Jay Z: Growth

Picture a start-up company that is stable with an increasing market and the ability to use its own resources to function rather than seeking out investor support.  This stage, which many entrepreneurs attempt to achieve, and more often than not fail at, is the growth period.  Personally, I would stress this stage most emphatically within the business’ development because the end result can either be rich with financial success and recognition, or, contently chugging along with little progress.  I would argue that factors such as innovation, foresight, and perseverance are just as important during this phase as it is during the start-up period.  How else do you take your company from ‘mom-and-pop’ to global icon?  You have to push the envelope.  Jay Z did just this, as he was quickly becoming one of the most popular hip-hop artists in America during the early 2000s.  His vehicle?  Roc A Fella Records.

As in any business, there are seminal moments in which opportunities are taken to exploit an existing model or to fill a void.  Starbucks capitalized on the coffee boom before it surged across America and Apple created the iPod.  Innovation is what propels companies and business leaders into visionary statuses.  The creation of Roc-A-Fella Records was just the type of establishment to shift the music industry.  According to Shawn Carter, “A key part of business is recognizing change,” (Jay Z and Warren Buffet, Forbes Magazine Interview).  Dash and Carter’s principles were simple, do not let other people make money off of Roc-A-Fella music and compensation should be made for the endorsements their rappers plugged into their lyrics (“Always win, and other lessons from the life of rapper Jay Z”, Potter).  These were ideas that were unheard of in the music industry, yet completely ingenious.  It is not uncommon to hear artists name-plug their favorite clothing brands, cars and watches into verses, as Migos raps “Versace, Versace, Medusa head on me like I’m ‘luminati,” in his song “Versace.”  Luxurious brands that were synonymous with the rap lifestyle were given free product placement in songs, which increased the company’s sales, while the artists did not benefit at all.  With the principles of Roc-A-Fella records, Jay Z has garnered endorsement deals with the New York Yankees, Adidas, and watchmaker Hublot (“Jay Z’s 10 Best Endorsement Deals,” Melia Robinson).  This practice is no different from what major athletes like Lebron James and Derek Jeter do, for it increases revenue in areas outside the realm of their profession.  Jay Z and Dash had the foresight to understand the partnership music and retail could have and implement this model into their own business ventures, elevating the brand of Jay Z to a global icon.

In financial terms, increased security and longevity can be acquired through investments and diversified portfolios.  For an independent label, like Roc-A-Fella Records, it was not a priority to develop the lesser-known artists on a label.  The emphasis was more on marketing the headliner, which in this case was Jay Z.  Unlike smaller labels though, Jay Z and Dash’s company made a distinct decision to find and develop new artists from the New York and Philadelphia areas to expand their audience and increase their revenue (Greenburg 68).  Much like investment, the label secured its future by spending the time and money on artists whom had the potential to be widely popular, which in turn increased the chances of Roc-A-Fella records growing into a bigger, more powerful record label company.

Roc-A-Fella diversified its assets by exploring other areas of commerce that could be fruitful.  The label was merely a platform to catapult the business minds of Carter and Dash into uncharted territory for hip-hop artists.  “We gonna build a tree and let the limbs grow all kinds of different places,” says Jay Z in an interview with Business Wire.  Rocawear, a clothing brand established by Jay Z and Damon Dash in 1999, was possible because of Roc-A-Fella Records.  “Dash encouraged Jay Z to cross-promote their products whenever he had a chance,” Greenburg notes in his book (71), “why give free advertising to someone else when he could boost his own sales with a Rocawear shout-out?”  Rocawear’s success was immediate, selling over $80 million in clothing over its first two years (‘Jigga Man’ Jay Z Gets Down to Business, Business Wire).  Dash and Jay Z understood their audience and marketability enough that they were able to branch out and add a new asset to the ever growing Jay Z brand.  Jay Z’s name is everything to his empire, if he can correctly place it in as many avenues as possible he increases his chances of becoming more popular and increasing his wealth, much like what people do when investing money for the future.

