Why I sold CD Baby & gave the money away. Video & transcript of talk by Derek Sivers.

We know that not everyone can get to the Business of Software conference but we do want to be able to share some of the incredible stories that the speakers share. Most of the talks are posted online, with the permission of the speakers. Not everyone gets to sit down for an hour to listen to a talk though.

The Business of Software conference will be held in Boston, October 24-26th October 2011. We are planning to post talks online with a transcript of the talks so you can watch, or if you prefer, read what was said.

This is the first one. Derek Sivers, founder of CD Baby who recently published a book that ANYONE who is an entrepreneur, or is considering being one, should read – Anything You Want. It is short. It talks about values, not term sheets. Unless I am missing something, values should always come before term sheets.

We are massively pleased that Derek has just offered to talk at Business of Software 2011. He inspires, teaches and makes you think – the essence of what Business of Software is about.

You can see my notes taken on the day, with some pictures and slides here.

Transcript of Derek Sivers’ Business of Software talk:

Joel Spolsky: I want to introduce you to a musician who had trouble figuring out how to make CDs for his friends and realized it. Others of his friends might have the same problem and created CD baby, which is a huge hit. He sold that could figure out what to do with the money, are you going to tell them about that, or should I? Okay, he’ll tell you about that. And he’s currently working on something called Muck Work , which is not yet launched, I believe. Unless I’m not totally up-to-date. So stealth mode, no? He’ll tell you about that too. Derek Sivers.

Derek Sivers: Thanks. All right. Is it up there? Okay. So, you know, when you do a talk at a conference like this, you have to try and get the people what they want to hear. And you know, we learn from being here. It’s unwise to guess.

So I figured I might as well do some AB testing and let you guys choose what topic you want. So take a minute to look at the screen. Originally I came here on the program, I was going to talk A and because I can thought that this is more just a straight up give facts Conference. As I’ve been here for the last few days, we’ve heard some amazing stories from people that were in it and learn from what our mistakes, and learn from successes. So did everyone see the table of contents? Talk A? Talk B? Okay. Talk B if you want the full version of it has the sub title of how I screwed up so badly I had to sell. But the short version. So I figured if I had to just choose between talk a and talk b, then certain people would be just disappointed. ” So, could you just give me talk B later?” So I made sure I can do this last night. While the time thing is counting up. Okay, good. So if you want I can fit both talk a and talk B into 15 min. each. So, show of hands, even if you ordinarily don’t raise your hands. Option number one for me to do just talk a on profitability. Oh, wildly popular. Option to just talk B how I sold the company, including all the dirty details. Surprising. Okay talk three. I mean, option three. Combining a and B. Both. It’s kind of a tossup between. [Audience input] Or passionate users, for option two!

All right. Well then, just in case I was prepared to give a 1 min. version of the article probability. So let’s see. Doubling your prices can sometimes increase sales. A friend of mine, a puppeteer – raised his because he wanted more time to spend with the kids. Some doctors in China charge you when you’re healthy, not when you’re sick. So it’s in their best interest to get you healthy again so that you continue to pay them. You don’t pay them when you’re sick, because they’re not doing their job. Free conference calls, makes the conference calls free because of something they call traffic pumping. So that the rural long-distance carriers actually pay them for every long-distance minute that you call them. A Better Place Shai Agassi, gives away the car so that you use their electric system. It’s good to have more than one profit models, sometimes we have one profit model, but it’s collective pedestal. If you get a crack in the pedestal you only have one profit model, it could all crash. See you think, okay, I’ll have two profit models, I’ll be like Tarzan or you hold onto one line and in the next fine is coming up soon and you’re like, okay, got my next profit model ready. But you’re still at risk if someone snaps your vine. Do you see where I am in the slide? So, I always say it’s good to be kind of a table with many legs. Many profit models. So that anyone can crack and it’s not devastating. So I was can it talks about some things. But I guess I will go over the obvious. This short, TLDR; version of this is there’s a book called the Art of Profitability that I highly recommend. Most of those couldn’t talk about his better side in that. So it’s could be kindly just a sales pitch for the book. So write down that book, if you want to see what my first talk would’ve been. How’s that for a 1 min. version? [audience clapping]

All right. Now, this is mostly kind of influenced by dinner last night. Where we were just turning to tell stories and Rob said, “Man, you should tell the long version of that story tomorrow.” That’s why I just kind of made this up. To tell the long version of how and why I sold my company and how I learned from my mistakes and how I screwed up so badly that I had to sell.

