Last week I went to a gathering of entrepreneurs, organised by incubator organisation Glasshouse, to hear wise words from 26-year-old co-founder and CEO of online music service Spotify, Daniel Ek.
Ek, a veteran start-up king who began his first company at the age of 14, recounted some memories of the early days for the company which is quietly overturning the music industry, by operating on a freemium model.
Although the service has no more than 10 per cent of its customer-base actually paying for the service, Ek insisted people who use his service are less likely to conduct illicit file-sharing of music, so the service has a customer loyalty that could potentially grow its subscription revenues.
Whether or not Spotify can break through the revenue barrier that has stopped so many media organisations before it, the company is a champion for other entrepreneurs, as the packed house at the Glasshouse event shows.
Here’s some of the requirements for a successful start-up, according to Ek:
- Drive: You have to be able to push the business through, whatever people think about the potential of your idea. The company won’t succeed unless you have unshakeable faith in it.
- Scepticism: This may sound like a contradiction to the first requirement, but Ek says be sensible about the economics of your company. Whatever forecast you make about the company’s performance, it will never come out like that. Be prepared for this.
- Fastidiousness: Be as careful about choosing your investors as they are of you. The people who finance you should be bringing with them experience and contacts that can help you build your business, not just money. Find out that the things they bring to your business complements its existing assets.
- Open-mindedness: Listen to what smart people have to say about your company, especially your customers. Ek says social networking services, like Twitter have been a boon for him, giving him a much more detailed idea how his company is thought of outside his bubble.
One of the fundamental milestones Spotify had to reach is getting the record labels to agree to licence their music. Often, it’s that one big deal that can ensure the survival of a start-up company (take the IBM deal to take Microsoft’s Personal Computer Operating System MSDOS, for instance).
Here’s a couple of tips about deal-making from Ek:
- Find an internal sponsor for your deal. It doesn’t have to be the CEO, but it does have to be an executive who has the drive to keep selling your company to the people who will eventually give the deal the green light.
- Once you find an internal sponsor, it doesn’t end there. Probably, you will have to identify similar allies for every stage of the deal.
