Business Plan 2014 By: Nicholas Fedor Music 3737b
Business plan 2014 Overdrive music Dear Professor Hodgson, Iâ€™m following up on our conversation regarding your potential interest in investing in Overdrive Music. Over the past four weeks, myself and a group of web developers, have been finishing up the final touches to our web platform and are all very exited. Overdrive is a platform for Canadian musicians, artists, bands, schools and small organizations to crowd source funds for various music projects with ease. Revenue is collected by charging small transaction fees on each donation to a given campaign. We would love to have you onboard as we are about to do great things for Canadian artists. Please find enclosed a business plan, a business model canvas, and a brief explanation of that canvas. Perhaps we can discuss further details over a game of golf? The good olâ€™ nine iron is giving me trouble again! -
Nicholas Fedor COO & Founder
Table of contents #06
Business model canvas
Confidentiality Statement By gaining possession of this business plan, you, the reader, hereby acknowledge that the contents within are confidential and agree to full nondisclosure of its contents. Sharing contents or details with others requires the written permission of Overdrive Music, Inc. It is acknowledged by you, the reader, that information furnished in this business plan is in all respects confidential in nature, other than information which is in the public domain through other means, and that any disclosure or use of same by reader, may cause serious harm or damage to Overdrive Music, Inc. Upon request, this document is to be immediately returned to Overdrive Music, Inc. This is a business plan. It does not imply an offering of securities.
Overdrive Music Inc. is a reward-based crowdfunding platform that serves Canadian bands, artists and musicians. Overdrive Music, Inc. (hereafter referred to as OMI or the “Company”) is an online web platform that enables Canadian artists to raise funds for various music projects by crowdfunding through family, friends and fans. Located in Toronto, Canada, the company was founded by Nick Fedor in April 2014. With the crowdfunding industry reaching almost US$1.5 billion world-wide in 2011 and expecting to reach $5.1 Billion in 2014, OMI plans to take this growing business model and apply it to the Canadian music industry. Being the first Canadian crowdfunding platform to focus on artist development and music ventures, there is a tremendous opportunity for OMI to build strategic partnerships with Canadian non-for-profit and music organizations and build brand awareness. Our vision is to always have the artists best interest in mind and be recognized as a “for the artist” type organization. OMI has a business model that requires a multi-sided platform. The company serves Canadian artists, musicians, record producers and small music startups by helping them raise funds through our online platform. OMI will generate revenue by taking in a 5% commission fee of each individual transaction to a given campaign. Secondary sources of revenue include advertising revenue from website traffic and white-label solutions. OMI’s core competencies are that we are a customer-centric organization. As a non-forprofit organization, all profits will be redistributed back into the business to help keep our transaction fees low and to better serve Canadian artists. We want our clients to thrive; therefore we’ll offer value-added features such as seminars, workshops and online guidance to ensure optimal results of a given fundraising campaign. Overdrive won’t be a static online organization, we will differentiate ourselves by being a social organization both online and offline by participating in major industry events and festivals. The crowdfunding industry is highly fragmented with over 34 platforms in Canada and 344 in the United States. There are four main areas of competition and encompass equitybased platforms, lending-based platforms, donation-based and reward-based platforms. In Canada, 93% of campaigns in 2012 were rewards-based. Crowdfunding expanded at a 63% compound annual growth rate from 2009 to 2012, with reward-based platforms experiencing a 524% CAGR. Equity-based crowdfunding platforms are not legally permitted in Canada. OCI’s main competitors are Kickstarter, Indiegogo and Pledge music. OMI is comprised of a team of young music enthusiasts and web developers, whose talent and experience, will enable them to lead this Company to success.
Meet the ceo & founder
Nick Fedor is the President and CEO of OMI as well as the visionary behind the Company. Originally a music student at the University of Western, Nick started Overdrive as a class project in his dorm room. AFer receiving TREMENDOUS feedback from both his professor and colleagues, Nick decided to launch Overdrive Music Incorporated in summer of 2014. Since then he was been working profusely with web and soFware developers over the details of the business. AFer a year of hard work, OMI is set to launch in September 2015.
