‘What really turns me on is a consumer product that is solving a meaningful problem’
12 Minute Read
- Writing film scores and deconstructing music inspired Pandora’s founder to start the popular music app
- Pandora had different business models including B2B before pivoting to consumer
- Learn how Westergren motivated employees without paying them for years
1.0 Early Inspirations
How did your background playing and writing music lead you to start Pandora?
I was in a band until my early 30s. But my real passion in music was composing, and so I started writing film scores. And writing film scores, it’s a very particular kind of discipline where you sort of deconstruct music and you first try to figure out what a film director wants for a movie, which is part of the art of being a film composer.
So I just started thinking about music in its component parts. It’s a very deliberate form of composition, and you’re also trying to profile the taste of the director, so I just started thinking about the genome of music and the genome of taste. And I actually developed a methodology for profiling someone, where I would bring a stack of CDs and sit with a director and just play stuff for them and get their feedback, and translate that into an understanding of musicological understanding of what they were looking for so I could go back and compose something I knew they would like.
So I was doing this, I was living in the Bay Area, I was spending a fair bit of time in L.A. too, but I was based in San Francisco and this is right in the middle of the whole big first consumer dotcom craze, when the consumer web was just hitting.
And the idea sort of popped into my head one day, because I’d been following what was going on with online music and all these catalogs going online, the problem with navigation. And I just had this idea one day that I could maybe build, sort of codify all this stuff I had kind of been thinking about as a composer and build sort of a really smart music search engine and deliver it over the web.”When I was in my early 30s, I was broke.”
It was the kind of time where I shared it with a friend of mine who sort of said, “Let’s go see if we can raise some money,” and within a couple of months we had a million and a half dollars to go build the music genome project. So I became part of the dotcom population.
Unless you’re a huge name, making a living as a full-time musician is really challenging. Were you going into this project kind of broke?
Yeah. I mean credit cards helped me through things at times, unfortunately, but when I was in my early 30s I was broke. I did not enter this startup gig with a nest egg. And in a sense, that was actually good preparation for the world of a bootstrap startup. I had spent the last 10, 12 years before that essentially being rejected most of the time and having to sort of be creative about building a business and having to really do things on a shoestring, so it was very familiar to me when I started doing that in the context of a startup.
Who was the person who gave you the money? And why do you think they gave it to you?
It was a few different people. John Rogers, an investor in Minneapolis, was a family friend of my co-founder. He gave us a big check. And then we had Garage.com invested. I don’t know if you remember Guy Kawasaki?
This is probably maybe a little before your time, but he was kind of … Garage.com was sort of this hub of angel investing during the dotcom era, and Guy decided to invest as well. He gave us a quarter of a million dollars. So them and a handful of angels put the round together.
What did you do with the six months after raising the money?
Well, that money lasted us probably about a year, a little over a year.
What was your early team like?
I had one co-founder, a friend who was kind of founding CEO, like the business guy, then another third co-founder, Will Glaser, who was the chief technology officer, and kind of had a product, and then we had a small team of engineers, like three or four engineers. I had a musicology Ph.D. I hired, and then a batch of essentially musicians working hourly to do the music analysis and work on the genome. So it was a small team.
2.0 Money Problems
What happened next? I remember you basically ran out of money for a while?
In 2001, we started to get low on cash, we had to start looking to raise and we began having conversations and it was very clear that the fundraising climate had completely changed and so knowing that, we started doing everything we could to make our money go longer. The first thing we did was start reducing salaries. So we started paying people in options versus cash.
At first it was like 75% cash and then 50% cash and then 25% cash. Then after maybe a year or so, we stopped paying salaries altogether. And about 50 people worked a little over 2 years without getting paid. Not all of them full time but a good number of them, and we racked up like $2m of salary debt to people.
So how did employees get by with no income, and how’d you make it work?
We finally raised our next round of financing in March of ’04. We raised $9m, and by the time we got to that point I had 11 maxed-out credit cards, and I borrowed a lot of money from family and friends as well, so I was a couple hundred thousand dollars in debt to people just from borrowed money. And I think different people kind of did it different ways. Some people had working significant others. It was crazy.
I mean there was a kid there who joined us at 17 and one of the key engineers, and he was scraping by. There was a day actually when he said, “I can’t work anymore because I can’t afford my BART [subway] ticket to get to work tomorrow. So people just kind of begged, borrowed, and stole to get through it.
