The Dead, as we’ve seen, were not afraid of risk. They improvised onstage, in their business offices, and in collaboration with their fans. Their success in these ventures made them bold, and they often came to the conclusion that they could do a job best by doing it themselves. Whereas most rock bands relied heavily on outside vendors and contractors, the Dead did just the opposite: They “insourced,” and they benefited enormously in the process.
The trend toward outsourcing—subcontracting certain business functions to an outside firm—really got moving in the 1980s, when Harvard strategy expert Michael Porter developed his “value chain,” and management guru Peter Drucker got on board as well. Now, as so often happens in business theory (and in life!), the pendulum is swinging back the other way. Neither Porter nor Drucker, it should be said, were blind promoters of outsourcing; they simply supported it for those areas in which a company showed no particular talent. And Drucker in particular always made clear that the true goal for any company was not to cut expenses but to boost effectiveness. Many companies learned this lesson the hard way. Boeing’s 787 Dreamliner, for instance, fell years behind schedule and went billions over budget in part because of unwise outsourcing agreements with suppliers who weren’t up to the challenge. Now many firms are learning they can increase effectiveness by bringing back in-house many functions that had been sent to outside firms. Through direct control, they can oversee an entire process, maintain a high degree of control, and provide more jobs.
The Grateful Dead, in this realm as in so many others, were far ahead of the curve. Most firms today that insource are simply reversing bad outsourcing decisions. The Dead, by contrast, brought in-house a multitude of functions—most prominently a concert venue, a record company, and a ticketing operation—that had almost always been done by outside firms. This proto-insourcing revealed the band’s desire to shake up the way business, and particularly the music business, had traditionally been done. This is what Garcia had in mind when he said, at the start of the band’s career in 1967, “We’re trying to change the whole atmosphere of music, the business part of it… by dealing with it on a more humanistic level.”
The Dead insourced in a truly radical way. Their motivations, though, would sound familiar to any firm that has suffered problems with outsourcing. They found that they could take better care of their employees (by ensuring good jobs), create a higher-quality product (such as records), and provide superior service to their customers (through ticket sales) by doing it themselves rather than counting on outside contractors. Cameron Sears, who became a band employee in 1987, explained how this spirit carried through the band’s long career. “When we farmed things out we found that, by that simple fact, we lost control,” he said. “And control in the creative process is very important; it’s how we maintain our integrity. The more people that come between us and the final delivery of our art, the more diluted it becomes. And the less money we make.”
Sears was speaking in 1994, after the Dead’s business apparatus had become a well-oiled machine, producing amazing concerts, great records, and solid customer service to fans, while raking in millions upon millions of dollars. It wasn’t always that way. Several of the early insourcing ventures flopped, and cost the band money. But the band, as skilled strategic improvisers, learned from these mistakes and eventually figured out how to maintain control and make money.
The Dead’s first experiment in insourcing began in 1968 when they joined together with Jefferson Airplane and Quicksilver Messenger Service to lease the Carousel Ballroom, a San Francisco dance hall. The bands agreed to play for free and receive 10 percent of the profits. It was, in essence, an attempt to bypass the middlemen of promoters and hall rentals, and enjoy all the benefits themselves. The biggest player in this arrangement was the Airplane, who at the time pulled down $7,500 a show, the most for any band in the nation.
As it happened, the venture was doomed from the start by a bad contract. The project was headed up by Ron Rakow, a former Wall Street trader and favorite of Garcia’s, who was big on charm but, according to some, short on business sense. He signed a terrible lease for the Carousel, $7,000 a month plus 15 percent of the gross from each show. He later claimed his lawyer had made a mistake, that it should have been $7,000 against 15 percent. Whoever’s fault it was, the lease was signed, and the bands quickly discovered that the terms were crippling. Bill Thompson, manager for the Airplane, said, “We got ten percent. Ten percent of nothing.” After a few months, the finances caught up with them, and Bill Graham assumed control of the hall and renamed it the Fillmore West, under which name it became a legendary rock club.