Overdrive Music, Inc. is a start-up company and is a not-for-profit organization with main offices in Toronto, Canada. The company was founded by Nick Fedor in April of 2014 to serve Canadian artists, music organizations and the recording arts. The owner of the company, being a Western University music grad and songwriter, noticed a distinct demand for the funding of individual music initiatives. After countless conversations with individual artists and producers and conducting extensive market research, the owner is convinced that there is a market need for a music-centered crowdfunding platform to help support Canadian artists and fill a critical funding gap. OMI is a reward-based crowdfunding platform that allows individuals to create campaigns and raise funds for various music projects through family, friends and fans (triple F). All operations will reside in Canada.
Objectives" • Building a strong brand by securing strong strategic partnerships with major players in the Canadian music industry and having a presence at major Canadian music events and festivals. • Reach 3000 campaigns in first year with an 80% success rate • Efficient operations in order to minimize costs and maximize total revenue to sustain low transaction fees of 5%
Governance" Overdrive is governed by a board of directors that is comprised of leaders in the Canadian Music industry. OMI is still in the process of structuring.
Legal and Government Regulation
OMI is a not-for-profit organization and is subject to the Canada Not-for-profit corporations act. OMI has secured all necessary permits and licenses to conduct business. The company has a business checking account at CIBC in Toronto, Ontario.
service OCI is a multi-sided platform that acts as an intermediary between both artists and fans. It allows artists to collect funds through supporters and brings supporters closer to the music they love. OCI is a reward-based crowdfunding platform; meaning fans must be rewarded non-monetarily for their contributions. E.g. merchandise or sneak peak of unreleased track. OCI will differentiate itself from its direct competition by focusing on value-added services and maintaining below-average transaction fees. Â Overdrive Music will collect a 5% commission fee + 3.5% PayPal transaction fee from each pledge. Value-added services include educating artists on how to build and
maintain successful campaigns, useful tips and recommendations and developing plugins to enhance and facilitate the campaign process. E.g. plug-in that allows supporters to stream 30 seconds of an unreleased track on a given artistâ€™s campaign page. Every campaign must be pre-approved by OCI before going live. This will help eliminate campaigns that do not meet the basic requirements and increase success rates of approved projects. The average campaign will run for a 45-day period and must achieve 90% of the requested amount in order to receive pledged funds.
Garry and his band the Overdrives need a new tour van to play the west coast.
WHAT IS CROWDFUNDING? “ Pooling of small amounts of capital from a large number of people (known as ‘the
crowd’) using the Internet and social media.”
Gary creates a custom campaign on overdrive.com. Through his bands profile, he outlines the purpose of the campaign, the target sum, length and any benefits fans may receive for their contributions.
Through social media and word of mouth, the Overdrives promote their campaign to their listeners and direct them to overdrive.com.
The Overdrives raise money to be put towards the purchase of their new tour van. Overdrive receives a 5% commission on each transaction. As for Gary, he is loving the west coast.
Market ANALYSIS Overview
As survey data collected by the Canadian Independent Music Association (CIMA) indicates, Canadian independent music companies and artists, have difficulty accessing affordable capital – or any capital at all – to finance new activities and/or operating expenses. While this circumstance might be true for many industries, it is particularly troublesome in the music industry. Given the constantly shifting nature of music industry business models, companies and artists routinely require access to capital to finance the expansion of their businesses into new areas. For example, if an artist wants to expand into the digital retail business to diversify their revenue base, that expansion will require a substantial investment in a website, an ecommerce solution, and so forth. As such, only those artists that have access to sufficient capital will be positioned to do just that. In 2011, the average Canadian artist earned an estimated $9 336 through music relatedactivities. When asked to indicate what might stand in the way of future growth, one of the most pressing issues appear to be access to affordable capital. There is a clear demand for artist funding that is not being supplied by the industry players. OMI wishes to take advantage of this situation, meet the market demand with a superior service and enable Canadian artists to raise the required capital to progress. The service will easily integrate into the market due to its ease of use, accessibility and natural links to social media.
