Todd Durrant’s Random Thoughts
Follow the efforts of a creative, crazed entrepreneur.

Big Ideas vs. Big Expenses

I want to begin this week’s post by commenting on a few thoughts that were shared by readers after my last article.  I really enjoy reading ideas and feedback.  I liked an article that was pointed out to me about the science fiction publishing business and a comment from the owner of TOR Books– it was in response to the idea that such publishers don’t spend enough on advertising the new author releases, which is one of the criticisms I’ll sometimes get from some artists or fans about A Different Drum’s music label.   His comment was that the book itself is the best “billboard” or advertisement that there is.  Just having it on TOR and sitting on the bookstore shelves represents the advertising and the investment of the publisher.   After all, if that book had not been published by such a well established publisher, it was much less likely to get noticed or put on a shelf in the first place, and the customers wouldn’t have trusted to pick it up.   I know as a science fiction book reader that it’s the truth because when I look through the books I’ve purchased over the last few years, it has rarely (if ever) been because I saw ANY kind of advertising before choosing to make that purchase.  It was ONLY because I was browsing the shelves of Borders, or browsing Amazon.com and came across the author, the book, and trusted the publisher, or thought the blurb on the back cover sounded like an interesting story.   The fact that it was THERE was enough.  There have only been a couple of cases where I bought books because I met the author at a convention and wanted to show my support.

Maybe that’s what A Different Drum, or any number of small music labels, has to offer to the artists.  Sure, those artists can do a lot of the very same things themselves, but labels have a certain network of established connections and a reputation with which they play those same games.   So, when a band puts out their debut album themselves, they have the uphill battle of having to make those connections individually instead of automatically being put “into the system” by the label.   Nope, it’s not much to offer– no money, no fame, and no big advertising campaign.  But, it does get the benefit of the doubt from certain distributors, stores, etc. just because it has the label’s backing.  So the label role is not completely absent, though financially there is much less benefit than in the past.  Remember, we’re talking about a label that is selling 500 or 1000 units of a debut release USING those established connections, so the market is still struggling.

There were also several comments about trying new things, and I do believe I’ve done quite a bit of experimenting with A Different Drum’s label.  I’ve released vinyl, CD singles (even when other small labels gave up on them), limited editions, HUGE 5 and 6 disc compilations, a CD+Book release that combined music with short stories, plus I’ve experimented with a digital download store and have had costumer interactive elements put on the website at different levels and at different times.  The problem, which I believe I mentioned before,  is that those experiments often came with high price tags, and if they fail to generate the desired income, then it results in a larger financial burden…more debt.

So, the challenge is to find experiments that DON’T cost a lot of money, or that come free.  Ideas are indeed free.  The implementation of such ideas isn’t always free, but should at least come with minimal cost in my case, because I have no capital.

LET ME SHARE A STORY

In the spirit of discussing ideas that come with too  much expense, let me share a story about my resent attempt to branch into another business.   As the music market began to suffer and I was no longer able to pay the regular bills that maintain a very simple life, I decided that I’d try another business that would only take a few hours per week, that would kind of “run itself”  and hopefully help out my family’s situation.  This was about 4 years ago.   The Red Box DVD rental machines had moved into Utah as one of the first three states where they were testing their DVD rental kiosk model, and I loved it.  Those things were booming with lines of people willing to stand in horrible weather outside McDonalds just to rent DVD’s for $1 per day.  I thought it would be a good time to jump in and offer a local alternative to Red Box.  I’d start my own locally owned DVD rental kiosk business and focus on family-friendly movies that would appeal to the particular demographic of my neighborhood.  I knew from using Red Box that they were almost ALWAYS out of the movies that people really wanted because the corporate entity was not sensitive to local interests.

Yes, it was a great idea.  I put some time into exploring options.  I decided that I’d buy a DVD kiosk manufactured by a small company in Texas because it was one of the least expensive and most simple ones on the market.   My machine would hold up to 225 DVD’s and I figured I’d use the Red Box model of $1 per day in order to compete.  But I could put a personal face on my machine, because I was a local guy who people could contact with a local phone number if anything went wrong, so I could thus offer much better service than some national 1-800 number where an operator who doesn’t know you and doesn’t care would try to help you out.   After setting up my first machine in a great convenient store location (indoors so people wouldn’t have to stand in the cold to rent movies) I planned my next two locations and invested in two more machines.

