The Toolkit

Tools for building the future

The Toolkit with Robb McDaniels: Music Industry Tech, Building Ingrooves from $0 to $130m in Revenue

Top Takeaways

  • Passion is important in taking an enormous leap toward a business venture.
  • Don’t underestimate the power of luck coupled with experience.
  • Always have an answer to important business questions and decisions.
  • You can’t do and be everything all at the same time. Good working relationships will take you far in the field.
  • Create a vision for your venture. Inspire people to see the same vision as you do.
  • You can’t make everyone happy, but it doesn’t mean that you shouldn’t try.
  • Technology can help any business to grow more and develop brighter visions.
  • Draw strength from your personal experience and apply what you learned from it to all your goals in life.

Guest Profile

Robb McDaniels is a media and technology entrepreneur, investor, and current CEO of Beatport. Beatport is an online record store, founded in 2004 as the principal source of music for DJs. In an era dominated by streaming, Beatport has grown its download sales over the last few years.

Robb began his career in finance after graduating from Trinity College in Hartford, CT. He then spent four years at Marsh and McLennan in their investment banking and structured finance unit. During his tenure at Marsh, he moved to San Francisco, where he founded INgrooves in 2002. He built the company into a full-service distribution and artist services operation.

Under his leadership, INgrooves managed North American digital distribution for Universal Music Group, as well as over 4 million songs for thousands of artists and labels. As CEO, he grew the company from nothing to $130m revenue and nearly 200 employees.

Just before becoming Beatport’s CEO, 2016, McDaniels launched Faction Entertainment, a technology-enabled artist management platform, which he wound down in 2018.

Episode Highlights

The confidence to take a leap: Transitioning from one field to another is a process, and it takes time. Robb learned about music and how to DJ during his time in Europe. During this transition, he quickly grabbed the opportunity to venture into the business side of music.

Establishing musical connections: Robb believes that every business will always have a combination of hard work and luck. A lot of entrepreneurs focus on the product alone and on how it can be the best thing. But there’s a need to always check about the other values of their ecosystem.

To build an ecosystem that works: Consider different factors like business plan, market opportunity, product demand, product dependencies, and resolving your start-up hurdles through a partnership or direct investment. There are processes to follow in starting a business, and these processes exist for a reason. Many people have ideas, but not everyone can execute them.

The right people to hire: The reality is that you can’t act or operate in isolation. You need people to work with your vision. Each individual has a unique talent to add, so it’s important to bring the right set of people in.

Vision and company growth: It is important to know the brand, the company, and the people to establish a good working vision. You can figure things out simply by listening to people who know much more than you.

Connecting and listening to customers: You definitely can’t make everybody happy. A great way to connect with customers is to survey how customers interact with your products. In the creative industries, you need to know your limits. Everyone wants their music in a certain way, shape, or form.

Technology enablement: There’s not a lot of collaboration between managers, even in organizations. It is important to embrace technology and communication. When managers become technologically adept, they become better CEOs, communicators, and project managers.

About the Host:

Justin Fortier lives in Brooklyn, NY, and works for a consulting company serving industrial companies.

How to Connect with Justin Fortier

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Transcript

“As CEO, Robb McDaniels grew the company from nothing to $130 million in revenue and nearly 200 employees.” – Justin Fortier

