Most Replayed Moment: The One Habit Behind Every Breakthrough Idea - Spotify Founder

0:00As a founder building a business when I was in my early 20s, I think I always had a deep sense of imposter syndrome because there was something that I wasn't good at and that thing was finances. Finance and understanding your financial position as a small business is the great enabler of all of your dreams. I was running from it until I discovered a platform called Xero. Xero is an accounting and financial management platform specifically for small businesses and it brings accounting, payments, payroll and analytics all into one place, even for people that don't love doing finances. Xero wants to do the financial work for you. But its core ambition is to go beyond keeping the financial record

0:36because Xero wants to help you understand what's happening in your business. And increasingly, and this is maybe the most important thing, is help you make decisions. Finally, we have a partner who can enable us in a simple way for those people that are both left brain or right brain and enable our dreams. You can learn more about Xero by going to xero.com. Thank you to Xero. Thank you for sponsoring this podcast, but also thank you for helping me to scale my business as somebody that, quite frankly, has never loved finances that much. Welcome to another Moments episode. In this clip, Daniel X shares some invaluable business wisdom and reminds us that you have to find out what the real problem is before you try to innovate

1:17your way out of it. When Spotify took on Apple, they didn't just copy what was already out there. They interrogated what was actually broken in the user experience and built a fundamentally better way. Our sponsors T-Mobile are fixing business internet in a similar way. Internet outages are so common, annoyingly, and many businesses like mine have to rely on a patchwork of internet providers, backup partners, and coverage workarounds. T-Mobile saw an opportunity and built super broadband. It pairs 5G with Starlink satellites to give you virtually unbreakable internet across every US zip code. Here's Daniel and what it takes to innovate like this. When I heard the Spotify story, I really wanted to meet you

1:59because I consider myself to be ambitious, but there are some challenges that I would just view as impossible and at the time when you consider how the music industry was that it's ran by these big record labels predominantly and they own the music to be a young kid from Sweden and believe that you could change that for me is a special type of delusion like it's like it's just an impossible task it's what i just would have thought okay some things are the way they are they're immovable objects that is one of them yeah why didn't you think that was a impossible task um well i i think for several, but I think that is the beautiful naivety of an entrepreneur as well, right? We move mountains. I'm sure Elon was, you know, even more insurmountable thing, electric cars,

2:56and hadn't been a successful car companies for, I think, a century or something, or at least, you know, many, many decades in the US. And he managed to do that. So I think it's part delusion. But the other part, I think, also is that what I realized is before even committing to this idea, the why not part, I probably spent 500 hours learning about this problem. And the scarcest resource we have in the world today by far is time. And when you have high quality people that spend thousands of hours on a problem, you find new solutions. And so the biggest thing for humanity, I believe, is simply that. I believe we're capable of doing practically anything, but there aren't that many people that can see these multi-dimensional things with that right experience that happens to come in

4:02at that right time. They're spending thousands of hours of trying to needle in a haystack, see that opportunity through that very, very tiny prism. And even today when I think about some of my other businesses, it kind of worked the same way. So I started a healthcare business about five years ago, but I was spending, I think the first interview when I mentioned it was in 2009. And I started the company five years ago, 2018. So I probably spent a decade thinking about this problem and I couldn't figure out a solution. 2008? Yeah. You started the company in 2008. No, no. I started the company, the healthcare company in 2018. 18, right. But I started thinking about it 2008. Oh, okay. So I have a notebook with all my crazy ideas.

4:58Most of them amount to nothing. Quite often someone else comes along and dusts them and I'm happy and it's amazing. But every now and then, nothing happens for a great period of time, and I kind of feel that itch to maybe make a difference myself. And I say that because the realization there was I had spent up until that point thousands of hours understanding the healthcare system, why it is the way it is, the incentive schemes and what the NHS is doing and what someone else is doing and the public healthcare system, insurance, business direct to consumer things, the longevity curves of human beings, the disease curves, the costs curves, like all of those aspects about about it similar to how you're describing looking