Now that we have books like, Zack O’Malley Greenburg’s and Jay Z’s Decoded, fans and the public alike can comprehend how smart Shawn Carter truly is.  Back at the turn of the century, we didn’t have access to such information unless we heard about some of the mogul’s ventures through interviews and news reports.  Yes, Jay Z is an entertainer, but his brand, his tree with thousands of different limbs, is all encompassing; if there is some facet of consumption that is closely related with the music industry, Jay Z will find it, water it, and watch it grow.  Respect the man’s talents; he sees the potential in things that you and I may not see, he’s Hova.

Maxwell

Advertisements

Jay Z: Start-Up

Welcome back to another installment of Young Economics.  First, I would like to apologize to my readers for not completing my ‘Jay Z Week’ as scheduled.  I actually had a significant amount of schoolwork that had to be done leading up to the Jay Z concert, so I was a little side tracked.  However, it’s never too late to talk about one of hip-hop’s most prolific rappers, plus with the Grammy Awards coming up this Sunday, what better time than to finish the discussion this week.

As I mentioned in my initial post to kick this week off, businesses generally undergo four phases of life during their development.  Today, I would like to discuss the start-up stage, as it pertains to Shawn “Jay Z” Carter.

Businesses don’t just spring up out of thin air (not the good one’s at least), no, every firm has an infancy period where a tremendous amount of effort, time, energy, and practice is needed to jump-start the growth and development of an entrepreneur’s ‘once in a holy shit idea’.  Most people who are familiar with Jay Z know about his story.  We know that he was a highly successful drug dealer out of the Marcy projects in Brooklyn, New York, and we understand how dangerous and how life threatening that life style was to young African Americans during the late 1980s and early 1990s.  For those of you who haven’t heard Jay Z’s story, I strongly encourage you to check out his first albums, and some of his most successful, Reasonable Doubt and In My Lifetime Vol. 1.  I look at this time in Jay Z’s life a little bit differently, though.  I believe the days spent dealing drugs to the addicts and casual users and the days evading rival dealers were integral parts to the development of Jay Z’s business acumen, which made him somewhat of an anomaly in the music industry.

Jay Z and drug dealing partner, DeHaven, understood that to make more money they would have to expand into undeveloped markets in Maryland and Virginia because the clientele and competition was less sophisticated (Greenburg, 37).  Not only does this demonstrates the foresight Jay Z would need in the music industry, but perhaps these characteristics led to certain ventures, like Rocawear Clothing, a topic to be discussed later.  This could also be considered a period during the “ten thousand hours” phase of development.  Day in and day out, Jay Z was on the streets thinking of ways to increase his revenue stream and stay on top of the game.  In a way, this is practice for a bigger, much more lucrative music industry in which Jay Z exemplifies shrewdness and a clear innovative vision.

Further application of Jay Z’s street smarts can be seen as he was just starting to get involved with the hip-hop genre.  Artists like, The Sugar Hill Gang, Run DMC, and Big Daddy Kane were not as savvy as Jay Z with their lyrics and delivery, so the public was not familiar with Jay Z’s style.  This problem is similar to how Jay Z would have to stay out of trouble with rival or enemy dealers while still trying to make a profit.  Jay Z kept a low profile, says his old business partner, DeHaven.  “He was doing the little things, like, you know, a little Lexus here… when all these guys in the street were buying Benzes and BMW’s.  To be smart enough to play yourself down just to keep the paper means you’re doing business properly,” (Greenburg, 40).  Jay Z gained critical acclaim by applying this same principle to his lyrics, “I dumbed down for my audience, doubled my dollars,” (“Moment of Clarity,” Jay Z).  By being experienced in drug dealing code and knowing when to be subtle about his accumulation of wealth, rather than ostentatiously boasting it, Jay Z was able to maximize his profits and become a better-known artist.  Had he not done so or understood this concept, a quick splash in the industry only to never be heard of again may have been in his future.  Moreover, by allowing his audience the opportunity to comprehend his message first, he could then begin to grow and develop as an entertainer trying different rhymes and flows in his later albums.  For any company or entrepreneur, growth is necessary, but not until a substantial recognition and income has been achieved.  This is why many critics and rap aficionados like, Marc Lynch, consider The Black Album and The Blueprint as some of Jay Z’s best work, for he established a relationship with his listeners, which could progress into greater, more complex creations (Lynch, “Jay Z vs. The Game: Lessons for the American Primacy Debate”).