Justin Fortier: Thanks for opening up the toolkit. I’m Justin Fortier. I started this podcast to record conversations with people I respect. Since I’m at the beginning of building my career, I want to collect as many tools from others to help in the journey ahead. Over the years, I’ve had a number of conversations like the one you’ll hear today. But often, they’ve been over coffee or some other informal setting. But by putting a bit of extra effort to research and organize questions in advance, record the audio and publish it across the web, I hope others will be able to benefit. It’s currently March 2020. And for these early episodes, I’m doing everything myself. So things are a bit rusty as I learned the challenges of recording audio in person, making theme music, editing episodes, and building an online presence. If you stick with me as a listener, things will improve. If you have suggestions for guests, ideas for the website, or ways I can improve, please email me at justin@toolkit.fm. My website is toolkit.fm. Right now, it’s just a simple landing page that will let you sign up for my email list. But by the end of April, it will be fully live and contain episode transcripts, links to things discussed in episodes, as well as short blog posts about what I’m learning in putting a podcast together. Today’s guest is Robin Daniels, a media and technology entrepreneur, investor, and current CEO of Beatport. Beatport is an online store founded in 2004 as the principal source for music for DJs. In an era of streaming, Beatport has actually seen music download sales climb over the last few years. Rob began his career in finance after graduating from Trinity College in Hartford, Connecticut. He then spent four years at Marsh and McLennan in their investment banking and structured finance unit. During his tenure at Marsh, he moved to San Francisco, where he founded Ingrooves in 2002. He built this company into a full-service distribution and artists’ services operation. Under his leadership, Ingrooves manage North American digital distribution for Universal Music Group, as well as more than 4 million songs for 1000s of artists and labels. As CEO, he grew the company from nothing to $130 million in revenue and nearly 200 employees. Just before becoming Beatport CEO in 2016, McDaniels launched faction entertainment, a technology-enabled artists management platform, which you wound down in 2018. I met with Robb in January in his L.A office, being my first interview, I was certainly a bit nervous, but he was super easy to talk to and incredibly gracious, answering my questions around developing conviction to launch a company, building teams, and much more. Without further ado, here’s my interview with Robb McDaniels.

Justin Fortier: Oh, right. So when you were transitioning from working at Marsh to wanting to start Ingrooves, what made you feel ready to be able to start or be able to make that leap? I know you’ve talked about people who weren’t necessarily super encouraging from the finance side. How did you get the confidence to make that step?

“I don’t remember a specific moment where I had an epiphany that this is what I need to do differently with my life. I had been passionate about music for a long time in my life, and I wasn’t musical or talented in any way. I just had an appreciation for it.” – Robb McDaniels

Robb McDaniels: Well, I think that happens over time. It’s a process. I don’t remember a specific moment where I had like an epiphany that this is what I need to do differently with my life. I had been passionate about music for a long time in my life, and I wasn’t musical or talented in any way. I just had an appreciation for it. And more on the business side of it, just after college, helped friends open up a vinyl record store in Boston; obviously, when I was in college and in high school before that, I learned how to DJ, having spent a lot of time in Europe. So there was a narrative and a thread through my life that was about music, and I spent six years or so after graduating from Trinity and in finance and enjoyed aspects of it, but it wasn’t rewarding in a way that felt like it was what I was supposed to do. And so, the opportunity arose for me to have the space to develop a concept and an idea. I had moved to San Francisco from New York, and obviously, the startup culture was there at the end of first.com. boom was pervasive. And so it allowed for the entrepreneurial side of me to come out, and then it’s just a whole bunch of luck and hard work.

Justin Fortier: Yeah, you described a fortuitous meeting with the CTO of Ingrooves. And I wanted to understand how you approach, I guess, creating those fortuitous meetings because you also talked about developing relationships with the European dance music community in order to start getting those licenses and bring it to the US, which coming from finance and working in securitized risk products. That’s a pretty big jump. So how’d you kind of position yourself to be able to have those relationships not being technical or musical?