5:45at rockets um but you know imagine you spending a thousand hours a rocket not just kind of casually researching it i am sure you will find novel ways of how to attack the problem it may not be because you know if you're not a physicist you may not come up with the next rocket engine, but you may find another twist on how to attack this problem. And I don't really think it comes down to that. And so in the space of music, I don't know anything about the music industry going into it, but I would argue a few years into it, I was probably one of the most foremost experts on copyright in the world around like the DMCA and what the US copyright regime looked like and what other regimes look like and how, you know, performance rights societies, label rights and what kind of rights, mechanical rights, performing rights, all of those different aspects, all the different code, IC numbers,

6:47ISBN numbers, and how they're related, and so on and so forth. And, you know, I find like people either get too muddled in on the details and don't see the bigger picture, or they stay too top level picture to really see the nuance. And the question is, how do you dive deep enough where you see it and figure out which problems to solve in what order? And I was at that point by probably 2007, having spent a year on Spotify, but the team was super small. So it really wasn't a big commit at that time. And I wasn't sure at that time. But then I realized that, hey, this is actually possible because we'd built the product that showcased the technology of what we were doing. And it felt like if you had all the world's music

7:36on your hard drive. So then the real problem ended up being, can we get the music industry to accept this? And to that, I had no idea. But I felt like this is so obviously, if this came out in the marketplace, what consumers would ask for. Now, the only question is, is the music industry going to allow this? And that took me another year and a half, 18 months to learn the answer. And it was completely binary. We almost died probably four times in that process and ran out of money and record companies saying, no, this is never going to happen until eventually one day the stars aligned and we were able to launch. But that was not a given, but it felt like the right bet to make because, you know, it was a binary outcome. Either we'd

8:26fail, the price wasn't all too bad. If we would succeed, it was clearly so that at least this would resonate very well with consumers. Was there any moments where you thought that it wasn't going to happen, i.e. conversations you had with record labels where someone very high up says absolutely no way? Many times. would say um probably once every month or two over a two-year period i thought that this probably won't pan out uh and it was incredibly demoralizing i i usually joke but like in the beginning of that process i had hair and then in the end of it, I lost all of the hair. I probably gained 30 pounds in weight during that period of time. It was awful. But through it all, my co-founder, Martin,

9:14probably a factor of just who he is as an individual, but also probably because he didn't participate in these meetings, kept being really upbeat, kept being, you know, amazing support and said, don't worry about it. You're going to figure it out. And he just kept believing in me. And then he also said a few times, you know, when that wasn't enough, he said, don't worry about it. We'll figure out something else. If this doesn't work out, it felt to me like I always had a safety net. And it was just the amount of push that I needed to do this. And again, talking about not giving advice, but the advice that I do give to other people is to share the burden with someone. It is so important. And I know I get most of the credits for Spotify,

9:59but it is really a team effort from the Gust gustavs and alex and all those people but then also in the early days from uh martin in believing in me uh and and knowing uh this kind of supernatural ability that i'm going to pull it off somehow i must have told you a story which i guess has stayed with you about perseverance and the power of perseverance The double-edged sword to that is sometimes it's right to quit as well. Yeah. And knowing when to persevere and knowing when you're just wasting your time, which is, as you said, the most important currency of all. Yeah. You know. That's where, you know, art meets science. There is no scientific answer because it depends. It's an art to know when something is futile and

10:46when something is worth doing but i call it that sort of binary outcome but uh with uneven distribution right so if you think about it as a curve even if it's 50 50 whether you succeed but on the upside you can win a lot more than you can lose. And all you can really lose is one time and the upside may be a hundred. It's probably worth persuading. Obviously it's, that's the science part. The art thing is, okay, well, is it really a hundred times? Is it 10 times? And, and have I already lost, but I'm just not aware of it. That's the art. And also in that I hear an optimism bias from two co-founders, the constant, oh, we'll figure it out. we'll figure it out, we'll figure it out. How important do you think that is?

