A Techy to Enter Retail – Reverb’s Founder Tells How He Had Lost to Found

The only way out is through. It's not until 3 years later of running a retail that David Kalt recognizes what he really wanted. The founder tells the notion of running a new marketplace, why people even trust him for the trades?
Small business owners utilize Reverb platform
Courtesy: Chicago Music Exchange
By | 12 min read

Founded in 2013, Reverb has built an online marketplace where shoppers can buy and sell new, used and vintage music gear. The company raised $47 million in venture capital from investors such as Paypal founder Max Levchin. In 2017, Reverb launched Reverb LP, another platform for musicians to browse, sell and buy records.

Employed about 170 staffs. By the end of 2019, the company was acquired by Etsy for $275 million in cash.

Reverb’s Story: Always Remember Your Mission – Why You Started It?

In the middle of chaos, David Kalt remembers why he wanted to buy a guitar shop.

Kalt pick up and fell in love with the instrument since high school. After college, the founder wen to Chicago, where he got a job in a recording studio, which event surprisingly introduced him to computer software. In 2000, two partners and Kalt launched OptionsXpress, an online trading platform. The company went public in 2005, and with some money from the sold shares, Kalt decided to treat himself with his dream vintage guitar.

He began dabbling in trading vintage and used equipment on eBay and found the experience less than fulfilling. Whether it on eBay, Craglist or even building your own website, Kalt says there was some opportunity to build something in a community where people really obsessed over gear, whether it is guitars, drum kits, keyboard or anything. All musicians, have one thing in common, they are all searching for that sound, that tone that is going to give their voice a special sound. With that sentimental reason, there need to be a place where people can talk about this, and actually can find what they need there. And that is the genesis of Reverb.

According to Kalt, the market for musical instruments is massive and fragmented. Roughly $15 billion in new musical instruments get sold every year and around $7 billion is spent on used gear globally.

Customers check in a product from Reverb's store front
Courtesy: Chicago Music Exchange

 “I saw this massive spread between what dealers were looking to make and what consumers and musicians were getting for it,” says Kalt.

And at that fateful search, he found the urge to have his own guitar shop – something that would be different and more than just a shop.

In 2009, Kalt bought the domain reverb.com and a store as a showroom. And that store happened to be the exact one he bought his first guitars the Chicago Music Exchange, which has all these rock-star clients like Tom Petty and Jeff Tweedy. For $8 million, Kalt says with a running business it would easier and take no time for he to learn how to buy and sell instruments.

After three years of learning the business and dealing with retail staffs, customers from behind the counter. It dawns on him, why he wanted to start Reverb at the first place – to create something different, something that really helps – better than eBay or any e-commerce platform.

Reverb is here not to compete with guitar centers and musician friends, it should be a transparent bridge to gap holes. So there comes the marketplace model. This would bring lots of musicians together and allow musicians to compete, or to be on a level playing field with dealers.

How does Reverb make money?

When they started Reverb, Kat told the Inc., musicians were getting 50 cents on the dollar when they sold something and paying 100 cents on the dollar when they bought something. By cutting fees and offering more information about comparable sales, the site narrowed that gap and gotten millions more instruments on sale.

As of now, selling fee for Reverb are 5% of total the value of the transaction, including shipping. You pay only when the buyer’s money is already in your hand and the fee is based on the total selling price, inclusive of all costs.

About the instrument business, Kalt says it is not much different from his previous one with OptionXpress. Good stocks retain value over time or only go up, and so does musical instruments. This is no bagels that lose all their value. Even though new inventory drops in price about 20% after you buy it, but its value holds afterward. And once it becomes vintage, its value goes up. It’s this huge market that gets better with age. How people hold on old values that make Kalt more than grateful on what he is doing!

Reverb website homepage
Courtesy: Reverb

More from the site, around 2015, it launched another domain for music lesion. But it did not really work. Kalt says music lessons were not in the DNA of their platform. Things like scheduling, goal setting or controlling instructor quality is not the initial value its founder wants to cherish. So, there comes a subsidiary that sells used vinyl records. Which has more in common with what the team already do and align with the spirit of discovery, making an offer and customer service.

What Does Reverb Offer That Other Platforms Don’t?

A man from the industry himself, Kalt claims, Reverb was built specifically for the musical instrument industry by a team of musicians. Every tool, service button, and more you have seen on the site was created with the music community in mind.

As a musician, Reverb’s fees mean to be the lowest among e-commerce platforms. Kalt says when you call, email or chat, you do not just get a human on the other end, he wants to have a musician there to answer all your confusion.

Besides, the site also builds connections and nurtures culture with its great effort on high-quality video and editorial content, artist interviews, gear demos, and how-to. Not only selling and buying, Kalt is trying to inspire and help its shoppers understand what they are getting into.

Friendly environment, inspiring culture are the obvious strengths of Reverb, however, there is always a stigma along online marketplaces is that it nurtures the act of selling product at the cheapest possible price. Manufacturers do not want their products sold there, would that be apply on Reverb?

Kalt stressed as he and the team serve the industry, it’s critical that they keep the industry healthy. He does not consider the company in the same group of the massive, generic marketplace – instruments are the team passion, not just another category.