Market Segmentation Type of customer: Artists, Songwriters, Producers, music organizations, and their supporters. Segments include creators and supporters.
Artists: average independent artist in Canada is approximately 39.5 years old and 73% of artists are male. A majority of Canadian artists (78%) perform in the English language and spend an average of 29 hours/week working on their musical endeavors. 60% of artists produce their music in addition to playing it. Music organizations: 47% of independent music companies in Canada engage in the creation of music. 60% of independent music companies in Canada generate less than $50,000 - only the top 10% earn more than $500,000 per year. 73% of all revenue comes from the Canadian market. Wages, overhead and equipment account for 47% of all expenditures in the independent music industry. Envisioning Service in the Market: The company’s service will become a popular source of funding music endeavors and fill a critical funding gap.
Customer service – Low % fees Partnerships – Young team - Non Profit
Saturated market – Little experience – Difficulty raising $ -
Low barriers to entry – thriving industry – Little Canadian Competition – Niche CFP’s are growing at higher %
Competition price-matching – acquiring market share – cash flow – hiring issues
Industry Analysis The Internet crowdfunding industry has been active for nearly a decade and is currently experiencing high popularity and exponential growth. The industry grew by 81% between 2011 and 2012 and reached funding volumes of $1.5 billion and $2.7 billion, respectively. It is expected to reach $5.1 Billion in 2014 with North America having the largest market share (60%). The industry’s high profile companies and big players are: Kickstarter, Indiegogo.com, and gofundme.com. As of November 2012, Kickstarter has launched over 76,500+ projects and has managed to raise over $400 million dollars from the general public in funds with a project success rate of 43.82%. It should be noted that the majority of total funds raised in the global industry is currently dominated by the top 5 to 10 portals in operation.
The Canadian crowdfunding industry specifically, is experiencing vibrant growth in reward-based portals growing 300%+ since April 2012. The National Crowdfunding Association of Canada has identified a total of 45 CFP operators as of Jan-2013 with the provincial distribution as follows: 41.3% Ontario, 17.4% BC, 21.7% Quebec, 13% Alberta, 4.3% Nova Scotia and 2.2% New Brunswick. Niche CFPs are becoming more and more popular and are the future according to many experts in the industry. Niche portals have the advantage of building communities with participants with similar interests who can band together to support a specific purpose, industry or cause.
Competitive Comparison: PledgeMusic is one of the more popular and well-established reward-based crowdfunding sites out there for musicians. It was launched back in 2008 and is solely focused on raising funds for musicians. PledgeMusic is reported to have a 90% campaign success rate (higher than Kickerstarter or Indiegogo), with most artists raising an average 140% of their goal. Notable artists who have pledged include Tokio Police Club, The Lumineers, Ben Folds Five and Slash. They currently charge a 15% flat fee on every transaction. We believe the following qualities will outperform PledgeMusic: • Lower transaction fees (8.5%) • High market demand for financing and low barriers to entry • Strong partnerships with major Canadian music organizations • Value-added services While Pledge Music is a direct competitor to Overdrive, Kickstarter is an indirect one. Kickstarter is a crowdfunding platform for film, games, music, art, design and technology. Since their launch in 2009, 5.9 million people have pledged $1 billion, funding 59 000 creative projects. Kickstarter currently boasts an overall success rate of 44%, with music campaigns having a 55% success rate. Although this