Westergren and Conrad: "We were like the guy walking around the casino with just their underwear"
Pandora was never the darling of Silicon Valley. Ever.
It never had the hype of Spotify, the scale of a hot social app, or the vision of Netflix. And yet, what it has always had is a leadership team that would not quit and a passionate user base who wouldn’t quit on the product either.
You hear a lot about the great entrepreneurs not giving up… but you hear less about founders pitching 348 investors before they got a yes, less about founding teams who went years without pay, less about founders who personally racked up half a million in debt trying to stay afloat. It took three acts of Congress to save Pandora at one point… and that was when a grassroots campaign by its users bailed the company out. More people complained that Congress might kill Pandora, than about the Iraq War.
Pandora has had its ups and downs as a publicly traded company. But to even get to that place took more conviction than I’ve seen most entrepreneurs have in nearly 20 years of covering tech.
Back in 2014, I sat down in Vegas with Pandora's Tim Westergren and Tom Conrad (Conrad has since moved to Snapchat) for a Pando Monthly interview. Here's an edited transcript in which they discuss early challenges, the tensions between streaming services and artists, the arduous battles in Congress, and offer some crucial advice to help other entrepreneurs get through tough times.
Tim Westergren: The very original idea wasn’t actually a radio product. We intended to build a recommendation tool that we thought we would then license. This was back in 2000, so 14 years ago. Actually, the very end of ’99.
Surrounded by this explosion of music websites, we had this idea to using this new genome music product, this new approach which now borders AOL, portals, retailers, you name it, that all of a sudden had millions of songs in their catalogs, but hard to find the stuff you wanted. There are multiple chapters, but writ large there’s a pre-Pandora and then a Pandora on, I think for us.
Those first four-and-a-half years, call it, were a trial by fire where we built the genome. We tried to build a business as a licensed technology and that just failed over and over again. It’s kind of appropriate that we’re in Vegas, because it’s like we bet and doubled down and doubled down and doubled down for a long time. At the end of that period, we were like the guy walking around the casino with just their underwear. I had 11 maxed-out credit cards and probably half a million dollars of personal debt. 50 people had worked without pay
I think that, though, the idea, I’ve always believed, was a good idea. When we created the Music Genome Project and had a first beta version of it, we all looked at it and said, “This is fuckin’ cool.” We had something that we thought, “This is going to find a home.” I think there was always a belief that we had to just hang on.
Sarah Lacy: You came from a music background, right?
Tim Westergren: Yeah, I had been a musician for a long time. When I was a film composer, my job was to figure out someone else’s music taste. I would literally interview a director by playing 30 CDs for them, one song at a time and develop a taxonomy of their taste. That was the kernel of the idea, was to try and codify that.
Originally, the Music Genome Project was this enormous list of musical attributes that we thought, “If we can map the things that constitute music, all of which might appeal to someone’s music taste, then we can create relationships between songs. If you like this song, we can find another one like that and use the Music Genome Project to help you discover stuff.”
The beauty of it is that it would be blind to popularity. All it knew was the sound. It would be a perfect engine to find stuff that you’d never heard before, which isn’t true of things like collaborative filtering that are essentially popularity contests. That was the idea, originally.
The genome, for all intents and purposes, got carved in stone a few years in because once you’ve analyzed now, well over a million songs, you can’t change it because then you have to re-analyze everything. You make it a choice. We’re done. This is it. That’s remained.
It’s been improved. We actually have gone back and re-analyzed things. This is time-consuming. It takes a music analyst 15, 20 minutes to do a song, and a symphonic piece could take an hour.
It’s a very deliberate process. That has remained consistent. What has changed, since we launched Pandora, we’ve added to that this immense amount of listener feedback. It’s become a marriage of musicology now and preference information that’s gone into this big melting pot of recommendations.
Sarah Lacy: Has that made it messier?
Tom Conrad: The story of Pandora and its evolution as a product is largely about what songs do we play, in what order. How does it change when you give us feedback about something you like, you don’t like? How does the experience for you, on a single station, change over the course of a day, a week, a month, a year, five years of listening? That’s how Pandora is evolving.
Sometimes, people look at Pandora and they go, “God, it hasn’t changed that much. What the hell do you do? It’s because what’s changing is the songs that play and the order they play in. How does familiarity and repetition and discovery fit into all of that?
Sarah Lacy: There are songs that, no matter what station, play over and over and over again. For me, it’s “Hallelujah.” I’m sure everyone has this experience. Why does that happen?