11:31Especially, you know, you hire a lot of people. Is that something you're like looking for in the people that you work with, that bias towards we'll figure it out? I think, again, it depends on the role you're hiring for. You need a team. I think it's really important that you just don't surround yourself with just yes people or optimists. You need the naysayer in the room as well. You need the people who will balance it out and be the one who says, I'm not sure this is going to work out. And so often I think that's the important part. We keep talking about the CFO or salespeople, but again, you can have a deal-making CFO and a salesperson that's happy-go-lucky. It may not be a great combo. You may want the CFO to be skeptical

12:17about the sales pipeline and a happy-go-lucky salesperson or the inverse. Maybe a really diligent that and a CFO that maybe sort of like, don't worry about it, we will sort it out. But I think so much about that is the subtleties. We don't have a perfect model of the world. And the more experience I have, it's a cheesy thing to say, but the lesser realize that actually no. And so much of these are actually down in the nuances and most people are above the nuances, don't really understand the issues well enough or too bogged down in the details to understand the bigger picture. And going that sort of up and down, that's sort of super detail-oriented, but also being able to go up and see the big pictures that is um and

13:07simplifying very complex concepts i think some of the most amazing entrepreneurs in the world are experts at um and that is a superpower and that is certainly one that i'm trying to hone um uh and work on uh but when you see it like Steve Jobs, when he did very complex things and people say he didn't understand engineering and technical problems, it's not true. Yes, he may not have been an engineer, he may not have known how to write code, but he certainly can empathize with what made an amazing engineer tick, empathize with different technical solutions, will have different inputs and outputs. And he understood it. And he was brilliant in taking very complex ideas and understanding how to make that resonate

13:54for the everyday person. These tales I hear of you sort of being outside record labels and waiting for the CEO to come out so that you could catch them or trying to accost, I don't know, the assistant outside and asking when the CEO was coming outside so that you could catch them or trying to accost, I don't know, the assistant outside and asking when the CEO was coming outside so that you could get a meeting with them. Yeah. Are these tales true? As with many, they're probably exaggerated a little bit. Where is the truth? Well, the truth is that certainly happened, but it wasn't, you know, I've heard people recounted us that I slept outside of the record labels kind of in a sleeping bag. That didn't happen.

14:28That happened another time in my career, but it didn't happen there. But it certainly happened that I'd book a week, fly to New York with no meeting booked, with basically an open calendar and about 20 phone calls a day just trying to figure out a time to get on the schedule of a senior VP or a CEO, etc. That certainly happened. And that taught me another thing too, which is that these assistants, like you better befriend them because they are the keys to the kingdom. And most people don't care about them at all. But they're very influential. They're very powerful. And, you know, that was hard in the beginning. But then I realized that they got to see me as an individual. I saw them as an individual.

15:17And eventually, you know, this is not, we tend to believe the world is more logical than what it is, but a lot of it is based on relationships. So eventually some of them started taking a liking to me. And so when there was the opportunity and they could prioritize 10 other things for that CEO to do, but I was there, I was friendly and easy to work with, show up at no moment's notice, even if it was 20 minutes before finding out about it, I would show up. And so I was easy to deal with. So take away all that complexity in order to achieve the outcome that I wanted to do. And sometimes that is as simple as it is. Just be consistent, be the easiest person to deal with, and you'd be surprised how many problems it solves.

16:02Did you invest your personal capital into starting Spotify? Because I read again that you'd spent pretty much all of your personal wealth to start the company. Yeah, I did. So I invested not all of it, but quite substantial amounts of it. And my co-founder invested even more, but he obviously had a much larger sum of money from the beginning. So all in all, I think we invested about $10 million into this by ourselves, which was also crazy because, you know, back then, today, $10 million into a startup just wasn't, isn't a big number. Many startups that have done that before, but doing that on a seed stage back in 2007, that just was unheard of. It was usually 500k seed check sums, etc. What if it hadn't worked out? What would have been the personal

16:53implications for you financially? The personal implications, I went from not having to have a job to then probably having to go back to having a job. So I basically took that security that I'd built up, that 22 I'm set for life. And I gave that up in a moment's notice. And yeah, I mean, I don't know what to say. I think from a purely logical point of view, it was probably a terrible decision. But betting on myself and betting on yourself would probably be, again, I say I shouldn't give advice, but it is probably the best advice I could give many people. Because especially those that want to invest in various startups, et cetera, but they may not have a lot of money. And then I always say, well, why don't you just bet I always say well why don't you just better yourself instead

