Four Friends Started a Business and Sold It to Apple for $400 Million. Here's How.
I had the pleasure of catching up with Dhiraj Mukherjee, the co-founder of Shazam, an app that has been downloaded over a billion times and tells you what song is playing in the background. Users just hit the button, let it listen and “Shazam!” -- turns out you’re enjoying a cheesy David Guetta co-lab you normally wouldn’t admit to liking.
Apple loved this technology so much they had to have it and in late 2018 they acquired Shazam for a whopping $400 million and integrated it with their digital assistant Siri.
So how did this business get started? Shazam began as a crazy idea between friends in 1999. At the time, the technology that makes it work didn’t exist, the digital library of music it needs didn’t exist and there wasn’t a business model for making any of it profitable even if these things did exist.
But that didn’t stop the four founders from getting excited. The three MBA graduates and a computer science Ph.D. decided to forget high-paying jobs and start solving these challenges and building a business at the intersection of music and technology. The full story of how Shazam became so successful is nothing short of remarkable and lends itself to a book rather than an article, but here are seven key ideas that came out of the enjoyable chat I had with Dhiraj:
1. When starting a business, co-founders should have different skills but the same values.
Dhiraj explained, “The four founders each brought unique skills and thinking styles to the table. Chris Barton and Philip Inghelbrecht were inclined to rapidly solve problems and get things done at pace, whereas I am a strategist who wants to know how will it scale.” His fourth co-founder Avery Wang was a computer scientist. “He intimately understood digital signal processing, which was essential to the technology.” Beneath the differing skill sets and thinking styles was a complete alignment to a set of values that made the chemistry work: fairness, fun and work ethic are among the top Dhiraj listed as common values.
2. Sometimes “foolish” ideas are huge opportunities.
Shazam wasn’t an obvious opportunity and, in fact, the technology that would really make it take off would not be around until 10 years after the company launched. Shazam instinctually felt right to the founders and it held their excitement. Rather than following a “money-making trend” they did something that they thought a lot of people would love.
"I had a spreadsheet of all the things that needed to happen for this to work and the probability of each thing happening," Dhiraj says. "When I calculated the likelihood of everything working, my spreadsheet said there was a something like a 4 percent chance of success. Somehow it didn’t put us off though.”
3. Hire people who are better than you.
As Shazam grew, Dhiraj hired his own boss Vijay, a talented and experienced music marketing executive. A year later he helped hire his boss’s boss, who took over as CEO of the company. Dhiraj remarked, “The founder of the company has a unique ability to hire people better than oneself without threatening their own position for the long-term best interest of the company,” Dhiraj says. “We were doing something cool that combined technology and music, that helped us get a lot of really talented people who wanted to see this succeed”.
4. In every great challenge, there's a hidden opportunity.
Shortly after Shazam raised its first round of capital, the dot com bubble burst, the NASDAQ was down 70% and big investments in internet companies weren't happening any time soon. “This was a massive problem in one sense but it also presented us an opportunity because suddenly some of the best computer whizkids were unemployed and looking for an exciting project,” he reflects. Shazam hired remarkable people using stock option incentives at this time. This rich pool of talent helped demonstrate Shazam was a worthwhile investment once the VCs had regained their appetite for deals.
5. Take people on the ride.
Dhiraj says, “In hindsight, there were times I expected people to be mind readers. Lot’s of exciting things were happening in the company but I wasn’t communicating them to stakeholders well enough.” When the company culture was at its strongest, Dhiraj described it as a “ride” that everyone was on. He said it’s so important to ensure everyone feels they are on that ride with you. Dhiraj urges founders and CEOs to take time to communicate with all of the stakeholders and not to assume they are aware of all the progress you’re making or challenges you’re facing.
6. Luck plays a role.
About his success starting and selling a business, Dhiraj remarked, “Let’s face it, we had a lot of good luck.” Not everything can be planned for and even the best plans can come undone. But sometimes the winds of fortune gust in your favor. With this in mind, it’s important to enjoy the journey every step of the way; things may not work out as you hope or you might make a fortune doing something that you started just for fun.
7. Do something that matters.
After leaving Shazam’s day-to-day operations, Dhiraj joined the charity Save the Children to assist in creating more innovative approaches to fund-raising. He utilized his entrepreneurial experience to bring fresh ideas to a big established organization. He now believes some of the best opportunities for entrepreneurs exist around environmental and social issues that need to be solved. “Today I’m interested in projects that have the potential to make a positive impact more than anything else,” he says regarding his investments.
I asked Dhiraj what it was like selling Shazam to Apple. The deal had taken around a year to come together and needed regulatory approval which stretched on for months. “One night my phone started buzzing with dozens of messages congratulating us,” he remembers. When he clicked on a link his friend had sent, it went to an article in the paper announcing the deal had gone through. It was, he said, "a fairy-tale ending to a magical ride”.