Though a failure as a business venture, the Carousel was a success by other measures. It functioned as not just a music venue but also a sort of community center, where the Black Panthers and other groups kept offices. “People who cared about each other and loved what they were doing came together” at the Carousel, Dennis McNally said; those people thus turned it into “a sanctuary and an experiment in community.” It was a grand social experiment, which, after all, was what the Dead were all about.
Even more important, the members of the band’s extended family were learning how to work together as a business. Jon McIntire, an actor and history student, volunteered to help clean the kitchen at the Carousel and ended up running the concessions. He had no regrets about the Carousel, describing it as “four months of the greatest, loosest thing that ever, to my knowledge, happened anywhere.” McIntire, from his start in the Carousel’s filthy kitchen, would go on to become one of the Dead’s most important managers. And the wisdom he brought was forged in episodes like the Carousel.
The Carousel provided an important trial by fire in the world of entertainment business. Ultimately, the Dead may have made more money had they continued in the familiar pattern of working with promoters and being paid a fee or a percentage for each show. But the lessons they learned from this insourcing experiment turned out to be far more valuable than any lost revenue. First, they learned that by being in control, they could express their values through the operation, by offering offices to community groups. Second, insourcing increased the number of people they needed to hire, and thus served as a valuable training ground for important future employees. Third, the venture gave important business training for the band members themselves, teaching them about concert promotion, gate receipts, and legal contracts. If they wanted to change the music business, they needed to understand it in detail. Only through insourcing, through running the operation themselves, could they get the understanding—and eventually the economic clout—they needed.
The Grateful Dead’s experiment in the record business extended the lesson they’d learned at the Carousel, teaching them both the benefits and the dangers of going it alone. By disrupting the old habits of the rock ’n’ roll business, they opened a new space for creativity.
The Dead always had an uneasy relationship with record companies, starting with their first deal—they signed with Warner Bros. in 1966, earning a $10,000 advance and an 8 percent royalty. The relationship with the record label, though, was far from happy. The Dead’s first three records—The Grateful Dead (1967), Anthem of the Sun (1968), and Aoxomoxoa (1969)—sold poorly, and the band ran up a lot of debt to Warner Bros., mostly from extended stays in the recording studio. When the band was slow in recording Anthem of the Sun, they got a nasty letter from Joe Smith at Warner Bros., who called it “the most unreasonable project with which we have ever involved ourselves” and upbraided the band members for “lack of preparation, direction and cooperation” and “lack of professionalism.” With debts mounting, the band came under increasing pressure from the record company to produce hits. It didn’t work out. “All that pressure to make commercial records more or less drew a backlash from us,” Weir said in 1987. “We just lost interest.”
The Dead, of course, weren’t interested in being professional, at least if that meant controlling costs—they placed a far greater value on the authenticity of their music than on the efficiency of their business. They spent a lot of time in the studio because they wanted to make a record their way. If Warner Bros. didn’t like that, tough luck. By 1969, the band had run up a debt to the label of $180,000. Fortunately, the next album they put out, Live Dead (1969), was brilliant, sold well, and rescued the relationship. Things improved further with Workingman’s Dead, their most accessible record to date, and American Beauty, which also sold well. Another live album, Grateful Dead (aka Skullfuck or Skull and Roses) came next and became their first gold record.
As Warner Bros. became happier with the Dead’s output, however, the Dead became more dissatisfied with Warner Bros. Garcia had this to say of the label in 1973: “We were never satisfied with the whole trip and having to deal with people we couldn’t relate to.” Like the rest of the band, he felt that Warner Bros. values didn’t align with those of the Dead. And since values were so important to the band, this mismatch became a significant problem.
