Listening in the audience, I leaned over to a co-worker and said, “See? Our CD Audiobooks business is safe for a long time.”
But only two years after Anderson’s Buick comment, Amazon’s Audible Inc. was growing like crazy with its digital download audiobook product on the iPod, and they had an exclusive deal with Apple to keep them in the lead (Steve Jobs was an audiobooks fan and had reached out to Don Katz, Audible’s CEO, to get audiobooks on the iPod).
So when Justin walked into my office as he often did, and asked as he often did, “Why are sales flat? Why aren’t we able to grow this business?” I responded as I had done many times.
“To grow, we have to get into digital downloads, and if we get into digital downloads, we can’t get onto the iPod, so why bother?”
When the iPhone came out with its app store, I was asked again, “Why can’t we do a download app and get it onto the app store?”
“You think the app store is a truly ‘open’ environment? Do you think we’re going to hire a dozen people, develop the app, then submit it to Apple for approval, and they won’t find some excuse to block us because of their partnership with Audible? I don’t want to take the risk.”
Justin didn’t want to take the risk either, so we continued to focus on the CD audiobook market, and we created a marginally acceptable download capability for our own website so we could claim to allow customers to download audiobooks, too.
When Ryan and I bought Simply Audiobooks a couple of years later, we did it to acquire a kick-ass customer service department and technology, along with a nicer office. There was no intent to invest in and grow the audiobooks business. We were happy to keep it as a source of cash flow while we experimented and developed new products. But when all the experimenting of the P3 program was shut down, we had to refocus on our core, and a big part of that was going to be the audiobooks business.
“Ryan, what are we going to do? The future of audiobooks is digital, but Apple will never approve any app we develop.” It was the same conversation all over again, but with Ryan instead of Justin.
“Why don’t we just develop a website that streams audiobooks instead of downloading them?” Ryan asked. “Even Audible doesn’t do that.”
I sighed and replied, “The problem is bookmarking. When you’re listening to an audiobook, the only way for us to know how much you’ve listened to is if you click a button when you’re done listening. And nobody ever remembers to click the button; they just close the window or quit the app. Then they start listening again, and they’re two hours behind where they left off. Then we get somebody crying on the phone with customer service.”
“Have you heard of HTML5?” Ryan said.
“I have, but I don’t know anything about it.”
“Go talk to Fletch in development. I heard him talking about how it could solve some of our problems.”
God bless Fletch; it turned out HTML5 could do some amazing things, and one of them, with a little tweaking, enabled us to offer a streaming/downloading audiobook service that was technically superior to Audible’s download-only service, and we could do it via the web—no app needed! On top of that, we believed we could offer unlimited audiobooks per month—the same model we used for Simply Audiobooks’ CD rental service and the model that Netflix was using in their rapidly growing video streaming service.
As Ryan and I started to get more excited about the potential, I remembered a phone call I had received a few weeks earlier.
“Hey Sanjay, remember me? It’s Tommy*.” How could I forget Tommy? He was the gregarious, flamboyant Hawaiian-shirt-wearing owner of Audiobooks.com. I had met him five years earlier at an audiobook conference in Los Angeles, and we’d kept in touch since then. Justin and I had even tried to buy the Audiobooks.com domain from him, but he wanted $2 million for it, and it was way out of the range of our startup.
I had once asked Tommy why he hadn’t just sold the domain to Audible, and he replied, “Those bastards are evil! I hate them! I would never sell to them.” I don’t know what Audible did to Tommy to get him so riled up, but my sentiments weren’t too different so I didn’t question further.
“Hi Tommy. Nice hearing from you. How’s California?”
“Great, great. You guys seem to be doing pretty well with your rental service. We should figure out a way to work together.”
I pondered for a second, pretty sure that that was code for “Want to talk about buying my website again?” We engaged in chitchat for a while and then agreed to touch base if or when either of us thought of a way to “work together.”