17:46why don't you just try to like work for one of these startups like you said and maybe take a little bit more equity and a little bit less pay and take out of your cash instead because that way you increase the likelihood hopefully if you know you're good of the company being a success and it just feels like the more prudent thing to do and so i had a sneaky feeling that that was the right thing to do uh but investing as much probably wasn't the smartest thing to do spotify goes on to the i mean success is probably an understatement i know the journey to that success had multiple and near-death experiences to get there. One of the key things, key moments I reflect on as a Spotify customer is when Apple launched their competing product,

18:32Apple Music, in 2015, I believe it was. And there was lots of articles saying that this would be the death of Spotify. I think I was even concerned. As a very loyal Spotify user, I thought, you know, they have all the phones, they're They have, they're kind of like the mafia. Yeah. They could just squash you. Yeah. Most companies, when Apple comes into their territory, shake in their boots. Yeah. What was it like in your office that day when Apple Music launched a competing product? You know, when you live in the thick of the fire, you're not concerned about the things that everyone else is concerned about. I usually say public perception lacks about six to 12 months what's actually going on.

19:09And so in our case, we'd known that Apple was going to launch something for probably the better part of a year because they had the Beats acquisition beforehand and we were hearing all sorts of rumors, et cetera, about what it was. So absolutely, you have to be worried when one of the greatest companies on earth decides to compete with you. So we were concerned about it. And we were kind of doubling down on what our positioning was going to be. So you kind of like double and triple check whether or not you were deluding yourself into believing things to be true. And so, for instance, in our case, one of the big things, we had some strategic pillars that we were focusing on. One of them we call ubiquity, because we always knew

19:52this would eventually be the case. We thought that consumers would value the ability to work across all devices and all ecosystem. And our bet would be that any competitor we might have had would actually focus on reinforcing their own ecosystem and not care about all the other stuff. So the primary reason they were into a music service would be to make their own devices better, not to make the world's best music service. And so that's why we made such an effort of integrating into cars, integrating into all sorts of, uh, weird devices, smart fridges, whatever you might think. Um, and so, so it was kind of like reiterating that, but I felt pretty good about that position, um, and going back. And then there's always the sort of like what if they figured out something that

20:45we just wouldn't have thought about uh and i remember we were constantly talking to the product teams about this uh and like what what if they come up with this and we're literally trying this every game theorizing every possible angle um on it um um but i think at the end of the day we we kind of went through the thousand scenarios kind of thing. We knew we'd prepared as well as we could. We anticipated a certain type of product. There was this kind of 1% or 10% chance, whatever you want to quantify it as, where we would just be wrong and they'd come up with something that widely superseded any of our expectations. But that very day, remember, we'd been preparing for that day for so long. So the first reaction was kind of them announcing it, which we expected them to do. And then seeing

21:38the walkthrough of the product and realizing that, okay, well, we prepared for this, we thought about this, et cetera. And so weirdly enough, as the rest of the world kind of like gasped for air, we were thinking about it, okay, well, this was what we expected. And back to that point, distribution was the amazing thing. They hadn't come up with something on the product side that we just didn't anticipate, but it was really just about distribution. And there was nothing we could do to guard ourselves against it. But we felt like we had a superior experience on the personalization side. The fact that, you know, if you have a Windows machine and an iPhone, Spotify would work, but Apple, wouldn't at that time.

22:26Um, so many of those things that we, um, I thought had a better positioning than they had. I've, I've long thought that I've tried both. I mean, I tried it when it came out and I couldn't stick to it. Um, and I think me and my friends who were in my music group, we all concluded that the personalization, how Spotify understands me is really the thing. It's hard to know why you do what you do as a consumer, but from analyzing it a bit more deeply um it just felt like i'd built there was a lot of investment i'd done to my playlists and all those things but spotify just knew me better it seems to have much more data than um data on me and understands me and is more of a bespoke solution to me than apple was and also the the user experience is not great

23:05and i just can't get past that i just so i tried it and i bounced i i just stuck with spotify um apple are i used the word matthew earlier on a lot of people don't know this but they take 30 revenues on pretty much every new app in the store yeah they've rejected your audiobook app multiple times um there's a rumor going around that they even delay how quickly you can release new updates of your app and delay how that reaches phones. What's your opinion on Apple and what they do and how they conduct themselves? Well, as a consumer, let's start off with Apple is a fantastic company and they make amazing products. I really do believe that. I've been a Mac user since I can't even remember probably