Pretty soon I was $50k  into the business, with bank loans on three machines because I of course did not have that much money lying around, plus thousands in DVD’s.   I had to buy new DVD’s every week, which was actually pretty fun, though quite costly.  I had to pay the store locations a little kick-back for letting me place the machines on their floor space, and (this was the most painful of all), I had to pay the manufacturer every month for several fees, including tech support, card processing, and whatnot.  So, not only had they already made money from selling the machines, they had to keep their foot in the door for these service fees, time 3 (for each machine).   Though the number of rentals from my machines began to climb and customers were showing their support and appreciation for my movie selection, I found that I wasn’t able to make the money I needed to cover all the operation expenses and the bank loans for the machines.  But I hung in there, figuring that if rentals continued strong, I’d have the machines paid off in three years, and at that point could begin to make up for losses and eventually pull up.

Well, that might have been a good theory, but in reality, it didn’t work out that way.  In fact, a situation completely out of my control ended up destroying the business and I found myself in a sinking financial ship.  Some internet hacker found a way to break into the rental records that were stored on the processor’s side and find the credit and debit card numbers that had been used for the rentals.  Suddenly, my customers were seeing their card numbers used in California and elsewhere, and it became apparent that the machines were not secure.  Two were pulled from their locations because of fear that it would damage the reputations of those stores, and I converted the remaining location to cash-only so that nobody would be able to swipe a credit card even if they wanted to.   The cash model got some support, but I still owed loans on 3 machines, with only one location working, so it all went down fast.  After three years in the business I was no where near paying off those debts and instead had re-financed the bulk of the loans to extend it out for another seven years.  I currently don’t run the DVD rental business.  In fact, of my three machines, only one has been sold, for which I received less than 20% of it’s original cost, and the other two remain unsold at the manufacturer’s warehouse where I dropped them off when I was done.

So, take a $50k investment and turn it into…well…$3000 for selling off one machine, and you’re in a serious financial bind.  But, I’ve vowed never to claim bankruptcy because I think it is too often used as an easy way out of our own bad choices.   So, I’m shuffling things around, trying to pay those loan payments every month (which are more than my mortgage payment, by the way) and accepting that I’m going to be in debt for a long time, even if things do go well with my regular business.

All I really gained from that experience was a couple of caveat’s about my music business.   When I found that unseen hackers (who I believe have about as much value to society as the plague) could bring down a business, I decided to change the way A Different Drum’s store processed orders to make it more secure.  I never wanted to be the guy responsible for losing my customer’s card numbers so I set up my shopping cart to check-out only through PayPal, so I would never have to store those numbers or even see them.  Plus, PayPal has a HUGE interest in keeping their data secure and would take responsibility for any breach.   Yes, the processing fees were twice as much as I’d had to pay before, but I could rest much more soundly knowing that people were not taking a huge risk just by placing an online order through my business.    Oh, and I of course learned NEVER to go into business when it requires large investments into machines that weren’t really yours even after you bought them.   You know, looking back, I don’t see a single way that the DVD kiosk business was ever stacked in my favor– from the beginning it was designed to create a steady cash flow for the manufacturer, and I don’t know that it was logistically possible for the operator (myself) to do more than break even.   At least not in a situation where I was competing with a kiosk rental giant like Red Box.

Whew.  That was a long story.  Let’s just wrap up today’s installment by saying, I don’t want to do that again.   And I don’t mean to say specifically that I don’t want to try the DVD rental kiosk business again (though I certainly won’t).  I mean to say that one horrible business failure is enough!  It’s hard to watch the music business turn downward at a time when I have such large bills to pay, but at least it hasn’t completely bitten the dust.  There is still hope, and with the right combination of ideas and affordable investments, I still have faith that it can work.  We’re just going through a down time and a time of adjustment.  This is the time when we will have to search the very heart of the music industry– on my end, the very heart of  A Different Drum– and discover how quality music (or at least the music we love) can go forward and be self-sustaining.  How can I make a living in the music business?  That’s what I have to find out.  Since I can’t get a job elsewhere at the moment, it’s a more desperate soul search.