So there’s me, my name is Derek Sivers, my contact info. This was my company. In 1997. I was just musician selling my own CDs. And at the time before PayPal, and Amazon is still just a bookstore. I built a little online shopping cart just to sell my CD. But it took about $1000 in setup fees, because just to get a merchant account was really tough. I don’t know if you remember but you had to, they sent inspectors out my location to make sure I was a valid business, I had to incorporate I had to set up another bank account. It was three months of back-and-forth paperwork just to get a credit card version account. I didn’t know anything about programming so I copied somebody system cgi-bin Perl scripts out of a book. After three months of hard work. I had a buy now button on my website. It was really just to sell my own CD. It wasn’t CD baby was just my band’s website. After I did that, some of my musician friends in New York, said, “Hey man, do you think you could sell my CD to that thing?” I guess. So actually this is a little story. I haven’t a long long time. This is the right place for it. Once a few friends started asking me if I would sell their CD, I realized I had accidentally started a business.

So I got the domain name CD baby took my friends off of my own band’s website, put them there. But as trying to think of like at the time, insisting as a favor. And I needed a business model. I went down to the local record store in Woodstock, New York, which was just a little converted house. It was a tiny little thing. And on the counter were a few local musicians from the Woodstock area doing consignment sales. And I asked the woman who ran store,” how does this work if I wanted to sell my CD through you?” She said,” You set your selling price it whatever you want. We just keep a flat four dollars per CD sold. Just come by no more than once a week, and will pay you for any sales.” I went home to CD baby.com. There, I said, here’s how it works you set your selling price at whatever you want, we take a flat fee of four dollars, will pay you every week. [Typing motion] I was like, it works for them. It works for me. What’s kind of cute is that it kept that same business model. It has the same business model. To this day. You sell a CD through CD baby, you set your selling price it with everyone. We take a flat fee of four dollars appear every week. The only thing that changed is that for the first six months or so is really just doing it as a favor because everyone was just kind of a friend of a friend. It was my original friends and friends of theirs. Then the strangers 30 calling. People were sending me all the sky. Period. And I was spending a few hours today just sorting people’s albums. It was about 45 min. of work to put a CD onto CD baby. So I figured I need to just start charging something. I was kind of on the fence about this. About whether to charge just set up. Then some dude in California sent me a giant rocks of 20 different albums he released. With a note saying I couldn’t sell these things. Maybe you can. Good luck. I was like oh God, it took me like six hours to set them all up in the store. I was like okay that’s it I’m charging something. I originally charged $25 and then I realized that in the brain. $35. Shares the same space in your brain as 25 bucks. So I pumped it up to 35 bucks in this days there to this day. So sometimes you think that somebody’s figured out these numbers are crunched and make projections. But sometimes you just blow it out your ass.

I just wanted to give this context be caused the deal once that this was really fun to me. I really love doing CD baby. It was a lifestyle business. And, after a few years. There were no competitors. It all, no one felt this market of selling independent physician CDs was with dealing with. So there’s just no one else doing it. So we got a lot of attention. After a few years, and NPR did interview with me which everyone wanted to do, especially during the.com boom. So what is your exit plan, are you going to sell to the big guys. You going to cash out anything, are you going to do an IPO? I was like no no no. I was going to do this for the rest of my life. I was going to be the last employee when no one wants to buy CDs anymore. I’ll just be the one guy sending out the one CD a day to the one person left on or through once. I really meant it. I was really going to do this for the rest of my whole life. So around 2007. I didn’t know anything about programming. When I started. But over the years. I just got really into it and it just became a real passion. So, by 2007 CD baby had been around for nine years. I’ve learned a lot. I have learned about object oriented programming, encapsulation and really smart things like that. But my code running CD baby was this big pile of spaghetti.