Tom Conrad: I’m getting chills a little bit because the funny thing is it’s absolutely a Pandora phenomenon. Everybody that listens to Pandora, you have your list of songs. You’re like, “Oh my God. Pandora overplays this song so much.” It’s never the same damn song. It’s just that we know you better than yourself. Those are your songs. Actually, I wish I had a theory about what exactly is powering that and frankly, I think it’s one of the lingering failings of the product.
It’s our job to solve that. We’re 10 years in. This is a really, really hard problem.
Sarah Lacy: I always feel like companies are really outgrowths of the founders’ intents as much as other people come in and out, they might be different CEOs, they change over time but there is always that kernel of DNA in companies and I think that aspect of the serendipity and joy of discovery is what fundamentally makes you guys different from Spotify. Is that the main difference to the two of you?
Tim Westergren: I think Pandora’s signature is discovery. I do think so. I think that one of the reasons that we grew so fast in the beginning was because when someone turns the service on and finds a new song, or rediscovers a song, which I think is a similar experience, their head explodes.
The first thing they do is they hit all their friends with, “You’ve got to do this. Stop what you’re doing, launch this service.” It’s like taking a hit of a great drug for the first time. Everybody’s got to try it now. I’ve heard.
We’ve never advertised Pandora, essentially. Modest amount of search engine marketing. It’s all word of mouth, and I think it’s because of that. You’re right, I’ve been at this 14 years and I have come to understand how important having a central theme and purpose and kind of a taproot for your company’s mission, its culture.
That’s a centering thing for us and I think that’s one of Pandora’s real strong suits.
Sarah Lacy: Let’s get back to the pain. You’re going around trying to basically be an enterprise company.
You’re going around trying to sell and everyone’s like, “Cool technology, not interesting at all.” Is that essentially it?
Tim Westergren: Yeah, I pitched Pandora 348 times before we got our second round of financing. We got some seed money in 2000, right before the door shut. That was at a time people were investing, like, “Yeah, whatever, sure. Let’s try it.” But then the door shut and I got told no by every living VC, it seems like, and understandably.
It was a completely fucked up idea, to hire 40 musicians or 70 musicians and have them come in day after day with a pair of headphones and manually…
We started on pencil on paper, writing numbers manually into these big spreadsheets and then transferring them to Microsoft Excel and that that was going to create a scalable product was just insane. In the presentations, I’d get to the slide and, “Yeah, the music analysts,” and you’d see them go…
I got turned down 348 times and finally, our Series B, which kind of rescued the company, was financed by a guy who happened to be a big, avid music fan, a drummer, just was excited by the vision. I think it was a deeply irrational investment for him and he had to fight hard to get his partners on board.
Sarah Lacy: And that was four years in?
Tim Westergren: Yeah, that was 2004.
Sarah Lacy: So you had not taken a salary in forever. You were in a ton of personal debt. This was a period of time when everyone thought the consumer Internet was dead. Why did you still believe in it?
Tim Westergren: I’m naïve. I was naïve and not risk averse at all. I also felt a huge amount of responsibility and obligation. I had convinced a lot of people to come do this, convinced a lot of people to invest and I was going to be the last one to leave the ship, for sure. I didn’t really think I had a choice.
A lot of companies of our era raised funding, spent it and then went out of business, because you don’t really have skin in the game. I remember talking to some of them as they were winding down and they’d say, “Yeah, we’ve got like a month left.”
I’d say, “What do you mean?” “Well, in a month, we have to stop paying salaries,” and I go, “Yeah, what’s the problem? Just keep going.” I think as you start making those investments, there’s a bit of a point of no return and I think we got beyond that.
Then you either crumble because people lose their faith and trust and it quickly dissolves. Or the opposite happens and people circle the wagons, and you sort of stick around for each other, which I think happened as well.
Sarah Lacy: How did you get half a million dollars in debt? Who was loaning you money?
Tim Westergren: Anybody I met. I mean, I borrowed money from a lot of people, friends, family. The best piece of advice I ever got during those years, and actually it sunk in the first time I heard it, and actually my then fiancé now wife told me, which is, “You need to stop being self conscious about being an entrepreneur.”
One of the great challenges for entrepreneurs is self consciousness, because when you start a company, unless you are fantastically lucky, you’re going to be borrowing for a while. You’re going to borrow investment money, you’re going to borrow good will, you’re going to borrow time.
