As Originally Published in Inc. Magazine
The early days of audio CDs were pioneered in the U.S. by this company that is spread out across the country.
From: Inc., Jun 1995 | By: Hal Plotkin
Scattered over 6,000 miles, Rykodisc may be the best-connected company in the world. Imagine how in tune it’ll be when it gets the hang of E-mail
Don Rose swiveled in his seat and reached across the rickety table to grab a cocktail napkin. “Okay, Arthur,” he said, Bic pen poised, “what would it take for us to produce our own CDs?” Arthur Mann, an arts-and-entertainment lawyer just in from Philadelphia for the recording industry’s MIDEM trade show, had agreed to join Rose, then head of EAT Records, and his fellow audiophiles, Rob Simonds and Doug Lexa, for lunch at a little sidewalk cafÃ‰ in Cannes, France, to kick around some ideas about importing CDs. The year was 1983, and the slick five-inch discs were being produced solely in Japan and Germany. But now the conversation had taken a radical turn: from how to bring CDs home to how to make them Stateside and send them afield.
Furiously scribbling, Rose sketched a rough mandate — from division of labor to Frank Zappa as client — for Rykodisc Inc., the CD-production company dreamed up by the foursome on that winter day. The only problems were that the would-be founders lived in four different cities, all had full-time jobs, and all were unwilling to move. “We decided, What the hell?” recalls Simonds. “We were into the music, and we just wanted to be around it.”
The result was that from its birth Rykodisc was a scattered company, split functionally into four geographically distant and separately managed pieces. Conventional management wisdom would have dictated that the company was doomed to disintegrate into squabbling, incoherent, and largely redundant fiefdoms. Instead, Rykodisc grew up to humble many of its far-larger competitors in the cutthroat recording industry. It is now the largest independent record label in the country, with sales of more than $60 million for 1994. The key to its success, its founders say, has been information sharing — specifically, its obsession with keeping every type of information constantly flowing among all its employees, no matter where they are situated geographically, functionally, or hierarchically.
What didn’t matter was that, despite their technological boldness in embracing the newly developed compact disc, the founders harbored and even nurtured an aversion to information technology. While far less information-intensive companies all around them were flocking to networks and E-mail, Rykodisc was building its communication habits around phone calls, faxes, and airline schedules. Even voice mail was terra incognita.
Only recently have Rose and his fellow executives begun to gingerly experiment with voice mail, E-mail, and networking — and even with stepping out onto the World Wide Web. The challenge for them is not to bring in the best and the brightest in technology but rather to move slowly enough to avoid eroding the sense of community they’ve fostered among widely scattered employees. As they proceed, they are proving a point that often gets lost in the rush to automate: being a well-wired company usually has more to do with work processes and culture than it does with computers and networks.
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The road to Rykodisc was paved less with intention than with sharp instincts and good timing. Rose, now 40, came to the company by way of Boogie Records, a three-outlet record-store chain he’d owned in Toledo, and Boston-based EAT Records, his first independent label. Simonds, 38, had worked for Rose at Boogie Records before moving to Ann Arbor, Mich., where he set up East Side, a distribution company feeding record stores and chains Japanese vinyl direct from domestic Japanese music suppliers. His work had led him to Doug Lexa, 45, who worked for the U.S. subsidiary of the Japanese trading company that processed some of his orders.
The opportunity to mine the CD came thundering out of the blue. Simonds had purchased a Sony CDP-101, the first commercial-model CD player. It was big, heavy, and expensive — $1,200 retail. And there were no CDs to play on it, except for the sample CD Sony had produced to show how the machine worked. Simonds brought the machine to Rose’s house, then in Boston.
Rose likens their reaction to that of the apes gathered around the monolith in 2001. “We were knocked out by what we heard, or really, by what we didn’t hear,” he recalls, referring to the absence of hisses or pops. Rose encouraged Simonds to join him at the upcoming MIDEM show to scout out opportunities to import CDs. “I knew that if the CD format were to succeed it would succeed first with the audiophiles,” Simonds says. “And they were the same people who were buying Japanese vinyl from East Side. I already had the market. All I needed were the products.”
