The New York Times recently published an article about the successful partnership between the Brooklyn Nets and hip-hop mogul Jay-Z. Although he only owns 1/15th of 1 percent of the Nets, Jay-Z has leveraged this small percentage of equity into an opportunity to increase his earnings through the indirect income that the Nets franchise can facilitate. With an entertainment career that has lasted over 16 years, Jay-Z has demonstrated incredible staying power and an intuitive acumen possessed only by the shrewdest of businessmen. Based on the brilliance of his career, here are five things Jay-Z can teach us about entrepreneurship.
Get started with your dreams even if you are the only one who believes in yourself
Jay-Z’s mainstream rap career started in 1996 with Reasonable Doubt, arguably his best album. Interestingly, all of the major record labels refused to give Jay-Z a deal, a decision that most probably regret. Instead of continuing to beg for validation like many other artists, Jay-Z started his own record label with Damon Dash and Kareem Biggs. Roc-A-Fella Records was born. While critically acclaimed, Reasonable Doubt only reached 23rd on the Billboard 200 list — far lower than it probably would have, if he had had a major label behind him. However, this start gave Jay-Z the momentum and ownership over his own brand that he needed to achieve future success.
Do one thing really well and use it as a foothold to expand into related areas
After his third album, Vol.2… Hard Knock Life, Jay-Z was widely regarded as the best rapper in the industry. He created a great product that resonated with his base of consumers who loved hip-hop music. Ultimately, Jay-Z understood what he was really attempting to become. He did not just want to be a rapper, but an icon who sold a brand image that consumers aspired to imitate. Therefore in 1999, Jay-Z decided to expand his growing empire into clothing through his Rocawear line. Now, all of the young fans who were purchasing his CDs could also purchase the outfits that matched the image Jay was portraying through his music.
Jay-Z’s strategy of gaining a foothold within a very specific niche and then expanding is used in many different industries. Google’s mission is to “organize the world’s information and make it universally accessible.” Initially, the firm did this through their search engine technology; it has since expanded into auxiliary services like email, blogs, and hundreds of other Google apps.
In entertainment, you see a similar strategy in how big movie studios monetize superhero flicks. A film franchise such as Batman brings major money at the box office, but licensing deals generate even more profits through selling clothing, video games, and toys to fully maximize the brand.
Jay-Z’s investment in Rocawear was realized in 2007 when he sold his rights to the brand for $204 million dollars — although he still owns a stake in the operating company that produces the men’s line. His stake in the 40/40 Club is also a successful extension of his brand.
Expand into new markets after your base is solidified
By the time of his first retirement in 2003, Jay-Z’s place as a hip-hop legend was solidly in place. With nothing else left to accomplish in the rap game, it was time for Jay to expand his base. Relying on one segment of the population for all of your income can cause problems over time. If your base decides to purchase your products less often in the future, then you are left with less income and no other customer base to grow your revenue stream.
A good example of expanding one’s base is Jay-Z’s collaborative project with rock group Linkin Park. Through this album, he was successful in creating new fans, which is something that is hard to do as a brand becomes saturated in the market. Their single, “Numb/Encore” won a Grammy and helped Jay-Z transition to the next phase of his career.
Reinvent your brand as trends in the market change
It is no surprise that Jay-Z sold his stake in Rocawear at around the same time that he came out of retirement to release his 2006 album, Kingdom Come. Jay-Z was getting older and realized that he could not continue to rap about the same things that made him famous. He decided to move into a more professional sphere, which he highlighted in his song, “30 Something.”
There comes a point when all lasting brands need to change how they sell their products.
In the corporate world, IBM’s story of reinvention is legendary. For decades, IBM was the monopoly player in mainframe computers and the de facto choice for corporate IT buyers at companies around the world. With the invention of the personal computer, their consumers’ needs changed and IBM almost went bankrupt because they were not able to predict this change in the marketplace. Through the leadership of Lou Gerstner, IBM was able to successfully reinvent itself as an IT services consulting firm.
People and businesses change over time, as do market preferences. When this happens, reinvention is necessary. Jay-Z is a master at it.
Make strategic investments to maximize your opportunities for indirect revenue
One of Jay-Z’s best decisions was to invest $1 million dollars in the Brooklyn (formerly New Jersey) Nets back in 2003. Again, Jay-Z realized that he wasn’t just a rapper, but a brand that many people wanted to associate with. He only owns 1/15th of one percent of the brand, but has created a partnership with management that allows him to be the face of the franchise. This is a win-win for both the Nets and Jay. The Nets gets to attach themselves to an urban icon that was homegrown in Brooklyn who will raise the team’s level of “coolness.” This is important, because the Nets have historically been viewed as the Knicks’ ugly, red-headed step-child. Furthermore, through association with Jay-Z, the Nets gain additional influence over Brooklyn neighborhoods that are largely African-American.
Jay-Z also benefits immensely from owning a tiny part of the Nets in two major ways. First, he can now complete his transition from rapper to business mogul because he can brag in his songs about “owning” an NBA franchise. Secondly, Jay-Z is set to make millions more through indirect income from the Nets. Examples include his use of the arena to sell out several concerts and house a store selling apparel produced by his manufacturing company, plus the placement of a 40/40 club in the Barclays Center. Even Jay’s advertising agency has gained the Nets as a consulting client.
That is a lot to gain for such a small sliver of equity ownership in the team.
Jay-Z’s career has many valuable lessons as it pertains to entrepreneurship. In many ways, his growth as a businessman makes him a perfect role model for today’s urban youth. However, a person’s ethically questionable decisions often get whitewashed when an icon reaches higher levels of success.
Jay-Z made his initial nest egg as a drug dealer, rapped misogynistic rhymes about women for years, and displaced many African-Americans from their homes with the building of the Brooklyn Nets arena.
Despite the darker aspects of Jay-Z’s path, let’s take the positive lessons learned and apply them to our personal development. Hopefully, the good reaped by Jay-Z’s business decisions will outweigh the bad.
Lawrence Watkins is the founder of Great Black Speakers, Great Pro Speakers, and co-founder ofUjamaa Deals, which is a daily deal site that promotes black-owned businesses. He graduated in 2006 from The University of Louisville with a B.S. in electrical engineering and earned his MBA from Cornell University in 2010. Lawrence currently resides in Atlanta. You can follow him on Twitter @lawrencewatkins.