You’re always borrowing, and you can start to feel like a big mooch. You can feel like you’re making a really bad decision and making it worse over time. It can start to feel like an outcast. I think that’s a great challenge for entrepreneurs. As you start to feel more and more disconnected, how do you sustain yourself?
Without really a lot of people saying, “Hey man, keep at it. You’re doing the right thing.” That was that experience in spades for a while.
Sarah Lacy: How did you find this VC who happened to like music?
Tim Westergren: I pitched him five times, Larry Marcus. He loved this genome idea. I think he said, “I don’t know what it’s going to be, but I think we’ll figure it out.”
I think he also said, “This guy’s coming up for his fifth pitch. They’re not going away, but how are they still around? I want to invest in that as well. That sort of tenacity.” I think that helped him get over the hump.
Sarah Lacy: How did you pitch him? I’m sure you felt like you were on your last lifeline. Did you go in swaggering and confident? Did you go in desperate? Did you appeal to music? What was your approach?
Tim Westergren: Well it’s a delicate thing. You have to be confident. You can’t be unconfident, people invest in confidence.
Actually ironically I don’t think I was ever unconfident about the idea. I was freaked out about my life and what was going on, but I could leave that at the door and walk in and say, “Look at this thing. This could change music.”
I could believe that with every bone in my body. I could disconnect that from that fact that I was going to the labor court right afterwards to fight some eviction notice. I could disconnect those two, so I think that I could remain convincing even if I was feeling desperate.
Sarah Lacy: Was there a moment where you knew you had him? Or you were just paranoid until you got the check?
Tim Westergren: Yeah. I got married overseas, I left my honeymoon to come back because the deal was falling apart. VC deals take a while. They’re tricky, everybody’s always kind of nervous, and so it’s a delicate ride to coax it across the finish line. It almost fell apart. We had a nurse it all to the very end.
The company was completely unaware of this while it was going on, because I had decided after having had so many what I thought were near-misses with venture funding for a while, but I was not going to say anything to anybody until the money was in the bank. We literally had an all-hands meeting the day after the wire hit.
Everybody got together, and all-hands meeting at Pandora were not typically very happy affairs. You know it was, “Can you work two more weeks for no salary?” This time instead of that I just pulled out literally a huge wad of envelopes from my pocket, and I handed out checks for like $180,000, $90,000, and people, I think they all thought the checks were going to bounce. It was a bad joke.
Tom Conrad: To be clear this was back pay. You weren’t just, “They gave us all this money so everybody gets a piece.”
Tim Westergren: Doled out like a million and a half dollars of salary.
Sarah Lacy: In back pay?
Tim Westergren: Yeah.
Sarah Lacy: What year was this?
Tim Westergren: The money came in 2004.
Tom Conrad: I joined the summer of 2004 a couple of months after the check cleared. I came because I wanted to do something for consumers. I fell in love with Tim, I thought the Music Genome Project was genius, and I thought that the new money and Larry’s enthusiasm for doing something in the consumer space, those were the three reasons that I joined.
That was the summer of 2004. That summer and fall we spent talking about like, “What kind of consumer offering would we like to put out there when we grow up?” Eventually somebody put the idea on the table of, “Well what if we built this one-click personal radio service? We use the Genome to make radio stations make it really, really easy.”
I remember we actually had quite a bit of debate amongst the leadership of the company, Tim, and I, and Joe Kennedy the CEO, and Jessica Steele. I remember it took us a while for us all to believe in that particular idea. Then I remember we rolled it out to the 14-person company, and we were like, “One-click personal radio.” It was just like crickets.
Finally a guy raised his hand, it was one of the engineers, and he was like, “Have you guys ever listened to Internet radio? It sucks. There is not enough bandwidth and the music quality is terrible. This isn’t going to work.” It took a lot of internal selling to get everybody excited about the idea.
Tim Westergren: I do think though that we had terrible timing when we started in 2000. That was a really bad time to start a company. When we started this it wound up being the opposite, everything just lined up. I think for starters we had kind of a magic little team. We quickly developed this very cohesive leadership team, a supportive board behind us. Then the infrastructure, the broadband capacity had reached critical mass. World radio had been introduced to the population but had not been done particularly well yet.
People were kind of, “OK, what’s this Internet radio?” There is a market for it but untapped. It was the perfect use of our technology. It was staring us in the face for a while. Radio as a song-based recommender, that’s what we were building. Like, “Oh that’s right. That’s what we have.” Then it came together, and the truth is it happened like that. mean we built about a year, we launched it in the fall of ’05, and it just [exploded] from day one…
We didn’t launch in an audience growth mode. We launched in a subscription mode where you’d listen for 10 hours for free and then you had to subscribe for $36 a year.
