How To Start A Record Label: Your Step by Step Guide

If you’re starting a business, your first step needs to be making sure you — personally — won’t go bankrupt and destroy your life in the process. 

Cathy Pellow, the owner of Sargent House, advises new entrepreneurs to make sure they consult with someone in the know about how exactly to go about doing so. Despite an LLC seeming like the best solution for most, she believes many would do better if they pursued other options.

“You should never be operating out of your personal bank account,” Pellow explained. “My advice is: talk to an accountant about the actual best scenario. A lot of people set up LLCs, and it turns out to be the absolute worst scenario — it often turns out that it should have been an S corp or a C corp. People hear the phrase ‘Limited Liability Corporation,’ and they think that sounds the best. But it’s not, tax-wise, the best — depending on how you’re going to flow money through that account. A lot of my bands started LLCs because they were wrongfully advised and had to transfer because once they were actually running and paying salaries through that account. It was no longer appropriate. It’s all relative. If you’re a sole proprietor or a one-man band, an LLC can be the way to go. But talk to an accountant, explain not just what your short term goal with the company is, but what your future goals are.”

If you do wind up going for the LLC option, Greg Hanson, the founder of King Pizza Records (a Brooklyn-based, DIY punk label) says you should brace yourself for banality:

“[The process of creating an LLC] is fairly long and annoying,” said Hanson. “The best move for that is to hire a legal company to handle it for you. You pay a premium and they help to draw up articles of incorporation for you. It’s a very long, tedious process if you do it yourself. If you want to be legit about it, you have to send notices out to newspapers — both state and local — to advertise that you’re starting a new business. You have to collect forms to send to a state and every two years you have to do these upkeep forms. It was recommended to me to hire someone else to do this and for the approximately $600 upfront and whatever yearly fee after that — it was definitely worth it. I tried doing parts of it on my own and it took a decent amount of time. It’s a multi-step, fairly annoying process.”

Chris Zarou of Visionary Records (an imprint of Sony) advised keeping an expert on hand at all points in the process of founding your new endeavor.

“I think having a company is important. I think finding a good attorney is very knowledgeable on this space — probably an entertainment law attorney — and getting as much information from them as possible [is a good idea]. You can work with them in lock-step to make sure you’re protecting yourself and doing everything the right way more than anything.”

You’re probably getting into this business because you love music. But what kind of music do you love? Should you be signing artists from genres you’re not familiar with? What should be your strategy here?

Pellow strongly advises against a pell-mell approach, saying that you should stick with what you know and love.

“Know who you want to sign. If you love hip hop, don’t sign a country artist cause country sells. That’s the biggest mistake people make. Do not dabble in things you are not aware of, passionate about, and engaged in. I can’t do something for an artist in a genre I know nothing about. Don’t be into raves and try to sign a rock band! You don’t know the magazines, you don’t know the press. Find what you love, focus on what you love. Start with your original passion and you can grow outwards. Don’t out the gate try and have a bunch of different genres.”

Hanson concurred, adding that if you’re going to be stuck with many of this music for a while so you better truly care about what you’re working on.

“Take on projects you love. People take on projects they think will sell because it ‘checks the boxes.’ But that rarely pays off, especially if there’s a lack of passion on the side of the label. If you are excited about something, excitement is contagious. Only take on something you feel comfortable living with for the next six months.”

“If you know pop music, you should probably focus on pop music. If you know hip hop, focus on hip hop,” Zarou agrees.

But Pellow has also learned to keep longevity in mind when selecting talent.

“Something to be aware of when choosing bands: are they going to tour?” Pellow said. “Are they going to promote? How many people are in the band? If it’s a solo artist, they’re not going to break up — as opposed to a 5-piece who are all 17 years old. Because when they’re 20, they will not be a band anymore.”

You’ve picked out your talent; the next step is agreeing on what you can do for each other. How can both the label and the artist profit from your arrangement? What can you provide, and what is the artist’s responsibility? And how can you prepare if things don’t work out?

“Your contracts need to be fair,” Pellow asserted firmly. “You need to say, ‘What am I giving in exchange for what I’m getting?’ Of course, there are risks involved in taking on artists. My deals are 50/50 deals. We split all profits down the middle. I front all the costs for the recording, manufacturing — every penny. So if a record does shitty, I might be out a lot of money. And that’s just the way it is.”

Your deals should be for “no more than two records [at a time] — ever,” advised Pellow. “It is important if you’re investing in an artist that you get at least two records. If it’s one record and you do all the work and take all the risks, and it succeeds, they can be immediately taken from you, or they’ll go somewhere bigger. And that’s not fair to the label. If it’s not successful or they’re not willing to market and promote, you can let them go.”

“More people need to create new models to accommodate this new reality,” Pellow continued. “If I were teaching young people today, I would tell them to take less percentage. Maybe take 30%. Because now our investments aren’t like the old days, where you had to front the costs for $7000 worth of vinyl. If you’re doing digital, you don’t have the same overheads. You might not need an office. A lot has changed, so change the model. Then, once you get success, you can ask for more money, because now the label has currency.”