So, 2007 I kind of like left the office. I punched out. I went to London. I got some seclusion, and I rewrote the software from start to finish, and it was awesome. And still to this day. It was like the culmination of everything I ever learned. It was beautiful. I looked at the code was like my proudest best thing ever done to date. It was that code. And the reason I’m mentioning this is that shortly after that I kind of, we launched it, it was a great Christmas. There were no bugs. It really worked wonderfully well. Everyone loved the new version and I felt on. I just cannot felt like all the things that I want to do after that were kind of incremental. This is the part of the story would actually be comes useful to you. I hope. Because sometimes you start a company , you have a certain vision, we’re going to do this, this and that. And at some point, you might hit it. You might hit the complete vision that you had. And all of the ideas that I had after that we really like things that were going to take a lot of work for very little return. Like I wanted our whole website multicurrency. But that got into everywhere. It was manipulating numbers and change into a money object instead of just a floating point was going to take weeks and weeks and weeks. And in return for what some people around the world, being happy that we were able to return multicurrency money. I wanted to do that. Then I was like okay that’s one of my projects. I wanted to have multiple warehouses. Because we have a lot of international customers of shipping physical CDs to. I thought would be good to have a warehouse in, say, in England, and a warehouse and Singapore or something. Then again, it would take in so much work to make that change. So I got this just kind of slumped shoulders, feeling, of loud if I could put months and months and months of work into this for not very much return. And I was feeling just very done.

So I talked to Seth Godin about this feeling, and he’s always been kind of a mentor or mine. He said, after a kind of described the whole thing to him. He said,” well, you know what, if you care, sell.” I was like, what do you mean? He was like you’re doing your clients a disservice, by remaining at the helm of this company. Your users are more passionate about this than you are. You’re over it and you’re not passionate about it. They are, they have these careers. They want to grow. And you don’t really want to grow your business anymore. So you’re actually doing them harm by remaining at the helm. And I was like, “whoa, that’s powerful.” Then I saw this.

Take a second to digest it just that because it hit me really hard. Sometimes will think about were doing is always going up and up and up and up. And it’s always going to grow and grow and grow. And I kind of forgot that there is this decline at some point in every is this is history. And when I looked at those descriptions at the bottom of the picture, I realized that all of the Ajit is under the maturity bump were the ones that apply to where I was at now. I figured, well, you know, any five. You look at that, say, hey, when you think would be a good time to sell. [Pointing at bump on chart]. So they hit me really hard. Because I really did mean that I want to be with this company through for the rest of my life. And I saw this, and talked with Seth and realize where I was at. Especially this image hit me really hard. I started for the first time thinking of selling. So the story that I promised I would tell since you guys voted for the ugly version.

The stuff that I’ve never told is the other biggest influence on why I decided sell. Just like the hype at how badly I fucked up. So, by any chance, did anyone here read a book called what got you there, What Got You Here Won’t Get You There. Those that suffer later? It’s this amazing. Oh, you read it. Wow. So it’s a book about management kind of saying that the skills that got you to a certain point your career are usually based on skill in your actually abilities. But to get to the next level in inner thing you want to do in life. It is more about interaction with other people. You can’t just rely on your introverted hard-core skills. It talks really specifically about being a manager of groups, Being a leader and how badly we often mess up and do things like just kind of going into a room of people and saying, here’s the new vision of over going to do with this plan. So everyone got it? Go. And it’s really great, except for two months later when you find out it’s not really being done. His book was so scathing. It kind of felt like he’d been hiding under my desk for two years. Writing down notes on what not to do and he wrote his book about that. Because as I read I was just like oh my God, I’ve been just doing everything wrong. Now I see why my employees hated me so much. So where can talk about that friend?