Tom Conrad: Nobody did.
Tim Westergren: Well, your memory of this and my memory of this is slightly different. I think actually the model played out exactly the way that we had expected it to, which was the vast majority of people wouldn’t subscribe, 95 plus percent, and a small percentage would. That would be enough to cover their listening and the 10 hours that we gave away.
We would grow until we reached enough audience awareness that we would have the potential to create an ad-supported service. That was the road map that we had. It played out exactly like that. Less than five percent subscribed, about exactly the way the spreadsheet said they should, but the audience grew massively faster than we expected.
Instead of having 5,000 users the first month, we had 200,000 users the first month. When that started to kick in it’s like, “Wow, we’re going to have a credible audience that will attract advertising interest 90 days from now instead of a year from now.” All of that process experience accelerated the time table.
Somehow watching 95 percent of 2,000 leave the service is a lot less painful than watching 95 percent of 200,000 leave the service. That was, I think, the lesson of the launch, at least as I remember it.
Sarah Lacy: What’s so interesting about Pandora is that you guys are really one of the only online music company that’s survived through all this and there have been, I mean, how many companies who have come out since you guys launched. The online music graveyard is probably bigger than any other category of the Internet.
What has made Pandora different?
Tim Westergren: My sense is that success is about a lot of things, but one key ingredient is understanding what you want to be best in the world at and investing all of your energy in that endeavor.
At Pandora we want to be the best in the world at making playlists and personalizing them to individual’s taste. Full stop. Period. Not selling concert tickets. Not being an encyclopedia for music. Not being an on-demand service. Not, not, not. That thing. We think we can be better than anybody else at that.
The great news is that that’s the mainstream use for music. You press a button. Music you enjoy comes out. You go on about your life. You’re done. The real answer I think is just our relentless focus on being the best in the world at something that resonates with a big huge mainstream audience is most of the answer to that question.
The second piece is we took monetization very, very, very seriously from the beginning. We have hundreds and hundreds of people that work for Pandora whose full-time job is to figure out how to make money through advertising, how to make through subscription, how to support this runaway growth of the service. That’s all good news, but you’ve got to pay for it.
Tom Conrad: You’re not coming and saying, play the new Bon Iver for me.” You’re coming to be entertained in just really simple way, press the button and the music comes out. We built big, big audiences for bands without any explicit action from our listeners at all, other than just listening.
I think that’s what really powerful. It underscores that there’s a danger in painting the whole digital music ecosystem with one brush. I mean like, what radio does and how it does it in Pandora as the modern articulation of that is just fundamentally different than what the record store does. They’re just different things.
Spotify is a great articulation of the modern version of the record store, but radio station and record stores, they sit in different places in the ecosystem. I mean, there’s no record exec in the country that would say anything other than, “Radio’s role is to create superstars, so they buy records, go to concerts, buy merchandise, participate in the ecosystem.” Pandora does exactly the same thing, but without the emphasis on making superstars.
Sarah Lacy: Does it upset you as a musician when you hear other musicians who hate on Pandora and think you’re screwing them over?
Tim Westergren: Sure, yeah. Absolutely. I mean, it is a personal thing for me. It’s a personal mission, for all of us, I think. I think all of us know that it’s an episodic thing. It’s the nature of the beast in this world, you know. There’s lots of opinions and everybody can share them. Depending on what your perspective is and what information you have, you can have very different conclusions about what’s going on.
Sarah Lacy: If you aren’t the bad guy, and Spotify is not the bad guy, and the musicians aren’t the bad guy, who’s the bad guy?
Tim Westergren: I don’t think there’s a bad guy. I think that the industry has, for a long time, been propped up by a product where you’re paying $20 for something you really wanted to pay $1 for. Maybe you could argue that the bad guy was the one who made that possible. That’s a little bit of an unfair label.
The industry has to rebuild itself on that sort of more clear premise, which is start with that — commerce is going to be more challenging and everybody knows that. The key is for artists to begin thinking of themselves as small businesses.
“I got to develop my audience, I got to find ways to make that audience large and get them to contribute, in small ways to patronize me.” The Web is well suited for that, but it’s not easy.
It’s not like, “Oh, it’s standing right there. Just go do it,” obviously, but I think that’s the way out of it.
