CD Baby Founder Derek Sivers shows why money should be the last thing on an entrepreneur’s mind
A regular TED Speaker who speaks on motivation and leadership, Derek Sivers is nothing less than a phenomenon. He writes on various topics on his widely read blog. As a musician, programmer and entrepreneur, Derek wears many hats. He founded CD Baby which was one of first platforms on the internet for independent musicians to sell their music. He later sold it to Disc Makers in 2008 for $22 Million and donated the entire amount to a charitable trust for music education.
His latest project Wood Egg is all about entrepreneurship, under which he released a set of 16 books about 16 different countries in Asia focusing on the knowhow of starting a business in these countries. YourStory spoke to him about his life, entrepreneurship and giving.
YS: Tell us about your childhood and early days
DS: I was born in 1969 in California and grew up with a lot of classic American individual freedom where my parents didn’t expect much of me. I wanted to be a successful musician. To some people it may mean a life of partying and sleeping with movie stars but to me it was more like deciding to be an Olympic athlete. Starting from a young age, I read a lot of books about self improvement to understand things from other person’s point of view. I think these books shaped my world view more than my parents and more than religion.
YS: When did it occur to you that you wanted to be a musician?
DS: I think at the age of 14, it was that classic teenage rock and roll, guitar hero kind of age. But I knew that it wasn’t just the fame I wanted to achieve, I just felt like I love doing this so much this is just what I wanted to do for the rest of my life.
YS: At what age did you start CD Baby?
DS: I started CD Baby in 1998 when I was 28-29 years old.
YS: What did you do before this?
DS: Before that, I went to Berkeley College of Music in Boston. The last time I had a job (a job that wasn’t in making music) was in 1992. I quit and became a fulltime musician in the New York City making my living playing on people’s records, going on tours, playing on stage, producing people’s records in my recording studio and playing gigs in universities. That was my fulltime living for 10 years until I started CD Baby.
YS: What was your last job in 1992 which you quit?
DS: I used to work at Warner Bros, in their music publishing company in New York City, it’s called Warner/Chappell Music Publishing. I worked there for two-and-a-half years as the tape room boy, the kind of lowest level job at the company. I had no experience and got the job right out of college. It was a great learning experience to see the music business from the inside of a big company like that.
YS: Do you think you started late?
DS: (Laughs) I think calling 29 very late is influenced by the Mark Zuckerberg stories of the world. 20 years ago, starting a business at 29 that has close to 80 employees would be considered early, I still felt very young at 29. I had been doing exactly what I wanted to do the whole time. I think it’s good not to be influenced by stories of rock stars or movie stars who get famous by 25. There are just a handful of them. It’s not a good role model to have. It’s healthier to have the patience and work towards success instead of dreaming of an overnight success. Like this story of a boy who went to a martial arts studio and said he wanted to be a karate master immediately. The wise teacher told him, you will be great if you focus for 10 years but if you come in here for two years, you cannot become great. Because you will be too impatient to give it the patience that success requires.
For example, when I started CD Baby, the entire first year I worked part time on it. I was getting maybe four orders a day and I was fulfilling them in my spare time. In the second year, I was getting 10-20 orders a day then I hired one part-time person to help me. When the business was three years old, then I had four people. It wasn’t until the business was about four years old that it really started to take off. When it was seven years old that’s when it really became a big multi-million dollar business.
I had slowly built the groundwork of the business without any investors and slowly winning confidence and trust and building a reputation by the fifth year. You need to be patient to become great, you need to understand that greatness requires commitment.
YS: When you started CD Baby, you also mentioned you learnt programming all by yourself.
DS: I didn’t know any programming when I started CD Baby. In the first year of CD Baby, it was just a static HTML site with no programming or database. Then customers started saying things like, “I want to change the price of my album, how can I do that?” and I would say, well just tell me how much you want to change it to and I will change it. And then people were emailing me all the time telling me what they wanted to change and I was just spending hours a day changing everything manually. I thought, “Oh! God I am spending hours a day doing this mundane copy paste work, I need to learn how to automate this.”
And it was the same thing for the next 10 years, every time I was learning something new. If I had taken programming classes in school, I would not have done very well, but when you have to learn something out of necessity it is a great teacher.
YS: 22 million dollars is a lot of money, what made you give up such a huge amount of money?
DS: When I sold CD Baby it had been very profitable for 10 yrs. It was making $4 million/year. I was the only owner, and I was living at my grandmother’s apartment for free. The idea of getting another $22 M was not appealing. When you are selling a company there is a lot of paperwork. I had eight months to sit and think about what I was going to do with $22M. I came to the conclusion that I don’t want it. It seems silly for me to take it, partly for tax reasons also, because if I take the $22M, $7M would go towards taxes; we are then talking about $15M, and then I would have given it all to charity anyway.
