal of these concert tours was to sell as many records as possible to ensure your album went gold, platinum or multiplatinum.
Fans bought albums at their local record store where they would find the list of top albums for that week taped to the wall next to the cash register. For an album to go to gold in 1975, a band had to sell 500,000 of them and hit $1 million dollars in sales. To be awarded the coveted platinum certification, bands had to sell 1 million albums and hit the $2 million dollar sales mark.
Doing concert tours to promote these moneymaking albums was the fundamental business model for bands, the record labels and sundry hangers on. The Grateful Dead turned this business model on its ear: rather than focus on selling albums like other bands, they focused on generating revenue from live concerts, and in doing so created a fan “experience” that was unlike any other. Because the concert tours themselves were the main source of revenue, the Grateful Dead ran their concerts in a very different way from other bands. For example, each show had a unique set of songs and each song was played in a unique way, giving fans a strong incentive to see the show for several nights in a row (or weeks, months or years) because every night you were treated to a different musical experience. This is the exact opposite approach taken by other bands.
Since the concert tour was at the heart of their business model, the Grateful Dead didn’t tour periodically to promote an album; with few exceptions, they were permanently on tour. The Grateful Dead invested heavily in their light show and sound systems, both of which were the best in industry, and in doing made the musical experience much more powerful for their fans. Due to these factors and others, the Grateful Dead developed a following of people who would see show after show. These followers became part of the concert experience, especially as you waded through them in the parking lot where you were exposed to tasty food such as veggie burritos, all sorts of exotic drugs, unique clothing, and all the other crazy stuff that went along with a Dead tour. By changing that one fundamental assumption in a typical band’s business model, the Grateful Dead created a cascading effect of benefits for themselves and their fans. Imagine for a moment if the Grateful Dead had put themselves in the care of a manager focused on selling records and increasing the profits of a record company. If they had conformed to “industry best practices,” the Grateful Dead might be one of the thousands of bands on the dead heap of music history. The concert-as-business-model worked, and the Dead created a passionate fan base that became an underground cult that catapulted the Grateful Dead into the rock and roll stratosphere: the fan base grew from thousands to hundreds of thousands to millions with the Grateful Dead selling out shows around the globe.
It’s much easier to follow what other companies are doing and mimic their business model than it is to innovate. Don’t do it! Watch your competition, but avoid the temptation to follow them with every fiber of your soul. Today’s big winners typically win because of unique business model assumptions, rather than some new technology or complicated product improvements. A few common examples include Netflix (versus Blockbuster), Zipcar (versus Hertz), eBay (versus yard sale), Google AdWords (versus Yahoo), iPod + iTunes (versus MP3 + downloading), Southwest Airlines (versus driving a long way), and Walmart (versus the country store). Like the Grateful Dead, these companies turned the core assumption of how their industry works on its head to create an unlevel playing field for themselves. Their rejection of core assumptions in their industry allowed them to really stand out from their competition and create a cascade of benefits for their customers.
The Grateful Dead teaches us that business model innovation is just as important, if not more so, than product innovation.