Savvy entrepreneurial Firm

Pandora: What’s Possible When an Entire Company Has “Tenacity”

M
ost everyone is familiar with Pandora, the Internet
jobs. Reflecting on this period in Pandora’s history,
radio station. The service plays music of a certain
Westergren, who was the first person to go without pay,
genre based on the artist or type of music the
said the employees agreed to the plan for two reasons.
user selects. The user then provides positive or negative
First, they believed in Pandora and its idea. They also
feedback for songs chosen by Pandora, which are taken
believed that Pandora would ultimately raise money
into account when the service selects future songs.
and become a successful business. Second, the em-
While listening, users are offered the opportunity to buy
ployees felt a sense of responsibility for one another. If
the songs or albums at online retailers. over 400 differ-
one left, the burden would be greater on the others. As
ent musical attributes are considered when selecting the
time went on, Westergren believes, those relationships
next song for a user. The goal is to provide the user the
deepened and the employees ultimately stuck it out for
precise type of music that s/he wants to hear. Pandora
one another.
has two subscription plans: a free service supported
When the funding did come through each employee
by ads and a fee-based service without ads. Pandora
was given his/her entire back pay. This is a very unusual
went public on June 15, 2011, and is now traded on the
outcome in the funding world. Usually, new money isn’t
new York Stock Exchange. As of that date, Pandora
used to solve old problems, it’s used to build for the future.
had 800,000 songs from over 80,000 artists in its music
Westergren credits his investors for the outcome. He’s said
library and 80 million users. A year later it reported it had
that what the investors were investing in was the tenacity
150 million users.
of the Pandora team.
Impressive, isn’t it? But, as the old saying goes,
Lesson Learned: This is what can be accomplished
wait until you hear the rest of the story. Pandora was
when an entire company demonstrates the tenacity nec-
founded in 1999 by Tim Westergren, a musician and film
essary to build a successful entrepreneurial firm.
composer. The company raised $1 million just before the
Internet bubble burst. At that time, Pandora’s business
model was to license its technology to other companies.
The initial investment lasted about a year, which gave
Questions for Critical Thinking
Westergren and his team enough time to build a proto- 1. How do you think Westergren was able to perservere
type and have a product to show to potential customers. through 300 rejections before an investor finally said
Then the money ran out. Pandora spent the next two yes to Pandora’s attempts to raise additional money?
and a half years essentially broke, earning only enough 2. If you had been a Pandora employee during the time
to keep the lights on. What was needed was an addi- the firm was essentially broke, would you have agreed
tional investment. Westergren pitched over 300 venture to work for no money? Westergren provided two
capitalists before one finally said yes. Pandora eventu- reasons that the employees present at the time were
ally shifted its business model to offer the Internet radio willing to work without pay. Would these reasons have
streaming service that it features today. Fast forward to been good enough for you? Explain your answer.
the present: Today Pandora has over 250 million regis- 3. Think of a time in your life where you showed tenacity
tered users. and the tenacity produced positive outcomes. Briefly
So how did Pandora do it? How did it survive two relate the story and what you learned from the experi-
and a half years with essentially no money? The an- ence to your classmates.
swer: Its employees agreed to work for no pay. They 4. What lesson or lessons can other entrepreneurial start-
agreed to a deferred compensation plan, meaning they ups learn from Pandora’s story?
would get paid if and when the company raised money.
Sources: W. Wei, “How Pandora Survived More Than 300 VC
Some used credit cards to survive, some had working
Rejections,” Business Insider, July 14, 2010, available at www.busi-
spouses or significant others, and others worked two nessinsider.com/pandora-vc-2010-7