For the first six years of CD baby. I was very proud. No sorry for the first three years. I was very hands-on. There was just a very small little group. I did the full first year of myself didn’t hire my first employee until after year. Then it was just to employees than for, then really it about the four-year mark. There were only 20 employees. But I felt that my whole job was just answering people’s questions. There was like every 5 min. all day long. It was like, “Hey Derek? There’s this guy on the phone that wants to know. He signed up, but now he just wants to change his artwork. So would we tell him?” I used to say okay here, I’ll have left here. I’ll talk to the guy. Then 5 min. later,” hey Derek? What do we do in the case where somebody with this, they ordered two, but they want one? But we already sent this.” I’d say okay, I’ll take care of that. I realized that at that point, I might as well just ring a stool into the hallway in the office and just show up at 9 AM and just to answer my own employee’s questions all day. I wasn’t getting the time to do anything but answer those questions. So, I realized that this was kind of a trap that this was a dead-end. But I was miserable. In fact, I decided I was going to move to Hawaii. Is going to bring my little UNIX programming laptop, a stack of books I was going to move to Hawaii and not give them my phone number and run away. Then I realized I actually reserved an apartment booked my plane ticket and then realized that I was running for my problems. Instead of dealing with them. So I decided no, I’m going to fix this instead. Then I realized it really. It was one person that was kind of the core of all these questions so I let me go.

The next day. I hated the next customer service person who is amazing. The reason I’m giving this background is that I decide to take new approach, where it was going to show everybody there. Everything I knew. So any time would’ve these questions came up. “Hey Derek, this guy wants to know what do we do with this?” Every time one of those would come up. I would kind of gather everybody up. Tell them I need you all to know that answers this question.” Any time somebody wants such and such done, our policy is this, and here’s why, and here’s my thought process behind that. Because we can take the little $15 it because it can take make them happy… Okay everyone have this core philosophy?” So next time this comes up. Nobody would ask me anymore. After about a few months of this, I became completely unnecessary. I was just kind of doing the coding of the new future stuff that didn’t exist yet and upbeat. Ask me anything. He said, I stop coming into the office I started working from home. You do not still living in Portland, just a few miles from the office. Then my girlfriend moved down to Santa Monica , I was like alright symbolic goodbye. “See you guys. You’re on your own.” [Waves]

I went down to Santa Monica and everything was wonderful for four years. I take meetings down in LA, people would say, how would you do it. How are you, the president of this company and they don’t even need you. It’s amazing. I wish I could do that. I would so smugly tell them here’s how it’s done. But now I can look at this in hindsight tell you how I fucked up. The reason it works so well for those four years that I was gone was everybody that was there had been side-by-side with me and got divide before we were doing. They really understood the company culture. This is why we’re doing what we’re doing.

When I left in 2002, there were 20 employees. By 2006, there were 85. Most of them had never met me. There is this really awkward day when I had to fire my first employee. Everybody pretty much knew him as the boss. It was kind of deteriorating over years. To the point where he is, people would be like, well, he’s not really doing anything. People complain to me and I talk to him about it. I think he was just having too many personal issues aside for him to go so I flew up to portal and from LA and wrote him this big why I need to let you go. Letter and I had to confront him and say sorry I got a let you go right now and you got to go. When I gathered together the employees. Imagine this 85 faces gathered together into the main room and I started reading I prepared letter for why I had to fire him. And I just started balling in front of every buddy. Just starting sobbing uncontrollably. The funny thing is afterwards that somebody told me what’s funny about it is that half the people in the room were like, “who is this guy and why is he crying?” [Laughter] You know, like they never even see me before I was like the owner down in LA. They’d heard about me, but nobody had ever seen me before. So the problem was those employees that came in after the first 20. It was like that game of telephone. That company culture had kind of forgotten past. With this game of telephone. So if there were one or two bad customer service employees that really didn’t have the spirit of it. Sometimes they didn’t tell other people this is how we do things. They’d be like,” If somebody’s an asshole just hang up. Don’t worry about it.” These things were getting communicated without me realizing it.

So over the course of a few years. The company culture changed so bad that in July 10, 2007 was the worst day of my life so far. Because we would have these every Tuesday meetings where the company would gather around and talk about what were the issues of the day. We’d always record the meetings for the benefit of those that couldn’t be there. I think, well, on July 10, I was the one who wasn’t there. I think they forgot that it was recording. Because I listened to the MP3 in the server that night to catch up on what I had missed. My VP. The guy who had been my roommate for a few months that I hired, who is a really dear friend, and that’s why I made him the VP of the company. He was the one that let the meeting, saying all right, everyone, “Fuck him. We got to get this guy out of here so we can run this company how we see fit. ” Every time he would say something horrible about me. Everybody would go, “yeah!” And “Fuck him!” Then they were like, making it the stories about like, because I didn’t want to sell single downloads only wanted this LCD downloads. Somebody was yelling, “He just doesn’t care about the decisions anymore! I’m doing this for the musicians and fuck him!” And everybody would go,” Yeah!”

