The Digital Entrepreneur Series

"6 Tips on Starting a Digital Business from the Founder of Pandora"

By Jennifer Van Grove

October 14, 2010

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With more than 65 million listeners, a huge money-making mobile business and plans to make it into your living room and car, Pandora is the web-based streaming music service to beat.

It's easy to forget that Pandora was once a troubled startup on the brink of ruin. Having launched in 2000, the now 10-year old company has been plagued by expensive track royalties for most of its experience (and still is). In 2008, Founder Tim Westergren openly stated that Pandora was facing a "pull the plug kind of decision."

Westergren is now singing a much different tune - thanks in no small part to Pandora's wildly popular iPhone application and the company's ability to serve highly targeted advertisements. In an e-mail exchange with Mashable, Westergren opens up about his 10-year tenure with Pandora and expounds upon important decisions, missteps, and lessons learned over the years.

Raise Money Much Earlier Than You Think

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Pandora has raised upward of $55 million in investment funding over the course of its 10-year lifespan. Those funds have helped the service stay afloat in difficult times and have given the team room to innovate around new and emerging platforms for internet radio.

Westergren, then, knows a thing or two about the venture capital process and advises other startups to go after funding aggressively early on.

"After your seed round, I'd say raise money much earlier than you think you should. It'll always take longer than you expect, and you don't want to be anywhere near running out when you're negotiating a term sheet," Westergren says.

Adapt to Trends

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"Mobile has truly opened the gateway for Pandora to inherit the next era of radio listening," Westergren says.

The company's mobile app strategy shift began with the release of its iPhone application in 2008. With that single decision, the company discovered that, in fact, it is more a mobile company than anything else - mobile now accounts for 50% of the business - and one poised to capitalize on music listeners transitioning from broadcast radio to internet radio.

"Smartphones have completely redefined our company and our category. They have made Pandora truly an anytime, anywhere experience - both technically, and perhaps more importantly, in the minds of consumers," Westergren says.

Pandora refocused its business around mobile at just the right time, quickly turning the metaphorical corner toward profitability after adapting to a new trend in mobile music consumption.

You Don't Need to Base Your Business in the Valley

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There's an ongoing debate about whether a startup needs to be based in San Francisco or the neighboring Silicon Valley in order to thrive. Pandora has proven that a startup can stay relevant even with a home base in a less trendy neighborhood.

"When we launched in 2000, there was nothing left in [San Francisco]," Westergren explains. As such, Pandora set up shop across the San Francisco bay in Oakland, Calif., and, "That turned out to be a huge blessing in disguise."

"Oakland has been great; reasonable rents, a thriving downtown, affordable housing prices (a great boost for recruiting), and an incredibly responsive and supportive City Hall that has helped us in innumerable ways," he says.

Earn Employee Trust and Loyalty

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Pandora's employees pushed through the company's much publicized troubled times, so we asked Westergren what he did as a leader to keep the team motivated.

"That really starts with hiring," he says. "We hired great people and then we earned their trust and loyalty."

On the trust and loyalty front, Westergren further explains, "I think our team feels respected, empowered, and genuinely excited about the company's mission. We treat people fairly, we are transparent about our decision-making, and we lead by example. That's about all you can do."

Manage the Pace of Innovation

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Ideas abound inside Pandora's Oakland-based headquarters, so one of the company's biggest challenges isn't driving innovation, but rather massaging the team's feverish ingenuity into a controlled, business-supported process.

"We're lucky in that we have a team of product designers and engineers who are restless. They're never lacking for ideas to improve or expand Pandora. I would say our challenge is more around managing the pace of innovation while tending to the needs of the business in the near term," explains Westergren.

Believe in Your Idea

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"The best piece of advice I can give to entrepreneurs is don't be shy about believing in your ideas - even if folks around you think you're crazy. Entrepreneurship requires a little crazy. Just be prepared for a long and often uncertain journey. The good stuff doesn't come easy," says Westergren.

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