Passage II

SOCIAL SCIENCE: This passage is adapted from the article “Management Secrets of the Grateful Dead” by Joshua Green (©2010 by The Atlantic Monthly Group).

Since the 1970s, the Grateful Dead has invited academic examination. Musicologists showed interest, although the band’s sprawling repertoire and tendency to improvise posed a significant challenge. Engineers studied the band’s sophisticated sound system, radical at the time but widely emulated today. Other disciplines have also found relevant elements of the band’s history and cultural impact to be worth examining.

Oddly enough, the Dead’s influence on the business world may turn out to be a significant part of its legacy. Without intending to—while intending, in fact, to do just the opposite—the band pioneered ideas and practices that were subsequently embraced by corporate America. One was to focus intensely on its most loyal fans. It established a telephone hotline to alert them to its touring schedule ahead of any public announcement, reserved for them some of the best seats in the house, and capped the price of tickets, which the band distributed through its own mail-order house. If you lived in New York and wanted to see a show in Seattle, you didn’t have to travel there to get tickets—and you could get really good tickets, without even camping out. “The Dead were masters of creating and delivering superior customer value,” Barry Barnes, a business professor at Nova Southeastern University, in Florida, told me. Treating customers well may sound like common sense. But it represented a break from the top-down ethos of many organizations in the 1960s and 1970s. Only in the 1980s, faced with competition from Japan, did American CEOs and management theorists widely adopt a customer-first orientation.

As Barnes and other scholars note, the musicians who constituted the Dead were anything but naive about their business. They incorporated early on, and established a board of directors (with a rotating CEO position) consisting of the band, road crew, and other members of the Dead organization. They founded a profitable merchandising division and, peace and love notwithstanding, did not hesitate to sue those who violated their copyrights. But they weren’t greedy, and they adapted well. They famously permitted fans to tape their shows, ceding a major revenue source in potential record sales. According to Barnes, the decision was not entirely selfless: it reflected a shrewd assessment that tape sharing would widen their audience, a ban would be unenforceable, and anyone inclined to tape a show would probably spend money elsewhere, such as on merchandise or tickets. The Dead became one of the most profitable bands of all time.

It’s precisely this flexibility that Barnes believes holds the greatest lesson for business—he calls it “strategic improvisation.” It isn’t hard to spot a few of its recent applications. Giving something away and earning money on the periphery is becoming the blue print for more and more companies doing business on the Internet. Today, everybody is intensely interested in understanding how communities form across distances, because that’s what happens online.

Much of the talk about “Internet business models” presupposes that they are blindingly new and different. But the connection between the Internet and the Dead’s business model was made years ago by the band’s lyricist, John Perry Barlow, who became an Internet guru. In 1994, Barlow posited that in the information economy, “the best way to raise demand for your product is to give it away.” As Barlow explained to me: “What people today are beginning to realize is what became obvious to us back then—the important correlation is the one between familiarity and value, not scarcity and value. Adam Smith taught that the scarcer you make something, the more valuable it becomes. In the physical world, that works beautifully. But we couldn’t regulate [taping at] our shows, and you can’t online. The Internet doesn’t behave that way. But here’s the thing: if I give my song away to 20 people, and they give it to 20 people, pretty soon everybody knows me, and my value as a creator is dramatically enhanced. That was the value proposition with the Dead.” The Dead thrived for decades, in good times and bad. In a recession, Barnes says, strategic improvisation is more important than ever, “If you’re going to survive an economic downturn, you better be able to turn on a dime,” he says. “The Dead were exemplars.” It can be only a matter of time until Management Secrets of the Grateful Dead or some similar title is flying off the shelves of airport bookstores everywhere.