Reformers [Episode 10]: Jonathan Strauss, Create Music Group
The Founder & CEO at Create Music Group (CMG) shares his thoughts on avoiding risk aversion, why passion trumps experience, what he thinks about the NFT craze, and how a very nonlinear path led him to founding one of the fastest-growing businesses in the country (#2 on the 2020 Inc. 5000).
For our tenth (and 2021 season finale) episode of Reformers: The gritty details behind the world’s greatest bootstrap successes, we are excited to share our interview with Jonathan Strauss, the Founder & CEO at Create Music Group, a media and technology company that helps creators and artists better analyze, optimize, and discover audiences for their content. Jonathan was a serial entrepreneur at a young age who, after losing his entire net worth in an earlier venture, eventually went on to found Create Music Group in 2015. Since its founding, CMG has grown from a singular product that helps artists get paid on YouTube into a suite of products (including a variety of financing options for artists, as well as one of the largest TikTok accounts in the world: flighthouse) that has led to CMG becoming the second-fastest growing company in the country, all while raising minimal outside capital. In this interview, Jonathan shares his incredible journey including key insights and lessons learned that can be implemented in your own business. You can listen to the full interview here:
Breaking through risk aversion
When Jonathan was an undergrad at UCLA studying Statistics, he would use his tuition money to invest in the stock market — algorithmically trading volatility— every day. While doing so, he had one firm rule: every position must be liquidated at the end of each day, since the only thing that could not be controlled was what happened in the market after-hours. Eventually, Jonathan turned $70k into $1.2M until, one Friday afternoon, he suffered a big loss that took his portfolio down from $1.2M to $700k. Jonathan was angry (despite still being up over 10x from his initial $60k) and decided to go against his golden rule by maintaining his position heading into the weekend. In a strike of bad fortune that weekend, Washington Mutual — Jonathan’s sole position — announced they were bankrupt and, with it, Jonathan’s portfolio went to 0.
Having lost virtually all of his money overnight in the stock market, Jonathan moved out of the UCLA dorms, negotiated a payment plan with UCLA, and moved on to founding his next business. He realized that the Mac Pros and other computers of the time did not enable filmmakers to easily and quickly render camera footage, so he began to buy Mac Pros, reconfigure them to more rapidly edit footage, and sell them online. Though it was certainly a niche, the business was quickly earning $100k of monthly profit until, by the time Jonathan graduated UCLA, he had almost $2.5M in the bank from this business. And, as if the profits weren’t enough, major LA filmmakers all over town, including those from Bad Robot and Transformers, were using Macs reconfigured by Jonathan.
Eventually, in 2013, the market caught up and Apple (along with a few other companies) came out with upgraded computers and software that completely disrupted Jonathan’s business. Although he had plenty of profits to speak of, Jonathan always regretted not trying to make this business into a much bigger company.
“It was a cool, niche, 2–3 person company. But I always wondered why I didn’t try to compete with Apple, or make the next Dell, or become the next IBM. And I ultimately think that because of the risk and corresponding loss that I took earlier in the stock market, I was super risk averse with the computer company. While the money I made was great, I think I could have built a much bigger computer company instead of just modifying Mac Pros. ”
After pulling back the reins on the computer business, Jonathan decided he had to stop overweighting his earlier experience in the stock market and get rid of his risk averse mentality. Ultimately, Create Music Group was born out of his desire to take a really big swing and break out of his risk averse mold.
Alternative tactics for building a technical team
CMG’s initial product was quite technical: its software would automatically review YouTube videos and identify songs being used where the artist had no idea of (and therefore received no payment for) that use. CMG would then take a 20% cut of the royalties awarded to the artist, while the artist would receive the balance of 80% (vs. the 0% they were receiving prior). To do this type of analysis across billions of videos is complex, so it might surprise you that neither Jonathan nor his cofounder were software engineers by background. As a result, they needed to quickly build out a word-class technical team, which is a classic catch-22 for any nontechnical founder: you’re not technical, so you need to hire technical people; however, it’s difficult to identify, vet, and attract technical talent when you yourself are not technical.
When I asked Jonathan about this conundrum, he did not hold back the difficulties they experienced (despite Jonathan being both a hardware engineer and having a Stats degree):
“For the first few devs we hired, we did not manage them properly and it didn’t work out. We were really impatient in the first few months and didn’t understand the cycles required to create quality technology products.”