“You have to be in the right place in your life; you have to put enough time and thought into what it is you’re going to do. A lot of entrepreneurs get hyper-focused on their product and why it’s going to be the next best thing, without thinking about all of the other pieces of the ecosystem that needs to be in alignment to support what your idea is.” – Robb McDaniels

“You can be ahead of the curve first to market, but everything has to be ready. If Netflix had launched 10 years earlier, bandwidth wouldn’t have been ready to handle the volume at scale.” – Robb McDaniels

Robb McDaniels: Well, yeah, so I said, it’s, you know, it’s a combination of hard work and luck. Yeah. And I just think that every business that I know that, like, the background and the story of, it’s some combination of those two things, so you know, I think you have to be in the right place in your life, you have to put enough time and thought into what it is you’re going to do, you have to think. I always encourage entrepreneurs to think without the blinders on, like a lot of entrepreneurs get hyper-focused on their product and why it’s going to be the next best thing, without thinking about all of the other pieces of the ecosystem that needs to be in alignment, to support what your idea is. Because inevitably, you can’t just release a product in a vacuum; there has to be, you know, the rest of culture needs to be in lockstep with you. You can be ahead of the curve first to market, but everything has to be ready, right? That’s why, you know, if Netflix had launched 10 years earlier, you know, bandwidth wouldn’t have been ready to handle the, you know, the volume at scale. So what was the question? Because it’s late in the day, so I lost my train of thought.

Justin Fortier: Yeah, that’s okay. I actually want to jump off talking about the ecosystem and that needing to be right. So when you’re noticing something, whether it’s talking with your current customers, and you kind of see where the future is headed, but you don’t see the ecosystem in place yet, as a leader in the space for a while, is there, I guess, how do you build the ecosystem around your like, work with other people to drive in that direction? Is there? Is that something you’re consciously doing? Or just conversations with other leaders and things like that?

“A lot of people have ideas, but not a lot of people can execute them.” – Robb McDaniels

Robb McDaniels: Well, if you’re Elon Musk, you build the whole ecosystem yourself, right? And I think that that’s a big challenge. Not many people are up for. So I think that when you’re thinking about your business plan and the market opportunity and what the demand is going to be for your product, those are the factors that you have to, you know, what are the dependencies that your product has your idea, and you know, those are the challenges or hurdles that you have to put in your business plan that you’re here’s how we’re going to resolve it through a partnership or direct investment, or, you know, this is we’re gonna start here for the first two years until these other things catch up. So I think that just goes into sort of the planning process that you have to go through as an entrepreneur when you’re thinking about making the big leap into, into something new. And that’s, again, it’s all a process because you have these ideas, you start bouncing the ideas off of people you trust, you validate those, you pull up comparables, why is your product better? Why is this the right time? Why is there this additional demand? And, you know, then there’s, okay, well, now I need to finance it, finance myself for a little while, friends and family. But when you start getting into, you know, smart money, you know, people, angel investors, people have made money doing this before, they’re gonna ask you the, you know, the really tough questions. So, if you don’t have answers, you’re done. I mean, there’s all of these steps that exist in the process of starting a company that exists for a reason, right? And it’s because a lot of people have ideas, but not a lot of people can execute them.

Justin Fortier: Yeah, on execution. When I was looking through your LinkedIn, I saw you wrote many really strong recommendations for people. And the way you spoke about them, to me show that you really enjoyed working with them and were able to have great relationships there. How do you on the front end, prepared by hiring or like developing that talent and getting other people excited to work with you and making sure that, I guess to get that end result, where you’re getting this great recommendation saying, hey, this person was fantastic. I hope to hire him again in a different function, something like that. Because that seems like a really strong endorsement. So how do you get to that point? And what are you looking for when you’re…

“You can’t operate in isolation.” – Robb McDaniels

“I can’t be everything, and neither can you because we all have our talents, and so bringing that all together, and unifying those different personalities, embracing them, but unifying them around a single vision that incorporates elements of everybody’s background, approach, and philosophy and so forth, that’s what I’ve always been able to do. That’s what I bring to the table.” – Robb McDaniels

