I’m really big on having a solid financial system to fund my music endeavours. It’s why I talk so much about my album fund raising system.
Underpinning that system is one key, fundamental principle.
It ensures that we can remain creative, open to opportunity, and can achieve far more than we otherwise could – and do it risk free.
But it’s not something I dreamed up. It’s something I noticed that the most successful business people do.
You see, I have what you might call a “systems” mind. As well as being a songwriter and performer and all of that right brain stuff – I have also worked as a lecturer and a software developer. I have set up huge projects and social enterprises too, so I tend to think like a strategist.
My mind happily leaps from poetry to programming with ease. I am able to borrow from the business world when doing my art, and I am able to infuse my business stuff with artistic creativity.
The upshot is that I am really good at noticing patterns. So when I heard interviews and read biographies and read books and blogs from successful people, I noticed that they were all saying one thing when it came to risk.
“You have to cap the downside.”
NLP guru Tony Robbins interviewed many of the richest people in the world for his book Money: Master The Game. People like Warren Buffett. As a result he identified what these super rich folk had in common when they looked at money or investment.
One of them was “you have to cap the downside.”
Virgin boss Richard Branson tells a story about the business advice his Dad gave him when he was starting out.
The advice? “You have to cap the downside.”
Investor and author Tim Ferriss in a recent Q&A talked about a principle he always follows whenever he is investing his money or starting up a new venture.
Can you guess what it is yet?
“You have to cap the downside.”
So what the hell does it mean? And why does it matter to you as a musician?
What it means
Whenever we get involved in any new venture there are costs associated.
So when Richard Branson set up Virgin Airlines, there was a risk. It may have flopped and been a total failure. That’s the downside. If it had failed, Branson’s job was to make sure that it wouldn’t be a costly failure.
So he sets up a way to ensure his downside is small. That’s what “capping the downside” means.
In his case, he did a short lease agreement for his first plane rather than buying planes outright. That meant that it was going to cost him very little if his venture didn’t pay off.
In my own life, I set up a huge social enterprise a few years ago. It was a semi professional soccer club playing in the lower leagues of the English soccer system. It’s also owned by its own fans!
My first task was to let people know about it. My prime market was the people who lived within walking distance of the stadium. So I wanted a leaflet campaign that I simply couldn’t afford.
My response? I asked the local taxi company if they wanted the back section of the leaflet. They did, and ended up paying for the lot! I’d capped my downside so much, that I no longer had a downside!
So even if nobody showed up to a match, it was free advertising – once I’d covered that downside.
Applying it to music
One of the costliest things we are likely to do in music is to record and produce an album of our songs. There’s a lot of costs – the studio, the CD pressing (if you have CDs), the promotion, to name but a few.
Most musicians take that risk on yourself, either using your own cash, or getting into debt.
Your downside is that the album flops and nobody buys it. A financial disaster meaning that you take the hit. A big hit too!!
My financial methods involve other people paying for the costs of producing the album, not you. This is a great example of capping the downside.
In the same way, I am doing a big show early next year. It involves hiring a theatre, and doing a massive load of promotion to ensure I fill it.
I was a bit anxious about this and the risk I was open to. After all, what if the worst case scenario happened and nobody came!!
All those promo costs and all the theatre hire costs would be on me.
Then I remembered this principle. Cap your downside.
So I approached a local organisation and asked if they wanted to partner with me on the night. Their logo on all the promo. Their leaflets on the theatre seats. They said yes. So now they will be paying for both the theatre hire and the promo costs.
I’m sure many people will attend. But even if nobody does, it won’t have cost me a dime.
And I start making money from the very first ticket sale!
The 10 Benefits
There are a whole load of benefits to this as a musician. Here’s my Top 10:
1. You can relax! Stress kills creativity. Being anxious is no good place for a creator.
2. You will be open to opportunity. Scientific research has shown that the more stressed and anxious you are, the less you notice opportunities that are right under your nose.
3. You are financially risk free.
4. Every project is either break even or a profit.
5. Your ideas needn’t have a high strike rate in terms of their financial success. Even when you are wrong, your losses are capped or non existent.
6. So you can afford to be wrong a lot while finding out what works best for you. You can experiment!
7. You can follow your creativity instead of being a slave to commercially viability.
8. As such, you can devote more time to following your artistic impulse.
9. When you make a record – you will be in profit from the very first sale! Not even the top signed artists can say that!
10. You can achieve far more than you otherwise could, as you are no longer limited by the size of your own bank balance.
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