Tom Conrad: One of the things that’s really challenging in music too is that the industry is too small in the United States in terms of the total number of dollars that go into it to support even a tiny, tiny fraction of the aspirants who would like to make a career in music.
If you do the math, it’s pretty discouraging, actually. We don’t spend very much money on music in the United States and we never had. It’s not really about piracy.
There was this period where the recorded music industry the United States went from something like $6 billion a year to $10 or $11 billion a year during the CD heyday. Setting aside that period, the music industry has always been five or six billion dollar industry in the United States.
If you do the math, if you have bands that have four band members and they all want to make a modest $50,000 a year, it takes a billion dollars to support something like 5,000 bands. There’s only $6 billion in music revenue in the United States, so even if the money is evenly distributed, a small tens of thousands of bands could generate, from the current spending in music, a $50,000 a year income. At it’s height there were a 100 million bands on MySpace, a 100 million. Let’s discount that a million times, take out all the people who are high schoolers with their three friends, but it’s still millions of aspirants.
It’s just really, really hard when the ecosystem only puts $6 billion dollars a year, or something, back into the pockets of artists and the people that support them, their managers, their labels, and so forth. I would love to see people value music on a monetary basis more like the way they value TV.
I mean $3, or $5, or $8, or $10 a month for a music service is really, really hard for people to come up with in this country it seems, but they happily pay $60, $70, $80, $90 a month for their cable television. It’s kind of bizarre.
Sarah Lacy: Why is that? Because we talked about it at the beginning of that conversation, this emotional pull people have towards music. Even if you’re not a huge music person, like the emotional sense memory of like the song that you listened to at your junior high dance, or the song you played at your wedding, or you and your sweetheart’s song.
I mean there are these emotional things. Why don’t we want to pay for them? Because we haven’t had to? Because the expectation hasn’t been there?
Tim Westergren: I think music has always been a fantastically competitive business. It’s like trying to be a brain surgeon, if you look at it statistically. That’s not going to change, but I do think that what will change is the arbitrariness of a musical career, I hope. Where to be a successful band requires a lot of things, you got the right good music that’s just the beginning.
You got to have your acts together professionally, you got to be a road warrior, you got to be able to play 100, 200 dates a year, be able to travel and survive each other. You got to do it over a long period of time, plus now you’ve got to really manage these other dimensions of your career.
Not that many people have all those things, period, but I do think that there will be more of a path. It won’t be, “OK I’m just going to get in the van and hope a few years from now the right A&R guy sees me at the right club and [snaps] we get lifted up out of the muck.” I think it’s going to be more, OK, we’re going to thoughtfully chase this dream, and here are the things we have to do.
If do all these right, and we actually are indeed talented, there is a home for us in the business. I hope and think it will be more like that. As Tom says, I don’t think that means there will be half a million successful bands, there might not be an audience for that, but at least it will feel less arbitrary.
Sarah Lacy: I want to talk about the battle that you got in over royalties, where you broke Congress’s fax machines. Were you really going to go out of business?
Tim Westergren: This three-judge panel that oversees the licenses, made, what I think people view as a wrong decision, and coughed up a rate over a five-year period that would have put us out of business. Actually, kind of made us insolvent the day it went out essentially. We had no experience in Washington. We had a board meeting, I think, the next day, and really the discussion was, “How soon do we pull the plug? Because we can’t possibly get over the hump now.”
We gave it some time to breathe and thought about it and said, “Let’s at least try to influence the one way we can in Washington.” We had seven or eight million listeners, I think, at the time.
Early adopters. We hired some advisers in Washington to help us and lobby us and we said, “Look, we want to organize a grassroots campaign to see if we can’t bring constituent pressure to bear and get Congress to help us.” They all said, “Sure, you can waste your money if you want. That’s a pipe dream. For one, nobody cares about it. Two, we’re in the middle of a TARP bailout fiasco and things just don’t happen that fast in Washington. We’ll help you.”
We quickly pulled together a strategy of sending emails to our listeners and thank God we had asked them all for their zip codes when they registered. We were able to send out seven or eight million emails, targeted emails to listeners saying, “This has happened. Pandora’s about to disappear. If you want to keep it alive please call your member of Congress. Here’s their name and phone number, and fax number.”
The response was just unbelievable. It’s hard to know exactly how many. I think it was like a million and a half to two million people actually called. There was so much inbound protest that Congress eventually literally intervened. Some senior members summoned all the players to a negotiating table in DC, had a big meeting and said, “Something’s gone wrong. We’d like to use our fax machines again.”
