Spotify’s misjudgment about the impact of mobile could have driven the company out of business in 2013. At Slush, founder and ceo Daniel Ek spoke freely about the mistakes he made over the last decade. “Making mistakes is ok, if you make them quick and cheap.”  

Spotify ceo Daniel Ek rarely gives public interviews, so he’s session at Slush in Helsinki drew a lot of attention. Ek took part in a ‘Failing Forward’ - themed panel alongside Ilkka Paananen of mobile games specialist Supercell and Niklas Zennström, the Skype co-founder turned investor. Our very own Robin Wauters (Tech.eu) got to ask the questions. 

Here are eight key takeaways from Ek’s part in the panel.

1. Face your strategic mistakes, and move fast to fix things

Daniel Ek: “For a very long time, Spotify disregarded the impact of mobile. Desktop was king and we hadn’t even licensed a mobile product other than a premium one. That’s because we looked at the world as a place where everyone would use desktop and smartphone together. We figured it was a great idea to ‘upsell’ the mobile product.”

“For a long period, that was great because whenever people wanted to use Spotify on a mobile device, they had to pay for the product. But because we adopted a freemium model, we’re highly dependent on also having free users engage with the service. As the world moved towards mobile, obviously that free part of the funnel disappeared.”

“Most of our investors saw our revenue numbers and conversion rate go through the roof, while we were realizing that we made a strategic mistake and we had to reinvent the entire company to fix itIt took us 18 months, as we had to go back to the music industry and tell them that the thing we used to charge money for needed to be given for free as well. That was not an easy sell. We told our partners that we would figure out a new way for people to pay for this product.”

“It was like switching out the engines mid-flight. But if we wouldn’t have done it, six months later we might have died as a company. That really was a defining moment and that was as late as 2013. For what it’s worth: I think that every great company has at least three near-death experiences.”

“Many people talk about the willingness to have failures, but I hate failures. I don’t think you should strike to make failures. I think it’s ok to make mistakes, but by the time they become real failures, you probably should have discovered them.”

“The way I think about this is that we constantly must make bets where we could be wrong about the tactics, but hopefully we wouldn’t be wrong about the goal. If we are quick and agile, we can move fast to fix things. So, we did make mistakes along the way but the whole project didn’t end up becoming a failure.”

2. Make a few strategic bets instead of doing 100 things and hope for the best

“As you become bigger, one of the problems you are going to face is that you need to be growing at 100% or more for multiple years, especially when you have VC’s investing in you.”

“What is going to happen if you get any kind of traction is that the law of gravity will start pulling you down. It gets harder and harder to grow fast. So actually, you are going to make bigger and bigger bets to even have a remote chance of making that growth number.”

“After a while you might start making lots of small bets in the hope that some of them turn out big, or you just make substantially bigger bets in size but make fewer of them. There are quite a few companies that do a lot of small bets - and some of them play out - and then there are some, like Amazon, who say, ‘Hey, India is a big bet for us’ and then put in a couple of billion dollars and hope for the best in a couple of years’ time.”

“I think we are definitely trying to find our way, but we never liked doing 100 things at once and hope for the best. I can’t even come up with even 100 different goals, so I’d rather make a few strategic bets and make sure that we don’t fail on those.”

“That, I think, is a very important distinction that I don’t see startup entrepreneurs getting. Failure is not something you should strive for. Making mistakes is ok, if you make them quick and cheap.”

3. Try to cope with your low-variance problems 

“I look at the choices that an entrepreneur has to make and I segment them into low-variance problems and high-variance problems. One of the mistakes entrepreneurs make is this: as a larger company, the easiest thing to invest in is the low-variance problems. Low-variance problems are the ones which bring relatively little benefits when you’re best in class, but there is a tremendous amount of downside if you don’t do them well enough.”

“The perfect example is paying salaries. If you are the best in the world at paying salaries, the benefits in being the best versus being just ok are not that high. People just expect to get paid on a certain date. But if you miss that date, then you are screwed. It is really, really bad and you have a severe morale issue.”