So did the simple quality of the work the label was doing. Ron Rakow conducted a test: he sent the band’s tour itinerary to Warner Bros. three weeks in advance, and asked them to make sure record stores in those cities were stocked, on the theory, he said, that “records really move when the band is in town.” Then, when the band got to St. Louis, Rakow checked the record store and found the bins empty, and “that’s what happened, store after store, city after city…. They [Warner Bros.] did shit, period.” Warner Bros., like a lot of established companies, had simply become complacent. Because the Dead were locked into a contract, the label didn’t feel the need to give them full attention. As a result, the Dead exercised their right to walk away.
When the Warner Bros. contract expired in December 1972, the band decided to go it alone by creating Grateful Dead Records. As Garcia explained, “Even if we fucked up real bad, we could still sell as many records as Warner Bros. could.” It was a bold step, one that no other major act had undertaken. The Beatles, the Rolling Stones, and the Jefferson Airplane officially had their own labels, but as one music critic explained, such labels were “just ego-boosting scraps of paper representing a little bit more economic and artistic clout. All the real work a record company does still belongs to the media conglomerates—RCA, MCA, Warner-Atlantic, Capitol. Those are the organizations which press and distribute, market and bill the accounts for the records of even these private-stock labels.” The Dead, by contrast, would have no ties with any record company, and they would take on all these responsibilities themselves.
Insourcing record production allowed the Dead to:
The first LP for Grateful Dead Records, Wake of the Flood, was released in October 1973 and sold 400,000 copies, a 15 percent gain over their last album with Warner Bros. Thanks to their higher percentage, it also was vastly more profitable. The next LP, Grateful Dead from the Mars Hotel, which was released only ten months later, in June 1974, sold only 238,000 copies and received bad reviews. And then it got worse. An expensive movie project financially crippled the band. Rakow began clashing with band members, and ultimately was fired. He decided not to go quietly. He cut himself a check for $225,000. It was money he said he was owed, but others on the scene disagreed. Garcia eventually negotiated a deal in which Rakow kept the cash but gave up any financial interest in the record company. Whatever Rakow’s right to that money, taking it at that point was a cruel blow, crippling the company. It folded in the summer of 1976.
The record company, by standard measures of business, was a failure. As always, though, the Dead learned from their errors. The band now knew the details of record pressing, promotion, and distribution, which helped them in later dealings with outside record companies. Even more important, it gave them the incentive to build their mailing list and improve their fan network. What started as an outlet for record sales became something far more vital and gave the Dead the confidence they would need for their next adventure in insourcing.
In the fall of 1980, the Dead celebrated their fifteenth anniversary with fifteen shows at the Warfield, a theater in San Francisco, and eight shows at Radio City Music Hall in New York. So many kids camped out outside Radio City that it stopped the flow of people into Rockefeller Center. Once the ticket office opened, only a handful could buy tickets. The rest of the tickets, according to band employee Nicki Scully, “had all been pre-scalped.” This wasn’t the only problem with Dead tickets. In the early 1980s, the Ticketmaster era of mass ticket sales via telephone—much less Internet—had not yet arrived. Acquiring tickets to see the Dead required standing in line at a ticket office, and given the devotion of Dead fans, this usually meant spending a night on the sidewalk. For some fans, this was just part of the experience. But, as McNally notes, “there were committed Deadheads with jobs who could not spare the time.”
In response, the Dead created an in-house ticketing operation, Grateful Dead Ticket Sales. This was paired with a telephone hotline offering recorded information about upcoming tours and special events. Eventually there would be two hotlines, one for each coast, and a third number for problems with tickets. Deadheads now could determine when and where the Dead would be playing next and obtain tickets, usually a month or more before they went on sale at the local venue. As McNally put it, “it proved to be a marvelous idea, not only because it employed dozens of family members but also because it opened up the demographics of the audience to include people with more or less conventional lives. The hardest core would always find a way, but now the respectable could too.”
