Hello and welcome to another edition of the Duct Tape Marketing podcast. This is your host John Jantsch and my guest today is Derek Sivers. Derek is the founder of CD Baby, a great little company that’s almost single-handedly changed the way that music for independent artists was distributed. He’s also the author of Anything You Want, a book about building CD Baby, selling CD Baby and just his thoughts about what it takes to build a business, it’s an awesome book. I have to tell you that I had a little problem, technical problem, this week in that my track, my questions, actually the recording was damaged. But I thought that Derek’s answers and his story and the way that he comes across was so important that we threw a little bit of editing. We were able to bring you about 15 to 20 minutes of just Derek talking about his business and I really think you’ll enjoy it. So, here’s Derek.
When I made my first record for example, I was 25 years old and I had been wanting to make an album for my whole life. And it’s like, here it was: my first album and I had so many opinions about exactly what it should be. But when it came to releasing a book, honestly it was a surprise, I never intended to write a book. Like even six months ago people would say “hey, are you ever going to write a book?” And I say “no, I’m never writing a book, just let it go.” But then Seth called and said “I’m starting this new publishing company, Domino Project and I want you to be one of the first authors.” And I said “okay.” So, a lot of of the book that you see there is a really kind of Seth’s vision of what my book should be. So even like the album… See, I accidentally called it the album cover, the book cover. Seth kind of said “I think we should call it Anything You Want and I think this is the book cover.” So it’s been really fun to do a collaboration like that, and also just kind of let go of something and not to micromanage it has been a fun experience.
Entrepreneurs are often reading books and articles about other entrepreneurs. Wether is the media or just a natural filter of books, it kind of glorifies people’s path. It’s easy to look back in hindsight and say “oh yes, he set out with an amazing vision” or to call somebody a visionary, and it can kind of inflate this to a level where you feel really unworthy if you don’t have a massive vision and a big plan for the future. But I think the truth is that most people kind of stumble along like Forrest Gump, you know? Just kind of saying yes to things along the way. And then in hindsight they do something that the media can glorify as a big vision. But at the moment to moment level it just feels like your kind of stumbling along on a day-to-day thing. So I would hate to see entrepreneurs, or potential entrepreneurs, not pursue something they should be pursuing because they don’t have a big grand vision for it. Instead I think those moments are made just on a little day-to-day level, like you just set out to do something that you think people need and you do it, and as you do it people start to give you feedback. And as you go you make some decisions. If you do that for many years it can create something big, but I’d hate to see people get paralyzed and not do something because it doesn’t feel big enough to them.
The strength of many little customers. I felt that, at least in my case with CD Baby, I had 200,000 musician clients and about 2 million customers, the funny thing is that at any given point if one of my clients came to me and said “I think your web design is too simple and it should have more graphics and I think that you should have such and such and I’m upset with so-and-so, I think you should do more promotion and marketing and…” And whatever it may be I say “okay, well it sounds like we shouldn’t work together then, like it sounds like you should go somewhere else.” And they say “whaaat?” You know, look: CD Baby offers a simple service, this is what we do. If you don’t like it, no hard feelings, I wish you the best, there are lots of other companies out there, take care. And the big idea is that it didn’t matter if any one, or any ten, or even any hundred customers didn’t like what we were doing, because the whole business was set up to satisfy thousands of people a little tiny bit. My clients, the musicians who used CD Baby only ever paid us 35 bucks, that was it. So worst-case scenario, if they weren’t happy, hey it’s only 35 bucks. And when I compare notes with a friend of mine who is a publicist, when she takes on a client, it’s like a $5000 client and that person gets so invested into this, and she has to do whatever she can to make that person happy and she can’t turn anybody away, because it’s $5000. I find that that’s a lot more stressful business to be in then if she could reimagine her business as something that would provide a little bit of service to people for, say, $99. Then she could take on thousands of clients and provide a little bit of service, and not have to worry too much if anyone, or ten, or a hundred of them were upset. She could just try to focus on being the best she could be and it’s a lot less stressful. So I highly recommend seeing if there is a way that no matter what business you’re in, if it’s the kind of thing that deals with a few big clients, see if there is a way that you can kind of reduce the necessity of having a few big clients and aim to do a little something for a lot of people.
I drove by a billboard in Chicago. I forget the brand name now because it’s like 20 years ago, but it said “the world’s most expensive vodka”, and I remember thinking that was a really cool niche to take, everybody else was trying to be pleasing everybody, trying to be affordable and whatnot. And they’re just saying: no no no, this is the most expensive stuff. It just excludes people, just like that. Music-wise of course, because so many of my clients were musicians, often they would be doing music where they would be trying to please everybody. And I say no, you know what? You can just go all out and be a hard-core heavy metal band and just proudly wear that on your sleeve and just say “ you know what, if you’re not into heavy metal, you’re not going to like us and we’re not gonna try to please you. So we’re just going to do this one thing, go away if you don’t like that.” And I found that really liberating for a lot of people that are in that mindset of thinking that they need to please everybody, especially if somebody is a really ambitious and they want to be not just a millionaire but the billionaire! They think they need to get every person on earth. But, you know, few months after starting my little hobby... so CD Baby was just this little hobby, I was just a guy in my bedroom, I had no employees, I wasn’t even thinking of it as a business, it was just something I was doing in an hour a day. And it had been going for about six months, and it was going pretty well, it was profitable and every time somebody would order a CD they would get an automated email. Sorry, not order a CD but when your CD had shipped so if you order it on a Tuesday afternoon I would ship it out on on Wednesday morning or whatever. So an email would go out telling you that it had shipped. At first it was just a standard email like any of us would write, that would just say: thank you for your order, your order has shipped today to this address, these CDs, thank you very much for your order, I hope you come back someday. And that was it and it stayed like that for a few months. Then after a while I was looking at this, going: you know, that’s not me, that’s not very sincere, I can do better than that. I wouldn’t speak to my friends in such a boring, dry manner, why am I speaking to my customers like that? It’s like, this is an opportunity to make them smile instead of just be a little piece of nothing in their inbox. So I was like: alright, let me make this good. So I just, on the whim, in about 20 minutes I wrote this email that said, totally over the top: your CD has been taken with sterilized, contamination free gloves from our warehouse and placed onto golden pillow, our packing specialist from Japan… a hush fell across the crowd as the packing specialist from Japan placed your CD in the finest gold-lined box that money can buy and we put it onto our private jet on its way to you at this address, on this day, Thursday, September 3, we hope you enjoyed the CD. It just went over the top in this ridiculous flowery descriptions. The whole point was just to make people laugh when they got it, right? Because we all know is just a boring transaction email, you might as well make it fun. So, that was it, I wrote it in 20 minutes and I replaced my system with this email that would go out at the end of every single shipment. And, yeah John, it was like the single most powerful thing I ever did, that one single email. Every time people would get it, not only would they think that it’s hilarious and forward it to their friends, but it would set the tone for what kind of company we are, you know? It’s saying that we are a little record store, this is like fun-loving little place that doesn’t take itself seriously. We’re just trying to make you smile. We just hope you enjoy your music, let’s not get too serious about this. And that one email did more for CD Baby then I think anything else to get it off the ground.
The bigger picture of like, why are you even in business? Like, what are you doing? Are you just trying to make a buck? You just trying to make some money, is that all you’re really doing? Then you could have a dog food shop in a shopping mall or something, and just provide the dog food that the people need and get them out of your store, you know? But I think most of us, you have a deeper human need to do something that makes you go to bed with a smile each night, and makes you feel worthy. You know, you like to see that you’re making people happy, not just making a few dollars here and there. I think with anything you doing, no matter what kind of service or product you’re doing, you can look at what you’re doing and say, is this a really the best it could possibly be to make people smile? My procedures, my systems that the business is running with, is this really like a dream come true for people? Or am I just getting by? It’s kind of fun to look at what you’re doing and kind of challenge yourself to step up your game and make it even better.
Probably the single toughest lesson learned in starting my company is how to delegate. Of course, like any of us, if you’re starting out as a solo founder, somebody who’s just doing somebody yourself and then it turns into a company, it’s so hard to let go these things that you think of as you. You think that this is me, this is what I do, this is a service that I provide. Once you have multiple people it’s a really hard to let go. The best book that got me into this mindset was The E-Myth Revisited by Michael Gerber. I actually kind of read it after the fact a bit, but the whole point was realizing that I was going to be trapped if I didn’t teach everybody else how to do everything I was doing. And for me personally, much more than money my biggest inspiration for what I was doing was freedom. I wanted to be free to, whether it’s traveled the world or just sit in solitude and read a book for a while, whatever it is I wanted to make sure that I wasn’t required for the day-to-day running of my company. So, of course I hit the pain point after a few years, where just every day I would go to the office and all I would do is just answering my employees questions all day long. And it’s like, okay this is horrible, I’m trapped, this is miserable, I’m not getting anything done. So I kind of hit my snapping point, I said okay from now on every question that people ask me, instead of just answering the question I’m going to stop and gather some people around and explain the answer to everybody, explained the thought process that went behind that answer and how I came to that answer and then ask them to document it, and let them know that they can make these decisions themselves in the future without me. And if you kind of just keep looping and going through the process every time something falls into your lap as something you have to do, you stop and teach it to others to make sure that it’s no longer your responsibility. And not just one person, but multiple people know how to do it, it’s documented so that future employees that don’t even work for you can also know how to do this and know the answer to this. If you just repeat that process, it’s slow and frustrating, but after a few months of doing that you can become unnecessary in your business. Now all of a sudden, if you keep doing that, nothing is now your responsibility. Which is amazing, especially for a small business, because now you can focus your considerable energy on improving the company and growing it, instead of just maintaining it and responding to the daily problems. I think communicating the philosophy behind your answers and how you do everything, I mean even… Honestly, think about this: it’s kind of crazy, it’s bordering on artificial intelligence, but imagine you and your email inbox and imagine that you’re going to set a goal, like by a few months from now you will no longer answer any of your own emails, that somebody will answer it for you. You have to go through and think like every time an email shows up in your box and you’re scanning it with your little eyeballs, how do you decide how to respond, what is that thought process, what’s your internal if-then statements, you know? If I have time on my calendar then I will such and such, or if they are asking this and it’s worth it then I will answer this. It’s funny to almost think of your own brain as a computer that is running a program that could be taught to others. So that, say right now you’re getting 50 emails a day in your inbox, what would happen if it was 5000 emails a day in your inbox and it was just no longer possible for you to answer them all? How would you teach a team of 10 people how to answer them exactly the same way you would? Like how would you teach them the thought process and philosophy behind it? You should think of any systems in your business, even if you’re a one person consultancy, think of all of the little decisions you make and answers you come up with two people’s questions. How could you teach that to others? It’s a fascinating process. And if you keep following through on this, it’s amazing that’s your business can really grow took unlimited sizes. At CD Baby there was a team of 25 customer service people that was pretty much answering questions just the way I would’ve answered them, because I just taught everybody that philosophy behind the answers, taught them how to get the factual answers just from using the internal systems. But then when it came to philosophical things, how do you decide when to refund somebody’s money, how do you decide when to sit on the phone for half an hour with somebody because they’re crying, for example? I think that a lot of these things have to come kind of top-down from the owner, the founder, creating a philosophy or guidelines of what’s your vision is for the company and how you can communicate the thought process and the philosophy to everybody so that they could make those moment to moment decisions themselves.
When I started CD Baby I knew nothing, I know some basic HTML markup and I started this little static website. It’s kind of like the equivalent of a WordPress site today, but then as it grew I realized that I had to learn computer programming. I couldn’t afford to hire a programmer so I just bought a book on programming and sat down and learned it myself. What’s fascinating is that you find out that programming is a little bit like: imagine teaching a robot to get you a beer, what you just take for granted, you just say “I want a beer”, you walk into the kitchen, grab the fridge, open the fridge, take a beer. But now imagine having to teach a robots how to walk: lift your right knee by shortening this tendon here and bending your knee, push it forward, lean your weight on to that, and now put your weight onto your right leg as you lift your left leg and… Imagine you’d have to teach the robot how to walk, then you’d have to teach it how to position itself in front of the fridge. Then you’d have to teach it how to lift its hand and kind of put it in the handle on the fridge, close its fingers, will it open, and then how to find… Okay, you get the idea. But now it’s the same thing with everything you program a website to do. Like so many things that you just take for granted, like, okay now log into the site, that’s like 50 steps, to log into the site based on what people do and whether it’s a valid email address or not. And so you do get into this mindset of having to dissect things that we just take for granted and having to kind of analyze what does that really mean to go to the fridge and get the beer? Or to log into a website? And maybe it’s that kind of mindset too that helps you kind of dissect your whole thought process: how do you answer an email, how do you decide what projects are worth taking on and what to say yes to? It’s fun.
Like a lot of us, I really took my company personally. It was very intertwined with my persona. It was me, you know? It’s you and Duct Tape Marketing. It’s Derek and CD Baby. It was like CD Baby was me. So I thought I would never sell it. I thought it was just something I would do until I die. But after 10 years, I just hit this point. It was a combination of a few things: for one, I had just kind of mismanaged a whole bunch of stuff with my employees and the internal culture of the company had changed so much that there was this huge animosity between me and the employees. There was this horrible turn of events where we instigated a profit-sharing program that I hadn’t analyze deeply enough, it turns out it was completely unsustainable, it was in effect giving all of the profits of the company back to the employees, which made them really happy but when I had to pull the plug on its, of course I created an army of enemies. It was that combined with the fact that I’ve just been doing it for 10 years straight and was feeling kind of tired of it, it was kind of routine. But the biggest one is that I had really done everything I ever set out to do with the company and I was no longer feeling ambitious about this. Like, I really did not want it to grow. I had just a redesigned the entire... I had reprogrammed the software start to finish, so I kind of made this version 2.0 of the software and it was amazing. It was the best thing I’ve ever done, it was a culmination of everything I ever learned to date with programming. And launched it a few months before Christmas, had this amazing Christmas season, because you know, it was a retail store so that was always the big test, how well you could handle Christmas. And so there it was in January, Christmas was done, and I just was a realizing that I had no vision left for the company. And I don’t even mean vision in a big sense, I just meant: I couldn’t even imagine where I wanted the company to be a few months from now. I just felt like that was it. I had already done everything I ever set out to do, it was just feeling done the way that, say, a painter who had been working on a big, giant mural for two years would put a final brushstroke on it and just step back and look at it and go “yeah, I think it’s done.” So that’s how I was kind of feeling about my company. It was actually our buddy Seth Godin, who has always been an occasional mentor to me, I told him the situation, I said “I need to ask your advice, here is how I’m feeling, what do you recommend? Like how do I get into the mindset of growth again?” To me selling was not even something on my mind at all, but when I mentioned this to him he said “if you care, you need to sell.” What he meant was that if you care about your customers and your clients, that they want their business to continue growing, they don’t want to stop. So this is just you now getting in the way of your clients and customers, who want to grow. So if you care about them you need to sell the company to somebody who’s more ambitious with it. And that was a total mind flip for me, to get into that mindset. I was like “my God, sell my company?? Let go of my baby? How could I do that?” So I went internal and I kind of spent some private time in the diary to say like how would I feel if I were to sell today? Whereas a few years before if I would ever ask myself that it would feel horrible, I would say “no no no, I can’t sell, this is my baby!” But all of a sudden, for the first time in 10 years, I was like “yeah, I actually think I would like to let go now to just let others take it, turn it into whatever they want and I could just go do something new, that’s would be very liberating.” It’s terrifying. Sorry, I don’t know if you’ve done it, but selling a company is little bit like graduating from college and getting divorced at the same time. It’s bittersweet, it kind of feels good and bad, it’s a really hard and scary to let go of something like that.
Literally the day after selling CD Baby, I had this idea for this new company I wanted to make called MuckWork, and it was so vivid and I wanted to do it that literally the day after selling CD Baby I incorporated my next company, I registered the domain name, I incorporated the company, I started doing the programming that very same day, built the database schema, I even hired a manager to kind of help grow it with me. Got a few months into it and then I said “what am I doing?” Like part of the reason I was ready to leave CD Baby is because I wanted to make a change in my life, not just carry on exactly the same. And here I am, carrying on exactly as I have been for the last 10 years, I’ve just replaced the company name on my forehead, but it’s still the same way. If I really want to change the trajectory of my life, I need to actually make a change. So I forced myself to stop. My whole life I’ve been an absolute workaholic, you know? Never took vacations or anything like that, but not for the first time in my life I made myself stop, I dissolved the corporation and I spent the last two and a half years just on sabbatical. I traveled the world, I learned how to scuba dive in an Arctic lake in Iceland, I spend a month just going around India, I moved to New York City, met this awesome girl, we got married a year ago, we traveled the world to choose in your country to call home. We almost moved to India, almost moved to China but instead we chose Singapore, which is halfway in between and a really awesome place to live and just made all these kind of changes in my life. And at the same time I was reading about 80 or so books on marketing and psychology and happiness and whatnot. The whole idea being to kind of like replace the operating system and my head. You know, most of us operate under a certain kind of mindset or process for a number of years and you could just continue operating like that until you die, but sometimes it’s really healthy to replace that operating system in your head and just decide to approach life in a different way. So that’s what I’ve done for the last few years. It’s really kind of been this sabbatical time, although it kind of feels a little bit like I went back to school, just a self imposed school. Anyway blah blah blah… That’s what I’ve actually been doing for the last few years and then now that we just moved to Singapore, got official residence just a few weeks ago, and yes I set up my new corporations, my new projects that I’m going to be doing, but they haven’t really started yet and it’s not even really worth talking about yet.
Either have never heard of before or, even better, if you’re really up for a challenge, the kind of music that you think that you hate, like if you say that you hate opera, then I highly recommend going on to Amazon, browsing around, looking at customer reviews and finding out what is supposed to be the most essential opera recording, or one of the top opera recordings of all time. If there seems to be a big consensus that this is one of the great opera recordings, then get it. And listen to it, not just once but a few times. And really try to understand what people love about this. So then, on the other hand, take music from a different part of the world that you may never go to. Listen to the Bulgarian women’s choir or if you just like to have something on on the background here is a good start if you want me to name a specific… If you look in iTunes there’s that section about, I think there is a little tab or a button called Internet to radio or streaming radio or something like that, if you click that and you look around under “World” there is an amazing free online streaming radio station called Radio Darvish and that is just traditional Persian music, from like 50 to 100 years ago. Old, ancient recordings of traditional Persian music. And it is so fascinating! I love leaving it on in the background, it makes it seem like somebody’s cooking Middle Eastern food in the next apartment and it’s a wafting through the windows. It’s amazing. So my advice to anybody, if you want to change your brain and not just continue on exactly the same as you’ve been doing your whole life, find the kind of music that you either hate or have never heard of and really get into it.