A benefit of Jay Z’s increased popularity was his leverage inside of the boardrooms of record label companies.  Normally, when up and coming artists seek out record labels for album distribution and development, they are given low level deals.  In some situations they receive twenty-five percent of the profit while the record label retains the rest.  At times, they also do not have the ability to re-release their work barring any separation from the company, as their masters are property of the label.  Jay Z was different.  With a lack of support from any record label companies after the debut of his first album, Reasonable Doubt, Jay Z and business partner, Damon Dash, co-founded Roc-A-Fella records.  With the hopes of selling the manufacturing and sales rights of Jay Z’s upcoming second album to a bigger record company, Jay Z and Dash sought out Freeze Records and Priority Records.  Jay Z, a relatively new artist with an infant label was low-balled by the two companies, but ultimately was able to retain his masters and acquire a fifty percent split of the profits coming off of his highly anticipated 1997 album, In My Lifetime Vol. I (Greenburg, 58).  DJ Clark Kent credits this unheard of deal to Jay Z’s experiences in the streets.  He says, “If you did it in the streets, and you made good money in the streets, when you walk into a boardroom you look at everybody in the boardroom like they’re suckers,” (Greenburg, 59).  On a daily basis Jay Z had to confront people in the streets that wanted him dead, for he was a threat to their own business and livelihood.  He conquered the streets and flourished, which is why he persisted and remained steadfast in his entitlement to increased earnings when powerful executive, Will Socolov, tried to exploit Jay Z’s worth.  Jay Z gained the confidence to stand up for his own music and intellectual property because of those life threatening days spent hustling on the streets of Brooklyn.

I think people often look at Jay Z’s stint as a drug dealer as a point in his life where he was lost trying to find his way in the world.  There is no doubt that he was sucked into this lifestyle due to his unfortunate upbringing, and it’s quite a story considering how differently it may have turned out.  However, from a business aspect, these years dealing crack cocaine were anything but unfortunate.  They proved to be beneficial in the development of Jay Z’s entrepreneurial mind and ability.

*I would like to recommend the book Empire State of Mind: How Jay Z Went From Street Corner to Corner Office by Zack O’Malley Greenburg where much of my research for this post came from.

Maxwell

Jay Z Week

I wouldn’t say that rapper and entrepreneur Shawn, “Jay Z,” Carter and I are similar.  I have never dealt drugs, I did not grow up in an outdated, public housing project and I have had a very stable home and family.  However, I look up to him.  It was not Jay Z’s music that originally sparked my interest, but rather something about his personality, some aura of coolness that radiates from his being, which I find to be so compelling.  I remember watching him walk into Barack Obama’s Presidential Inauguration with his beautiful wife on his arm and such swagger, like it was his own event, like he knew he played a vital role in the election of our President.  Jay Z is different from other rappers.  I was watching a documentary on the preparation for his opening concerts for Brooklyn’s new Barclay’s Center.  For one of his concerts he decided to take the subway instead of the usual entourage and convoy of vehicles.  He allowed people to take his picture, he dapped people up, and more specifically, he sat next to an elderly woman, who clearly had no idea who he was, just to chat.  Jay Z doesn’t change his persona, unlike Clark Kent in the famous Superman comic books; he is who he is on and off the stage, a Brooklyn native who still tries to enjoy the regularities of life.  He is truly relatable to people of many different backgrounds, for he has experienced a variety of situations in life, as he has gone from poverty to extreme wealth, and that is something that I admire.