Robb McDaniels: Well, one of the biggest challenges that I’ve had, throughout my career is hiring the right people, I’ve definitely hired some of the wrong people in the past. So, you know, by far, I’m far from perfect in that, in that respect, I think that, again, the reality is that you can’t act in isolation, operate in isolation, you have to rely on other people. But good people are drawn to good visions for where we’re going, and they want to work with people that respect their contribution to the team, that it’s not, you know, a monolithic enterprise where, you know, it’s my way or the high way. And I approach things with very much like, almost like the sports mentality where we’re a team, and I’m gonna play my roles. If I’m the point guard, or the rebounder, or the head coach, or whatever I need to be, that’s my role. But I can’t be everything, and neither can you, and we all have our talents, and so bringing that all together, and unifying those different personalities, embracing them, but unifying them around a single vision that incorporates elements of everybody’s background, and approach and philosophy and so forth, that’s what I’ve always been able to do. And I don’t know why that is, what I’m good at, you know, like, I can sit in a room with a CFO and talk to them about their financial model and ask reasonably intelligent questions, just like I can with a CMO and their marketing plan or a CPO and their product plan or CEO and their HR issues, or you know, supply chain issues or CTO and, well, I can’t talk about their code, but I can talk about, you know, just how they’re approaching, you know, certain problems, but just, that’s what I’ve been able to do. And maybe it’s my liberal arts education at a place like Trinity. You know, having spent six years in finance, learning a lot of different industries and personalities. But that’s what I bring to the table.

Justin Fortier: Yeah. Developing a vision is something, looking through your background, this most recent project you’re on at Beatport, to me looked very different than something like Ingrooves, where you were the Founder, the original idea, but at Beatport, it was started many years before with kind of two cycles of management before you coming in, how did you number one, get excited about the opportunity? And two, begin to build a vision for where Beatport was going to go, when you joined on with, you know, integrating with the team and finding out where to go?

Robb McDaniels: Well, Beatport is fairly unique for me and that I was actually there when it was started. So ingrooves was a big supplier of content to Beatport when it launched, because Ingrooves started in the dance and electronic genre, signing up artists and labels to distribute them digitally. And so, Beatport obviously focusing on dance electronic music for DJs, we supply them a lot of content. So I’ve known the brand, the company, the executives throughout its life and to me it was intriguing because I kind of started my music career there. I lived and breathed DJ culture for a while. When I was younger I knew the brand was, you know, a strong brand with a lot of customer loyalty. But it just taken some strategic missteps in the past, you know, five or six years before I joined. And so, it just felt like a very logical, natural fit. And the original Founder of Beatport is back, I brought him back to help me. His name is Jonas Temple, and he’s back involved with Beatport because, you know, he led the DJ industry through the last transition from CDs to digital. And so, now as we transition from digital to streaming for DJs, it’s helpful to have his perspective.

Justin Fortier: Yeah, is getting the direction, you talked about bringing the original Founder back in. But did you come in with a sort of vision where you had talked with the lifestyles, the parent, is that something that was discussed beforehand? Or is it you kind of arrived with and then the team here helped you…

Robb McDaniels: With an open mind believing that I could figure it out, simply by listening to, I knew enough about the brand to know generally what needs to happen. But I also knew that I could sit there and listen to people that knew a lot more than I did, about where the company in most recently, what the opportunity was, and how best to… then build a vision around that, because at the end of the day, you need people, and you need capital to accomplish a vision. Right. And so we had to get the right way, to keep the right people here, we had to hire the right people in to develop and execute the vision that the investors would believe in so that they would provide us the capital, we needed to go and execute it. And that’s what we’re doing now.

Justin Fortier: I noticed with both companies Beatport and Ingrooves, there’s this grouping together or kind of a growing in a consolidation piece within groups, aquiring something from universal then universal, like acquiring it back. And then kind of the restructuring that happened with lifestyle. Do you see these same trends of like growing and shrinking of companies? And why do you think, or how does size factor into, you know, being able to accomplish a vision? Like, you talked about Beatport shrinking down and focusing on DJs, how important to that, or how do you see company’s growing? And when is it time to take a next step to branch into something different? Or to become part of something bigger?