When I told my tax lawyer that I was just going to give all the money away anyway, he told me, if you give it away before you even receive it, then you can actually give away more because you won’t be taxed on it.
So I transferred ownership of CD Baby to a charity before it was sold. That $22M actually never did come in my hands it went directly from the purchasing company to the charity; therefore no taxes, which meant more money for charity. It’s nice to remember what enough means.
YS: Coming to Wood Egg, what was the motivation behind that? What made you think it would work?
DS: (Laughs) Tricky question. I didn’t think it would necessarily work or sell. For me, it was never a business idea, it was just a personal curiosity and the reason I did it was because I had moved to Singapore and my wife is from India. We met in New York City and live in Singapore. I realized I knew nothing about most of Asia. I had been to India twice, I had been to Japan a few times and then to Vietnam once, and I knew nothing about Indonesia, Myanmar, Vietnam, Mongolia or Korea and now I am living in Singapore, my new neighborhood.
I decided I was going to learn better by teaching and while I was learning I thought of writing 16 books per year about 16 countries in Asia. I decided to hire people to find out information about all these countries. I would be the publisher even if I wasn’t writing them myself so that was the idea and honestly it is a money loser. All the researchers and writers and editors have cost a lot more money than I am earning in book sales, but that’s ok. I knew from the beginning that this was more of a hobby than a business idea. You spend money to buy a book, to read it for your knowledge; I am spending money to create books to read them for my knowledge.
YS: What challenges did you face while working on the Wood Egg project? You covered so many countries, how did you co-ordinate it all?
DS: I think the biggest challenge has been learning how to make a system that allows for human error. This is actually my second attempt at making the books; last year, I released the 2013 edition very quietly, because they weren’t very good.
Last year, I had hired people and told them I am hiring you to answer these 200 questions by this date in two months. And then they would do nothing for a long time. Finally, of course, it would get to the deadline and I’d never hear from them again.
So this year, one of the biggest lessons I learned is that I re-defined the job description up front. I didn’t advertise it a as job to answer 200 question in eight weeks, instead I advertised it as a job to answer 25 questions/per week for eight weeks. If by the end of that first week they didn’t have them done, I would say, “Hey! the deadline is in two days.” If they didn’t do it by the first week I would fire them right away.” We’ve gotten much better results doing that weekly deadline instead of final deadline approach.
YS: What were your learnings from this project? Did it change any of your assumptions?
DS: I think my favorite story was when I first started researching the book. I spoke to Benjamin Joeffe, a French businessman who had been living in Asia for the past 15 years. He had lived in Korea for five years, China for five years, Japan for five years and now he was in Singapore. I asked him for his insights into Asian cultures and what he thought about doing business in Asian countries. He said, “Let me ask you a question, when I say the word quality, what comes to your mind? I said quality means a product is well built, that it works, that it will last. He smiled and said I knew you were going to say that because you are an American.
He said, in America, quality means something that works. In Korea, on the other hand, everyone would agree that quality means “brand new.” In Korea, they are obsessed with newness. In Japan, quality means something is ‘perfect’. Japan is culturally always working towards this idea of perfection. Lastly, in China when you say quality, it means something which gives you social status.
This is an example of just one word that means different things to people from different cultures; there are many more words like that, so that’s why the culture of a place changes everything.
YS: What is your message to youngsters who are looking to start up?
DS: 1) Read the classic books on self improvement, even the old ones, especially the old ones. When I say books, I mean books not an article. There is a book called, ‘Think and Grow Rich’ by Napoleon Hill. It seems when Mahatma Gandhi read this book, he liked it so much that he ordered 6000 copies to be sent to India so that he could give it to everyone he knew.
2) Work on the fundamentals. I think in this internet age the trend is to be looking for the new and latest.
Remember if you want to stand out and have some unique value in the world it makes more sense to focus on the fundamentals which is timeless. Anybody can install the newest Android app, but how many people can take the time to learn the psychology of marketing and learn how to see things from the other person’s point of view? These fundamentals are the things that I believe will pay off greater in your career than just focusing on following a trend.
3) Be ready to fail and actually embrace the idea of failing. This is especially for your Indian readers. My advice to somebody in their 20s is do not be afraid of failing and be proud of your failures because they are proof that you are not fragile, you are a survivor.
Click to meet Derek Sivers.