Yes, on Thursday, January 16th I will finally cross out ‘see Jay Z live’ on my bucket list, as Jigga Man is coming to town.  Thanks to a wonderful Christmas present, I will be accomplishing absolutely nothing over the next several days, since every waking moment will be used to prepare for what is sure to be a momentous night.  However, I can’t forget about my blog, something that I am thoroughly enjoying thus far.  What better way to incorporate the two then to have, what I’m calling, Jay Z week?  In honor of Hova’s concert, I will be blogging not just about the businessman, but the business, man! (Get it? Check out Kanye West’s “Sierra Leone” if you don’t) for the entire week.

According to Forbes , Jay Z is the hip-hop industry’s second wealthiest entertainer with an estimated net worth of $475 million.  The mogul owns an entertainment/ record label company called Roc Nation, 40/40 Club, a stake in the recently constructed Barclay’s Center in Brooklyn, New York, and a sports management company named Roc Nation Sports.  Beyond the music industry, Jay Z has built a reputable brand that has become marketable in many different areas of commerce.

On a basic level, businesses undergo four stages of life: start-up, growth, maturity, and decline.  Start-ups are businesses that are fairly new.  They require a large investment, effort, time and energy to make it a stable and profiting enterprise.  Often times, the executive of the start-up uses his own funds to keep the business afloat.  During the growth stage, the business is stable and their market is increasing.  It can also use its own resources to function instead of seeking out investors for support.  Since it is still an infant enterprise, though, support may be needed in terms of manufacturing and distribution.  At the point of maturity, a stable influx of profits is attained, the firm is well known and respected, and an increased effort in marketing or rebranding is needed to increase profits.  And lastly, decline occurs when the firm sees shrinkage in their market and costs are cut to preserve profits.  Although it is fair to say that there has not been a decline in the popularity of Jay Z, as a financial entity, I believe his entrepreneurial career has followed this path.  Stay tuned this week as I talk about each of these stages.  I leave you with my favorite song off of his latest album, Magna Carta Holy Grail, “Holy Grail”:

Maxwell

Y.E.S.S. #1

Welcome to the first ever Solution Session where I intend to show you the intuition behind some of my blog posts.  This first episode is regarding my three posts about the secret behind Nike’s limited releases.  Check out my YouTube Channel: Young Economics and be sure to subscribe! Let me know what you think.

Maxwell

I’m Shmacked: It’s a Movement

So, I know I’m now among the many bloggers, news anchors, and college students to talk about I’m Shmacked, but how could you not?

“It’s a movement.”

I’m Shmacked in itself is a business entity, founded by Arya Toufanian and Yofray Ray (college dropouts ironically enough), that tangibly showcases the all-American, fraternity/sorority-loving, Animal House portrayed college life right to your iPhone, iPad, or any other electronic viewing device.  Established in 2011, the two marketing geniuses (yes, I think they’re qualified) began filming the one side of college that you always try to imagine, or remember for you older folks…and I guess you college students who got so drunk that you’re unable to recollect what happened the night before.  Partying.  Through short four minute YouTube videos (the I’m Shmacked channel now has over 62,000 subscribers), viewers can live vicariously through the care-free college kids taking shots, ripping massive bong hits, and shouting the famous phrase that embodies a generation, “I’m Shmacked!” indicating they are inebriated beyond belief.  Check out the campuses they’ve graced in their 2013 Fall Semester Tour Recap below:

