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Pandora's Recipe to Survive A Recession
I’m seeing many articles about how the current economic situation is impacting startups, so today’s post is about how Pandora pulled through the recession that followed the dot-com bubble.
In March of 2000, when Tim Westergren founded Pandora, it was so easy to raise $1.5 million, however, only a couple of weeks later, the stock market crashed, VCs shut their doors and many startups had to shut down.
What set Pandora apart and allowed it to survive the crash is a combination of an ambitious vision, validation, and persistence.
1/ The Vision:
One year after Pandora launched, the company ran out of money and couldn’t even cover salaries, but 50 employees stayed for the next 2 years without pay!
The team agreed to stay because they had a clear vision that they were focused on. Pandora was on a mission to democratize music discovery.
The idea was to map music based on 450 attributes and then build a recommendation algorithm to suggest songs regardless of the popularity of the singer.
Here’s what Tim said about the situation:
“I think there are a couple of reasons Pandora stuck around, one, as I said is this real sense of belief and a common purpose and a mission that was really important, and this product that we all thought was pretty magical and that if we could hang around long enough, it would find its home.” - Tim Westergren, Pandora Cofounder
While having a vision is important, the product has to be validated in order to prove that it has potential.
In the case of Pandora, validation came in the form of agreements with companies including Barnes and Noble and AOL to license its technology. While those deals weren’t sufficient to cover the expenses, they showed that there was interest.
Tim was rejected by investors 348 times before Walden Venture Capital agreed to lead Pandora’s second round of funding. By then, he had already maxed out 11 credit cards!
The round was for $8 million, $2 million went to pay back owed salaries and the rest was used to build the streaming platform.
By the time Pandora went public in 2011, it had 80 Million users. The platform was so good that it mainly grew through word of mouth while spending next to nothing on marketing.
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