The Mischievous Machine
In the golden age of virality, it seems as if ‘going viral’ is the new marketing strategy. After all, what brand doesn’t want to replicate what Old Town Road did for Lil Nas X or what “Peloton Girl” did for Aviation Gin (okay, that had a LOT to do with Ryan Reynolds)?
In the golden age of virality, it seems as if ‘going viral’ is the new marketing strategy. After all, what brand doesn’t want to replicate what Old Town Road did for Lil Nas X or what “Peloton Girl” did for Aviation Gin (okay, that had a LOT to do with Ryan Reynolds)? As Generation Z continues to mature into modern consumers, companies have been doing all they can to reach consumers in an increasingly omni-platform way. Phrases like “Should we start a TikTok account,” “What if we give away a Tesla,” or even “Let’s spend $500M buying sponsored posts on IG meme pages” can be heard in the most corporate of marketing meetings.
Despite social media being over a decade old, no one has been able to showcase mastery in going viral. There’s no clear playbook. It’s as much due to luck and serendipity as it is high-level strategic thinking. However, there’s one company making waves across the internet right now, and they’ve seemed to crack the code. You’ve probably heard of them, but if you haven’t you’ve probably heard of one of their many “drops.” They go by MSCHF, and they’re unlike any company you’ve ever come across before. Inspired by a conversation over dinner in downtown Detroit, I felt compelled to explore the possibilities for MSCHF to succeed.
After all, with the Theranos’, WeWorks, and Caspers of the world, it can be difficult to mistake hype for genius. Through assessing the past of the art industry, the present of the marketing industry, and the future of the financial investment industry, I aim to provide a unique take on how this company could potentially succeed.
Cultural Mischiefs
Here’s how they operate. Every two weeks, they release a “drop.” Each drop is completely different from the others, and they’d like to keep it that way. They’ve dropped things like sneakers, accessories, and even a mobile app that tells you what stocks to buy based on your astrological sign.
Some of my favorite drops by them include:
Each drop can be seen as strictly a marketing stunt, but a few of their drops, like the Jesus Shoes, for example, have gotten so much hype that they’re still getting requests to make more. Which, like the artists they are, they punt on the opportunity to do so because that’s not what they’re here for. In their eyes, they’re artists who happen to be entrepreneurial.
To properly frame up the conversation of how I think MSCHF can find success, I must first explore the past to understand the present and hopefully predict the future. Specifically, I assess the past of the art industry, the present of the marketing industry, and the future of the financial investment industry. Let’s dive in.
The Past — Art and The Machine
“The point … is to produce social commentary” — Gabe Whaley, MSCHF CEO [source]
For this section of the thought experiment, I decided to dig deep into understanding two things in the art world: pop artists and art funds. Pop art is best described as art that is based on what’s “popular” in culture. In today’s world, whatever is being discussed by the masses on social media. Art funds are interesting to me because they’re the only other way one could invest in art without owning specific pieces. I’ll dig into art funds later in the article, but for now, let’s learn about pop artists!
The Machine
When it came to researching pop artists, I had a litany of people to choose from. I could look into Banksy, Koons, Lichtenstein, and many others, but only one name stood out to me — Warhol.
I chose Andy Warhol for 3 reasons:
1) He’s famous for being prolific
2) His work spans multiple disciplines (pop art, music, film, and fashion)
3) He was innovative and broke boundaries.
In my research of Andy Warhol, it became evident to me that he would’ve thrived in today’s era of entrepreneurship. He was prolific and multi-dimensional — he was a polymath. He dipped his toes into any and every art form he pleased and was rewarded for it with fame, fortune, and legacy. His ability to be multi-medium has no doubt inspired today’s modern-day polymaths — West, Abloh, Pharrell. On top of this, he was obsessed with scaling his artistic ability — he was obsessed with mass production.
“The goal of mass production is low‐cost manufacturing. Three enablers contribute to the achievement of this goal: (1) interchangeable parts, (2) the moving assembly line, and (3) dedicated machinery and manufacturing systems.” [source]
For Warhol, he would take these principles and reformat them to fit his production process.
Warhol’s 3 Enablers:
- Interchangeable parts: Warhol and his “art-workers”
- Assembly line: The Factory
- Dedicated machinery: Silkscreens
His obsession with the mass production of his work is evident in his opening of The Factory, his art studio and collective that would become the assembly line to his work. Even his choice of materials, silkscreens, allowed him to replicate the artistic process at a scale he pleased.
The Factory was his crowdsourced incubator for creativity, and it allowed him to scale his thoughts and desires. It allowed him to dig down rabbit holes. It freed up his ability to explore whatever he desired, rest assured the execution of his thoughts were in good hands.
Knowing this about Warhol and his approach helps us understand how we should be thinking of MSCHF. I’m by no means suggesting that MSCHF has, is, or will create work as groundbreaking as Warhol. I’m merely pointing out that MSCHF is adopting a similar approach.
MSCHF’s 3 Enablers:
- Interchangeable parts: The MSCHF Collective (their team members)
- Assembly line: The Internet
- Dedicated machinery: MacBooks, iPhones, Notepads, Whiteboards, etc
By positioning MSCHF as an ‘artist,’ we allow ourselves to think about their exit opportunity in the same light as we would with an artist and their art. Therein lies the opportunity for MSCHF — treat your work as art and monetize accordingly.
So, how does MSCHF get on Warhol’s level? By employing the modern-day marketing strategy — hype and virality.