How did you make your college decision?  Or for those of you still in high school, how are you deciding on which college to attend?  Of course you want to think about how academically stimulating the environment is (at least make sure your parents think that its a part of your criteria), the enrollment, and maybe the geographical landscape of the campus, but how about the social scene?  I’m Shmacked is making social life more relevant than its ever been before in the realm of college decisions.  On their Twitter page you can see countless retweets of kids saying they’re choosing which college to attend based off of how insane their I’m Shmacked feature is.  In one video, two college students from Ireland state that they specifically chose The Louisiana State University because of the I’m Shmacked video they saw for it.  That, my friends, is being influential.  You see, I’m Shmacked is extremely marketable and cool right now.  If you’re a college administrator denouncing the I’m Shmacked crew from hosting a party on your campus, well, you’re clearly a buffoon.

photo 1

Recently valued at $5 million after their first round of drumming up venture capital, I’m Shmacked legitimately provides something that University admissions officers cannot: the coolness factor.  Venture Capitalists and investors see the potential in this brand; I don’t understand why administrators have to be so backwards.  Your schools are popular because of I’m Shmacked!  What more could you want?

photo 2

Yes, I’m Shmacked has been receiving negative publicity in the news because of their controversial videos, but among the people who truly matter, the droves of college students buying tickets to their parties, I’m Shmacked is extremely relatable and primed to make a large profit.  Think about the licensing deals that could spawn from their brand and even possible TV shows or movies.  Who wouldn’t want to relive their glory days by watching Dave Franco and Jennifer Lawrence do ridiculously illegal and sexual things that are only acceptable for four special years of your life?  One can only dream, hell, I’m Shmacked.

Maxwell

The Secret Behind Nike: Part III

With my question still percolating within my mind, I decided to look through Nike’s 2012 Annual Report for more information.  Two years ago, Nike brought in over $13 billion in revenue from their footwear sector of the company, a 15% increase from 2011’s fiscal year end.  In fact, over the past three years Nike has seen a steady increase in their revenue from the footwear department.  According to the report, Nike credits this increase to a low single digit percentage increase in average selling price per pair of shoes; a double digit percentage growth in unit sales; an increase in demand for performance products, such as the Nike Free and Lunar technologies, which can be found in a lot of their running shoes; and an increase in sales of the Nike Running, Basketball, and Sportswear lines of the company.  Raise your hand if you own a pair of Nikes…I thought so.

In economics there is this principle called elasticity where changing an economic variable, such as price, quantity or income, affects other variables on a scale from inelastic to elastic.  I want to focus on inelastic goods, regarding footwear, because Nike’s annual report indicates inelasticity of demand.  With inelastic goods price and revenue move in the same direction, which means if the price of the good increases so will total revenue, and vice versa.  In Nike’s report, they stated that they saw an increase in revenue for footwear because of a low single digit percentage increase in average selling price.  This suggests that Nike knew their product and consumers (the sneakerheads) well enough to understand that their footwear is inelastic and that a slight spike in prices would not hurt revenue.  As forecasted, Nike yielded increased sales, which is exactly why they later revealed a double-digit percentage growth in unit sales for the year.

Furthermore, Nike also claimed that there was a revenue increase in footwear due to a spike in demand for their new running technologies and specific shoe lines within the company.  What type of shoes do you see released in limited quantities?  Well, its certainly not Nike’s football or soccer cleats, no, that would be impractical!  Instead, we see limited pairs of shoes from the Nike Running, Nike Basketball, and Nike Sportswear lines, which also utilize Nike’s latest footwear technologies (Nike FREE and Nike Lunar).  This is because these are the styles that are popular beyond the sports world.  Kids and young adults are wearing these products for everyday use; no longer are the days where sneakers are solely used for athletic purposes, it’s a fashion statement to rock Nike’s Flyknit Trainers (my personal favorite) to school or on errands.  Nike has taken note and exploited these trends in their releases, which is why they’ve seen augmented revenue margins.  Making sense a little bit?