suggests that music campaigns on Kickstarter have higher success rates then other categories (which is encouraging to Overdrive) this is only half of Pledge music’s rate. Furthermore, If a campaign on Kickstarter doesn’t reach its target sum, no one is charged and the fundraiser receives nothing. We believe the following qualities will outperform Kickstarter: • Higher success rates (80% vs. 55%) • Artists on Overdrive keep all money raised regardless if campaign’s target sum is met or not • Overdrive is a niche crowdfunding platform and has the advantage of building communities with persons who share similar interests
Marketing plan Marketing Strategy OMI will promote its web platform using online advertising, booths at major industry events and festivals, strategic partnerships, sponsorships and ambassador programs. Finally, once Overdrive meets a healthy and sustainable profit level, a significant portion of gross profits will be dedicated to artist grants. Online advertising is key to reaching our audience. From Google Adwords and Facebook ads, to storytelling through our social media platforms, having an online presence is crucial to reaching our target market. With online advertising, it is easier to directly target your ideal audience and break through the clutter. Sample Adwords include Crowdfunding artist, music grants, Canadian music crowdfunding, fund Canadian artists etc. On Facebook we will directly target Canadians who have listed music as their hobbies, attended a music or audio production school, work in the music industry or a music related organization etc. Our goal is to directly target campaign starters since they in turn will pull-in funders. OMI will be active on major social media platforms posting visual content, fun facts, industry related news and contests to truly personalize the OMI experience. Using these methods, the Company will quickly build rapport with potential customers while simultaneously building credibility with existing customers. Our vision is to be a social organization, both online and oﬄine. OMI will help build brand awareness and win the trust of Canadian music makers by participating in major industry events and festivals. This will allow our customers to get to know us and see first-hand, that we are truly a customer-centric organization. Events and festivals include Warp Tour, Osheaga, Canadian Music Week, Junos, North by Northeast etc. Anything from booths, sponsorships and free promotional material (swag) will be used to catch the attention of customers. Partnerships and brand ambassadors will also play a role in launching Overdrive. As a nonprofit, we have an advantage of establishing strategic partnerships with other Canadian music organizations who are focused on the well-being of artists and music creators. Such organizations include SOCAN, FACTOR, Music Canada, SAC and etc. Furthermore, we will target influential Canadian musicians, through industry connections, inform them on our service and visions, and hopefully get them to start raising money with us. This will help expose our brand to large audiences.
OMI collects revenue via a 5% commission + 3.5% transaction fee collected by Paypal. We set our commission at a percentage that allows us to cover our costs, remain competitive, and earn a return on our investments. Below is a list of selected crowdfunding platforms and their respective transaction fees in percentages. • Pledge Music 15% • Kickstarter 8.5% • Make A Champ 12% (Canadian) • Indiegogo 7% if campaign is met, 12% if campaign is not met + $25 wire fee for non-US campaigns • Fan Push (Canadian) 8% +1% for Charity. Fee raises to 12% if campaign is not met • Overdrive 8.5% fee regardless if campaign is met or not. Every dollar counts! Overdrive will continue to work on lowering our transaction costs. Finding an alternative to that 3.5% PayPal fee would ne nice! Currently CFP transaction fees range from 2% to 25% with the average fee in North America being 7%.
