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Product Details
| ISBN-13: | 9781611882544 |
|---|---|
| Publisher: | The Story Plant |
| Publication date: | 06/29/2018 |
| Pages: | 352 |
| Product dimensions: | 6.40(w) x 9.10(h) x 1.20(d) |
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CHAPTER 1
Side One: Then
You were under the impression That when you were walking forward You would end up further onwardThe Who, "Quadrophenia"
Track 1: Always Fear the Meeting
Victor knew walking into the meeting this wouldn't be an easy sell. He had been at the game long enough to know that being right was nothing more than a good start. What he didn't know was what he didn't know, and like always, that terrified him.
Marin County wasn't just fitted redwood hot tubs and second marriage getaway homes. There was ready cash money for side investments stuffed in every home safe, and tiny software companies bubbling up out of middle age retirement in every guest house. A few of them took condensed space in land-restricted strip malls, and a few of those found a path to going public. Once a company became the province of the NASDAQ, all bets were off. Big dollars could become no dollars in a few bad trading days. Miss a product cycle and the strip mall could be calling anew. Global Harmonics had been one of those moonshots. Landing back on earth amid the medically legal cannabis was proving less gravity defying.
Yeah, Global Harmonics, what an idea that had been! The sometime great notion, an inspired vision from a daring visionary. That's all it was when Victor arrived. He had been somewhat duped, although the founder and CEO of Global Harmonics hadn't seen it that way. Bud Thacker had offered Victor the job of a lifetime to take his brilliant concept and make it into a real product. It was a limitless concept, love at first sight for Victor. He remembered the history vividly, every milestone crystal clear, his mind an archive of the lightning fast second Internet decade's rise and fall. Global Harmonics would create a software engine where anyone anywhere could upload a recorded song in any digital format, frictionless plug and play, and the enterprise model would then real-time generate the sheet music, orchestrations, and licensing platform, all in a nanosecond — instant gratification, instant monetization. Just like that, a song recorded in a garage or banged out on an iPad became globally available for sale, reuse, recording, whatever was possible. When someone uploaded a song, the copyright was instantly filed with the US copyright office, and Global Harmonics issued a contract for twenty-five years of exploitation at 25% of the revenue generated. It was the 25/25 model; that's what they called it, and while it may have seemed steep to many songwriters, where else were they going to get global exposure to hundreds of millions of music aficionados with the chance to monetize their music?
It was all so seamless, so streamlined, a marketplace of musicians buying and selling from each other. The songwriter would keep firm control of the registered work. Any offer to record the song could be accepted or rejected for any reason. If they got a hit, the cash flow would be ceaseless, but the norm likely would be a hundred bucks here, ten bucks there, that sort of thing. For bar bands, that was better money than selling CDs after a gig, and 100% incremental earnings, with the chance to be discovered. It was all upside, no downside, except for the 25% and the twenty-five years, but there was transparency in those numbers and once Global Harmonics hit critical mass there would be nowhere else to go. Global Harmonics had solved the reinvention quandary long since abandoned by the dinosaur MySpace. It would create an online, mobile, social, global, ubiquitous home for music composition with a solid following from starving artists to genre defining stars. The business model made complete sense and there were no holes in the product strategy.
Problem was, the day Victor arrived as head of product management, there was no product to manage. It was all still an idea, mostly stuck in Bud's head. Bud was a big thinker and not a bad engineer, but he might have been the crappiest manager alive. He had hired dozens of software engineers, but had no idea how to organize a team, no idea how to delegate, no idea how to coordinate different styles of code from different coders. It was sheer chaos at Global Harmonics, and the company's burn rate was a perilous bonfire. Bud, a heavy metal enthusiast and sometime bass player, had previously made a cool $10 million at the age of twenty-six, when IdeaGuise — the 3D modeling company where he worked as a coder since dropping out of high school as employee #7 — was sold for a billion in cash. He had invested all of that in Global Harmonics, his dream company, to bring his love of headbanger culture to the world. Alongside his $10 million came another $30 million from ThriceBaked Ventures — the same institutional money that backed IdeaGuise — extremely happy with the exit. What Victor hadn't known at the time, with $36 million of the $40 million up in flames, was that ThriceBaked was fed up with Bud's failure to get to market. They had threatened to bring in a new CEO, but Bud begged for one more chance not to lose control, to bring in a strong VP of product management. Bud had seen Victor's band play in LA and liked them. He remembered talking to Victor at the bar after the gig, learning that Victor coded on the side, although his real strength was in organizing teams. He trusted Victor because he was a musician. Victor was his Hail Mary.
