Startup Insights From The Grateful Dead

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Startup Insights From The Grateful Dead

 

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.marketing lessons grateful dead

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.

Rue La La Creates Online Buying Destination for Luxury Goods

An exclusive, invitation-only online destination, Rue La La is a website where members can purchase high-end fashion goods at discounted prices. What’s different about Rue La La from a TJ Maxx or other discount retailers is its business model. Rather than offer last year’s items that didn’t sell in the stores at heavily discounted prices, Rue La La developed partnerships with designers and by working closely with them, offers current merchandise and one-of-a-kind items at discounted prices – items which can only be purchased during limited time periods.  Here’s how it works: Each day, Rue La La features a designer boutique, say Villeroy & Boch or St. John, that opens at 11:00 AM Eastern and remains open for 48 hours or until merchandise sells out – with a blinking clock counting down the time. Because merchandise can sell out in a matter of minutes, members often set calendar reminders so that they can be at their computers a few minutes before 11:00 AM. The company sends out email reminders a few days in advance that let people know which designers will be featured on the site.

Since its inception in April 2008, Rue La La has built a passionate fan base of 1.6 million members using viral methods. To become a member, you must receive an invitation from another member. Once a member extends an invitation, he/she receives a $10 credit when each friend places their first order, with no limit placed on the number of credits one can receive. Credits can then be used against any boutique purchase.

You would think that the limited availability of fashion items would frustrate people and turn them away. Instead, the opposite is true: Limited availability of items reduces over-exposure of brand partners and their merchandise as well as customer fatigue at seeing the same brand or fashion items over and over. It also creates a sense of urgency – if shoppers don’t buy something immediately, they’ll lose out and will kick themselves for days after for missing a good deal. This is different from the typical shopping experience where if you’re not sure about an item you can go home and “think about it,” which usually means a no sale for the retailer as your ardor cools and you realize you don’t really “need” the item.

Rue La La helps people make fast purchases with its “Quick! Buy It” feature: a member enters her credit card number and billing / shipping information on the account settings page, and when shopping can click the “Quick! Buy It” button, eliminating clicks for hot purchases.  Members can even shop via smart phone – making it easy to purchase items while on the run. If a member has a problem with any purchase, she can Tweet Rue La La’s Concierge, who responds immediately.

Instead of competing with retail discounters or high-end department stores, Rue La La has created an innovative business model that targets a distinctive demographic. With passionate fans around the world, the company grew from around $25 million in sales in 2008 to $28 million in the 3rd quarter alone for 2009. Their innovative business model “paid off” as the company was purchased by GSI Commerce, Inc. in early 2010 for $350 million.

Create a Remarkable Business Model

Products that are highly differentiated can still win today, but it’s much harder to win if your business model is the same as your competitors’. Your job is to do research about your industry in order to build a killer business model. You want to break free from the competitive landscape and create a cascade of unique benefits for your customers. 

Action: Creating a unique business model is very difficult and no free lunch exists on how to do it. Rather than tell you how to create a unique business model in your industry, we thought we would give you some hard questions to ask yourself that will get your juices flowing on how to create one:

What are you three times better at than you competitors? What are you three times worse at than your competitors? If the answer is “nothing” to both, you are not unique enough to really break out. And “no,” you can’t be better than your competition at all dimensions – you need to rethink the dimensions.

In addition to thinking about your industry competitors, what are the “alternatives” to your product? Can you find ways to erase the traditional “boundaries” of your industry by incorporating or subsuming some of the alternatives? Southwest Airlines, for example didn’t compete with other airlines, they competed with a long car drive.

What new technology is emerging that might enable you to upset your industry’s apple cart? Could the Internet be a new distribution channel? Could an iPad application catapult you past the competition? Could you use Amazon’s mechanical turk system (an online arena that connects those who have relatively small tasks with people who can perform them) to dramatically lower costs or deliver new value?

Are there societal changes happening that you might take advantage of in your industry, such as empty nesters moving back into cities, more people working from home, a shift to outsourcing to rural America than overseas, or increased interest in low carbon footprint lifestyles for companies and families, etc.?

Do you have someone who’s really smart from outside your industry that you can ask to help you with this?  The problem with creating a unique business model in an industry you grew up in is that you naturally get bogged down in the industry assumptions you’re trying to break.

---

If you liked this article, you'd also likely enjoy a free upcoming webinar titled "How To Market Your Business Like The Most Iconic Band In History".  You should also buy the book.  It's a quick, easy read.  You'll like it even if you're not a Deadhead (I'm not).

So, what do you think?  Any other examples of companies that you think did this particularly well?

