Profit Models
Explore many wildly different profit models from a bird’s eye view. Abstracted to memorable shapes, it’s simple and inspiring to apply them to your business.
Bio – Derek Sivers is best known as the founder of CD Baby. A professional musician (and circus clown) since 1987, Derek started CD Baby by accident in 1998 when he was selling his own CD on his website, and friends asked if he could sell theirs, too. CD Baby was the largest seller of independent music on the web, with over $100M in sales for over 150,000 musician clients. After he won the 2003 World Technology Award, Esquire Magazine’s annual “Best and Brightest“ cover story said, “Derek Sivers is changing the way music is bought and sold… one of the last music-business folk heroes.” In 2008, Derek sold CD Baby to focus on his new ventures to benefit musicians, including his new company MuckWork where teams of efficient assistants help musicians do their “uncreative dirty work”. His current projects and writings are all at sivers.org.
Derek Sivers offers a choice of two stories
Derek fell into selling CDs because he couldn’t get a distributor for his own stuff. Other people came to him and asked him to sell their stuff for them and the business grew throughout the Dotcom days when VCs would approach him to invest but he had absolutely no interest in doing anything other than selling CDs. He genuinely wanted to sell CDs until the last CD was sold on earth.
By 2007, he had got to a point when he had to redo the site when he rewrite all the code that had evolved over the years. Having spent a lot of time making the code elegant, he suddenly felt for the first time that he had done what he wanted to do. Anything else that he was going to do would require a lot of work for little emotional reward.
He spoke to Seth Godin, who said, “If you really care about it, sell”. What he meant was that if he cares about the customers, he should sell as if his heart isn’t in it, he ws doing his customers a disservice.
Then he thought about the four basic stages of a company lifecycle and thought, ‘Good time.’
Business Life Cycle
The once secret side of the story is that he sold because he fucked up on so many levels.
In 2002, the business had got to a point where Derek was dealing with every single issue in the business and that he wasn’t having any fun at all anymore. Hewas answering every edge case issue that any customer had himself. He almost ran away. He booked a flight and a hotel in Hawaii. He didn’t go. He let one customer service girl go who was asking most of the questions. He shared his thought process with everybody in the business about why he had reacted in the way he had. People learned the philosophy of the business and Derek bogged off and spent four years coding and being president of the business while he was absent from the business. After four years it all went wrong.
When he became less hands on in 2002, the business was 20 people. In 2006 it was 200 or so people. The company culture had changed massive and Derek had no idea what was happening.
July 10th 2007 was the worst day of his life so far. He missed the company meeting and then listened to the recording of it later. His room mate at college, whom Derek had hired, was leading a company revolution and the company whooped and cheered as he spoke.
Derek was a bit sad. He was really upset.
- Apache Control Halt
Was writing a, “This site is shut down note” and a letter to the company employees saying, “Fuck you”. Deep breath.
- Apache Control Start
He thought about putting five Golden Tickets into CDs and giving away the business a la Willy Wonka. A couple of days later, he did get a bit more real.
- Apache Control Sell
Suddenly people started coming to him and say that they were interested in buying the business. The business was making about $ 3,000,000 profit a year. Three organisations called in three days and asked him whether he would sell. He said no. Next week he called them all back and said maybe, and told Amazon the same.
Derek’s terms of sale:
My terms, by Derek Sivers
With multiple people interested, he was able to get all he wanted from the sale. He had to be prepared to walk away from the sale at any time. He was. And he had options.
He made about $20,000,000 from the sale but put the business into a charitable trust before the sale and the money will go to charity when he dies.
He recognises that that is a bit wierd but really doesn’t want the money.
He wants to continue to be happy. Something tells me that he will be.