The day Victor arrived and saw the disarray, as well as the crippled balance sheet, he called Claire and told her he had made a terrible mistake. There was no company here, no foundation, just a concept and a quickly evaporating bank account. They were practically starting from scratch, one degree above zero, not even. It wasn't a makeover. It was a do-over. The chances of getting from zero to one were formidable beyond belief. They would run out of time. They would run out of money. Morale would implode. They would never get a solid product out the door. Claire told him on phone call after phone call that he hadn't given it enough time, that he needed to tough it out for at least a year before he threw in the towel. If it was a good idea, then make it a good product. Zero to one was the precise formula for winning and she knew he could do it. Truthfully she probably didn't, but she knew Victor would always regret it if he didn't try, if he didn't give it his all before calling it quits. She knew that was who he was. Failing was okay, but not trying was pathetic. Running away would be a container for regret, nothing else. There was inspiration in commitment if he looked for it in the people around him, the people who were counting on him. He had to find the voice, the path. He had to try.
Claire hadn't mentioned God watching over him so Victor presumed she didn't really believe in his chances any more than he did, but her urging turned out to be sound advice. Somehow crawling out of the crater, rallying a team to assemble code from the void, banging out libraries that compiled in the ether, Victor pulled together the pieces and turned the damn thing around. It took seven-day weeks, regular all-nighters, and more high-voltage espresso than any life form could rationalize as safely consumable, but eight months later they delivered a scalable core server. Bud's idea had been good. The talent around them had been good. They just hadn't been sewn together. Victor brought them together and pulled off a miracle. He became a star, most of all in the eyes of the salvaged entrepreneur, Bud Thacker.
With the platform live, Global Harmonics slowly built momentum in the underground indie community. The Seattle alternative crowd jumped in as early adopters, which provided exactly the endorsement the company needed to attract the next wave of aspiring garage bands to establish fan hubs on GH.com. Credibility compounded swiftly as local bands from remote towns began to post their sales figures of original songs distributed across the network, first hundreds of dollars in royalties, then a few breaking into the thousands. Global Harmonics wasn't fully mainstream, far from penetrating the platinum mine of commercial pop, but as membership in the marketplace grew, the cash burn stopped. The company became modestly profitable, and as membership crossed one million, the database of sheet music, samples, and licensing rights found critical mass. It couldn't yet be declared a moonshot, still anticipating a "tipping point," but it was profitable, predictable, and growing.
Victor couldn't pinpoint a defining incident, but it was around this time that he and Claire fell out of communication. With each passing month their phone calls had grown briefer, less frequent, and there no longer seemed like a good time to make a weekend visit. The events seemed unrelated, but as the company gradually took on steam, the distance between them began to widen. When an obscure songwriter uploaded a thin grunge tune called "Motor Runs," the whole world changed. It might have been an accident, who knew how, but Aerosmith put it out as a single and that was all she wrote. "Motor Runs" sold a staggering 100 million downloads. Not only was money flowing to Global Harmonics, the Global Harmonics brand achieved ironclad legitimacy. Within a year, the community on Global Harmonics expanded to 70 million members and 200 million songs. At that pace, even the songs that sold for ten dollars mattered with 25% to the house. Global Harmonics was making it big and making it small. It was the place to go for something new, something untried, something unique.
When the company hit a run rate of $150 million in sales and $17 million in net income, ThriceBaked took the company public at a one billion dollar valuation. Bud was again a superstar. Victor had his retirement in the bank if he wanted it. All was lush within the pastoral hills of Marin.
That was six years ago, a colossal achievement.
Over the next year the stock price quadrupled. That made it a gusher.
It was harvest time. The board cashed in. New marching orders filtered without melody through the art deco corridors. Milk the cow, never feed her. Milk the cow, never feed her.
Victor had a broad, encompassing plan of where to expand next. They would build out a predictive database. They would data mine the patterns of uploads and rent the trends to producers and distributors. All the data they ever needed for a 360 degree vision of popular music economics was stored on their servers. They simply needed to reinvest a small amount of their profits in documenting the framework and expanding their sales force.
"It shan't be so," resolved the company's board of directors. "We're in late stage. The Street loves our profits, but we have to scale into our mammoth multiple. A higher growth rate and new development projects are risky. It's easier to slim down costs. Optimize EBITDA. Generate improved operating income. Pump out cash!"