Lexa was at the show, too. And so was Arthur Mann, whom the threesome took out to lunch. As Rose jotted down notes on a cocktail napkin, the conversation reached a staccato pitch. With so little CD product in the marketplace, the group wondered, what would it take to produce their own CDs? Lexa had contacts with the Japanese CD makers; if he had the rights and the masters, he could get the CDs made. But could you license digital-only production rights? “I told them if we could convince the artists and the labels I could get it done,” says Mann, 44.
And so Rykodisc was born, with each partner’s role drawn up on the napkin: Rose would handle artist relations, publicity, and packaging from Salem, Mass.; Lexa, manufacturing from Los Angeles; Simonds, distribution from Minneapolis; and Mann, deal making and legal matters from Philadelphia. Simonds and Lexa drew the company name from the Japanese word ryko, which means “sound from a flash of light.” The choice helped the fledgling enterprise capitalize on the quality reputation Japanese technology companies enjoyed.
The partners refined their strategy of going after the audiophile by zeroing in on artists who already commanded audiophile respect. “Frank Zappa was on the napkin,” notes Rose about the first big-name star to do business with Rykodisc. After peppering Zappa with letters and phone calls for nearly two years, Rose finally landed an audience, in Zappa’s home. The deal they struck, moved along after Rykodisc bought Zappa his first fax machine, left Rose looking for the $400,000 letter of credit he needed to get the first batch of CDs made. He finally found a Zappa fan at Norwest Bank, in Minneapolis.
“I asked him, ‘Do you know anything about Frank Zappa?’ ” Rose chuckles, recalling his first meeting with Norwest’s loan officer, Jim Biederman. “And he answered right back, ‘Don’t eat the yellow snow,’ so I figured we might be able to do business together.” They could and did. Three years later Biederman himself won a job as Rykodisc’s controller.
The company has been profitable every year since Rose got that letter, thanks to its ability to breathe new life into old material. Greatest-hits compilations are mined and refined into prized keepsakes, original art is restored, and the CD tracks are usually augmented with previously unreleased material. It’s a practice Rykodisc pioneered that is now widely imitated.
While archive material generates most of its sales, Rykodisc continues to dig for gold in its own mines, hoping one day to break a new group into the mainstream and match the success it had with David Bowie’s Changes, the only Rykodisc CD to reach the 1-million-copy platinum category. Two Rykodisc acts, Sugar and Morphine, have already sold 350,000 and 250,000 CDs, respectively. Meanwhile, the company continues to focus on a wide range of musical niche markets: Australian didgeridoo music; world-beat sounds; a series of “atmospheric recordings,” including sounds of the Brazilian rain forest, a babbling brook, and a waterfall. “I keep telling people we’re a niche player. It’s just that we’re in 500 different niches,” Rose explains.
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When Zappa’s name put the company on the map, in the mid-1980s, the partners began addressing the issue that would determine life or death for their nascent operation: could they pull it all together from four points on the map? The partners credit Simonds with stumbling on the answer to Rykodisc’s communications needs: written weekly reports.
The weekly reports, usually a page or two in length, soon came to serve as progress benchmarks for the partners. Each partner saw each report. Now all Rykodisc employees, from the mail-room clerk to the chief financial officer, write and circulate short weekly memos. They include news about everything from how much fax paper Rose went through while negotiating a complex deal to the cost savings associated with a new employee-health-care plan. The reports are collected every Monday, collated in each office, and then faxed to the other offices, where they are circulated to each employee. Despite the heavy reliance on faxes, each Rykodisc office gets by with just two fax machines, one incoming and one outgoing.