The founder also share, Reverb has been working closely with large and boutique manufacturers to support their products and dealers. For instance, Electro-Harmonix, who made a big decision earlier this year to restrict their sellers from selling on platforms like Amazon. The company, however, did not restrict dealers from Reverb. There are also many big retails release their devices uniquely on Reverb’s platform. Kalt says it was the demanding work the whole team has put on to support both brands and their dealer network that has built such great connection and trust.

Talk with the Entrepreneur: Retail – “I Thought It Would Be a Walk in the Park”

Learn the business is one but to keep it healthily alive is another story. Alongside Reverb.com, David Kalt still has his store Chicago Music Exchange on operation and running as a retailer.  Kalt shares his immersion in this business.

Reverb founder and CEO speak in a meetup event
Source: Equity Credit

Before Chicago Music Exchange, the founder had spent the prior almost 20 years in tech, for building software and consumer-facing software. The fact of owning a software company, Kalt says, made the idea of running a retail really comfortable, even it is building or scaling, it could be easy for him – like a walk in the park.

And the real venture into the retail world, turns his expectation upside down. Even though Kalt was up for challenge, he loves customers and skilled in providing great experiences. In all his software years, experience was everything – he knows UX well enough to make great business. But when it comes to the actual store, the questions ironically be “How can I provide a great experience?” – customer service in retail is a whole new realm.

Kalt recalls, it was lucky he bought the store from a gentleman that has a taste-level, its visual experience is amazing with chandeliers, couches and everything. But to Kalt there is still something missing, a final touch in terms of affordability – in term of having great service to back up great instruments and that is what he needs to work on!

Chicago Music Exchanges was bought for 8 million, of which 7 million dollars are inventory. Initially, it was a beautiful art gallery that really was not focused on selling much. But as of today, the store does 50 million dollars out of one location, according to Kalt, he transformed it from a gallery to a place that people could go for any style of affordable instruments at all price ranges.

And when you connect all the story points, it’s kind of ironic. How this creative spent most of his career in developing software and dealing with customers in sort of a virtual online capacity. Then buy a physical store, extract value out of that, learn from that process and then go back and bring that to an online world, which is kind of where he feels most comfortable and familiar. About Chicago Music Exhange, Kalt has a partner to watch out full time for him, so he can focus and do what he loves most at Reverb.

How Can Retailers Compete in Any Market – Tell a Marketplace Owner

As running a marketplace, the founder sure notices a thing or two, on how retailers could compete amongst others. On Reverb or elsewhere, these are the top tips.

Reverb team at their headquarter
Source: Musicmag

It’s all about standing out, selling gears or anything. This starts with inventory, which you can make even more distinct by considering secondhand gear. The wonderful thing about selling online is you have access to millions of customers – far more than could ever walk through your doors. Which also means more competition. If you are selling the same new guitar, at the same price, with the same stock photos and manufacturer-supplied specs, you will have a very difficult time convincing a shopper to buy from you over someone else.

When you have secondhand inventory, it’s likely unique—you might have the only one in the world at that price with that history. It does take a little more work to source and resell secondhand and vintage instruments, but it can pay off. There are many retailers who’ve made secondhand a core part of their strategy and have sold well over a million pounds on the site.

Another tip is to treat online customers the same way you would treat in-store customers. All customers expect friendly service, quick support, and a positive experience. That expectation extends all the way to your listings—take great photos, write detailed descriptions, and use a consistent background. Answer questions quickly and have a return policy that is consistent with today’s consumer’s expectations. Reverb has built tons of tools to make this incredibly easy, from creating listings and messaging customers to negotiating on pricing and providing post-sale support.

A Daunting Challenge Trades for an Inciting Lesson

Reverb founder in an interview on NASDAQ
Source: Dhananjay Parmar

With a passion in music, Kalt, however, has a background in Fintech. The founder shares his biggest challenge in building this kind of environment.

With any marketplace, your first and particular challenge would be figuring out how to create liquidity. It’s like a chicken-and-egg situation, you could attract musicians to the platform after you got seller on board, but to convince seller to use a site that does not have any audience is another story. As tricky as it was, Kalt recalls, spent a lot of his time the first few years of Reverb meeting with shop owners and retailers’ facet-to-face, trying to convert his vision. It was quite daunting at first, Kalt remembers, because he was nobody in that instrument retail world. However, it was those hard times that made the sweet of today, it shaped in the team the dedicating mindset to support sellers and making sure they have everything they need to succeed.

As many lessons cultivated along the journey, Kalt shares one piece if ethos he wants to be passed on. In music, in business and in life, make sure you never stop learning and playing. As long as you keep asking questions and stay curious, knowledge is always at your fingertips – and all dreams should come true with just the right knowledge. Reverb is the destination for music makers that it is today because the team never settled and constantly asked themselves questions that brings advancement. If you are trying to do more with less, ask questions, the right question is the right way out!

The Bottom Lines

In 2019, Reverb announced to be acquired by Etsy – a global online marketplace for handmade and vintage items. However, its founder claims the site will remain a standalone business, but with the added support of Etsy. Partly because its parent company knows, Reverb works for the way it cherishes the musician community, and as long as the artists are still here to run business such spirit will keep the business alive.

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