Zarou again recommended working closely with an expert in the field to make sure you aren’t inadvertently exploiting anyone: “You want to learn — and you can do that from talking to different lawyers — what the industry standard is,” he said. “And you want to make sure you’re following that. You want to make sure you’re protecting the artists you’re working with and you’re not ignorantly taking advantage of anyone because you just don’t know. You want to make sure the deals you make are to the norm.”

The artist is on board, the deal has been signed, and now it’s time to get the music ready to go. But how do you plan on getting it from a recording and into the ears of listeners? Here’s where the next stage of your planning begins, and a lot will depend on what kind of music you’re working with.

Zarou believes that digital distribution has to be the focus from the get-go: “I think definitely in the year 2020, 99.9% of your focus should be on digital distribution. That’s where the attention is. That’s how they’re consuming music, so that’s where you want to be. That may change down the road. Physical becomes a collector’s item for certain people. But where do you want to start? Digital.”

Pellow, who deals mostly with more rock music and more niche content, says that her business has “shifted to where we prioritize the sale of vinyl.”

“I make vinyl because I have the kind of listeners who go to live shows and who appreciate the ritual of music. And they buy vinyl!” says Pellow. “They collect vinyl, and they listen to vinyl. I don’t make cassettes because they sound like garbage. But they’re novelties. I mean, even vinyl is a novelty — it’s not great business. Putting out vinyl is a pain in the ass: it’s expensive, it costs a fortune to ship, it warps, it’s a nightmare. But for my kind of artists, it is a necessity. It’s definitely still popular enough to justify making it … People love buying it from the bands themselves. It’s for real music fans.”

Hanson, meanwhile, had some practical advice about what goes into printing vinyl.

“Turnaround time is long. If it’s 6-8 weeks with [cassette] tapes, it’s 6-8 months with vinyl. If you add overages and plant problems it gets even more complicated. 100 tapes is [approximately] $200. With 500 records — which is often the minimum — you’re looking at closer to $2500 on the low end. If you’re somebody who’s working while starting a label, $2000 and a decent amount of space in your apartment is not nothing. And you can’t always bank on selling stuff at the release show. It often becomes a process of badgering your plants — you have to reach out and see what’s on time, when the ETA is, if a partial shipment can be sent, that kind of thing.”

How do you get people to know that your artists exist? The economy of attention is almost as important as getting a hold of your customer’s coins. These days, Zarou, Hanson, and Pellow all agreed that social media strategies are essential for burgeoning brands and labels.

“I think that if you’re a young person, you need to be extremely fluent in every social media platform: the ins and outs, who’s on what, what works and what doesn’t,” says Pellow. “You need to absolutely utilize Tik Tok, YouTube, all that corny stuff. But it’s genius! There’s such a world of cool shit you can do if you’re creative and smart. Don’t look at old models and try to duplicate them, because they’re unrealistic for the future.”

Zarou added that in today’s digital landscape, micro-targeting specific audiences is a crucial strategy for growing an artist’s popularity.

“As social media has evolved, there’s a million different communities and mico-communities within platforms,” says Zarou. “That’s what’s happening if you step back and look at it. You have Tik Tok, Instagram, and Twitter — but that’s very 30,000 feet. If you go in deeper, there are micro-communities within each of those platforms. So you want to understand the artist that you’re working with so you can have a sense of what communities and audiences they appeal to. Artist X may appeal to a female 18-24 demo — but you can target that specific demo with Insta ads nowadays. I can say, ‘This artist may appeal to Post-Malone and Demi Lovato fans’, and then I can target people who follow them.”

“Let’s say you’re working with an artist,” Zarou continued, “and this has nothing to do with their music — but they’re into gaming. They’re playing Call of Duty and they’re streaming on Twitch. You want to go and attack the gaming audience, you look in the e-sports community. You want to be authentic and organic. You want to go after an audience where there’s a connection. You can market deeper than just the music. Use the music as a gateway drug into who that artist represents holistically.”

While many labels hire PR firms to handle their marketing, for many DIY companies, this simply isn’t possible, meaning you’ll have to curate your own list of contacts for getting the word out about your new content, says Hanson.

“I’ve never hired a PR person,” says Hanson. “In my experience, I would rather do the work and make the contacts. Other people have really good experiences with PR. It depends on what level you’re trying to be at.” 

“There needs to be a bit of a cycle happening where people who are following either know about the other,” says Hanson. “For us, that was also about booking shows and creating festivals that have our name on them so people start to recognize us as more than just a label — but also that we exist in the first place.” 

 “When you have a new release you have to figure out singles that you want to have premiered,” Hanson continues. “You have to create contacts with these big blogs and tastemaker websites like Stereogum, Pitchfork, and Paste — and you have to be good at working those contacts. But you also have to make sure that bands keep promoting and tour — and you have to make sure that when they tour, they’re posting about it. Label-wide compilations are great too: because if someone goes in liking one band, they’ll find 20-30 more they’d never heard of ... People will say: if I like this band, I’ll like these other bands, and suddenly they’ve found music they never would have before. So then there’s a sort of snowball effect. Consistency is very important.”