As Rose sees it, any time lost in writing and reading the reports is overridden by the benefits: an open environment that allows transfer of, among other things, crucial market information. For example, Rose says he can gauge consumer reaction to a new title he is negotiating to buy by how many employees stop him in the hall reacting to his tell-all memo. “It’s pretty easy to see if people are excited by something that is happening here,” he notes.
Armed with information such as which artists might soon sign with the label, employees consistently outproduce larger competitors. It takes only four full-time people, for instance, to produce all the Rykodisc CD packaging. Knowing what may be coming up allows the tiny graphics team to begin contemplating approaches before the task formally lands on their desk.
Rykodisc is also a telephone company’s dream: there are weekly conference calls among the partners and among the department heads. Each Rykodisc office has a conspicuous glass-walled conference room; in Minneapolis and Salem, a VoicePoint audioconferencing console adorns the conference table. In other locations, ordinary speakerphones abound. At Rykodisc offices somebody is virtually always in conversation with someone else in some other place. “We do spend a lot of time talking to each other,” says Londoner Joe Boyd, who became a partner when he sold his own indie label, Hannibal Records, to Rykodisc in 1991, a year after Lexa, whose manufacturing role in the company had become less crucial, was bought out.
Of course, all that communication is expensive. But some smart buying decisions are helping not only to keep costs under control but actually to reduce them. Four years ago, at the suggestion of a telecommunications consultant, Rykodisc began putting its long-distance service out to bid. By lowering its per-minute costs from 16 cents to 13 cents, the company saved more than $10,000 last year. “When you use phones the way we do, it adds up fast,” says Salem office manager Beth Gobille, who helped negotiate the deal.
The company also spends heavily on travel — between $25,000 and $30,000 every month. The travel is required, in part, because of quarterly partners’ and managers’ meetings, rotated from site to site, with Rose faxing around a carefully crafted agenda for comment before each session. The quarterly meetings, the partners agree, create a progress impetus that would not exist if they saw one another every day. When, for example, a deal to purchase the entire 53-album Frank Zappa music catalog was nearing fruition, the upcoming managers’ meetings created an informal deadline for progress on collateral issues, like art needs and marketing programs. The rotation of the meetings is also important, the partners say, so that no one gets to thinking he is at the center of the Rykodisc universe.
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Since 1993 that universe has been expanding at an alarming rate. Still, the partners have been reluctant to abandon the communications practices that have worked so well for them, fearing a communications impasse while new technology is being mastered. “We did pretty well with fax machines,” Rose explains. “And we didn’t want to blow it.”
So it wasn’t until last fall, after employees had been hounding Rose for months, that Rykodisc installed its first E-mail system — the newest version of Lotus cc:Mail. Cheryl McEnaney, director of strategic marketing, says it couldn’t have come too soon. Intent on selling Rykodisc music where music had never been sold before, McEnaney had placed the label in places like feminist bookstores and the 140-chain Nature Co. to complement Rykodisc’s reputation as a company with a social conscience. Her efforts, she says, were being thwarted, largely because the company’s current and potential customers are heavy users of on-line communications. “We’ve finally thrown away our stone tablets,” she says.
Push came to shove for the Rykodisc telephone-answering process soon after. When the company acquired its own distribution firm, the Minneapolis-based REPCorp., in 1993, the message load became too great for a receptionist and a while-you-were-out pad to handle. As a stopgap measure the partners set up a couple of individual answering machines. But when the number grew to three, they realized that voice mail would be much more cost-effective and installed two inexpensive (less than $10,000) PC-based voice-mail systems, Voice Systems Research’s VSR-200 and Compass Technology’s Smooth Operator.
Yet even as they integrate more advanced technology into their far-flung operations, the partners are working hard to preserve the informal information-sharing management system that, quite unintentionally, now serves as a Cliffs Note to making it in the global village. “Technology itself is a cool medium,” says Rose. “The way we use it, we make it a warm process.”