My collection of Nike Flyknits
My collection of Nike Flyknits

At the end of the day though, I think Nike, and other sportswear companies, utilize this limited release tool for reasons that go beyond economic or financial principles.  Since Nike doesn’t produce at an efficient level where marginal cost equals marginal benefit, there must be some outlying factor that reaffirms this action.  I believe it is marketing.  Nike remains a part of our cultural fabric because of their ability to stay relevant, creating a buzz and reputation around their brand.  With their athletes (e.g. Michael Jordan, Lebron James, and Serena Williams), commercials, and slogans people are consistently talking about Nike and their iconic status.  Limited releases are Nike’s newest tool to combat the ever-wandering mouths of public consumption.  The people who are able to buy the limited edition shoes feel special because of the rarity of their purchase and the little company they share.  Those who are unable to purchase the shoes, on the other hand, either obsess over upcoming Nike releases or end up buying another sneaker with their allocated money that was originally designated for those special kicks.  It’s a win-win situation for Nike, as they not only increase their revenue stream, but the buzz around the company is perpetuated by those obsessive followers of The Swoosh who just want to feel unique too!

You saw in the video (found in Part I) what kind of shoe collecting people are doing nowadays, now multiply that by the millions of teenagers and adults who are also trying to create their own sneaker collection…pure genius by the gentleman behind The Swoosh.

This completes the Nike chapter of Young Economics.  Thank you for taking the time to read my material.  Be sure to check out all three parts and let me know what you think!

Maxwell

The Secret Behind Nike: Part II

It was June 9th, 2012 when one of the most highly anticipated shoes of the year was set to release on Nike’s website, the Nike Air Yeezy II collaboration with rapper [God?], Kanye West.  The previous Air Yeezy that released in 2009 was only sold in brick-and-mortar stores, so the online release of the Air Yeezy II was a welcomed surprise by the sneakerhead community, which only drew more hype to the launch date.  It was divine intervention (perhaps by the Rap God ‘Ye himself) if you happened to cop a pair of Air Yeezy IIs, as only five hundred were available in each of the two colorways of the shoe.  Traffic was so heavy on this day that Nike’s website actually crashed.  As a result of the limited quantities, the resell price soared up to as much as $96,000 on eBay (no, that’s not a typo) and still lingers around a four-figure price in specialty shoe stores today.  This is an all too common occurrence within this phenomenon; sneaker collectors will pay obscene prices for the rarest (and sometimes the ugliest, but don’t tell them I said that) pairs of sneakers, which is beyond me because they are just shoes, they’ll be dirtied in one wear!  Why wouldn’t companies, like Nike, supply more to increase their revenue?

Nike air yeezy 2
Nike Air Yeezy II Colorways: Cop or not?

From an economic standpoint, wouldn’t it make sense to produce a product up until the point where the marginal cost of the producer (Nike and other companies) equals the marginal benefit of the consumer?  In the case of limited releases, a shortage is yielded since the quantity supplied by footwear companies is less than the quantity demanded by consumers, as you can see in my first graph below.

photo 2
Solution Session: Graph 1
photo 3
Solution Session: Graph 2

Solution Session: Graph 3
Solution Session: Graph 3

Let’s say Nike were to entertain my inquiry and increase their quantity of footwear supplied all the way to the equilibrium point where marginal cost equals marginal benefit (second graph).  This would eliminate the shortage of sneakers and all of the sneaker collectors would be happy, right? In theory, though, the quantity of footwear demanded by the sneakerheads would decrease, therefore resulting in less revenue and less producer surplus for the Nike brand(according to my final graph, you can see the producer surplus decreases a significant amount from the limited release retail price to the new accommodating equilibrium price).  The consumer surplus of the sneakerheads, however, increases as a result of this change in quantity of shoes available.  Unfortunately though, business practices are not always based off of consumer preferences, which is why the true consumer surplus of limited edition sneakers remains at the little triangle at the tippy-top of my graph.  Why does Nike do this? Well, besides the fact that it is more profitable for the company to supply in limited quantities, it is because we continue to pay these prices and demand The Swoosh at such high volume!  I wonder what Nike’s annual report has to say about this.

*The final part of my research will be released tomorrow, thank you for taking the time to check this out.

Maxwell