The myopic board mandated a unified and consistent strategy — manufacture more of the same, only at a higher contribution margin. Lock the platform, let the world's musicians come to us, we're the only game in town and a good one. Victor was instructed to engineer flow through, revenue dollars that drop straight to the bottom line, and while he was at it, keep as few engineers on payroll as necessary. Lower overhead, lower R&D expense, scale into higher returns on reduced investment. Grow the base, ride the horse in the direction it was going, tread water safely in the shallow end of the pool. The quarterly earnings announcements would be gorgeous, exquisite works of art, nothing would please them more. Creativity and innovation could best be expressed on a shining income statement and balance sheet, all legal, impenetrable, absent waste and excess, a one-dimensional cash-flowing wonder! They already had a great product that was proven. Extracting value responsibly was what mattered. Harvesting at this time in a company's lifecycle was the will of Wall Street. The board would hear no argument to the contrary. They were wise. They had been there before. They knew their stuff. Damn it all, they knew their stuff.
Hear the chant. Sing it in your sleep. Milk the cow, never feed her. Milk the cow, never feed her.
CEO Bud tried to push back and conjure up a forward looking vision to partner with Victor, but he was no match for the sage, gutless board. He put up a weak fight for as long as he could keep them listening, but he had sold off too many of his shares over the years. ThriceBaked had gained majority control. ThriceBaked controlled governance. ThriceBaked wanted profits, not risks.
Global Harmonics toed the line and spat out cash quarter after quarter. Monotony, routine, and predictability were lauded as prudent, never scorned. The boardroom suits all seemed to suffer from sameness ailment — delusion. They were under the thumb of the lead investors. Were they idiots? Could they not see that building something new and championing change were the only long-term strategies to feed the Street?
No, they couldn't see the obvious. They absolutely were idiots. Streaming was coming on like a cheetah on the plains. Downloads were on their way to the tar pits. The business model had to change to building artificial intelligence models from complex data sets. Selling product would soon be out. Leasing information was the necessary pivot. The big data in their archives held perpetual value, a sustainable competitive advantage rented to the industry if only they could package it. Victor had to make his case, convince them the company needed to get ahead of the market before it was too late. He had to show them the inarguably foolhardy nature of their thesis. He had to prove to them that they were idiots.
No dice. Victor couldn't make the case any better than Bud. There would be no capital investment with deferred return. He and Bud were directed to secure even greater profits, always more profits. They already owned their fate. They had defined a new product category with a limitless moat to keep attackers at bay. What was the point in driving investment further? Why bother trying to define another category? The chances of succeeding once in the equity markets were incalculable and they had won. Why bother trying again? Feast on the plate before them and savor every bite. There was no need to design a new menu. What was the point in upping the ante, spending unnecessarily when cash was filling landfills? Don't be reckless. Be conservative. Be wise. Excavate the landfills!
The board had been right for a while. The lead investors gloated as they counted their fields of beans. They high-fived as the company's stock price soared to the stratosphere. The partied like a frat with a bottomless keg of premium brew. The party would go on forever.
Four years ago the party had gone on hiatus. Earnings went flat. The company's single product hit market saturation. Every musician and composer who wanted it had it, and since it was a locked feature set, there was nothing new to sell them. It wasn't just their sales. Suddenly, out of nowhere, the moat was breached by engineers in outside provinces. Competitors were abundant, lots of them, mostly copycats, but clever copycats who stayed carefully beyond the bounds of patent infringement and underpriced the offering penny by penny. While Global Harmonics had more than 50% market share, profit margins were being eaten by rising marketing costs to "help the customers find us before they found our sleazy competitors." Now they had to "duke it out with low-cost alternatives" just to hold position. The stock retreated to its IPO price. The ugly had only begun.
Three years ago market share sank to 35%. The company's stock sank 20% below its IPO. Bud was given a year to make something happen. He couldn't. Exploding marketing costs ate him bite by bite, gobbling all the meat on his bones. There were no more monster margins. The company was barely breaking even. Streaming aggregations surpassed transactional purchases, but Global Harmonics was not prepared to ride the new wave of opportunity — those spoils would be claimed by the next wave of innovative start-ups. Bud's spirit seemed broken, his will collapsing without surrounding support. His soundtrack dream was going deaf and mute.
(Continues…)
Excerpted from "From Nothing"
by .
Copyright © 2018 Kenneth F. Goldstein.
Excerpted by permission of Studio Digital CT, LLC.
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