Above: photo by Sarah Frankie Linder

Vinyl is back. The once-anachronistic segment of the music industry was on target for its seventh straight year of double-digit growth in 2017, according to a Deloitte Global forecast, selling an estimated 40 million new records and generating up to $900 million in revenue—as much as 18 percent of all physical music sales.

Consumers covet vinyl as a piece of tangible art in a digital age, but for the indie bands selling those records, it’s not about nostalgia, says Caren Kelleher (MBA 2010). “For the average independent band to make minimum wage, they can sell 100 vinyl records a month or have their songs stream on Spotify 1.5 million times,” says Kelleher, who led music app partnerships at Google Play before founding Austin-based record manufacturer Gold Rush Vinyl.

The company grew out of a need Kelleher saw in her side gig of managing indie bands: Despite the renewed interest in vinyl, there were not many manufacturers—less than 20 in the United States—and few had updated their processes or supply chain since the heyday of the late 1970s. In the fast-moving music scene, Kelleher says bands would wait months for records from over-capacity producers. Operational efficiencies will allow Gold Rush Vinyl—which started with $750,000 raised from family, friends, and an SBA loan, to cover the expensive pressing equipment—to reduce wait time from an industry standard of twelve to twenty-four weeks to just four weeks. And bands are willing to pay for that speed, Kelleher says.

The Question:

Gold Rush Vinyl could reduce that time even further—to two weeks—if it solves supply chain bottlenecks in sourcing the record jackets and the plastic resin used in production. As a new startup with speed as its value proposition, should the company take the risk associated with investing the potentially significant time and money necessary for the R&D, equipment, and talent that could eliminate these bottlenecks, or focus on growing the business with its current industry-leading turnaround time?

The Answers:

There is a tactical question here as well as a strategic one. The tactical question is around the math of making added investments and the short-term impact it would have on more volume and perhaps more margin. Assuming the answer is a good one, the strategic question would be whether the company can use the increased volume and margin to build capabilities that would be hard to replicate. Let’s build a plan here—not just to grow but to develop some long-term defensibility. Some record profits would be music to investors’ ears.
—Jeffrey Glass (MBA 1994)

Grow market share, brand awareness, and visibility now. Build momentum as the cool and only go-to source, then make the leap to the next level after market share growth rate has peaked. You can prepare for the shift but don’t dilute your momentum yet. You will be able to raise more capital more cheaply once you can show proof of concept and market leadership.
—Richard Roll (MBA 1977)

Yes, Gold Rush Vinyl should take risks and eliminate supply bottlenecks to speed delivery times. “Rush Vinyl” is two-thirds of the name, and speed is vital. Ever-volatile college radio playlists now track song plays daily. This fast-moving industry is moving even faster. Keep building your “rush” brand!
—Clyde Ensslin (MBA 1984)

Consumers seem to discover music digitally and purchase vinyl records for tangible ownership and connections. Thus, sensitivity to an additional two-week time lag is probably not high. Because the time reduction is hinged on sourcing and will probably not enable a competitive advantage, I recommend that the company should focus on establishing its brand.
—Ngassam Ngnoumen (MBA 2002)

I question whether vinyl is a cool trend or a sustainable product line. Sure, it’s kind of cool. But if it’s just a trend, is it big enough to warrant the investment, and is the payback period short enough to recoup investment before consumer sentiment shifts away? Does being in the space provide an entrée into other uses of the material and technology?
—Howard Sands (MBA 1993)

Focus on growing the existing business and building out name recognition around quality as well as speed. My read is that solving the supply chain issues around the resin using scarce money and time will not necessarily create a sustainable advantage, because competitors will also benefit from more efficiency in that part of the chain. It’s even unclear if the current equipment-driven advantage is sustainable, underscoring the importance of creating bulwarks via other means.
—Jan Postma (MBA 2005)

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