“Every entrepreneur should be prepared to be wrong and be quick to recognize when they are.”
Nuggets like that made for what can only be described as a founder’s masterclass given by Pandora Founder and AI Fund Venture Advisor Tim Westergren during our fireside chat at our recent CEO & Co-founder Summit.
These fireside chats are intended to be a peek behind the curtain, and an opportunity to learn from the high risk/(hopefully) high reward journey other founders take as they build their visions.
Tim provided that and more.
The downs, ups, and pivots of the Pandora Journey
I kicked off the conversation by asking Tim to share his Pandora journey with us. In a personable, often funny, and candid style, Tim walked us through the highs, lows, and magical moments of shepherding Pandora from idea to funding to IPO.
Founded in March 2000, which Tim described as “the worst time to start a company in human history,” Pandora weathered the storm of 347 unsuccessful funding pitches and a two-year salary deferment for all employees. Tim attributed this resilience to a perfect blend of belief in the product, transparency regarding the company’s situation, and a deep investment in personal relationships with his employees.
The highlights of Pandora’s early years:
Pandora’s first incarnation was as the Music Genome Project, envisioned as a B2B recommendation engine.
After initial angel financing of $1.5M ran out by mid-2003, Pandora couldn’t make payroll. “We basically went out of business, but just kept going,” said Tim. He described it as a “dark time” and said over the next two and a half years he accumulated 11 maxed-out credit cards, had 50 people working without getting paid, owed $500K to friends and family, and ended up in the ER three times with chest pains.
After the 348th venture pitch raised the needed Series A funds in March 2004, he and his co-founder made a move described by Tim as “not classic behavior for venture capital” by first paying employees the $2M in back salary owed them before any reinvestment or other outlays were made. “Handing out those envelopes was a pretty magical moment,” said Tim.
Now that funding was in, the leadership team had the space to evaluate their situation. “We went through a massive re-strategizing and decided to adapt the tech we had into a consumer product, which we then turned into Pandora and launched about a year later. And it went from that to like this incredible experience of launching it and literally having it explode overnight. We launched it in November 2005. And it seemed like in a blink of an eye we had 50 million users.”
Pandora went public in 2011. Tim said it was a difficult company to be public with and they had to break their offering price. An activist investor came in in 2017 and then in 2019 they got taken out by Liberty Media.
“I kind of had a long, wild experience as an entrepreneur,” said Tim. “I feel like I saw one of everything during those times. And certainly, how hard it was made the experience of it being successful much sweeter. I didn’t take a day for granted.”
The secret to employee motivation
Tim got his team to keep working for two years on deferred salary. Many founders run into the very real issue of skill retention during funding lulls in the early days. How did he keep employees motivated day-to-day to stick around and give it their best in these circumstances?
“There is a fine balance, I think, as a leader in a startup that’s failing, to balance the ‘rah rah’ with respecting the plight of the employee and making sure they’re making decisions based on full information. I think you always have to be very authentic and honest, and understand that as someone deferring salary, they are de facto investors.”
The key elements Tim leveraged to maintain motivation on his team:
- An inspiring idea with clear market value
- Personality types comfortable with some risk and a gamble
- An enormous investment in connecting with every employee one-on-one and transparently about the situation
- Key respected staff who seconded leadership’s excitement and vision
- Gauging the person’s level of excitement about the vision during the initial interview
- A weak, post-dotcom-crash job market for engineers
The importance of cultivating company culture
I asked Tim to expound on the importance of company culture and how they recruited the right set of ambassadors for the company in the early days.
“Company culture is talked a lot about in business books,” said Tim, “and every startup is advised at some time to write down their mission, vision, and principles. I think a lot of people don’t quite get how important that is. But we really did articulate in a very genuine way why we were doing this, and the importance of what we were doing. We actually wrote it down and taught it to people as they came into the company. This helped us cultivate a strong culture from very early on. Little gestures, connections, those are the things that affect the fabric of the culture.”
Mental stability during times of high stress
Tim endured great personal and professional risk and instability during the formation of Pandora. I asked him to advise other early-stage founders about how to maintain their mental stability, passion, and excitement for the mission despite the deep stress and intense challenges of leadership.
“It’s common here in Silicon Valley to think you’re the only one struggling when you’re surrounded by the trappings of success,” said Tim, “but the fact is, most startups fail. And most entrepreneurs quietly digest that failure alone.”
His wife’s advice, urging him to “not be self-conscious about being an entrepreneur,” profoundly influenced his perspective on the entrepreneurial journey. “This is just a chapter in your life, not the entirety of it,” he reflected. He learned to embrace the possibility that the company might not succeed, accepting that such an outcome was perfectly okay. Living in the moment and engaging fully with the process, without obsessing over future success, became his mantra. “Believing that success will come quickly is a dangerous mindset,” he cautioned.
He ended with encouragement to build a strong support network outside of work. “You can’t white-knuckle it,” said Tim. He noted how isolating it can feel to have to be a cheerleader for everyone 24/7. He doesn’t recommend solo founding for this reason. Having partners in the process is key to mental stability.
The pivot that changed everything
Next I asked about the evolution of the company from the Music Genome Project, intended as a B2B recommendation engine, to the B2C, one-click radio model of the Pandora we know today. What brought on that pivot, and how did you know it was the right thing to do?
The pivot came about after hiring a new CEO, Joe Kennedy, in 2004. Joe came in with an outsider’s perspective and a focus on consumer research. “What was important for us was we didn’t have any sacred cows,” said Tim, “and thought, ‘let’s not be constrained and think that we have the answer.’ Let’s understand our initial hypothesis was wrong, there’s not a business there. So let’s be open to something radically different.”
“Every entrepreneur should be prepared to be wrong and be quick to recognize when they are,” said Tim.
Tim shared that knowing when to radically change and knowing when to stop are two of the hardest parts of company formation, as no marker exists to tell you you’re there. It’s more a feeling, an intuition. You’ll be able to feel when the momentum has stopped – like you’re pushing a boulder up a hill.
When I asked him if the new idea is more a side project while the team keeps going on the original idea. His response was emphatic:
“You have to go all in. I definitely think startups need to have one thing they do well. Try to do more than one thing, you’ll get crushed.”
Maintaining culture, growth drivers, and staying connected to your audience
We wrapped up our chat by taking a few questions from the audience, one comprised of founders, CEOs, and other venture advisors.
Our first question was from a founder who had set a goal of personally interviewing his first 500 employees, which was becoming increasingly difficult to manage as the company grew. His question to Tim: When is the right time to stop over investing in interviewing and hiring? How do you maintain the culture as you grow?
Tim supported his plan to stay personally involved in interviews, saying “those choices are vital.” He encouraged the founder to get others involved in the process as one person can systematically miss certain things. With Pandora he established a two-day orientation called Pandora University for new employees where they met every leader and learned about every aspect of the company. He and his co-founder led the 2-hour session on company culture. “You cannot spend too much time on company culture.”
The next question for Tim was about the pivot. When they first made the pivot, what were the big growth drivers?
Tim responded that what made Pandora successful was its drop-dead simplicity. “It did the thing you needed and nothing else,” which led to viral growth. What also fueled the growth was how much time he spent with the initial users, traveling the U.S. holding town halls that could last 4 hours, and answering 700 emails a day. Early users became part of the team, an extension of the brand. People in the industry laughed at what was then a counterculture approach, but it worked.
Our final request was for Tim to expound on the importance of listening to your end user, understanding “the why behind their why for using your product” without getting so caught up in the product and completing what you set out to do, or the sunk cost of what you’ve already done, that you don’t see you’re actually losing them.
Tim stressed the importance of constant market research, in person, and listening to user feedback. “You actually face someone while they tell you how they used it and what happened. Then you convey that very rich data to the executive and engineering team. We just never stopped doing that. I think as long as you stay super connected like that, then you don’t get disconnected from your audience.”