I’m listening to this MP3 at night and just going like,” what am I doing?” At this point, this will come into play later. I don’t usually talk money that much, but CD baby was making. I was making a net profit of flight 200,000 bucks a month. I was fine. Fine enough that okay I live simply, I had put enough aside, and I was going to be fine for a long time. I was listening to this MP3 and going like,” What am I doing? I hate this, I’m miserable. I hate them I hate this. I’m over it ” then that’s what I told you about the software rewrite. I kind of completed the new software, rewrite. Then I was like, I thought I was done. “Just fuck this fuck everybody.” I wasn’t enjoying myself anymore. I need to make a change in my life.

So you guys with root will appreciate with this. I went into the server. That night it went into Apache and I typed into Apache control alt.[laughter] so I shut down the site. I was sitting there typing out was going to be the new kind of 404 page. You know. Or what page you went to on CD baby. At Cdbaby.com . It was going to bring you to a page that said “thank you for your business over the years CD baby is shut down were not processing any new orders, give us a while to send your CDs back, and wish you all the best.” I have type that and that I was typing my letter to all the employees, basically saying you’re all fired sorry to hear you’re so miserable about life and everything, goodbye. I wish you the best and we’re done here. It was like midnight. You know how that goes. It was like 1:30 AM Many hours of trying to perfect my evil letter to my employees.[laughter] . I was getting sleepy and I was like okay, maybe this is the right mindset to be doing this in. So I was like, all right Apache control, start.[laughter] . So I went to sleep. In the morning, I remembered. It was my original idea when, during net.com boom, when people were asking, “So what’s your exit plan? Are you going to do an IPO?” I’d say no. I’ve got a better plan. I’m going to do, like Willy Wonka. I’m going to get. The day I decided I’m done with this company. I’m going to get five golden tickets and put them in the five CDs, and I’m going to loudly announce that are five golden tickets and CDs, and people will sell tons and tons and tons of CDs, musicians will be thrilled. And whoever finds the five I’m going to invite them to the CD baby warehouse. And because I don’t have a chocolate river to kind of bump them off into what I’m going to do is I’m going to have the five finders of the golden tickets. They’re going to know that they’re the candidates for being the next owners of CD baby, so they’ll kind of prepare their vision of what they would like to make CD baby. Or what CD baby will be up there. The owner. And all invite all the musicians. It’ll be a free event and they’ll present the musicians and musicians will vote on who they want the owner to be. Whoever they vote for all say,” I’ll right. You’re the owner”, I’ll sign my name like Willy did to Charlie And I’ll say, it’s all yours with one condition, you can’t sell. So if at any point, you’re feeling done it reverts back to me.” That would prevent somebody from making big empty promises and then just turning around and selling it for a big price. So that was my plan until, and I was seriously looking into how to make and get the golden tickets made. I was pursuing this plan for couple of days. [laughter] Until a good dear friend of mine that I think a lot. He said, “You know, someday. Be like 60 years old and broke and looking for a job, and you’ll be cursing the day you took this big giant multimillion dollar asset of yours and just give it away because you are cranky.”

Okay, all right, then I kind of went back to this. Seth Godin’s advice, and deciding to sell. This is a short talk and I’ve only got 6 min. left, so this is what it got and here it goes. So, I talked about kind of the most emotional side and to me that’s the biggest one. Nothing I’m describing. After this, nothing was after the money. It was all because of this that I just told you. I was just feeling done with everybody. I was feeling done from a, I was no longer ambitious about this. I had rewritten the software, it was everything I wanted to be and I was just feeling done. That’s a really good time to get out. It might happen to you. Even if you weren’t expecting it.