Literally phones would ring from 9:00 AM to 5:00 PM. All day long in offices. People were going to their member’s local offices to protest. They got more calls on this than they got in the entirety of the Iraq war.
That’s really, really fucked up. Invade a country, whatever. Fuck with my radio station, I’m on the phone. So many people protested that they had this meeting and said, “Go figure it out.”
A bill was authored. It had 150 cosponsors in three weeks. So it’s teed up to go to the floor. We already passed legislation.
It doesn’t happen like that usually in Washington but like you said this is an emotional space. That led to sort of a year-plus supervised negotiation process that led to the rates we have today. While I think still onerous, we were able to survive.
Tom Conrad: It was two and a half years. Two and a half years. How we kind of led the company through that period. Because we’re in the “New York Times” and the “Wall Street Journal” and sending emails to our listeners. The message is the same in every communication. Pandora will die if we don’t get this addressed.
The obvious question is why did anybody continue to do their job? Why did they not…? This is a boom time in Silicon Valley. I think the only wisdom that I have from that period is we did two things.
I don’t think there was a single day that we wavered from the confidence that rational thought would prevail and we would come out the other side. I think we believed it and that was always the way we talked about it to the company.
But hand-in-hand with that, we never, ever said that it was going to get resolved quickly or that we had any sense of, “On this date, it’s all going to be fine.”
I think if we had had that confidence but then made the mistake for two and a half years of saying, “90 days from now, we’ll be on the other side of this,” I think that would’ve been discouraging and demoralizing in its own way.
I don’t know, when you face crisis, I think being confident that you’re going to navigate through it but not make the mistake of saying, “We’re going to get through it next month, next quarter,” is about the only kind of lesson I can offer from that period.
Tim Westergren: It wasn’t easy to sell ads during that time. Not a lot of ad planning, long-term planning happening in big advertising clients.
Sarah Lacy: How honest are you with customers and even employees during a time like that?
Tim Westergren: I cut my teeth on that in those first four years, repeated it during the royalty crisis, I came to think that when an employee invests their time in you, certainly when they do it and they’re not being paid, they deserve to know exactly what they’re investing in.
That’s one thing. I also think that employees fundamentally respond to being respected and trusted. We have a very, very transparent company. We still do at Pandora, more than a lot of people would probably suggest, but I think that if you do that, employees will reciprocate.
I think, like you said, you can’t fool anyone and the most confidence-destroying thing is that someone stops believing that you’re being straight with them. If that happens I don’t think you can really recover from that, especially in a stressful situation.
I imagine myself on the other end. If I’m an employee and I’m putting myself out there and at some point I go, “Wait a minute, is this really true what I’m hearing?” I don’t think I would stick around. I don’t think that it’s actually a contradiction to be honest and desperate but have a brave face.
I think we did both of those for a long time, which was, as Tom said, “Look, we don’t know exactly how or when, but we’re going to get there.” I think those both can be true.
Tom Conrad: You said earlier that as you look at companies that you cover that the culture of the company often directly reflects the personality of the founder. I came to work at Pandora because of Tim. I think lots of us did. I’m going to embarrass you a little bit, but Tim is smart, affable, funny, not a Silicon Valley guy, and a hard worker.
The company is full of people like that. It’s just an egoless place. We kind of speak with a relatively soft voice. We know how to laugh at ourselves. We know that we’re fucking it up as often as we’re getting it right. We’re confident in what we’re trying to do in the world. We understand that people are going to throw stones. We understand we’re going to go through hard…
The culture that is a reflection of Tim, I think, is what helped us get through that period. I don’t know. I don’t remember ever feeling like, “Oh, how transparent should we be?” I never remember having that conversation ever. It was an extension of the culture of the company, which is an extension of who Tim is. You ask Tim a question, you get a straight answer. That’s how the whole company behaves.
Sarah Lacy: You guys were never the darling of Silicon Valley at any point in time. You were always kind of dissed and forgotten about. I think you actually had more cred among your users than you did among like the Silicon Valley elite. You certainly never went through like what Spotify had where you had a $3 billion valuation, the size of the company they are certainly…
Tom Conrad: Or what MySpace had, or what iMeme had, or what Playlist.com had, or what Last.fm had…The entire .fm, Star.fm, all 497 music startups. Yeah, you’re right.
Sarah Lacy: Was that an advantage?