I went to Ryan and asked what he’d think about buying audiobooks.com, and he was all for it. “Oh man, if we could launch a new, unlimited streaming service under the audiobooks.com name, that would be amazing! But how much? Didn’t you say you tried to buy it in the early Simply Audiobooks days and he wanted too much?”
“Yeah, that’s what happened five years ago,” I replied. “But this time he’s coming to me. I bet his price has dropped.”
I called Tommy back and said, “Listen, I’ve been thinking since we last spoke, and I was wondering, do you think you’d still be open to selling the audiobooks.com domain?”
He immediately went into sales mode. “Well, I wasn’t looking to sell it, but if the price were right…I do want to buy a boat and sail around the world.”
I guess you’d call that price anchoring—letting me know his price hadn’t dropped too much. “Look,” I said, “we still can’t afford what you were asking before, but if you’re open to negotiating, let’s talk.” Over the past five years, the Canadian dollar had gotten much stronger, going from sixty-seven cents to almost parity. It would be like getting a 33 percent discount on whatever price we ended up agreeing on.
“Let me discuss an offer with my partner, and I’ll send you an e-mail,” I told Tommy. “Hope we end up working together!” The last comment was a subtle acknowledgement that I had understood why he was really calling the first time.
Ryan and I started checking bank accounts, and by asking for some payment terms and acknowledging some touch-and-go with making payroll, we eventually bought the domain for an amount that had six zeros in it. I was happy with the deal but also worried whether we’d just been played for complete fools. As Ryan put it, “Tommy gets to sail around the world, and we get nine letters and a dot.” Would a sexy domain really affect our business?
Four months after the sale was concluded, Tommy sent me a picture of the forty-two-foot catamaran that he’d had custom built in Australia. So we knew he wasn’t kidding about the boat, but by then we also knew that we’d gotten a great deal on the purchase. Traffic on our new website was growing spectacularly, and at a dramatically reduced marketing spend than we’d used to pay for Simply Audiobooks traffic.
The new, three-pillar audiobook business launched in fall 2011 with streaming, unlimited usage, and the audiobooks.com brand. We did constant price and product testing, and about a year later we realized that we could become more profitable by matching Audible’s one-book-per-month model rather than trying to position ourselves differently. We made the change, our margins went up, and our technology advantage kept us growing at a rapid pace.
Another year of great growth passed, and in the fall of 2013, we got a call from a boutique M&A firm that thought they might have a buyer for our company at a good price. We hadn’t particularly been looking to sell, but we gave them a six-month contract to sell the company. It was fun doing the presentations and imagining what we’d do with the money from a sale, but after their initial interested buyer declined, we weren’t able to make a deal, and we reverted to running the business.
---
One of Ryan’s greatest strengths is his awareness of every trend in technology. Google glass, 3D computer screens, Oculus…He was always one of the first to acquire and try new gadgets and software. About a year earlier, I had stuck my head in to his office to say hi, and as happened every once in a while, he’d excitedly waved me o
ver, “Take a look at this.” I saw on his screen what looked like a stock performance chart. He explained, “There’s this thing called Bitcoin that’s going to disrupt financial markets. It’s a digital currency that lets you send money to people anonymously. Check out this chart—the value of the currency has been skyrocketing, and it’s already at ten dollars. I think it’s going to keep going up. We should buy some.”
I was dubious. “Sounds like the kind of thing that’ll collapse as soon as the authorities find out about it. Not interested.” Ryan said he was going to look into it and bought one thousand Bitcoins for $10,000. He also sent me one Bitcoin to play around with, but after downloading the appropriate software and figuring out how to receive the Bitcoin, I decided it was confusing and not going anywhere. I closed the app and forgot about it.
Now, near the end of 2013, as we were trying to sell the company, Ryan was excited again, and when I asked why, he said, “You’re not going to believe it. That Bitcoin stuff I was telling you about? The price has been skyrocketing. It’s at $1200!”
I was dumbfounded. “Oh my god, you’ve made over a million dollars—sell it!”
