Spin Doctors

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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.

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.

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.

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