The first time I decided to sell. I kind of put out the word a little bit, but I was halfhearted about it. What I was going to do was I was going to sell CD baby, but I was going to keep Host Baby, my little four-person web hosting company. I put that out there and I did an NDA and I did the books. I got this offer of like $10 million just for CD baby. It was going to be really tricky with this brand names and they owned this have the brand name found that half the brand name. What about new things with the word baby and what would we do there. Are they mine. It got tricky part way through. I just kind of, partially just because CD baby was earning less than I think, three or 4 million net profit a year. Someone is offering $10 million for it. I was like, “hmm. No, never mind.” So I said never mind. Now, I really was trying to carry on kind of halfheartedly with my plan for future development. Then in January 2008 in one week, I got three offers and I had stopped sleuth thing these sub. To explain over the entire history of CD baby. There were 10 years. I always had kind of VC people that were always calling and saying, “Do you want investors?” I was like,” no, not looking for any investors.” [Hanging up phone] Are you interested in selling like MP3.com, wanted by CD baby.com a long time ago. I said, it’s not for sale. They said, “Are you sure? Not even if we’re talking like billions of dollars?” I was like,” what are you Carl Sagan, no.” [Laughter] So I really was not interested in selling before, but I had always receive these offers. So then there is this one week in January where I got three calls. Disc makers a CD manufacturer called and said, quotation, hey, just so you know were really interested in buying CD baby.” It was like,” no, I’m not selling.” Then this VC firm called, the name of the tree in their name I forget, they said,” Heyward really interested in buying CD baby, would you?” I was like,” no, no. I’m not selling.” Then this other distributor I was doing work with called up and said they were interested in buying CD baby. And this was seriously. On like a Tuesday, Wednesday and Thursday. And I said, “Nope, not interested, not selling.” Over the weekend, I thought to myself, take a hint.

Three people in one week. This is some kind of seller’s market, and that’s cool. So I kind of pulled up my diary and I said okay, I’ve asked myself this question a few times before, but what if I decided to sell and for the first time ever, I was like that would be kind nice. It was to me the biggest thing was being relieved of all the kind of burdens of being the owner and all I can stuff. And so I decided cell. So I called. All three companies back and I said “Yes, I’ll do it.” I can’t work with my accountant and open up the books and they had that full kind of I forget what you call it the. That process. Thank you. Yes. So they were doing it in parallel. So I always had this kind of dream where Amazon would be kind of daddy to my CD baby. So I told a friend of mine who I knew, knew somebody just tell them I’m interested in selling. And immediately they were all over it. It was kind of nice. All along the selling process. I always had multiple buyers. So I told my terms. Oh, hold on. This is the slide, I should show you. So I decided, I called some of the people I knew they had sold their companies. I said are you happy you sold are you sad? What’s the upside, what’s the downside? The big downside that I heard was, they said. It’s kind of weird not to be an employee at a big company when I was always the boss. Now, like the guy in the middle somewhere, and it feels weird. I was like, yeah, I couldn’t do that. So. I kind of thought about in my perfect world, how would the sale go. I thought, okay, well, number one, absolutely, the minute the wire transfer is done. I’m out. I’m not working for them. I’m not consulting for them I’m gone. Because I need to emotionally disconnect from this. Number two. I think I need to keep my database, but musicians and customers. Neil because most of those people were like this, you know people I met one at a time at conferences over 10 years. I know a lot of them. I’m not just going to be not allowed to talk to them. So I get to keep my database And three at got a lot of ideas for things I’m getting, keeping down musicians. I need a very narrow noncompete he comes on the start promotion companies, I’m going to start this. I called back these three companies and I said, here’s my three terms. Are you cool with that? And if not, we have nothing else to talk about. So luckily they were all cool with these three terms. So what was really nice was along the way, Amazon and Disc Makers were both very interested the whole time. I kind of felt that Disc Makers knew my clientele better and was happier to go with them. They came back kind of a handshake deal, saying we’re looking at about 22 million and that was cool with me. And then Amazon was linked to offer a little bit more money, but I still cannot worried about my long-term reputation. One of my clients in good hands. So I chose Disc Makers. The reason I mention it, this is bit along the way, any time that we had the tiniest little snags in negotiations. I just sent. I think were done here. No, I’m not. Because the guy from Amazon.com. He every week to let me know they were still interested. So it was the sweetest possible thing. So, of course, but the device. If you’re selling your company is, do whatever you can to get multiple people interested. Because it just puts you into such a wonderful position of not having to compromise what you really want from the sale. Last thing was kind of weird is that I had always been very open with the employees but because of this mindset where I really had to be able to walkway for this deal at any time. There’s even this point, like a week before the deal is complete, that they wanted to put in one twisty little thing that I didn’t like, and I really wholeheartedly told them no, no, no were done here. I’m out. And they were like, “okay, okay, okay.”

