How Derek Sivers decided to sell CD Baby
The musician and entrepreneur sold his “baby” for $22 million in 2008, but he didn’t do it for the money.
CD Baby founder Derek Sivers made two appearances on Venture Voice in the early days of this podcast. In our first conversation, he described the process of growing the company into one of the largest sellers and distributors of independent music online, with $25 million in revenue and 50 employees. This week we’re revisiting our second conversation, which happened three years later. What a difference three years makes. In August 2008, Derek, who owned 100% of the equity, sold the company for $22 million. When we spoke in October of that year, Derek described what drove his decision to sell the company, how he sold it (including a Willy Wonka style plan that never came to fruition) and what he learned along the way. As you’ll hear, Derek had been living out of a backpack and traveling light — and he had no interest in changing his lifestyle after he sold the company. He put all of the money into a charitable trust that will go toward music education when he dies. If you’ve ever felt disconnected from your own venture or wrestled with the idea of whether you should sell your “baby,” this episode offers some good insight and excellent advice.
“It takes a certain amount of energy to go from zero to 60, and then it’s almost like it takes that same amount of energy just to go from 60 to 70.”
Like many entrepreneurs, Derek Sivers founded CD Baby in 1997 to solve his own problem. As an independent musician, he couldn’t find an outlet that would sell his CDs online, so he built that place for himself. Soon enough, his friends were asking if he’d sell their CDs, too, and eventually, he was running a full-fledged business that grew into one of the largest sellers and distributors of independent music online.
That’s where we left off in our first conversation for this podcast, back in 2005. CD Baby’s business continued to grow over the next couple of years, but Derek was starting to feel stuck in a rut. He had some ideas for changes he wanted to make, but he didn’t see that the payoff would be worth the effort. He realized he was ready for something completely different. Or as he puts it, it was time for “the scary challenge of doing something new.”
“Three companies in one week had called me, asked me if I wanted to sell CD Baby. And I told them all no.”
Even so, the decision to sell is a big one. He’d turned down offers in the past, because, as he says, it was “my baby. This is what I do. This is what I love.” No amount of money could convince him to sell. But in January of 2008, he sat down with a blank text document and asked himself, “What if?” What if he sold?
For the first time ever, it was an inspiring idea. He saw that there were so many other things he could do if he didn’t have to be responsible for CD Baby. He called Disc Makers, one of three companies that had reached out to him in the previous week, and one that he knew well. Although they weren’t offering the most money, he felt they’d do the best job of running the company. “So I gave them first dibs,” he says, “and they took it.”
“I was already pretty alienated from my own company at that time.”
There’s more to the story, though. In the spring of 2007, Derek moved to London and began living the ideal of Tim Ferris’s 4-Hour Workweek, staying as removed as possible from the day-to-day operations of the business. When he came back to the States, he had no desire to go back to the office or see anyone in it. In fact, by the time he sold CD Baby, he hadn’t actually been to the office in almost a year.
It started out as the need to delegate, something every small business owner has to reckon with at some point. He knew that he couldn’t do everything, and he didn’t want to; he wasn’t interested in being one of those business owners who hasn’t taken a day off in five years. So around 2002, he began stepping back. But he would learn that there is such a thing as over-delegating. In the years that followed, the culture changed in ways that he hadn’t expected. The company had grown to 85 employees, but he didn’t even know a quarter of them. He decided that rather than trying to change the company into what he wanted, he’d be the one to walk away.
“At a certain point, it wasn’t about the money to me.”
With so many companies pursuing CD Baby over the years, Derek had been through the due diligence process enough to determine that $22 million was the right price. He admits that he probably could have sold it for more, but he wasn’t driven by the money. Instead, he was driven by the fact that “I didn’t want to work at CD Baby anymore,” and he wanted to make sure he left it in good hands.
Derek describes the 7-month process it took to complete the deal. In his typically laid back manner, he stayed out of the weeds of it as much as he possibly could. He told his lawyer, “Here are the four most important things to me. As long as these four things are met, just, you work out the details.”
“I felt icky about having that much money. That’s just a stupid amount of money.”
Whether he was driven by the money or not, the fact is, as the sole owner, Derek ended up with $22 million out of the deal. So I was curious to find out how that windfall changed his life. His answer: “Not one bit.”
Derek knew exactly what he wanted, and it wasn’t a helicopter or a mansion. When we spoke, he told me that he could fit everything he owned in two suitcases. That was the lifestyle he’d chosen. He wasn’t in it for “the stuff.”
So, what about the $22 million? As Derek explains, prior to the sale, he created a charitable trust and transferred ownership of the business to the trust. When Disc Makers bought CD Baby, they actually purchased it from the Independent Musicians Charitable Trust, ensuring that all of the money will go to music education when Derek dies. In the meantime, he lives off the interest.
“I’ve been fascinated with what I did wrong, so I’ve been studying a lot about that.”
As you’ll quickly discover, Derek is infinitely curious and a voracious learner. In the years since we talked, he’s spent his time traveling, writing, speaking, creating music and being a dad, among other things. In this episode, he also references a number of books that should be on any entrepreneur’s reading list, including Ferris’s “4-Hour Workweek”; “What Got You Here Won’t Get You There,” by Marshall Goldsmith and Mark Reiter; “Execution: The Discipline of Getting Things Done,” by Larry Bossidy, Ram Charan and Charles Burck; Felix Dennis’s “How to Get Rich”; and “The Paradox of Choice,” by Barry Schwartz. He’s since written his own book, Anything You Want, about what he learned from starting, growing and selling CD Baby.
Listening back to this episode more than a decade later as the owner of two companies, Muck Rack and The Shorty Awards, I can relate to Derek’s comments about the pressures of running a business and the struggle to gauge when, what and how much to delegate. One of the things that sticks out to me from our conversation is that a lot of the pressure we put on ourselves is self-induced and even imagined. As Derek told me, we usually have more of a decision in these matters than we give ourselves credit for. We just have to get clear on what really matters most.
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