Tom Conrad: I think so. None of that stuff matters. It doesn’t help you get users. It doesn’t help you get employees. It’s a big distraction. Yeah, I’m not sure there’s anything good that comes from that other than maybe ego gratification for the three or four people that are held up as the heroes that created it.
Tim Westergren: I think that you have to have humility in business. I think it’s the most powerful weapon you can have. You never get too overconfident, and you also don’t get the opposite. You’re appropriately aware of other challenges. I think also you create a work environment where you actually genuinely respect what everybody is doing and their contributions.
You don’t think you’re the only one that matters or even in your space that you’re the only one that’s doing anything smart. As a company now, I think we’re going through a process of preparing to be a hundred-year company. That’s how we talk about it internally.
If we want to be around 100 years, what things should we be doing right now? I think in some ways we acted a little bit like that for a while. How do you build the foundation? Don’t build the house up too quickly. Make sure that you start with a really good foundation and let the cement set. Go gradually.
Sometimes you get impatient and you’re like, “All this excitement with this development over there. Those houses are huge. They’re going up like in six months. Come on.” Then a year later there’s a big storm, and half of them get knocked down. That six-month period as you’re grinding your teeth going, “Oh gosh, we could do that,” but instead you’re kind of [makes grinding noise] working on this foundation.
I think we never, ever regretted, ever, that extra time. It’s not glamorous. You don’t get headlines. You don’t get invited to the cool things, but you’re there in the end.
Sarah Lacy: Why was it the right decision to go public when you guys did?
Tim Westergren: I’m not sure it was the right time. It’s hard to know. We had been around a while, and I think people deserve a return. We had investors, Larry being one of them, who had been in it for a long, long time. We respect the value of that investment, and, I think, for them they wanted to get a return on it. That was a reasonable request or perspective.
I think we had gotten to a point where we had felt we had a solid understanding of our business, good enough to be somewhat predictable, endure the scrutiny of public markets. Of course, being public affords you other opportunities. It wasn’t like we were in a race to go public. That’s not the way it happened.
Tom Conrad: It’s funny. From the beginning, Tim, Joe, Jessica, and I, and the whole team that we built around us, were really motivated by building an enduring company that touched tens or hundreds of millions or billions of people’s lives. Those were the things that got us into work every day, for sure.
The company grew up in an era where there were lots and lots of M&A exits. It would be a very short conversation if you were like, “Tell me about the time Google called. Tell me about the time Apple called. Tell me about the time Yahoo called.” They never called.
Never, that’s the whole story. I think in part they never called because we never hooked the phone up. We didn’t play that game at all. We never had a conversation with our board about, “Well, who’s out there? Who might we partner up with?” We didn’t play that game at all because we were focused on building a hundred-year company even in the beginning.
I remember people asking me about that. They’d say, “Well, like, you know, what is your plan? You’re going to sell to somebody, right?” I remember thinking, “I can’t tell them we’re going to go public because no one has gone public since like Webvan.”
Literally. If I say, “I guess we go public, because that’s what hundred-year companies do,” they’ll think I’m insane. Seriously, so I had kind of no answer. I was just like, “Oh, that will take care of itself. We’re building a company for our listeners, yadda, yadda.” I dodged the question.
Sarah Lacy: What was your lowest point, looking back on the whole journey? What was the point when you just thought, “God damn it. Why didn’t I stay at Band? Loading equipment was better than this.”
Tim Westergren: I have a lot of low moments.
Tom Conrad: I know mine. In the royalty story there are a bunch of chapters. It didn’t take just one act of Congress. It took two to start. They were about creating a window where in Pandora and other Internet radio services were even allowed to renegotiate a license after this CRB ruling. Just the way the law works, there was no system to allow for that.
Congress had given us a window twice into which we can negotiate. The second window closed on February 14th. Part of what was challenging about coming to a solution wasn’t that we just had to negotiate an outcome with the record labels, but we had to do it and link hands with a bunch of our competitors, in fact, with players that weren’t even in Internet radio.
They were companies that might someday…They have other big digital music businesses, so they have an interest in the category, but they didn’t even have an Internet radio product.
Some were subscription services. Some of these companies had multi-billion dollar hardware businesses in the music ecosystem. There were start-ups like Pandora. We didn’t have the same set of parameters that we are optimizing for at all, even on our side of the table. At the 11th hour leading up to this February 14th deadline, the deal that we had with the record labels fell apart because of someone on our side of the table.