How did that make you feel? I know our business makes a fair bit of profit, but even when I hire someone if they have a significant other or a kid I feel an immense amount of pressure on me. How did that make you feel that someone couldn’t afford the BART?
I felt an enormous sense of responsibility, like I led these people down this path and I convinced people to stick around and do this, so I felt an enormous pressure to make it right. It’s hard to describe what that is like mentally and emotionally over that long a period of time. I think particularly when you have no idea when or if it’s going to end, or how it’s going to end, which is part of what’s so kind of debilitating about it.Most of these companies that get into the debt file we got into wind up closing down. So I think for a long time we had this feeling that we were just kind of throwing good money or throwing good time after that, and we’re kind of caught in this loop and feeling that we were just going to live to regret it. For me, I mean because I had been the one to sort of start it all, I knew I was going to go down with this ship. Just whatever happened, I was going to be the last man standing because I had been responsible for it all.So I certainly felt that this was going to fundamentally change the trajectory of the rest of my life, like I kind of mortgaged my future.
How often were you thinking to yourself “This isn’t going to work” or “I hate this, I’m quitting”?
I think probably it was sort of always on my mind. It was a combination of, “This is a disaster, but I’ve just got to keep going.” You just hold those two thoughts in your head at the same time.
Kind of fueled by paranoia.
They’re completely incompatible thoughts, but you have to hold them at once, it’s just the way it is. Like you’re, by any sort of objective measure, what you’re doing is insane but you still keep going. That’s kind of what it felt like for me, I was stuck. I went to the ER twice because I thought I was having a heart attack. I had very, very bad insomnia for a long time, it was slowly draining the life out of me, to be honest.But that was kind of where I was. At the same time, sort of the kernel in a sense, the small flickering candle throughout this was I did believe that what we had built was a very compelling product. After about a year and a half or so, we had built this demo, it was a very simple web-based demo where you could type the name of a song into this search box and hit “match” and it would pull up five songs. It was like magic.I think we felt we had something special, we just couldn’t find a business to match it and of course we were doing this when the technology and consumer web had just literally collapsed. It was like Armageddon, you know? So part of me was like, “Well, we’ve just got to hang on.”
3.0 Pivoting to Consumer
What you’re describing, that early product is not what the product is now, is it? Or was it?
No, not at all. We were a business-to-business sort of search-engine provider for the first four years. We didn’t actually pivot to Pandora until 2005.
Five years after you started the company?
That’s right, yeah.
So how would businesses use you?
We thought about becoming consumer retail at the beginning but didn’t raise enough money for that. So then the idea was we would license just as a recommendation tool to these myriad sort of online portals and retailers that needed a way to help their own customers navigate these catalogs. So if you’re on Amazon or Best Buy.com or whatever and you could type in a song you liked and we’d make recommendations from their catalog, and we just charged a licensing fee for it. That was the original model.
And five years in you realized that we have to create something for consumers, and I think that was right when the iPhones started coming out, right?
Yeah, a couple years later is when the iPhone and the app store launched.
At this point, you raised your additional $9m, you paid back $2m in salary debt, right? I think you said you had an envelope of cash that you were able to give people.
So you got this money and you gave the folks the cash, and then you guys kind of pivoted the company to what it is now, right?
So Pandora came long before the Spotify’s, the Apple Music’s of the world, it came before all of this stuff.
4.0 Throttling Growth
When you guys started taking off and there wasn’t a lot of competition, was business just booming for a while?
Oh it was just, it was like a dream. I mean we just exploded. Literally the day we started it, it just caught fire. I think it was sort of like perfect timing. In a way, we had the worst timing in the world by launching in 2000, but when we did eventually pivot to the consumer product the timing couldn’t have been better. There had been enough online radio products like Yahoo and AOL and MSN that the idea of listening to music online had been popularized, but our product was way better.
It kind of solved this problem that was maniacally hard to solve, but we had solved, where someone could just type in a single song and kind of be done and just have a great listening experience with very little effort, and an experience that played songs that they knew but also helped them discover new stuff which is part of the great power of the genome. So people would use this and then just tell everybody they knew about it, and it just became complete … I think that we didn’t spend a dime on marketing on Pandora for the first four or five years. Literally, not a dime. And we were at like 50 million listeners within just a few years.
So how did your revenue grow?
