Rock bands & Start-ups – My 2 Cents

My entrepreneur friend Aner Ravon and my VC friend Daniel Cohen have been debating the interesting issue of comparing rock bands and start-up companies.  You can read the original post here, Daniel’s comment here and Aner’s rebuttal here.

I would like to suggest another point of view.  Both rock artists and start-ups can be described as players in creative industries.  Professor Richard Caves, in his book Creative Industries: Contracts between Art and Commerce provides a good analysis of creative industries (music, film, theatre, and by extension, software development). 

I won’t delve into the entire model (read the book!), but there is a lot more in common between rock artists in start-up companies than meets the eye:

First, both operate in areas of high uncertainty.  Most rock artists fail.  Most start-ups fail.  Both cannot predict whether they will be successful or not.  In both cases, past success does not imply future success.  Only with hindsight can we explain why some succeed and others fail.  This “we don’t know” problem underlies the interactions between all players in the industry.  It is about sharing risk, shifting risk, minimizing risk, hedging your bets and so on.

Second, there is a lot more supply than demand.  Lots of people out there would like to be rock stars.  Lots of bands will play anywhere, any time, for free, to get some exposure.  The same is true for start-ups.

Third, creative industries are built around gate-keepers, which are the focal points for the players in the industry.  Whether they are agents, music companies, book editors or VCs, they are the ones who control the balance of supply and demand. 

Fourth, a few players will realize abnormal returns.   A few start-ups will be sold for millions, and some artists will become filthy rich.  But the key driver for both is typically not the financial gain, but the creative process.  Artists need to create art for art’s sake, entrepreneurs need to innovate.  Nowhere is this more relevant than in the post-Web2.0 world where many can unleash their creativeness on the unsuspecting masses.

Fifth, and my favorite attribute, is the struggle between perfection and the need to address customer needs and stick to the budget.  Both artists and software developers would like to deliver “the perfect” product.  This is why directors typically exceed their budgets and why product companies tend to push schedules (and budgets).  Both the rock band and the start-up need to constrain their creative urge by taking into account release dates, commitments, commercial needs and tastes, and so on.  Whereas artists talk about “selling their soul” to the “commercial market”, start-up often describe their VC (and sometimes their customer) engagements in similar terms

There is a lot more to it (read the book!), but I hope that by now you’ll agree that conceptually rock bands and start-ups face the same challenges, and by extension can be analyzed using the same tools.

However, I disagree with Aner’s concept regarding “start quality”, and the belief that if you possess star quality things will go your way “eventually”.  I think this statement is driven by “survivor bias“.  It is true that most successful rock artists, in retrospect, can be said to have “star quality”.   But the question is, how many artists with star quality did not succeed, and are excluded from the analysis? 

 Or is the definition of “star quality” derived from having been successful (in other words, if you fail, then by definition you did not have star quality)?  I’m not convinced.  There is more to success than what the individual/company brings to the table.  External forces abound – luck, trends, markets, unforeseen events, competitors, technological breakthroughs – they all contribute to success/failure.  Similarly, unless “star quality” is loosely defined to encompass any successful company, then it does not account for the fact that there are successful companies (and artists) out there who do not have “star quality”, but still they enjoy significant success.

— Oren