The Present — The Flywheel of Culture
Culture is an interesting word. Merriam-Webster describes it as, “the characteristic features of everyday existence (such as diversions or a way of life) shared by people in a place or time.” [Merriam-Webster] In conversations with friends, culture is used as a noun most analogous to the word zeitgeist. We often base thought experiments around prompts such as, “Why is this culturally relevant?” or “Who is driving culture?”
The mechanisms for becoming culturally relevant are inextricably linked — virality and hype are the two-punch combo every brand trying to sell to Generation Z tries to master. Most end up failing. These two mechanisms provide the kinetic energy necessary for brands to break through the boundaries of culture and set the tone for their success. Few brands can master this. Even fewer can stay relevant over time and stay consistent through the noise. But there’s one brand in particular that has outlasted the trend-riding, fast-dying norm of hype culture to build a name that’s become synonymous with the word hype — Supreme.
When you compare the strategies MSCHF and Supreme employ, you begin to recognize a through-line. Let’s explore.
In a very solid breakdown of Supreme’s growth strategy, Soham Kulkarni assesses the tactics behind the 21st-century hype strategy.
Hype Branding Theory:
- The art of limited supply
- Unique approach towards customers
- Collaborations to increase the brand hype
For the MSCHF ‘Jesus shoe’ drop, you can tie threads between the execution of the drop and the aforementioned Hype Branding Theory. Only 25 pairs available? Limited supply. You have to text them to get notified of the drop? Unique approach towards customers. Nike shoes and Holy Water from the River Jordan? The “ultimate” collaboration*.
*In fact, the drop was meant as a commentary on how absurd collab culture has gotten.
In today’s noise, it’s becoming evident that the only way to truly build a great brand is to evoke such a strong association with consumers’ emotion that people are willing to camp out for days at a time to secure a drop or even pay 5X retail on platforms like StockX just to wear it out one time and afterward list on Grailed.
I’ve been subscribed to MSCHF’s text line for the past 6 weeks now, and I’ve still yet to get early access to their drops. I can’t tell whether or not it’s on purpose or due to poor management. Regardless, it’s working on me, and I imagine others around the country are waiting with bated breath to see what they’re going to do next.
The future — The Mechanism of Capital
In the wealth management industry, art is increasingly becoming a recommendation as an alternative asset. The global art market alone reached $64.1B in 2019. Currently, there are two ways high net worth individuals can invest in art — directly as a collector or indirectly through art funds.
Art funds, in particular, are interesting to explore since they share a similar model to venture capital firms. Instead of investing in a portfolio of startups, however, art firms acquire a portfolio of art. And as with venture capital, the portfolio’s success depends on the successful sale of the underlying assets (the art).
Like a venture capital firm, the art fund operates by taking in capital from limited partners, identifying and investing in arbitrage opportunities, holding onto them while the assets’ value increases, and selling them for more than they were worth at the time of purchase. In the case of art funds, the assets are works of art (literally). They often include paintings, sculptures, photographs, and a variety of other art forms.
The art fund strategy is a longer-term, buy and hold strategy, not too dissimilar from startups and venture capital. In both cases, it takes time for fund operators to identify, invest, and divest high ROI opportunities.
So why does this matter? For MSCHF to be successful, I propose this strategy — they must treat themselves as an art fund in which the underlying assets are the art pieces they create.
Imagine if Andy Warhol had created a holding company, Andy Warhol Incorporated (AW Inc.), that owned every piece of art he ever created. Now imagine you invested in that company just as he was becoming popular. If you owned, let’s say, 5% of AW Inc., and he sold the company for $1B, you’d make $50M. (Lots of assumptions here but work with me)
There’s a flaw in that thought experiment. For AW Inc. to hold that valuation, it would require Warhol not to sell any of his pieces and just let the collection appreciate. This wouldn’t work, however, because if no one is buying Warhol pieces, how could we possibly know what his pieces (and overall, his portfolio) are worth?
Enter ✨technology✨. In recent years, platforms like Masterworks, Otis, and Rally Rd. have launched to essentially democratize the art investment industry. Before them, one could only invest in art if they were a high net worth individual. These tech platforms allow everyday investors to purchase shares of art and collectibles, instead of whole pieces. They source and purchase the art, securitize each piece with the SEC, open investment up to the public, and then they eventually sell the whole piece and distribute the profits accordingly.
By partnering directly with a platform like this, AW Inc. would be able to sell each of its pieces as Warhol creates them, while still keeping a portion of ownership. As each piece is sold, the shares would be given a tangible price point, in turn, pricing the entire Warhol portfolio. And when AW Inc. wants to sell, the acquirer would be assuming ownership of the AW Inc. portfolio made up by shares of each art piece AW Inc. created.
If MSCHF were to do this, it would give them and their investors a clear path to exit — they just need to find someone who wants to own a portfolio of art catered to Generation Z hypebeasts. Maybe The Carlyle Group? 👀
As MSCHF continues to carve their name into culture, they’ll inevitably grow their portfolio value. They don’t even have to switch up their drop strategy, either. They can continue as planned, and when they drop anything that has a physical component, they can partner with one of the tech platforms to add it to their portfolio.
One closing note: Something that stood out to me when analyzing artists (and subsequently MSCHF), is that artists are the ultimate linear commerce play. They are both an audience company as well as a product company, and when they become near-household names, almost everything they do is a product. Almost everything they do is newsworthy. And as artists strive to break through boundaries and pigeonholes, it seems as if MSCHF started multidisciplinary so they won’t have to face the same thing.