“Now we’re investing in new products and services. We’re in growth mode.” – Robb McDaniels

Robb McDaniels: I think the customer dictates that a lot. I mean, I think that the two different stories between Ingrooves and Beatport as it relates to that. I mean, Ingrooves initially signed Universal as customer. Universal wanted to use Ingrooves as its digital supply chain, because we were better at developing scalable cost effective software than… then what a major label could do at that time. They’ve obviously progressed since then. But so, you know, they made a strategic investment, and we became a service partner of theirs. There came a point at which they wanted to, the other investors in Ingrooves wanted to sell the company. Universal at that point owned about maybe 20% to 25%, so they bought the other 70% to 75%, that they didn’t know, they were a natural buyer and that situation. And I think that was somewhat always the expectation. With Beatport, you know, that was a it was a bit more of a tumultuous story with Beatport. You know, they’ve gone through the typical sort of fundraising process and fast growth company from 2004 till about 2000. And gosh, what was that, and that’s because, you know, the private equity firm had been in for five years and they were ready to exit the business, and you know, I said fax was there rolling up a bunch of companies and, you know, that’s a fascinating story of itself, you know Robert C. and third time doing a roll up in the music industry, the first time he created Clear Channel, now second time he created Live Nation basically right, rolled up radio stations and then promoters. Third time was not a charm for him, you know, Beatport got wrapped up into that, made some bad strategic decisions dictated by the parent company and everything went belly up. And, you know, things continue to operate in bankruptcy, but lifestyle was what emerged in and from the bankruptcy and, you know, Beatport was able to go back and refocus on its on its business and that it needed to do that, right? I mean, anytime, I mean, you’ve got this situation where you get influx of capital to grow your business to try new revenue streams and new products and so forth. Awfully they work, right, and then you shrink down a little bit to harvest that investment, right? Before you expend capital to hire engineers and product development and so forth, people. But if you, if you get it all wrong, right, and you’re like, shit, this is not gonna produce what we thought it was gonna produce, and it’s costing us more to keep it going to maintain it than it is to shut it down, you know, then then you go through the more massive contraction process, which is what happened to Beatport before I joined. So now we’re in the phase where we’re investing in new products and services. And, you know, we’re in growth mode. You know, and investors are interested in that, because if you’re a growth company, high growth company, you’re going to trade multiple revenue. If you’re a lower growth company…

Justin Fortier: So with the SFX roll up, you talked about it being dictated not by the customer. So what you do in, I guess, all your work experience where you’ve, how do you stay connected to a customer, especially company like Beatport that has so many customers? And how do you know which customers to listen to? And as I’m sure you’re being told, by a lot of different ways, with working with artists and DJs, and they all have kind of different ways they want to see your platform go.

“For Beatport, you know, it really simplified the DJ workflow, from having to carry CDs to now being able to load it all onto a USB stick.” – Robb McDaniels

“You definitely can’t make everybody happy, especially in the creative industries. Everybody wants their music in a certain way.” – Robb McDaniels

“Knowing your customer is an important part of the business.” – Robb McDaniels

Robb McDaniels: But you definitely can’t make everybody happy. That’s for sure. But yeah, I mean, look, at the end of the day, the customer is dictating, you know, what you should be doing, in many respects, you can predict what their behavior is or what the customer wants, right? So for Beatport, you know, it really simplified the DJ workflow, from having to carry CDs, to now being able to load it all onto a USB stick. And now we’re introducing a new way to improve their workflow by giving them access to you know, all of our songs, fully integrated with DJ performance software and hardware, you know, bringing streaming to the DJ booth. So, at the end of the day, you want to try to create that value for the customer. And you may have different customers that perceived value differently. You can’t chase your tail too much. Especially in the creative industries, everybody wants their music in a certain way, shape, or form or, you know, they think a certain song is techno, not tech house or progressive house, not, you know, whatever, tech house. So, you know, these debates go on all the time, and we shut some of that out. And, you know, but we also spend a lot of time getting to know our customers, pulling them, we do a lot of surveys on the site, we understand not just how our customers interact with our product, but how they interact with other products, so we can build sort of these personality profiles, so we understand their behavior, their purchase behavior. You know, and that’s just, I think that’s just, you know, knowing your customer is an important part of the business.

