Rappers money-making lessons

The most talked-about business book of the year in the United States isn’t written by Warren Buffett, George Soros or even Donald Trump – it’s by rapper-turned-business-mogul, 50 Cent.

This week Rich Pickings comes to you from fabulous Las Vegas, where I have had the chance to have a good look at 50 Cent’s new book, The 50th Law. It has been co-authored with Robert Greene, a popular psychologist who is best-known for his book, published in 2000, The 48 Laws of Power.

The rapper’s new masterpiece is partly a self-help book and partly a strategy guide. It mixes 50 Cent’s own unique brand of hustler wisdom with quotes from luminaries such as Abraham Lincoln, Sun Tzu, Socrates, Napoleon and Malcolm X.

This is a book that takes itself very, very seriously. It is bound and presented to look something like an old-fashioned bible and its tone is extremely earnest.

For example, in the first chapter (which you can see online here), 50 Cent discusses what he calls the “hustler eye” that he has honed during a life that has included being shot nine times and being arrested for drug offences.

“Reality is my drug,” 50 Cent (or Curtis Jackson as he is known to his close personal friends) says in the first chapter. “The more I have of it, the more power I get and the higher I feel.”

After reading that quote, you may well be asking: Why on earth should we listen to the business advice of a rapper?

The answer is simple: 50 Cent is a money making machine.

According to Forbes, the rapper’s business sense has helped him earn around $US170 million in the last two years, including a $US100 million windfall profit from the sale of a beverages company.

And he’s not the only hip mogul to turn street cred into cash. The world’s best-known rap entrepreneur, Jay-Z had annual earnings of around $US35 million in 2009 and earnings of $82 million in 2008. Sean “Diddy” Coombs makes around $US30 million a year, while Kayne West pulls in around $US25 million.

These artists not only pride themselves on their musical abilities – they are also fiercely competitive in terms of their business dealings. In honour of 50 Cent’s book (which, incidentally, is on sale in October in Australia) let’s have a look at the business strategies of the world’s best hip hop entrepreneurs.

Build up your credibility

In the rap world, credibility means having a dramatic (and preferably violent) back story which appeals to your fan base. A previous life of crime is a big asset – indeed, some rappers have been known to fabricate previous misdemeanors in order to enhance their street credibility.

For business people, a criminal record is not a great asset, but the credibility strategy rings true. It is crucial to have credibility with customers, suppliers and investors and this usually means having a strong track record of reliability, quality, price and customer support.

Services are usually more profitable than products

With record sales falling due to illegal downloading, services (concert tours) have become far more important than products (recordings) in the rap world. But there is another reason touring is a much better way to make money – as in most businesses enterprises, the profit margins on services are far better than on products. A rapper would expect to receive less than 10% on the sale of a CD (less when advance payments are taken into account) but would make at least 50% on the sale of each concert ticket. It’s exactly the same business strategy that led IBM to get out of making computers and into consulting.

Extend the brand

Developing multiple revenue streams is important in any business and rappers are experts at it. Leading this charge is Jay Z, whose business empire includes clothing lines, fragrances, a vodka brand and a chain of sports bars. In 2008, he took the idea of selling “Brand Jay-Z” a step further when he signed a $US150 million, 10-year deal with US concert promoter Live Nation that covers recordings, concerts and endorsements over the next decade. As he famously raps in one song: “I’m not a businessman/I’m a business, man.”

Invest for the long-term

While rappers love making quick cash from endorsement deals (the big names represent everything from footwear and cars through to alcohol and vitamin supplements) there is even better money to be made if you are prepared to take equity rather quick cash.

Take 50 Cent’s investment in beverage company Glaceau. Back in 2004, the company offered 50 Cent a small equity stake in an endorsement deal. After spruiking the products in ads, video clips and even some of his songs, 50 Cent was richly rewarded in 2007 when Coco-Cola bought Glaceau for $US4.1 billion. His slice of the action was estimated to be around $US100 million – a great reward for his willingness to think long-term.

Use joint ventures to leverage your own business

Business strategists often advise small and growing companies to use joint ventures to expand and diversify their revenue base. Rappers are experts at this. One of the most common gimmicks in pop music is to “feature” an established artist on an emerging artists’ song – this could involve a full duet, but more typically just involves some backing vocals or a short rap. There are benefits for both joint venture partners – the emerging star gets to enjoy the reflected spotlight, while the established star gets handsomely rewarded. US-based Senegalese star Akon has made more than 160 guest appearances, and according to Forbes he demands a six-figure fee plus up to half the royalties from any song.