Take, for example, how Rose handles E-mail. With just a few months’ experience under his belt, he has already established a very Rykodisc approach to cyberspace, personally answering all his internal E-mail while sending all outside messages to his assistant, who treats them like any other piece of snail mail. He tries to log on at least 30 minutes each day, placing his highest priority on being accessible to insiders. There are employees, he says, with whom he’d had little daily interaction who have since become regular E-mail correspondents. “Some people are just more comfortable leaving me an E-mail message than walking into my office,” he reports.
Rob Simonds is less sanguine. “I do pretty well with this,” he says, picking up the telephone on his magazine-covered desk at REP. “There is a certain anonymity with E-mail, and there seems to be less personal responsibility for what you write than for what you say.” Unlike the company’s weekly reports, he points out, which focus on what the report writer has done, E-mail messages often convey instructions to the recipient, whose immediate reactions can’t be gauged. For Simonds, voice mail, too, is impersonal — and cuts down on the exchange of information, to boot. So he bridges the high-tech-low-tech distance by crafting the most personable outgoing message he can: “Hi, this is Voice Rob. If it will make you feel better, go ahead and leave me a message. But if you really want to get your question answered right away, call my assistant, Jocelyn, at . . .”
“These are shortcomings of the technology,” Simonds says. “And I am not really interested in the technology for its own sake. I’m just interested in making sure we communicate.”
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With their concentration on the message rather than on the nature of the messenger, the partners wisely chose an insider to serve as their first MIS director — someone who already knew which streams of information were most vital to the business. As retail-sales coordinator, Randy Hope had won the partners’ respect by providing them with accurate, up-to-date sales reports and forecasts. It didn’t hurt matters that in that position he had made a practice of stopping by record stores wherever he was and personally counting the available Rykodisc CD inventory. “He already showed us he would do what it takes to get the information we need,” notes Simonds. “And we’re pretty sure he can figure out the rest of that stuff — you know, the technical end.”
Hope was responsible for selecting the E-mail product, a decision made with the help of a small-business networking consultant in Minneapolis. The negotiations with long-distance carriers and voice-mail vendors are still being handled by the company’s local office managers — which is why the Salem and Minneapolis offices ended up with different systems. “I’m keeping an eye out for products that will let us integrate voice mail and E-mail in the same platform,” Hope says.
The company also turned to its own workers rather than to outside talent when it came to other types of technology. “They just brought the computer in and said, ‘Here it is; now learn how to use it,’ ” recalls ponytailed Steve Jurgensmeyer, Rykodisc’s design guru, about the company’s cutting-edge graphics equipment. Housed in one large room, the tiny art department produces all the CD art, packaging, and auxiliary materials for the approximately 500-title Rykodisc catalog. Working on high-end Macintosh Quadra computers augmented with Microtek and Hewlett-Packard scanners, one PowerPC, and a full line of Adobe software tools, the team can turn an idea into a CD on store shelves in a little more than a month.
Another highly motivated employee, Lars Murray, is now responsible for maintaining the Rykodisc Web home page, which debuted in late 1994. The page (http://www.shore.net/~rykodisc) opens with a point-and-click version of the Rykodisc catalog and gives visitors the opportunity to download art samples; eventually, they will be able to download music samples as well. The Rykodisc leadership team regards the Web experience as a valuable testing ground for the day when music will be distributed on-line. “The bandwidth isn’t there yet,” says Rose. “But when it’s ready, we will be, too.”
Rose is not about to make the same mistake of ignoring new media that helped create the opening for Rykodisc. “We’re not in the CD business,” he stresses. “We’re in the business of delivering music to the consumer.” That medium-is- not -the-message philosophy has enabled Rykodisc to best its competitors, not only with the product it offers, but also in the way it keeps itself connected. And as Rose would be the first to point out: if it ain’t broke, don’t fix it.
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Hal Plotkin (email@example.com) is based in Palo Alto, Calif.