Create an artistic and business mission. Record labels aren't like stores or other businesses where you'll need to a lot of front-end works (mainly because you don't need a location or product to start a label), but you should write a mission statement before starting the company. Similar to a business plan, this will help focus your work and should answer some basic questions: What are your short and long-term goals? Do you want to remain an independent label or eventually seek big-label distribution? What type of rap do you want to focus on, or will you be open to all artists.
If you are working with partners, be sure that everyone is on the same page with the mission.
Register your business with the IRS. All businesses that plan to earn revenue must register for a Tax ID, or an Employer Identification Number. Visit the IRS Website to register (www.irs.gov/businesses/small/article/0,,id=102767,00.html).
Hire an Attorney. The music business and the legal industry are often intertwined, since contracts make up the bulk of the exchanges in the industry. The artists you sign to your label will need a contract and, sometimes, so will their managers, publicists or agents, so it's important to have an attorney who charges you a reasonable hourly fee to create and negotiate these contracts. Additionally, if you plan to sign with a bigger label down the line, this lawyer may be able to negotiate a good contract for you.
To find attorneys with experience in the entertainment business, search the American Bar Association's lawyer database, http://www.abanet.org/lawyerlocator/searchlawyer.html
Find Artists. Unless you are a hip-hop artist yourself, you'll need to find artists for your label. The best way to do this is to immerse yourself in the local rap scene, attending locally sponsored concerts, open mic nights and freestyle battles. Local rap and hip-hop stations will normally advertise these events as well as local party promoters.
Make Music. Rap artists record songs in music studios. Find one at Studio Referral (www.studioreferral.com/). Artists will need to purchase a "beat" (background music) from a producer before recording, however most up-and-coming rap artists are already attached to a producer who is producing most of their songs. As the record label, you should either provide an artist with an album budget for these costs or pay for things as they come up (all of this will have been outlined in the artist's contract as well). If you have multiple artists, it might be financially prudent to purchase studio time that is convenient for everyone.
In addition to the artist and producer, you will need a sound engineer to monitor the levels of both the "beat" or "track" and the microphone and also to actually record the song and turn it into an MP3 that can be electronically distributed. Some studios have engineers for hire, while others don't. If the studio doesn't, speak with the studio's owner or manager to find leads on local engineers in your area.
Market Music. Once you have a good product, you'll need to sell it to radio stations and local DJs. Start with your network of music industry contacts and try to get the music into the hands of as many people as possible. Radio stations that are not owned locally often do not have much of a choice what to play, but locally owned stations are usually happy to play local artists, so look to these stations first.
Use the Internet to market your products as well, setting up a Web site and a MySpace.com profile where people can listen to the MP3s for free. Upload your music to video sites like YouTube and Vimeo and spread these videos to everyone that you know.
Some indie rap labels, like Jay-Z's Rocafella, have also had a lot of success with street teams that go to high schools, barber shops, clubs and events where a lot of young people congregate to pass out songs and flyers that promote their music. Big events for rap fans might include Homecoming weekend for historically black colleges and universities, the official after party of a rap concert or even hair shows sponsored by hair and barber companies.
Track royalties. Once you start to sell music, your artists will work with performing rights companies. The three major American organizations that do this are Broadcast Music, Inc. (BMI), American Society of Composers, Authors and Publishers (ASCAP) and Society of European Stage Authors & Composers (SESAC). Their main function is to take a portion of the sales generated by a song or album and distribute funds to the people that worked on the song, mainly songwriters, producers and publishers. Depending on the contract negotiated between your label and the artist, the label and sometimes the attorney will also recoup a percentage of each song or album's sales. The artist will also receive a percentage, based on their contract.
An artist will work with these companies directly, so as the head of the label you will not be involved, though you may advise your roster on these companies.