Sales forecast for OMI is based on the following information and estimates. Calculated using an 80% success rate. Unsuccessful campaigns we’re valued at $0. Our best estimate is that OMI will have 400 campaigns at any given time with an average campaign length of 45 days. This equates to 3,244 campaigns a year. These numbers we’re taken from a friend of mine who runs his own crowdfunding platform for athletes called Make a Champ. Make a Champ recently aired on Dragon’s Den and secured an investment partnership with Bruce Croxon. The National Crowdfunding association of Canada (NCFA) published a report in 2013, based on 25 Canadian CFP’s, and broke down reward-based platforms by the following: • 63% of campaigns draw less then $5000 in funding • 10% paid out to projects over $10 000 • 27% paid out to projects between five and ten thousand dollars
NCFA Average CFP Data <$10 000 10%
Revenue + cost
Revenue Based on previous information we have calculated total revenues to be: • Projects @ $2500 x 35% x 3244 campaigns/year = $2, 838 500 • @5000 x 28% x 3244 = $4, 541 600 • @7500 = 4, 379 400 • @10000 = 2, 919, 600 Total = $14, 679 100 x 0.05% (percentage retained by Overdrive) # Annual gross revenue = $733, 955 x 80% success rate = $587 164
Assets Insurance $1000 Web Platform $30 000 Cash $5000 Total = $36 000 Expenses Marketing $10 000 Domain name $10 Hosting $50 PayPal $120 Web Maintenance $500 Legal & Consulting $4000 Incorporation $200 General expenses $1000 Total = $15 760 Total Financing Required = $51 760 Owner investment $20 000 Investor $10 000 Bank Loan $16 760 Line of credit $5000
OMI is operated out of the founder’s home, located in Toronto, Canada. This location is ideal since it is located in the largest city in Canada and is close in proximity to other large businesses, financial institutions and customers. Although this location is temporary, it is a good starting ground to build the business with minimal capital investments and use the money to fund the platform itself. The COO’s parents own the home, and are ecstatic about having random strangers walk in and out of their home. They have agreed to not charge for rent.
Overdrive will be using PayPal merchant solutions to take care of all financial transactions. PayPal payments will enable OMI to create a secure and professional payment page. Benefits of using their service include no long-term contracts, customers pay without leaving OMI’s website, more ways for buyers to pay, paid within minutes of a sale, mobile friendly, better security and simplified compliance. The cost of using PayPal’s service includes a $10 monthly fee plus 3% per transaction.
There is always risk associated with opening and running a business. OMI has identified the current risks of the Company and is working on contingency plans to minimize or eliminate those risks. The Company sees its greatest exposure being market acceptance, cash flow, strong competitors and achieving the required financing. OMI’s entire business plan is built to mitigate these risks. If funding from investors turns out be a challenge, OMI will have to secure higher banks loans and incur higher costs of capital. By maintaining below average transaction fees, strong strategic partnerships, strong involvement in music community and non-profit status, Overdrive is in a good position to overcome these risks and seek the rewards for both the company and music community.
Customer service is key in achieving our vision of being a customer-centric organization. Customer service is important because customer loyalty develops as customers feel a connection with a company. Good customer service entails listening, answering and informing customers via all mediums of communications. E.g. E-mail, telephone and Social media. In the book The Now Revolution, Baer and Naslund note that social media is the new 1-800 number. Customers are online, tweeting, posting notes to your Facebook page or asking for help in community forums. A company can’t ignore these calls any more than the one’s coming from a phone line. Overdrive will practice good customer service by being easily accessible to our customers and will hire additional staﬀ to keep up with growing demand. Furthermore, to further distinguish ourselves from our competition, we will go the extra step and guide the artist through the campaign process. This includes screening and accepting all campaigns before going live on our site and providing tips, techniques and resources to better the chance of success of a given campaign. There will be a page on our website solely dedicated to campaign starters entitled “Overdrive University” and this will provide users with all the information needed to achieve successful campaigns. agreed to not charge for rent.
The owners of the business are dedicated to a long-term involvement with the Company and have no plans for an early departure. If, however, some unforeseen event should take place forcing the business into an exit planning strategy, a contingency plan has been drafted.
business MODEL CANVAS Customer Segments
MulP-‐sided plaRorm with 2 interdependent customer segments: arPsts (project creators) and fans (project supporters)
PlaRorm that enables arPsts to raise capital for various music projects and fans to get closer to the music they love
Crowd Funding plaRorm, social media, word of mouth and partner programs
Customer acquisiPon driven, automated relaPonships with both customer segments , personal relaPonships with important arPsts
10% commission fee on each transacPon + adverPsing revenue from site traﬃc
Key activities/ resources
Human resources, IT infrastructure, Partnership development, PlaRorm R & D and maintenance
Partnerships with major players in the Canadian music industry and independent music scene to build up brand image. Partnerships with payment providers
PlaRorm development and maintenance, markePng costs. and staﬀ salaries