Justin Fortier: Yeah, awesome. I think I’ll ask just a few more questions here. I’m really interested by the company who started a few years ago. A faction around management. And for the listeners, I saw described as technology-enabled managemen, services company that provides a variety of centralized services, and technology tools to talent management. And I’m going to kind of vocal, it seemed like you were trying to create a tech-enabled franchise almost for these managers to be able to pull together and quickly set up a business and do a lot of the complicated and mundane things. Why do you think that wasn’t as scalable as maybe you hoped?

Robb McDaniels: I think there’s a lot of reasons why that didn’t prove out the way that I had expected it to. And I still battle with that every day, because I think there’s an opportunity to modernize the world of talent management effectively. And, you know, you’ve got a situation here where, you know, almost every, let’s just focus on musician. Certainly, every career musician, 95% of them have a manager. And so what does that mean? What does that manager mean? What do they do, they’re effectively the CEO of that entity of that brand. And yet, they’ve got no CEO training. And they don’t necessarily, they’re just the guy who was the friend or found the artist or offered to give some, make some connections. And, you know, obviously, there’s some established managers where, you know, they’ve proven themselves and, but they also operate very independently of each other. There’s not a lot of collaboration between managers, even in organizations that are larger management organizations, it’s really just, you know, 10 or 20, independent managers that don’t have a lot of interaction between each other, right? So to me of the results of this, this whole, you know, they didn’t necessarily embrace technology and open communication. And, you know, again, this was back then, like Slack would have been very foreign to them, Asana. So really, what we were trying to do was to take what became Slack and Asana, but take pieces of that and customize it for the world of management. So that managers could become more effective CEOs and communicators, and project managers, and therefore their clients would benefit by not having a single point of failure. But the, I guess, the analogy that I used, in the couple of years, since we wound that down, was, you know, if you tried to get taxi drivers, like yellow cab taxi drivers to be the first adopters of Uber, it would have failed, right? And what we did was we tried to get existing managers to become the early adopters of the faction, app and processes. And instead of just being like, hey, let’s be patient and wait for all the new managers. Or hey, artists, you don’t want your old manager, your existing manager, you want a new manager, that’s a different kind of setup, you’re plugging into a different solution. I think I was impatient. And so, you know, we were the fastest growing management company in the first year ever, like, signed up 30 managers, 20 or 30 managers. But that was just like a get big quick thing like they weren’t buying into the methodology.

Justin Fortier: It’s really helpful to be able to understand I guess one final question here. Is there any book or resource that you find yourself frequently going back to or anything that’s, I guess, really helped influence your thinking? You talked a lot about paying attention and being able to listen, is there anything that you’d recommend to read or look at? It doesn’t have to be a book.

Robb McDaniels: Yeah, I don’t read as much as I should. That’s like, been a new year’s resolution for the last 10 years. Resource, no, man, you know what? I wish I had like a really profound, intelligent answer for that and I don’t. For me, my life experience and my professional experience, that’s what I draw upon. And I don’t want this to sound obnoxious, but like, a lot of times when I read these books about, you know, boardroom battles or starting a company or, you know, going after the big guys or doing, you know, being backstage or whatever, it’s like, no, I’ve done that. Like, I’ve been there, I’ve lived it. So I don’t really need to read a book to have someone tell me about it. So I just refused to write a book about it at all. But yeah, I just kind of draw my own personal experience. And, again, I just learned about the benefit and luck of learning from a lot of people. And so, yeah, I’m just lucky.

Justin Fortier: Awesome. Thank you. Yeah, that’s great.

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