We frequently discuss people’s networks expanding by closing ties between those who have a mutual friend. What about networks of businesses though? Let’s explore the idea of creating an entirely new network (competitive and complementary businesses) out of nothing with an “anchor business.”
Most people would not know of Muscle Shoals, Alabama if it were not for several hit recordings that were produced there in the 1960s and early 1970s. Between the records produced by FAME Studios and Muscle Shoals Sound Studios, this once humble city now rivals the musical success of Detroit, Nashville, and Memphis. In Debbie Elliot’s NPR article, “The Legendary Muscle Shoals Sound,” she describes the rapidly growing interest in the city’s musical history. Elliot writes, “Muscle Shoals seemed an unlikely place for a celebrity crowd: the nicest hotel was a Holiday Inn, and sometimes the area’s studios would put artists up in mobile homes at the local trailer park. But the music kept the stars coming, and in its heyday in the mid-70s, the area was home to eight studios.” Tourism is now one of Muscle Shoals’ leading resources. Since its first hit in 1963, FAME Recording Studios has served as an anchor business to the local community. In addition to creating markets for tourism such as souvenir shops and hotels, FAME’s success inspired the creation of more recording studios. Fame started this new network of businesses just by being successful in an otherwise fairly isolated place. For example, Muscle Shoals Sound Studios, an incredibly successful rival to FAME, was built in 1969, shortly after FAME made its name. Muscle Shoals Sound Studios was actually created by musicians who used to work at FAME. In fact, the human relationships mirror the business relationships: competitive and adversarial because the decision to break off from FAME created personal conflict. It’s amazing to think this pretty pretty big, new network of positive and negative relationships of businesses never would have existed if it weren’t for those first hits. The city’s signature sound and reputation has lead to an enormous growth in the local economy, and the businesses don’t necessarily break off into two sides because they all just want to maximize profits for tourism. For example, both FAME and Muscle Shoals Sound Studios put musicians up in the same hotels; the hotels don’t pick sides if there’s money to be made. Either that is very unstable in the short-run, or business networks work differently.
This actually relates to herding because the first few who made hits influenced those to come. Seeing hits being produced are the signals, and signing to a company is an action (accepting). The players are music artists choosing to go to recording studios (signing with them) based on that studio’s success (the artists’ hits before them). These artists can get a high or low signal from the recording success before them. After Wilson Pickett and Aretha Franklin became hugely successful at FAME recording studios, for example, other bands started cascading toward Muscle Shoals, seeing that these artists received high signals from the record company’s style/techniques. Disclaimer: this means the model doesn’t fit perfectly because there aren’t independent signals. The first couple people get signals based on whether they think it’s a good company, the next people will be able to infer about all the signals before them because there’s a building, public signal (other than the first few).
This community’s fantastic fortune, brought about by a single business made me think of my home area of Northern California’s Wine Country. Before Sonoma and Napa became the home of popular wineries and tasting venues, this apple and prune farmland was not conducive to tourism. Now, well over 400 wineries attract visitors from across the world. Not only do these wineries create venues to create human connections, these businesses have positive and negative relationships as well. It all had to start with at least one anchor business creating opportunity for this huge network and market.