Our revenue was sort of behind our growth, which was a hazard because we paid on a per-song basis for every song that we streamed, so the faster we grew the more money we burned.We were trying to strike a balance between letting that growth go and capturing the space but also needing to kind of finance not going out of business. Actually, even at one point we throttled our listening because it was growing too fast. We limited mobile listening to 40 hours a month because we couldn’t afford it. But it kind of caught up.
You’re not at Pandora anymore. So what’s next?
I don’t have something specific, but I definitely have sort of an entrepreneurial gene, so I find myself drawn to that still. And I think for me, it’s about finding something that I can kind of fall in love with again. To me, that’s the only way to do this, like you have to really be in love with the idea. It’s just too demanding and too grueling to not do something that you absolutely love. So I’m just kind of looking for that.
What do you have your eyes on?
What really turns me on is a consumer product that is solving a meaningful problem, and has as part of that, the potential to develop into sort of a beloved brand. Those are things that I really like, so I want it to be something that I kind of am proud to work on and that is giving something to people.
I’ve found myself interested in things in very different sectors, you know, something education or something with kids. It doesn’t have to be music.
What about education interests you?
Well the idea of how to access education and are there different models for providing higher education more broadly, efficacy skills, training. Just sort of interesting ideas that come along that sort of fill a particular space.
So is that like along the lines of Udacity?
Yeah I mean, that’s the general idea, different angles. Like I’m looking at a company that is in the space of helping manage childrens’ consumption of digital media and digital devices. There’s a lot of potential and I’d be proud to be working on it.
6.0 Pursuing New Ideas
When I think of an idea, what I’m fascinated by is the excitement of building a really big business just because it’s the fun adventure for me and I care a little less about the product. It’s just more of like, getting people together and convincing everyone that we can do something and having results. When you look at ideas, are you looking at them as like this could be a really big business or this can reach a ton of people, or this can become a really well-loved American brand like Pandora is and you built it into? I mean what angles do you look at to qualify if it’s something that intrigues you?
It’s kind of a three-legged stool to be honest, I mean you kind of need all those. If there was a hierarchy I think I’d start with something that I really think could be broadly adopted. Could be sort of a Pandora-like consumer phenomenon.
Do you put a number on that, like 100 million people?
Yeah, that’s kind of what I want to do.
So it’s got to impact at least 100 million people.
And then what are the other two legs of the tripod?
I think the potential to obviously create a good business, that’s a necessary condition. You can’t build things that big unless they have a good business model behind them. It’s kind of the part and parcel of it. And I just have to love the people involved, I’d say, you know. I have to feel like it’s … People you’re going to be in the trench with, you know?
What resources or tools do you refer to in order to see if there is a demand for this, do people like this, what else is in the ecosystem? Some people, like me, I like to look at what people are searching for on Google, or I like to read about a lot of old companies. I read annual letters from old companies and I try to see their fastest-growing sections and figure out where they’re missing the opportunity. There’s a bunch of little ways that I do it. Is there anything you do?
Well there’s data to start, most ideas that I see have got some history behind them so there’s some information about adoption. But I think a lot of it for me is actually more instinctive. It’s do I feel like it has the making of a big idea? I think now that I’ve done something like that, I think I’m a little better at spotting that.
I wouldn’t say that I have some sort of scientific methodology like the kind you’re describing to really identify opportunities or trends or whatnot. I think it’s a little bit more instinctive for me.
7.0 Advice for Entrepreneurs
So is there anything else you want to add? Maybe a piece of advice for the entrepreneurs?
Yeah. Someone gave me a piece of advice a long time ago that I came to understand over time, and it was that you should regularly ask yourself what business are you in. And I didn’t understand it initially, but I learned that at Pandora the hard way. The business you start off in is very often not the one you end up in, and sometimes you don’t realize it. The business you’re in has changed and you think it’s an old business but it’s a new one, and I think in some ways the kind of archetypal example of this is Amazon.
Amazon was never in the book business, or maybe they were briefly. But I think Jeff Bezos is one of those entrepreneurs who understood this notion of like, what business am I in. And I think it’s probably a few years ahead of everybody in thinking about it. I think that happens to most companies.
What business are they in, by the way?
Well, he knows the answer to that. He’s the only one who knows the answer to that, but that’s a good question.
“The American Membership Business” or something.
Yeah, he could be in the logistics business or he could be in the consumer data business. He could be actually in retail goods business. I don’t know actually.
But the businesses that thrive are the ones who catch that the earliest.