Posted by Dharmesh Shah on Tue, Aug 03, 2010

COMMENTS

There are great lessons from the Dead on marketing and creating sustainable networks. 
 
There is less of a desire from all these studies, studies that include Dead-related business classes, to look at the transient, cult-like society of Deadheads the Dead cultivated. 
 
There's the marketing/management cute stories of Dead brilliance; then there are the bohemian, drug-bound, nomads that followed the Dead cannibalizing sales with dodgy products and making a living selling drugs - now this makes for an interesting study...

posted on Tuesday, August 03, 2010 at 12:56 PM by Toby Elwin


Former Grateful Dead lyricist and Founder of the Electronic Frontier Foundation John Perry Barlow sat down with us to discuss music in the digital age. Genius of a man. Take a look: 
 
http://www.youtube.com/watch?v=9XWfL7Gba6A  
 
http://www.thehighwaygirl.com

posted on Tuesday, August 03, 2010 at 2:12 PM by Samantha Murphy


What a great concept, I will buy the book...here are the things I can add. First, the Dead created a new music genre or new product, that no one had heard the likes of...ever, consider Darkstar, That's it for the Other One, or Viola Lee...songs that started a revolution, in essence. The key things the Dead did...1) Took control of ticket sales from BGP (make your own terms for selling), 2) Understood its about the journey, selling records was a nice by product of music but the concerts were (and are) where its at, again in essence the experience of the product defines the composition not the facsimile, 3) Spontaneous innovation takes years of preparation, embracing failure and success as learning experiences and a great passion for novel exploration. The band played a lot, practiced a lot (considering the improvisation at shows), and would channel new ideas during their Off Site Meetings (at the show); 4) I think the band found out the hard way that management is important but not necessary at all times, integrity is more important than management, consensus is very difficult and rewarding, and that visionary people are at the heart of good products...there is so much depth to the dead, I could write a book myself. Thank you for this topic...I'll end with a snippet of lyrics from Terrapin Station. 
 
Inspiration, move me brightly 
light the song with sense and color, 
hold away despair 
More than this I will not ask 
faced with mysteries dark and vast 
statements just seem vain at last 
some rise, some fall, some climb 
to get to Terrapin

posted on Tuesday, August 03, 2010 at 2:19 PM by Evan B


Thanks for the article. I am a coach, executive, life and entrepreneurial, and am building my business with people who can't afford life coaching! There's a problem with it, I admit, but I don't want to 'sell out' and believe everyone can benefit. Your article supports what I'm trying to do and it's nice to get support and validation. I'm doing it differently but I'm doing it with passion and that's what it's about. 
Thanks, 
James M. Lynch 
doityourselflifecoach.com

posted on Tuesday, August 03, 2010 at 3:04 PM by James M. Lynch


Definitely want to pick up the book. I really like the two questions to ask yourself - what do you do 3 x better than your competitors to really define your core competencies and what you can expose that will set you apart from the rest. 
 
It's all too easy to follow successful business models for your industry that have worked in the past without putting your own twist on it

posted on Tuesday, August 03, 2010 at 4:03 PM by Natalie Sisson


Excellent article Dharmesh. I have been reading Made to Stick by Chip heath and Dan heath and found this article rhyming similar ideas about being innovative and "Rather than do different things, do something differently".

posted on Tuesday, August 03, 2010 at 4:13 PM by Jimish


Excellent article Dharmesh. I have been reading Made to Stick by Chip heath and Dan heath and found this article rhyming similar ideas about being innovative and "Rather than do different things, do something differently".

posted on Tuesday, August 03, 2010 at 4:13 PM by Jimish


What are you three times better at than you competitors? What are you three times worse at than your competitors? 
 
We were all good on these questions when we started, however we got so many competitors once we debuted our product and market suddenly saturated with lot of big and medium sized players. What to do in this kind of scenarios.. just hanging in there and innovate?, we sometimes felt like we couldn't execute on our strategy just because of the heavy competition in the market place. 
 

posted on Tuesday, August 03, 2010 at 4:24 PM by aclass


I think another example is Enterprise. The fact that they were willing to pick you up when you rented from them really differentiated them from Hertz, Avis and the others. A car rental agency offering a premium level of convenience - brilliant.

posted on Tuesday, August 03, 2010 at 4:30 PM by Tyler Ross


no matter what the business model is, you must have a great product or service.

posted on Tuesday, August 03, 2010 at 4:32 PM by Yang Yu


The saying, "Differentiate or Die" is, was and remains true throughout the years whether it's 1969 or 2010. There is no more powerful business tool in an ever-present age of highly price driven commodity offerings.

posted on Tuesday, August 03, 2010 at 5:56 PM by Martin Calle


If you guys like this, perhaps you should read another article about the Grateful Dead, here http://www.jambands.com/news/2010/04/19/bob-lefsetz-on-the-grateful-dead 
 
Here you'll see that the Dead actually had no flashy shows with expensive tickets (their shows were often free), it was the fans/audience that made the experience. They had no "brand" or "strategy" - this is just what some business dudes have interpreted to sell some books - the fans that had an experience at one Dead show told their friends and brought them along to the next one, hoping to repeat the experience. They just loved playing music and wanted to share that love with people. If anything, take the Dead as a lesson in customer service, giving your customers what they want.  
 
