Making a profit by adding real value..

If we learn anything from the Wall St. crisis it should be this:

Sustainable businesses make a profit by creating and adding value to the world.

Windfall “paper” transactions are unsustainable and eventually lead to financial disaster, and/or the degeneration of industry.

Take a look at this heated debate between 37signals principal, David Heinemeier Hansson and Mahalo founder Jason Calaconis. The good stuff starts 47 minutes into the clip. Calaconis represents the classic tech approach to business: raise capital, build your model, and sell for a huge windfall...if you don’t go under first. Hansson tears his argument apart and advocates building sustainable businesses that generate real profits. He describes profit as: “A measure of success of the impact you are having on the world…”

Jason Calaconis vs.  David Heinemeier Hansson on This Week in Startups

What does this have to do with music?

Well… In the early days of the record industry the business was much smaller and broken into niches that served specific audiences. Music was served up in neighborhood clubs and record stores. Impresarios and label owners were hardcore fans who understood music and their audience. Sure, they wanted to make money, but they did it by making great records.

In the sixties people got greedy and very quickly the business became about selling as many records as possible to the lowest common denominator. The huge sales generated by international hits underwrote the enormous losses created by bad business practices, greed, and stupidity. Large labels were more concerned with grooming an “overnight” show-biz sensation, than discovering and developing the next Ray Charles, Bob Dylan, John Coltrane, Joni Mitchell or Emmylou Harris. It’s always been a tough racket, but the business people with a true passion for music, who have made this their work, keep pushing to stay afloat and find the balance between profit and value.

Many professional musicians have felt disenfranchised from the “music business” for years. It has about as much to do with their day-to-day work as the dry-cleaning industry. If this is any kind of benchmark, we’re not in good shape.

The business is collapsing because the big money train crashed...with considerable help from illegal file-sharing and the general disruption of the Internet. The good news is, people love music as much as ever and there is great stuff being created every day. There are many label folks like Glen Barros, Bob Hurwitz, Manfred Eicher, and John Virant who know how to add value and turn a profit in this industry. I would love to hear what they have to say.

...and definitely check out Rework, a great little book describing the business philosophy that has made 37signals so successful.