I literally remember it being 10:00 at night, and we had two hours, and we thought if we could build a coalition of just pure play Internet radio providers we might be able to negotiate a deal with the labels that would be for these pure play providers only, but we had to find other people in the ecosystem to link arms with.
We were making desperate phone calls from 10:00 until midnight when that expired hoping to get that coalition together.
A lot of players in the two and a half years gave up. Yahoo gave up. They were the Pandora of the day. They were the biggest, and they were like, “Too hard. Let’s do other things.”
I remember like it was yesterday the clock turning midnight, and we hadn’t pulled that coalition together, and it was going to take another act of Congress, a third act of Congress to open up the negotiation window. I felt like we had let down our team in Washington so badly that they would be disinclined to do so, but it only took three acts of Congress to [save Pandora.] That was the low moment for me. I was like, “Well, we’re done.” Washington’s never going to give us another chance because we screwed this up so badly.
But they did.
Sarah Lacy: What was the lowest moment for you?
Tim Westergren: I had insomnia for a long time because there was so much stress. I had cold sweats. I would wake up in the morning at 3:00 or 4:00 am and couldn’t go back to sleep. It happened over a long period of time, and it was not good for you physically. I don’t recommend that for anybody.
I wound up in the ER one night because I had a chest pain. I thought I was really dying of stress.
I’m being dramatic, but I remember that evening being particularly…It was well into this deferral period. We were being sued, I think I mentioned, by five employees for having…It’s illegal to defer salary in California it turns out. Actually back then we could have gone to jail for it because the corporate veil, which is this notion of protecting executive officers from the actions of their company, wasn’t as clearly defined as it is now. So at that time you could actually have personal liability if the company broke the law.
Everybody had to sign these voluntary agreements that said, “Look, you can go home if you want, but if you want to stay we’ll accumulate salary.” It turns out that’s illegal, for a good reason because you could imagine how people would exploit it. We had these people suing which was…That was a very hard…
It was an accumulation of a lot of things at that point. I remember that was a particularly low moment.
Tom Conrad: Just so I’m clear, the low point for you was the night you almost died. That’s pretty low. I take mine back. It’s all been good.
Tim Westergren: One of the problems when you’re underfund like that too is it actually becomes a little more physically demanding because you take Southwest Airlines across country with three stops because it’s $100 round trip, and you take the train down to New York City, and you’re fucking exhausted, but you don’t have any money.
There’s a bit of a trap. It builds on itself, but it makes the success on the other end all the more gratifying.
Sarah Lacy: What was the feeling like when you got that funding round in the bank? You must have had so much physical stress weighing on you for so long.
Tim Westergren: I’m trying to remember what I felt at that time. Numb. It was a huge amount of relief. That’s probably the way to describe it. Every time I talk about handing those checks out I get goosebumps because I remember that like it was yesterday.
Having all these folks having done something so extreme, having taken such a huge leap of faith and to reward them for it, and to say, “You know what? You were right to do that.” You can look your friends in the eye, your spouse in the eye, whoever and feel good about what you did. That was a really moment I’ll certainly treasure.
I actually think now with all the fun things about being at Pandora and the feedback from listeners and lots of good stuff happening, nothing is more satisfying to me than talking to an employee who loves their job. Whatever they’re doing, if they’re someone doing IT support, someone doing sales, someone in marketing who just is thriving, and we created a company for whom…
I think to myself, they get up in the morning, their alarm clock goes off, they’re going to work at Pandora, and in some cases they’ve been doing it years and years and years, and this is a significant part of their lives. Maybe they have a kid. They kiss their kid goodbye, and when they come home they came home from Pandora, and they’re happy.
They’re fulfilled at work. Nothing about what we do is more satisfying than that, and we’re doing it for 1,300 people now. I think that of all the legacies I want to leave with this company, I want to leave decades from now, it’s that. I want it to be a place where people are proud of, proud to work at, and maybe whose kids work there, the next generation.
That to me will out do any other financial or public notoriety. That stuff is like cotton candy. It’s nothing. It goes away. This other stuff is profoundly and enduringly satisfying.
Money is a highly overrated reward. I think clearly security is valuable. That’s a threshold that makes a big difference in your life.
I’ve been on the other side of it. When I was younger, I remember, we went to a movie theater with my fiancée one time and I put in my ATM card to buy my two tickets, I didn’t have enough in my bank account.
That’s not a good place to be. Security is an important threshold to get over but beyond that, it just doesn’t…It’s not the reward people think it is. You realize that pretty quickly.