Starting Up

Founder of Pandora on Lessons from Near Dot Com Bust to Billion Dollar IPO

In 1999, Tim Westergren, a long-time musician, started Savage Beast Technologies, with the mission of connecting artists with their audiences and helping people discover new music. At the time of launch, there was an increasing number of music startups coming online. (Remember, this was a time when broadband barely existed.) They all faced the same problem: tons of music and no way for listeners to find the good stuff. So, instead of launching another music website, Westergren decided to build a pure B2B technology company to solve the hard problem of music discovery.

Below are a few lessons from First Round Capital's CEO Summit that Westergren learned the hard way through the process of going from Savage Beast Technologies to Pandora Radio and through a billion-dollar IPO.

Focus

Pandora wasn’t the stereotypical overnight success story of the dot-com boom. Originally a B2B company, Westergren had to fight for every single deal and dollar just to keep the lights on. He recalled the early days, being part of a bake-off at Best Buy. Westergren and his other six colleagues flew to Best Buy’s headquarters in Richfield, MN, to sell them on the idea of a music kiosk in every store. At the time, underneath Best Buy’s HQ was a replica Best Buy Store where they ran consumer tests before they were rolled out to their network of actual stores. Westergren and his team hacked together a Web kiosk with IBM parts soldered together by their CTO — and ultimately won the business from some huge players after hundreds of consumers loved the Pandora experience at the test site.

Not surprisingly, given that Pandora was a pure software company, IBM really wanted the hardware deal to power the kiosks. So, here Westergren was, leading a six-person company with IBM essentially begging for what could be a hundred-million-dollar-plus deployment into Best Buy. Through some intense negotiations, Westergren quickly came to the realization that he was a tiny cash-strapped start-up playing on a field of elephants and was at risk of being crushed. It was a moment of humility and in that moment, he decided to always stay focused on what you’re good at and leverage partners for what they’re good at — and remember your place in the ecosystem. Thus, instead of spending a massive amount of time and energy getting into the hardware business or driving a hard deal with IBM, he, instead, chose to focus the company on pure software.

How to Weather the Storm

The Best Buy integration wasn’t the only challenging time in the early years at Pandora. At the end of 2000, Pandora began to run out of money. Westergren went from pitch meeting to pitch meeting, up and down Sand Hill Road to no avail. With bleak prospects, the core group of about 50 Pandora team members ended up working for almost two and a half years without any salary. Upon reflection, Westergren attributes this kind of remarkable fortitude to a few key attributes:

Love the Product: The early team at Pandora believed deeply that the actual idea and product was great. At the time, it felt like a bit of magic in a box, and the team was proud of what they’d built and believed they could make a business out of it.

First One In, Last One Out: As a leader, Westergren knew he had to be the first one in and last one out of the office every day and lead by example. Westergren and the founding team began deferring their salaries long before anyone else did — and he even paid employees’ salaries with his credit card when times got tough. At one point, Westergren had maxed out 11 credit cards.

Transparency: In the toughest of times, it’s easy to want to keep information from your team. It’s easiest to be transparent when everything is going great, and the tendency is to keep information from the team when things aren’t working. Fight this urge. It’s exactly when things are crashing down that you need to be the most honest with those on your team so they can trust you. They want the full story, and they deserve it.

Team Camaraderie: When a company is in turmoil, there are two ways the team can react: One is the team comes together and supports each other and commits to see it through, and the other way is the team that scatters. If you want a team that comes together in tough times, you need to hire carefully and understand why someone wants to join your company.

Founders and Their Evolving Roles

Founders are inventors and bring companies to life. Apart from actually starting the company and establishing the original vision, they are also initially responsible for running almost every aspect of the business: sales, business development, product, engineering, etc. In the early days at Pandora, Westergren went from the resident “music guy” in the company, focusing on the actual Music Genome Project to the CEO, CMO and five different titles, all at the same time.

Over time, the role of the founder changes — some stay or become the CEO, others find another role in the company, as Westergren did, and some leave altogether.

A founder more often than not is effective at one stage and not as good at another. Founding teams have to wrestle with these changes — they’re very personal and very hard.

When a founding team does make the decision to be recast, unlike what most say, it can actually work really well. In the case of Pandora, Westergren moved from CEO to chief strategy officer, and Joe Kennedy joined as CEO.

Westergren described his relationship with Kennedy, “We’ve had a wonderfully symbiotic relationship. We’re about seven or eight financing rounds into this company. We’re pretty far down the alphabet, and we’re 11 years in. A guy like me has been usually kicked to the curb by now, but I think that, when Joe came aboard, he and I both realized that the two of us, together, could make a formidable leadership team for the company. It was just a great relief for me to have him on board to share that leadership burden. It’s been one of the real highlights actually for me is this whole experiences working alongside him.”

What Matters for Entrepreneurs?

Now, more than a decade after Pandora began and after a successful IPO, the times that are still the most rewarding for Westergren are simply when the entire team is together. At Pandora’s all-hands meeting, Westergren has the chance to look out at his team of more than 700 and realize that this company is their livelihood, everyone loves coming to work, and they’re proud of what they do. For an entrepreneur, there is nothing more satisfying than creating the livelihoods for the people at your company — and Westergren has been able to do that throughout the company’s ups and downs.