“I find that most entrepreneurs are pretty good in the high-variance bucket, but it’s the low-variance part that we under-invest in. As an example, until recently - and I didn’t pay much attention to this - we were running on an ERP system that stopped being supported by Microsoft in 2001. We are still running that thing even to this day.”

“We are probably 10 times bigger now than anyone who has ever used that thing, so the cost for us to switch are very high. 200 people are working on this for a while now. What was a pretty trivial decision back then now turns into this multi-year thing where we have to migrate everyone over to this new system and keep the two systems running in parallel.”

4. Never underestimate HR

“Another issue for us has been HR. For a long time, I was the only HR person at Spotify, and I didn’t see the value in it - despite having hundreds of employees. So, you under-invest in that stuff.”

“You can see on Glassdoor that our ratings as a company were pretty terrible until we started investing in HR to formalize some of those processes and get better at how we set salaries to be fair and just to people. That’s when our scores started to increase. If you miss your window, those things can go wrong terribly and become very expensive.”

5. A ceo must change jobs every two years

“There are different skill sets for every phase of a company. One for when you have just started the company, one for when you are 50 people, one for when you are 150 people, one for when you are 1,000 people and one for when you are 10,000 people.”

“I usually tell people that I change jobs every two years. I started as the janitor, then I became the product guy, then I became the HR person, then I became the content person who negotiated all the deals. There are many phases through a company’s existence where you, as the founder, must wear many different hats, and that’s really hard. You must be versatile as a person to be able to do that. I think this is what people get wrong.”

6. The best projects come from people who click

“We have to cut through all the bullshit and focus on what is important, which is creating the best possible product and creating the best possible value for our customers. Those things and building a team to do it.”

(Photograph: Andrew Matthews/PA)

“I acquire companies now, and part of my innovation - and part of the things you see that you probably love most about Spotify - comes from companies we have acquired. What I look for is a team, three or four people, who are tightly knit and have worked together before. Whatever projects we do, the best-performing projects inside of the company come from three or four people who click. Ideally they have worked together before.”

7. Your first employees are the most important hires you’ll make 

“In the early days, you typically hire people that you know that are good. You don’t put vacancies on a job board. If you chose the first people you hire very carefully, you’ll pass the first ‘life or death’-faze of your company. That is the most important thing that we look for when we acquire companies and pull them in: getting the right team.”

“The second thing is getting that team to fulfill the right mission. ‘Mission’ would probably be translated into ‘being stubborn on the vision and the problem you are trying to solve, but being flexible on the details of how you are solving that problem’. Those are the two most important things for us.”

“You have to screen for factors like passion when recruiting. I am not saying that everyone in Spotify is hardcore into music. That’s not important. Sometimes the mission itself can be interpreted differently by individuals, it could be a subset of the mission that is super-appealing to someone.”

“If you are a data scientist, you may not care that much about music, but you care about how people interact with music, and that becomes the thing that latches you on and makes you feel that this is something you need to understand.”

8. Grow up and get your priorities right! 

“People talk a lot about the culture, and they talk about the culture when it changes or want the culture to remain like what was when it began. That is not the culture we have at Spotify. I was 23 when I started our company; I am 33 now. I was single and 23 and spraying champagne on people in bars in downtown Stockholm. Today I am semi-boring. I have two kids at home, I go home and watch Homeland and do emails, fall asleep and start over again. The point being is that I am a different person. I think I roughly have the same values but I have grown and matured.”

“I used to think that people who went and picked up their kids from daycare were losers and were checking out too early. That’s the truth. Whereas today I have a totally different appreciation for how and why that is important and why a rich life/work balance is super-important. The company culture changes over time as you, as a founder or a CEO, also change with the company.”

Eventually you realize that Silicon Valley has its priorities all wrong and the Nordics have theirs right. The things that were necessarily important to Spotify at the beginning aren’t identically important to the company today. It is not important that we have people sleeping under their desks. In fact, we say that’s the culture we don’t want. People do better things and are more creative when their life is balanced.”

“That is a very big difference from where we were in the beginning, as it was super-important then as we only had so many people that everyone put in 12-hour work days and we were inspired by things we saw in San Francisco.”

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