He leaned back in his chair, smiled, and said, “Nope, I’m going to wait until it’s a million dollars after taxes.” I shook my head and walked out the door, convinced he was making a huge mistake. A few weeks later, he told me the price of Bitcoin had dropped from $1200 to $600, and I nodded to myself, thinking, “I told you so!”
(Note: Just prior this writing, Bitcoin was valued at $23,000. Ryan’s original stake would be worth $23 million. I finally commissioned a colleague to hunt down my own lost Bitcoin for a share of the profits. They sold their portion immediately. I hung on to mine and watched as the value dropped to $12,000. Still hanging on.)
---
I was enjoying the audiobooks business, but soon after the M&A attempt failed, Ryan realized his heart wasn’t in it. In early 2014, Ryan approached me and asked, “I’ve got some other projects I’m more interested in. Any chance you’d consider buying me out of my share in our audiobook businesses?”
I knew Ryan was interested in starting a business around Bitcoin, and I was a huge believer in the future of audiobooks, so I agreed to buy him out, stretching me to my absolute limit financially. When I told my father about the deal, he chuckled. “I guess there’s no chance of you getting sick to your stomach anytime soon.”
As he signed the final sale paperwork, Ryan said, “I want you to know that I hope and think you’ll be successful. It’s just not a direction I want to go in, myself. Just promise me one thing?”
I smiled and said, “Sure, what is it?”
He leaned in, and in stark contrast to my last big audiobook deal, he said, “When you hit the home run and this thing takes off, make sure you tell me. I’ll be happy for you.”
EXIT
With the purchase of the company from Ryan, my personal financial situation as well as the company’s was dire. I had had to borrow $1 million from my father to make the deal happen, and while the digital streaming Audiobooks.com was growing rapidly, it was still losing money as a business unit, offset only by cash still coming in from the CD rental side of the business. Fortunately Ryan and I still shared ownership in the profitable Fusenet, but something had to give.
It was a tradition for the Simply Audiobooks crew to have one big off-site a year for the executive team, and as we climbed on the plane for this year’s trip to Las Vegas, cash flow concerns and the future of the audiobook industry were all I could think of. I was looking forward to the planning sessions with the executive team, and most of all with Ian Small. Ian was the Product Manager of both Simply Audiobooks and Audiobooks.com, and would soon become the GM, largely replacing any operating duties I had. Ian was a former bartender who we’d hired eight years earlier as a temporary associate to replace a broken robot arm that handled CDs for us. He had rapidly risen through the ranks, and I was pretty sure he’d some day replace me entirely.
The first night in Vegas, as usual, we kicked off by going out partying at a club: Marquee at the Cosmopolitan. It was Wednesday—industry night at Marquee—and I rapidly passed my drinking limit. I was wandering the floor of the club looking for a bathroom, and I ran into a blackjack table—in the middle of a crowded nightclub. Yes, of course I was in Las Vegas.
Just then Emily showed up, and we sat down and played a few hands, winning $200 each. I had had a few more drinks by this point and was feeling completely on top of the world. Leaving the table, I somehow ended up alone again and I bumped into a very attractive Asian girl and her friend, whom I don’t remember at all.
I said “Hello, sorry to—”
She put her arms around my neck, kissed my cheek, and said, “Open your mouth.” I complied, thinking I was going to get a tequila shot. Instead she put a brown pill on my tongue and I immediately began to spit it out, but she opened her own mouth and placed a similar pill on her tongue, saying, “See? It’s okay.” I realized the pill was probably Ecstasy, which I had never tried—but there was a todo list on my iPhone called “Bucket List,” which included “Try Ecstasy in a controlled environment.”
I thought to myself, “I’m in a nightclub. I’m drunk out of my mind. I’m with a complete stranger and have no idea where my friends are.” I concluded that this qualified as a controlled environment and swallowed the pill. I have no memory of what happened next.
I woke up at 7:00 a.m. the next morning with a splitting headache, wanting to throw up. Miraculously I was in my own hotel bed. I texted Jorden, our HR Director, to push back the 8:00 a.m. start time of our planning session to 9:00 a.m. She said, “No problem. It was a late night for everyone.” I then went back to sleep.