-Todd

PS.  As a side note to the DVD kiosk story, it was a year after the original hack that I found out from a local newspaper that the FBI had found and apprehended two individuals in the San Francisco area for using stolen credit card numbers belonging to my previous rental customers to purchase large price-tag items.  They were living and working out of a hotel room.  But that’s all I know.   The FBI are supposedly still trying to find out who broke into the server in Texas (the most likely entry point), because usually, the ones who hack and steal the numbers are not the people who use them.   They sell that information quickly and move on.   Again, I think that hackers are some of the most heartless and pathetic individuals in the world– they feel they aren’t hurting anybody because they don’t look into the face of their victims, but they do more damage to individuals, businesses, and banks than can even be imagined.   I co-wrote the song “The Hack” with my friend Marcus which has been released as both a digital and vinyl single released by RENAME.   It was dedicated to those worthless hacks of the world, and ironically enough, it was almost instantly “hacked” and offered for pennies or for free on illegal download sites.

Advertisements

3 Responses to “Big Ideas vs. Big Expenses”

  1. Just a quick note in regard to book promotion. I got the book I’m reading right now for free on my Kindle (“Assassin’s Apprentice” by Robin Hobb) and am loving it! I’ll probably buy the other two books in the trilogy, and perhaps some of the author’s other works. If there is any way you can offer your book for free on Kindle, I’d suggest doing it.

    • I have to pay an extra fee to make the book available through e-books or kindle. I do plan to do it, but only after I get the physical book out. I wouldn’t offer it for free at this point, since it’s my only book available. I could definitely see the benefit to offering it free if it’s part of an existing trilogy, or I had other books available, as in the case you mentioned. Then it’s a marketing tool. But at this point (for me) just getting the thing out at all has been 3 years of work and some up-front expense, and I just want to see how many people will buy it– if there is even any interest.
      -Todd

  2. I’m really interested in these posts lately, and I kinda wish these threads were happening on the blog at adifferentdrum.com since I bet you’ll end up getting some long tail traffic from it. But even though I rarely comment on blogs, I can’t resist adding my two cents again.

    I’m in awe of most retail entrepreneurs. The cost of opening a physical store (which you’ve done before) and buying inventory seems like a massive risk to me. Even if it’s a great idea, you’re starting off in the red, and all the pieces have to come together just to get back to even. But this country is full of brave small business owners helping to solve problems, create jobs, and build our economy.

    I’m more of a chicken entrepreneur. Most people who make money online start by trying to make $1 a day. That’s a milestone in the beginning, but it won’t pay many bills other than web hosting and a domain name. The interesting thing to me is if you can prove your idea and your entire business model at $1 first, then you can scale gradually to $10/day and $100/day by reinvesting your profits without ever going into debt.

    The drawback to this method is that you’re investing a lot of time instead of money. You have to keep thinking of new ideas constantly, not necessarily new business ideas, but new marketing ideas. I always focused on the free ideas since I didn’t have money for advertising. Most of my ideas would fail, but every once in a while, I’d hit on something that worked and it would double or triple my income. I’d work on that one and drop the rest of the bad ideas so they didn’t waste my time.

    I honestly believe that adding value as an entrepreneur is still the best way to go. Even if you can make a quick buck with a scam, those methods usually aren’t sustainable and of course, you risk getting caught. On the other hand, if you create a viable business that helps people, not only do you get the emotional reward but your profits can grow as happy customers tell their friends.

    You can still be attacked by forces outside your control, whether it’s a hacker, a major supplier going under, or the economy in a recession, but entrepreneurs are both creative and stubborn, and your last idea is never really the “last” idea. And that’s the part that’s exciting to me, the fact that you came up with great ideas means you’re capable of coming up with more great ideas, and just like a music artist, your creativity will always be there and your songs will just get better with practice. And if you’re really solving problems in the world and improving your own expertise in practical business methods, you will be rewarded financially in the long run. You just have to be stubborn enough to get there.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: