Crowd Funded Co-Op Music Store Idea

[rastamypasta]

Hey mando cafe- I am wondering if you all could please provide some feedback for the idea of a crowd funded cooperative music store? The ultimate goal for the store would be to provide high quality music gear to members and the public while using all the profits to preserve and nurture music education, access, and availability.

Essentially this would be a music store where people would have the ability to buy a membership that allows them to receive a percentage of purchases back as a rebate and grant access to exclusive co-op only items. The store would have a publicly (member) elected board and would work reinvesting all profits back into the music community. For those of you familiar- imagine REI for music gear.

The startup cost for something like this would probably be quite high and so I imagine startup costs would need to be covered and the funded through advance membership purchases, donations, and crowd funding.

It's a crazy idea but seeing how the Mandolin Cafe community is one of the most passionate group of music lovers and music gear purchasers I know of- I wanted to appeal to you all and see what you think.

Thanks for your time.
Brian

[hattio]

I would want to know what the people who have operated music stores would think about the feasibility of this. I presume you are thinking of an internet store and not a brick and mortar store. This gives me a little bit of pause, because a lot of smaller places are losing their local music stores which makes it more difficult to build a culture of music. Wow. That all sounds negative. Not the intent, I like the idea, would just like to know a bit more about fleshing it out.

[Jeff Mando]

My first impression is that it would be a full-time job to run, not something that you could just dabble at. Even with the initial costs covered by "someone else's money" there still would be maintenance costs, shipping, overhead,etc. I'm saying that as a musician who was involved with performing, recording, and touring -- then decided to dabble with eBay to supplement my income -- anyway, it soon became clear that eBay was a full-time job, leaving no time for the playing of music. Or, at least and more importantly, it requires you to put on a very different hat in order to do it. That's why the arts and business rarely mix well, IMHO.

But, good luck and don't let my negativity discourage you. After 5 decades of playing music, reality sometimes creeps into the picture. Also, like so many good ideas where people think they are going to save all this money, the reality is that sometimes it is really a tiny amount, say 5-15 percent discount, which is what you would get from any of the online merchandisers. I hate to go corporate, but sometimes the "experts" are experts for a reason.

[Folkmusician.com]

I like the idea, and to echo Hattio and Jeff, don't let anyone discourage you, if you believe you have a solid idea.

Here are a couple of facts that were already touched on. Selling musical instruments is one of the toughest businesses to run. The nature of instruments means they require a lot of customer service, they are large and bulky, they need setup work, they are fragile, and people want to try them out. All of these things are easily overcome, however, the popular instruments that most people will buy, don't have a lot of markup and you may have trouble providing the level of service needed when you are discounting the products.

Local music stores are surviving on lessons and repairs more so than sales. There are a few exceptions, but it is not the norm for a local shop to make a good deal of profit from sales alone.

I love REI and they do a great job of extracting money from my bank account. We visit ours a few times per month and do buy stuff. A major portion of REI's success is their product selection. They deal with premium brands that are extremely good about controlling their pricing. Almost everyone that walks out of REI paid full retail. It is very rare to get something discounted at REI. They do give their dividend, and the annual coupons, but this is still leaving them with large margins on almost every single sale. With this, they can afford great locations and stores with excellent service. It is one of the few places you can go, where the people really do know the gear pretty well and lack attitudes.

It would be very difficult to replicate this with musical instruments. Partly for a lack of options that give you this sort of protected market. Also, we are in a whole other price range. REI stocks premium gear, but any particular item is not a huge amount. I have no idea what the average ticket price is, but just noticing people at checkout and knowing my own habits, I am usually buying one thing at a time. I have never spent over $300 there at one time and the average might be more like $100 (it would be worth looking into). It is much more difficult to get impulse buys on $1000+ instruments. People will research it, and many of those will end up buying online.

REI is selling some of the best gear available. That brings in a different sort of customer. One that is not all that price sensitive. They don't buy a new day pack often, and they don't care that they are paying retail of $130. This customers don't need to be in the higher income brackets (though many are), because the gear is still within reach of people with average income. This is not the case with premium mandolins that could be $15,000.

They are aware that they could get a nice Jansport for $50. They also can't get it cheaper online anyway. They have looked in the past and already know, REI is price competitive on the brands they sell. Those brands are sold at retail online as well. Paying this premium to get the best available is fine with REI customers. You probably couldn't go this same route with instruments.

If you could replicate the REI experience, I could see it working. In fact, that may be one of the few viable ways to run a music store now. But the key is the experience and the product selection. You absolutely don't want to sell commodities. It isn't just the instruments. Many accessories such as stings are sold pretty much at cost online. I would suggest getting a list of brands together that are not discounted online. As far as instruments, this is going to get you into the top tier brands that are going to be very expensive to stock. I would also look at my own brands. This would be a key element to make it work. Keep in mind, many of the brands that do protect the prices, may not agree to the co-op thing. The ones that do, you may not want.

If you have a great story to tell the customer, and you have a unique product, it can absolutely be done. I sure wouldn't try to launch another standard music store though.

[Frost]

First, I'll say that I know nothing about this sort of venture and generally speaking the things that I value don't seem to be valued much in the business world.

With that said, what I find a tiny bit interesting about REI (since you mentioned them as a sort of business model) is not the store part, it is the other things like opt outside, field trips, education, training, etc. My understanding is that their retail stores have struggled just like others.

Rather than just another online music store, I would rather see an organization actually dedicated and actively involved in nurturing, growing & supporting musicians and the making of music. I would want to see a brick & mortar presence that provides actual services, venues for performers, recording studios, education, concerts, festivals, grants...more activism, less capitalism. If your going to sell stuff, make it special. Not t shirts & hats, more like contracts with smaller builders for limited/special edition instruments, or one off various artist albums & concerts & such. The world could use more musicians and more music, it doesn't need more disposable gear.

Personally, I think the more service oriented and less product & profit oriented it was, the more likely I could get behind it and feel reasonably good about donating and/or purchasing a membership.

[Ranald]

What's "REI", please? Googling in Canada, what comes up is a US outdoor supply store.

[Mark Wilson]

REI as I understand it was formed as a cooperative to buy climbing gear at a ‘group’ discount.
I see it as a Sams club for outdoor gear. Nice store. Great selection of quality gear but their prices are same or higher than other outlets. There is a kickback for members but I’d prefer lower prices

The main reason I shop there is the selection of higher quality gear. The benefits of membership are a very small reason I go there.

[Ranald]

REI as I understand it was formed as a cooperative to buy climbing gear at a ‘group’ discount.
I see it as a Sams club for outdoor gear. Nice store. Great selection of quality gear but their prices are same or higher than other outlets. There is a kickback for members but I’d prefer lower prices

The main reason I shop there is the selection of higher quality gear. The benefits of membership are a very small reason I go there.

Thanks, Mark. We have a similar store (Mountain Equipment Co-op) up here. I thought REI was it was a music store that I should check out when I'm in the USA.

[rastamypasta]

Thanks for all the great replies you all. I have no real idea if this idea is even remotely possible and that is part of the reason I posted here. Here are a few thoughts to your questions;

Ideally there would be brick and mortar locations with repair services, rentals, classes, workshops, concerts, festivals, and more- everything a traditional music store would do. I feel brick and mortar stores are still quite important to the music industry and it would be a great tragedy to let them die out. Music stores are where some of the greatest musicians of the last century have met, traded ideas, and formed bands.

It would surly be a full time job that would take a number of staff. In many ways it would operate like every other store but with a mission beyond profits.

I think Robert provided great insight on two of the major problems this idea has- the nature of the music gear purchaser and industry. Many music stores operate like car lots and do sales, negotiate, and take items in trade. In many cases the industry has allowed it to become acceptable consumer behavior to see the listed pricing as a suggestion instead of the actual price. Stores will bargain and take money off the price just to make a sale. If this Co-Op store were to give away an additional percent of profit to members it would not be able to afford to offer discounts and that would turn off a bunch of a potential buyers. The other point you made is about the higher average ticket price. Its much more feasible to go in and spend $400 on a nice tent than it is $4000 on a nice guitar or whatever instrument.

I think many people, myself included, understand that they can get products the products offered at REI other places but believe in their goal of outdoor philanthropy and the services offered beyond the product (the generous return policy, the classes, trips, and workshops, as well as the donations to outdoor projects) more than the desire to get a deal. Capturing this consumer ideology and translating it to a music store would be the heart of making this project sustainable.

Thanks again all. This is wonderful feedback.

[Mandobar]

I’d step lightly, because from an accounting and legal standpoint you will need to work out all the details. Think it all the way through before you move forward.

There are limits in the tax re-crowd funding enterprises. So, do your homework.

[J.Albert]

The OP wrote:
"It would surly be a full time job that would take a number of staff. In many ways it would operate like every other store but with a mission beyond profits..."

See Ayn Rand --> "Atlas Shrugged" --> Twentieth Century Motor Company

[Explorer]

I've been a member of, and have worked for, multiple cooperatives which have sold goods to the general public in addition to their membership. I've also worked for a music store which had a regionally-acclaimed concert series, in addition to partnering with the larger folk society in the region on large events.

My first thought is, it's always tempting to start with a complete vision of what an organization could be at some future point, but all the organizations I've been part of started with the small mission of being viable in one small area. That success was then the foundation of more growth.

In addition, those organizations started because even just one individual felt driven to accomplish one small task. It might be to get together enough people to buy wholesale, like many grocery cooperatives begin. In the latter case, the cooking classes and prestige come later.

My advice? Start with something manageable. Then scale up realistically, in a sustainable way without overextending,

The National Cooperative Business Association has helpful info on their website for those who have that drive and vision.

http://ncba.coop/

Good luck!

[Louise NM]

Don't know where you live, or where you are thinking about starting this, but location will be critical. You will need a location with enough population to support what you want to do, and also a place that needs a music store.

You haven't said what type of instruments you are interested in carrying. If you can tie into school band and orchestra programs—sales and rental of instruments, sales of method books—that seems to be a steady source of income for many music dealers. Likewise, filling the needs of students studying privately can help provide a solid base. Are there Suzuki string programs around? Is anyone reaching out to them? As my kids grew, the local shop outfitted us with five violins, a viola, four cellos, and a whole bunch of bows, and we had a couple of basses on loan from the local youth symphony program and an oboe from the place that had wind instruments. (And that was just for the kids. We won't talk about what I have bought from them!)

Your dream actually might be to stock lovely handmade guitars and mandolins, but selling clarinet reeds and quarter-size violins may be what allows you to do that.

[Charlie Bernstein]

Don't ask me. I only put money into crowd-funded projects when a relative (always the same relative) shames me into it. It's like buying Girl Scout cookies (to throw away) and Space Camp raffle tickets (to lose).

[NursingDaBlues]

Rather than just another online music store, I would rather see an organization actually dedicated and actively involved in nurturing, growing & supporting musicians and the making of music. I would want to see a brick & mortar presence that provides actual services, venues for performers, recording studios, education, concerts, festivals, grants...more activism, less capitalism. ... The world could use more musicians and more music, it doesn't need more disposable gear. Personally, I think the more service oriented and less product & profit oriented it was, the more likely I could get behind it and feel reasonably good about donating and/or purchasing a membership.

Sounds like these folks -- a really terrific organization.

https://swallowhillmusic.org/

[Mandobar]

Most of the community music schools I have encountered do just this. But they are non-profits and survive on grants and generous patronage of supporters.

[Jeff Mando]

I must be missing something. You mention a "nice $4000 guitar" -- well, if you want to stock 100 of them that is $400,000, maybe you want to stock some $2500 guitars, as well. How about some $1000 guitars? Sure, why not. Let's get some mandolins in various price ranges -- you see my point -- you would need millions just to get this kind of a dream started. And, you are competing with Guitar Center, to name just one retailer, who happens to have 280 locations -- they don't have to buy their inventory upfront -- it is fronted to them on credit, I believe the term is floor-planning. A new startup wouldn't have that line of credit and even if they did, they wouldn't be getting the discount Guitar Center gets on stuff. Most retailers cannot buy inventory for what Guitar Center sells stuff for, just as an example, NFI, of course.

Sounds like you want to be a non-profit without being a non-profit. Kind of a "for profit, but we want to give some of it back" kind of thing. Actually, sounds like a lot of successful businesses I know who support various charities. Trouble is, as I see it, the margins are tiny. You have to first figure a way to sell a bunch of stuff BEFORE you can ever think about giving the profits away. Business is hard, to put to mildly. Maybe after 20 years of success, some profit can be shared? Not sure I get it unless you are a rockstar with a windfall type of income or maybe a dot com or maybe invent a popular app? Not sure if I would put crowd funding in that category. Most people don't start by saying, we have a mission beyond profits -- most people want to eat and pay the bills for starters. Or, maybe I should say, only successful people have the luxury of thinking like that. Again, best of luck.

[Jess L.]

(First, I'm not an expert. These are just some observations.)

... I think many people, myself included, understand that they can get products the products offered at REI other places but believe in their goal of outdoor philanthropy and the services offered beyond the product (the generous return policy, the classes, trips, and workshops, as well as the donations to outdoor projects) more than the desire to get a deal. ...

Hmm. Things must have changed.

Back when we would occasionally buy stuff from REI at the old 1960s+ location on Capital Hill in Seattle (long before they got all fancy and started opening new stores), the only reason we bought from REI was because they carried high-quality stuff that no one else had.

For instance, if your job required that you be exposed to various weather extremes, you didn't take chances on run-of-the-mill stuff from a regular store - so you bought from the best, which back then was REI.

That expectation of quality was very important. You knew, or at least had reason to believe, that what you bought would be 'serious' gear and not some cheap untested junk that would fail or fall apart when you needed it the most.

Incidentally, the only reason we even knew what REI was (before they got all famous), was because one of my kin had been in the Mountaineers (climbed up various peaks) and they'd told us about the different kinds of stuff that REI sold.

So on our once-a-year or so trip to Seattle we'd sometimes stop by REI just to look around and see if they had any everyday-useful stuff. If we saw something we could use, we'd buy it, and spend the rest of the time marveling at all the 'exotic' things that we didn't need but that were still interesting to look at.

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My only other experience with co-ops, lasted only a few years (not all that long in the scheme of things) on the other side of things as an employee of a different type of co-op, a farmer's cooperative that sold services rather than products.

Their services were not unique nor special though, so they didn't have the advantage that REI had, as far as acquiring and retaining customers. That services-related co-op did well for a couple decades or so, but several things happened that eventually led to the demise of that co-op:

(1) A high-powered new corporate member (and apparently unbeknownst to the co-op management, also a future competitor) weaseled their way into the co-op and (long story short) set things in motion such that the co-op lost a great deal of their profitable customers. What was left was a too-high percentage of break-even or money-losing stuff, can't keep that up forever.

(2) A number of small but highly motivated independent operators, undercut the market and offered services at less than the co-op's prices. Short-term economic gain lured away many customers who voted with their wallets and opted for lower prices outside of the co-op, and (in some cases) less-than-reliable quality of service.

(3) Later on there were other factors which can't really be mentioned here, related to labor, which had the end result of further decreasing the viability of the co-op in a competitive economy.

Between the big-name outfit finagling their way into the co-op and ruining it, and then the small independents undercutting the market, and some labor issues, and customers not realizing the long-term consequences of their choices, the co-op didn't stand a chance and it eventually closed down.

Predictably, after the co-op shut down, the remaining outfits all raised their prices now that the competition was gone and the customers had no choice.

I guess the point there, is that even if one has a brilliant idea for something like a music store co-op, there's still going to be the possibility of backstabbers trying to knock it off the map just to reduce the competition.

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So to get back to the topic here - I suppose that in order for a music co-op to be successful in the long term, there would have to be some savvy and experienced business-management people there, who know how to deal with the sort of things mentioned above. Apparently there's more to running a business than just selling a good product or service, looks like one must also have a slightly devious bent so as to be able to anticipate and have countermeasures for any underhanded tactics that the competition might use.

And one other thing. It's not just the competitors you need to keep an eye on. A different company I worked for, they had insider problems with the supposedly-trusted bookkeeper/accountant who, it was eventually discovered, had embezzled boatloads of money (6 figures, that's a lot for a small regional business) basically "right in front of God and everybody". No one suspected she could be capable of that. She was the one in charge of guarding the finances, but apparently no one was keeping track of what *she* was up to. She seemed like such a nice person. I even house-sat for her and her husband once when they went on vacation, I wouldn't have set foot in their house if I'd known they were crooks. When she eventually got busted a few years later, she and her hub just *poof* up and disappeared, no trace of them, nobody to prosecute. The company owner (a nice guy) was not happy.

Not sure how that sort of thing could be prevented, but again it just goes to show that business is more than just starting a company and writing checks (e-checks, whatever) to cover the payroll and pay the bills. There's always going to be somebody trying to get something for nothing, and one needs to be aware of that so as to not get caught off-guard by it. That's not looking at things negatively, it's just looking out for your own long-term interests to ensure a successful business.

[Mandobar]

Business is business. Despite all the good intentions in the world, businesses operate in a competitive environment. There are dishonest people everywhere, and I will tell you that as someone who has an extensive background in forensic accounting and tax regulations, business owners need to know more about business than most seem to believe. There are obvious signs of embezzlement and accountants and bookkeepers need close oversight. You cannot just hand over your checkbook to someone, even if they are your sister. Most embezzlements that I have encountered could have been easily avoided had owners and managers stayed alert, and put in simple controls.

That said, takes a lot of dough to sell $4k guitars, and you have to have a certain amount of capital, and be able to generate more before suppliers and manufacturers will do business with you. Buying power does not come cheap. Most instrument retailers are starving right now, and with GC and Gibson teetering on the edge of a cliff, credit is going to get tighter for music stores.

REI has decades worth of equity built in their business, which allows them to run their particular business model and practice their brand of philanthropy. They are also selling lower ticket items. Do some research, because while they operate as a co-op there are principle owners, and these are the individuals who make the decisions and "own" the company. The same goes for those employee-owned businesses. There is generally a majority partner who owns 80% while the other 20% is owned by the employees.

[walter carter]

No matter how you set up your business - co-op or corporation, bricks-and-mortar or online - you're going to have a hard time making a profit selling musical instruments. At the low end, the margins are small, and your profit can easily be eaten up by credit card fees, online listing fees or (if your sale is in-store) sales tax. At the high end, you're competing with established sellers and, as has been pointed out in this thread, it's just not that easy to sell a $4000 guitar.

The biggest problem for your startup is going to be time - your time. When we started Carter Vintage five years ago, Christie and I both worked 80-hour weeks, which is the equivalent of four full-time employees. Having no time to sit around and play your mandolin will be the least of your worries.

When we were getting our business plan together, a friend with a lot of financial experience advised us that 75 percent (or something like that) of all businesses fail in the first two years from being undercapitalized and that we should have cash reserves to cover the first two years. We had enough cash to cover about one month, but we figured most businesses fail anyway, regardless of their capitalization. We had a good knowledge of our business, a viable business plan and a lot of dedication. With a little luck, it's worked out pretty well.

All of the points that have been made in this thread are valid. If you still think you can make it work, then go for it.

[Folkmusician.com]

Christie and I both worked 80-hour weeks, which is the equivalent of four full-time employees.

I'll be you still have those weeks here and there!

With a little luck, it's worked out pretty well.

Don't let Walter tell you it was luck... Their level of success vs. timeframe is incredible. I don't think luck factored in whatsoever. Carter's is a perfect example of what is possible, yet for most music stores, it is virtually impossible.

[DougC]

I think what the original poster recognizes is that the Mandolin Cafe has value. And therefore could be a resource, or originator of a bussiness. (We said "No" BTW)

It's a crazy idea but seeing how the Mandolin Cafe community is one of the most passionate group of music lovers and music gear purchasers I know of- I wanted to appeal to you all and see what you think.

Thanks for your time.
Brian

[DougC]

After thinking about this topic, it occurred to me that the Mandolin Cafe classifieds is like a 'co-op' in the sense that it has the approval and support of us, the members. Without our money and passion for mandolins, there would be no need for a classified section. (And thank you Scott and the other managers of this fine online forum. It certainly supports our passion for musical instruments.)

Ayn Rand's 'Atlas' can go on thinking that he holds up the world, but if we don't create something, there is nothing to support.

[Bill McCall]

You might talk to the folks at Artichoke Music, www.artichokemusic.org, for their experience.

[mandos&turtles]

Love this idea but others have brought up some good points on things that might make it difficult. An alternative idea is that you could start some sort of non-profit organization that promotes a local music community (hosting jams and concerts, connecting students and teachers, fund music scholarships, and so on) and see if local music stores would offer discounts to organization members. I'd also recommend a big umbrella; this seems like it'd be more successful if you catered to musicians of all types rather than one particular genre or instrument.