An hour later I woke up again and felt even worse. I texted Jorden again, saying, “I’m really sorry. Push it back to 10:00 a.m.”
By the time 9:30 a.m. rolled around, I wanted to die, but I didn’t want to request another delay, so I forced myself to go to the bathroom, brush my teeth, and put my hair into some semblance of order. Then I grabbed my laptop and walked to the elevator without changing clothes. Feeling in my pockets, I noted that my casino chips were missing. When I got to the elevator, I hit the down button, then slid to the floor, leaning against the wall. When the elevator came, it was empty, and I literally crawled in, reaching up to hit the conference room floor. I steeled myself to stand up when the elevator stopped, and I lurched out into the hallway as two guys with nametags passed me to get in. As soon as the doors closed, I got down on my hands and knees again and crawled the short distance to the room we had booked.
Fifteen minutes later, I was lying on a cot in the conference room. Two other executives, Ian, the GM, and Vitaly, the Director of Marketing, both looked as bad as I felt. The other four stared at us with a mixture of pity and revulsion. Ian then had the bright idea of calling a company that he’d read about, “Hangover Heaven.” Jorden made the call and, in only thirty minutes, a nurse walked in with a portable IV and a collection of little bottles. The nurse wired the three of us up with our own IVs and then asked what we’d like inserted into the drip. I begged for Zofran to address my continuing nausea while the others chose a vitamin cocktail and something called ‘Dr. Burke’s Redemption.’
As we lay there, Jorden asked, “So, these two got drunk. What happened to you?”
“Well there was this girl…” and the room dissolved into laughter. I related the parts of the story that I could remember, concluding with the missing chips.
After a pause, Ian said, “All right, well, lesson learned, eh? Are you up to getting any work done?”
I shook my head. “Let’s just let the IVs finish up and figure out what to do next.” Miraculously, as the minutes went by, I felt better and better. In fact, forty-five minutes later, I felt as good as I ever had in my life, so I jumped up off the cot, pulled out my IV, and walked over to the whiteboard, saying, “Let’s get to work.”
What followed was one of the most intense working sessi
ons we had ever had as a team, setting out our vision for the next twenty years as well as specific goals and tactics for the coming year. We decided to lay off half the company and had heated arguments over who stayed and who went. We decided on an all-out effort to position ourselves as a supplier of audiobook technology to the auto industry and look into other verticals such as airlines. We solidified our product strategy and plans for testing multiple pricing models. By 4:00 p.m. the walls were lined with flipchart paper, and I was thinking, “Damn. This might just work.” I also thought, “Thank god for Ian and Hangover Heaven.” I drank responsibly the rest of the trip.
---
Most of our IV-inspired strategy turned out to be spot-on, and after another year of 100 percent growth, the company was making lots of money and still growing rapidly. Ian was taking over more and more of the executive responsibilities of the company, and I had told him that I’d be stepping down soon, and he’d be named CEO. Then, in October of 2015, I got a call from the CFO at Recorded Books. The same Recorded Books that had tried to buy our company in 2008, and had sold us its consumer division in 2011. “Hey Sanjay, it’s Bob from Recorded Books. Remember me?”
“Hi, Bob. Of course I do. What’s up?”
“Well, I know you’re not actively looking, but have you considered selling Audiobooks.com? We might be interested.”
I responded honestly. “No, Bob, I’m not really interested.”
“Maybe you could just let us take a look at your books and do some preliminary due diligence?”
“Nope. Not a direction we want to go in.”
Bob closed with, “Well, think about it, and let me know if you change your mind.”
A week later I was at the WebSummit technology conference in Dublin, and I met Dave McClure, the head of the Silicon Valley venture fund 500 Startups. I was an investor in the fund, and over the course of a dinner conversation, I pressed him on why the popular fund didn’t have a permanent presence in Canada.
Zero to Tesla Page 20