Instead, in what Jonathan called “a game changer” and “the best move they ever made”, he and his cofounder were able to land themselves a world-class tech team via an acquisition of Label Engine, which provided accounting and royalty distribution software for artists (a natural product fit into CMG’s nascent product ecosystem). The founder of Label Engine became CTO of CMG, and most of the tech team today resides in Vancouver where he is based. What the founders of CMG lacked in technical chops, Label Engine’s team had in spades.
As a result, Jonathan believes that M&A is a vastly underused tactic by startups to efficiently bring on talent and fuel growth (especially if related to engineering).
“If you think about it, the average successful startup exits within 7–10 years. If you can accelerate hiring a critical team and save 15% of that time span, why wouldn’t you do that? And if you can not only get great talent, but also get a great product, that’s a bonus.”
Hiring: young, passionate, hungry
“The one thing I’ve found about the industry we’re in — and I’m talking more about music than technology — is that the really young people are insanely passionate and have been the differentiating factor for our company. They’ve led us into categories before our competitors were even thinking about them. At CMG, we don’t penalize for age or for being in school, as long as you’re very passionate.”
At CMG, the median employee age is below 30. In fact, most of the successful leaders at CMG initially started out as an intern there. The company runs a vast internship program that recruits undergraduate students — most heavily from UCLA and USC — who have a desire to augment their college experience by interning at CMG throughout their semesters. In even more extreme cases, CMG has had some college students take full-time jobs while they’re still in school. (Jonathan notes that one of CMG’s best employees is a student who took a full-time role at CMG during the pandemic because Zoom lectures enabled her to have more flexibility.) Ultimately, Jonathan has a sense (perhaps from his own experiences) that students work even harder in order to prove themselves.
This strategy has been massively paying off for CMG, perhaps no example more notable than CMG’s acquisition of Flighthouse Media. In 2016 an employee, who was at the time 17 years old, discovered an account on what was then Musical.ly (now TikTok) that highlighted popular sounds on the platform. CMG acquired the account and grew its follower account to be among the highest on all of TikTok, and it has now transformed the account into a full-blown digital media brand and among the most followed creative studios in the world. When discussing Flighthouse, Jonathan reflected on a broader point when it comes to the value of passion projects within an organization:
“I don’t believe someone my age could have discovered that account. Google’s philosophy of allowing people to invest time in their passions is something we try to emulate at CMG. If someone believes in something, we’ll invest behind it and take a genuine interest in it. People often ask if CMG is still a startup. To me, a startup means that you’re willing to take big risks and invest in new concepts. So long as we continue with that mentality, we’re a startup.”
Crypto and NFTs
While Jonathan, like many others, has still not completely wrapped his mind around crypto, CMG has been fairly active investing into its capabilities, including being among the first companies in the music industry to issue artist NFTs. Backing up his support for the young, passionate generation, Jonathan points out why CMG is taking the NFT craze seriously.
“It doesn’t matter what I think because if every single person under the age of 25 is obsessed with NFTs, then I know it will become more meaningful over time.”
Right now, Jonathan sees NFTs as yet another way for an artist to sell their art. However, CMG is still trying to figure out how to make an even bigger impact in the space and is actively looking for the right people and technology to lead the way on these products.
Creating (and executing) the product roadmap
For a long time, CMG has been obsessed with the concept of what Jonathan terms the “audience universe”. To move the needle in the music and entertainment industry, Jonathan believes that you can’t have just one product offering — there needs to be a constant evolution of what you’re providing the artist or creator in order to reach their existing audiences and expand into new ones.
“The artists and creators we represent are seeking ever-expanding opportunities for the content that they create and better data & analytics to monitor and optimize that content’s performance.”
It is within this “audience universe” that CMG executes their product roadmap. Early on, that simply meant making sure artists got paid on YouTube. Fast forward a bit and CMG has since recognized so many unmet needs for artists that have resulted in a variety of newer products launches, such as their creator credit card. However, there is one thing in particular that Jonathan believes makes CMG truly unique among its peers.
“Most music companies don’t own an artist’s audience: they simply exploit it. CMG is one of the only music companies building and owning audience at a massive scale that will benefit the universe of creatives and artists. However, it will take us 10 years to have true influence. You can’t build influence in a year or two — it takes a long roadmap.”
Having a singular “Vision” is overrated
The media, investors, and other participants in the startup ecosystem are always quick to talk about the amazing unifying “vision” successful founders have. However, Jonathan is a much bigger believer that working to solve large problems is a greater unifier than having a singular grand vision.
“I would argue CMG doesn’t have one solid vision. Yes, we’re building the world’s largest audience company, but we’re doing so by working to solve the most significant pain points for artists and creators.”