They didn’t accomplish this insourcing without a fight. Ticketmaster, which had been founded in 1976, had signed exclusive contracts with most of the venues where the Dead played. Conflict was inevitable. At a meeting, Ticketmaster officials told Dead lawyer Hal Kant that the Dead’s in-house ticket operations interfered with Ticketmaster’s business. Kant, always on his toes, threatened to sue Ticketmaster, charging that the Dead’s relationships with these venues predated Ticketmaster, and therefore Ticketmaster had interfered with the Dead’s contractual relations with the venues. They reached a settlement, and the Dead got to continue selling tickets. Over the next decade, in-house ticket sales grew from 24,500 the first year to 115,000 annually in the 1990s. By cutting out the middleman, they were able to keep a higher proportion of ticket revenue, and thereby keep prices lower. At a time when other rock ’n’ roll legends such as the Rolling Stones were attracting corporate sponsorship to their tours and raising ticket prices to astronomical levels, the Dead put a ceiling of thirty dollars on ticket prices, and they never accepted corporate sponsorships.
The Dead was the only band to make a success of such a complex operation. As always with them, it wasn’t just about money. Insourcing the ticket sales not only made things easier for Deadheads with jobs, made the band more money, and helped keep ticket prices lower, but it also made the Dead’s relationship with fans more intimate. The fans sent order forms and checks, and they got tickets in return. Instead of dealing with a box office, they were dealing directly with the Dead.
And it became very personal indeed. When they requested tickets, fans would send in envelopes often elaborately decorated with Grateful Dead–style artwork—either to heighten their chances of being granted tickets, or simply as a small gift to the Grateful Dead, a thank-you for the musical joy the Dead had brought them. The Dead reciprocated, adding artwork to the tickets, different for each concert, making each ticket even more of a memento of the event. Tickets for New Year’s Eve shows, always an important date on the Dead calendar, evolved over the years into spectacular pieces of art. What had started out as a straight financial exchange—tickets for money—became something much deeper, and drew the Dead and their fans closer together.
In the 1960s the Dead had general disdain for the business world. They were convinced that if they worked only with people they knew and trusted, they could avoid some negative aspects of doing business: too much emphasis on profits, a lack of concern for others, power concentrated at the top of the hierarchy, and a limited understanding of customer needs and wants. The Dead “pursue a direction of self-determination in as many ways as interestingly possible, believing that this course will best aid a continuation of integrity and meaning in their music and other life spaces,” said longtime band employee Willy Legate. “This has meant that their business activity seeks to be in control of as many areas as become possible, employing their own people to do the work that would otherwise be farmed out to straight business. Thus there is the possibility that the message in the music can be reflected in the manner and purpose of conducting the business necessary to get the music heard.”
As we’ve seen, it didn’t always work, but these failures laid the groundwork for future success. From the Carousel, the band learned how to put on live shows, and the intricacies of record pressing, distribution, and promotion, skills that would help them as they moved ahead with outside providers of these services. Even more important, the record company venture brought them into direct contact with their fans, which allowed them to build up a mailing list and interact directly with their customers. They also built up a staff with an increasing level of commitment and business acumen. When it came time to launch Grateful Dead Ticket Sales, they knew what they were doing, and they had the access to their fans they needed to make it work. Their deep commitment to putting out well-made records and to providing great customer service paid off in the end.
It goes without saying that no business should outsource a core competence, because giving up control of your distinctive advantage would be the height of folly. The Grateful Dead, though, expanded on this concept, using insourcing to move beyond their first core competence, playing music, into customer service and direct sales. By bringing ticketing and merchandising functions in-house, the band expanded its business plan and its capacity to please customers and make sales.
The recent mania for the opposite business principle, outsourcing, was driven by a desire to save money, provide better services through specialized firms, and manage staffing levels more efficiently. For many companies, this worked. Others, though, found that the services provided by the other firms proved lower in quality because the people doing the work had less knowledge of the company and less commitment to the core mission. There’s still a case to be made for many sorts of outsourcing—indeed, in many industries you can’t be competitive without it. In today’s climate, however, every aspect of a business’s operation is scrutinized by savvy consumers who ask questions about labor practices, environmental health, and human rights, in addition to demanding personalized customer service. The Dead proved that insourcing works and that a great business can be built by going it alone.