Don't mistake/confuse art music with music business. They are two very separate things. There are successful "b(r)ands" in music - turn on any commercial radio station and you'll hear them. Your Lady Gagas, Britney Spears, Kanye Wests etc. They have clever marketing teams and gimmicks galore. Write a book on one of them if you must but don't think the Dead can teach you anything about marketing. They can teach you a hell of a lot about art and humanity though.

posted on Tuesday, August 03, 2010 at 6:13 PM by Sara Crowe


Tyler -- I agree that Enterprise is one. Another one is Zipcar...

posted on Tuesday, August 03, 2010 at 8:28 PM by Brian Halligan


Great post Sara. I was a fan from day one at Mcgoos, the path to success was not found by some retroactive strategy some historian imagines. It never is.

posted on Tuesday, August 03, 2010 at 11:06 PM by Alan Cima


I just have to chime in on Sara's post. I followed the Dead on tour for a number of years and the very fact that one could think that there was no strategy is the greatest testament to the Dead's marketing genius. Whether you call it "strategy" or "approach," the fact remains that their approach was very different and well thought out. A prime example of this is their promotion of taper tickets, which was simply unthinkable by most bands, then and now. Wow, now I feel all nostalgic....

posted on Tuesday, August 03, 2010 at 11:31 PM by kate haley


a la Blue Ocean Strategy... 
 
 
 
Cirque du Soleil and Starbucks are other companies that come to mind. They have created unique experiences around their core product offerings, thus changing the game for their industry altogether. 
 
 
 
Twitter: @GlowInYourFlow 
 

posted on Wednesday, August 04, 2010 at 12:22 AM by Christine


Great article. Seth Godin also talks about how the Grateful Dead achieved success by being different and he writes about them in at least one of his books.

posted on Wednesday, August 04, 2010 at 4:19 AM by Fergal, Business Advice Forum


@Fergal Yes, Seth G is a deadhead. He gave us a nice quote for the cover of the book... 

posted on Wednesday, August 04, 2010 at 10:51 AM by Brian Halligan


This is MUSIC to my ears. I've been trying to do business this way for years only to be told "That's not how it is done".

posted on Wednesday, August 04, 2010 at 12:02 PM by Bonita Lay


Thanks Dharmesh, no matter what you do, do it well and 3x better and different from your competitors.

posted on Thursday, August 05, 2010 at 5:08 PM by Felipe Andrade


The idea to create a good business model is inventing a successful ''pay-model'' ..... 
 
Business-model -- Pay-model 
 
Concept -- Actuality

posted on Friday, August 06, 2010 at 12:39 PM by salil ghoshal


Great article. I am reminded of the great marketer Dan Kennedy who teaches - how to think outside the box and market in unique ways. He always impresses upon the fact that his marketing techniques,tho may seem not applicable for certain industries (more so Direct mail marketing) will work in any industry, if we give it a try. There are several testimonials to prove it. These days the needs of our target market is changing very quickly and it is very difficult to run a profitable business by having one business model. We need to consistently study the way our Target market thinks and serve them accordingly.

posted on Friday, August 06, 2010 at 2:30 PM by Lalitha Brahma


thanks for this awesome entry.. 
============ 
Business Review

posted on Monday, August 09, 2010 at 7:34 PM by vernon


it also helps to play good music

posted on Wednesday, August 11, 2010 at 12:20 PM by dave broadwin


The post brings out some good points. The issue with implementing "industry best practices" is when enough competitors use them, they become industry common practices and then they provide no advantage. Which is what also happens with the features of a product, all the market participants converge on a common set of bells and whistles. Look at cars, every car has the same set of features, and therefore it becomes difficult for marketing to differentiate the cars based upon features. Why do people want a Mercedes or BMW? It's not for the window shades. It's because they are status symbols in society and that aspect can't be easily copied by a competitor. As the blog points out, creating a competitive advantage based upon a intangible quality is viable and may not be copied - every rock band could have copied the Grateful Dead's strategy but didn't.

posted on Friday, August 13, 2010 at 8:08 PM by Cynthia Kocialski


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