So the thing is, my employees started hear, these rumors like, What’s this I hear that were selling to Disc Makers, is this true?” I had to just bolt face a “Nope, absolutely not”. Because the truth is, until that wire went through. I wasn’t selling. I was ready to say no. Up until that last moment. That was kind of weird. So the last thing that Joe mentioned that I’ll and Don is, there’s this eight months between this handshake deal where they said okay, 22 million and it took eight months for them to get the official kind of bank and the backing and do due diligence to make it official. And I had eight months to say $22 million.

Oh shit. What am I even going to do with that, I don’t even want it. I had to ask myself these kind of deep questions like if I had $20 million right now, would that change my life in anyway and would I do anything differently? I really thought deeply, nothing. There’s nothing that I want to buy. I don’t want to own the stupid for Ari or a mention or something. That would suck. I would feel responsible for the afterlife. That stuff. So I was talking to my lawyer about this and I said,” I’ve got a question.” I was just mentioning to him that I don’t want money. It’s kind of weird. I just want to know that when I’m 60 years old. I won’t need to be getting a job somewhere. In the meantime that I’ll have a comfortable life. But I don’t want to be one of those people that be because they have $20 million say things will I found a nice house for only 10 million, or that think it’s no big yield to spend $15,000 on Virgin upper-class to be a little more comfortable. I don’t want to be in that mindset. I think that would suck. I wouldn’t be proud of myself. So I was mentioning to him that I didn’t even want the money I just wanted to note that for life. I just beat kind of okay and he said,” there’s this thing called a charitable remainder Uni trust.” I think it’s a US only thing. What it means is we could transfer the ownership of the company into the charitable trust. Now, months before the sale before the sales complete. Then when Disc Makers buys CD baby. The money all goes into the trust. But the way that the trust is written is that the charitable remainder Uni trust means that you as the, I forget what my official term is, the payee or beneficiary or something will get 5% of the total value of the trust paid out per year. That’s the legal minimum. I was asking him if we could just do 1%, and he was like no, 5% is the minimum. Then you just get that for life. And once it’s in the charitable trust it all grows tax-free for life and best of all, I forgot to mention reason all this came up is I think I just want to give it all to charity or something, but not till I got because, just in case you know? So he said,” this is the plan for you then, that’s what this is all about.” By putting it into the trust. It is already gone, it’s not yours any longer, so it is no longer your assets. It does belong to charity, but it doesn’t get paid out and tell you die while you’re alive it easy to scan a 5%. Yours for life. It’s mainly meant for kind of retiring people. So I thought that was perfect for me. I put into the trust, but it wasn’t really for any altruistic reason I wasn’t really even ever going to tell anyone that I did this, but I was doing some interviewing somebody kind of grilled me. He was like,” come on, what did you do it the money? What did you do with the money? ” I mumbled. I put it in a trust. He wanted to know the details, and that’s how that got out, and people seem to like the story.

Really where it all came from is have you guys ever read a book called Stumbling on Happiness? Absolutely brilliant book. It sounds like a self helpy title, but if you ever read it. It’s actually a professor of psychology that’s been studying happiness for many years has found some amazing counterintuitive things about what makes people happy. It’s not what you think. So they found out that above a certain kind of level of sustenance more money doesn’t make you happier. It has almost no effect on your happiness after you’ve met your basic needs. So that’s where I realized okay well my basic needs are met, so I’m just going to put it all into charitable trust. It sounds like a weird thing to do, but it made sense to me and I realized it was just kind of for my own happiness. It wasn’t raining altruistic reasoning.

I think that’s it. Thanks. [Audience claps]

It’s funny, it’s just like to come up here and just tell a story. I felt like I was going to give you hope which of useful info so I hope that was useful. E-mail me if you have any questions about the Art of Profitability.

The Business of Software conference will be held in Boston, October 24-26th October 2011.