23:52late 90s when I could first afford one all the way to now and obviously use the iPhone and Apple watches and all that stuff. So let's start with that. And I think that's hard to square then that there's this other company that's fiercely focused on just itself and constantly trying to do things by itself and not working well with others. And those are perhaps two different sides of the same coin. But the way that manifests itself, I think that it's a company in many cases that still sees itself as an underdog, but don't realize that they've become Goliath. And so many of the tactics that made it the rebel kind of thing are now stifling innovation, and it's really hurting consumers to a great extent with the 30% you talked about, with

24:50the fact that, you know, Spotify can't, or any developer, if you don't pay the 30%, you can't even speak to your consumers. It's kind of absurd. So, you know, there's a ruthlessness on the business side of Apple. And perhaps it's always been so. I don't know. I never got the opportunity to meet Steve Jobs. But where just from an ethos point of view, it's just not me. And I have a hard time squaring that with me as the consumer and me as the business leader. And needless to say, I do believe that Apple can and should play fair. And I think it would be way better for the world if they did. And I think that it would actually help them in many regards to switch their tactics and realize that they are

25:46the Goliath at this point and not David. And so, yeah. One of the things I want to close on is your philosophy. So I guess it's the same answer because Spotify's philosophy towards what's made it successful will probably be in many respects a reflection of your philosophies towards business and and more broadly towards life but when i sit here and i think a lot of people will sit here and say there's clearly something unique about you about the way you approach problem solving problems life business all of those things that has been that has defined you and set you apart. Are you aware of what that is, what those principles are? No, I don't think so. But I think you're right in that the way I would describe Spotify

26:38to people, you're right that it is scary sometimes watching Spotify, trying to watch it from a distance and not just be in it. Because sometimes it's doing things where I'm like, how did people know that we were supposed to do it this way? And it would be how I would approach solving a problem. And it's kind of how we've internalized certain things. But the best way is it's 17 years old now. And it is a teenager that's liberating itself. So it's not 100% me. In fact, it is this much broader, different being. There are aspects of it that hasn't taken after me at all. In product development, Gustav is a formidable product leader, as an example, and Alex is a formidable business leader. And the two of them are now leading more of the day-to-day,

27:31and they're certainly instilling their personal values and their personal perspective of the company too, which I think they're totally entitled to doing, having been with the company for 12 plus years, both of them. But it is interesting seeing it because we're approaching things now in a way I wouldn't always do. It's not inconsistent with important principles of mine, but it's certainly not directed. And the other part is I started this as a 23-year-old. And the 23-year-old Daniel, while many parts are the same, the 40-year-old Daniel with two kids, having seen that, have changed perspectives as well. I have a different feeling about work and the importance of that in my life. Still very important, but may not be the sole most important

28:21thing that I do, just to mention one. And so it has similarities, but there's differences to me as an individual too. But I think if you compare me to 23-year-old Daniel, to 30-year-old Daniel, to 40-year-old Daniel, I've evolved too. And candidly, I'm in that period at the moment where I'm perhaps trying to figure out who the 40-year-old Daniel really is, because it's a different one than the 30-year-old one. Maybe it's subtleties, but I think in quite a big way also, just thinking about something like culture, the 23-year-old Daniel, culture was having a ping-pong table. 30-year-old Daniel would have said, yeah, culture is important, but didn't really understand why. And the 40-year-old Daniel would be, you know, the 30-year-old Daniel would

29:17be more strategy than culture, actually. And the 40-year-old Daniel is all about culture, almost to the point where strategy is secondary, if not even tertiary to that. 40-year-old Daniel is all about culture? Yeah, way more so. What is the culture? Well, that's the amazing thing because it is the most scalable thing done right of a company. And it's the hardest thing, right? Because it is everything and nothing. It is every positive action that's happening in the companies, every negative action in a company, every person that's joining, every person that's leaving is impacting culture. And so in its essence, I believe culture is about rewarding the positive behaviors you want to see in the company

30:01and obviously dissuade the negative. What are the positive behaviors you want to see? Well, one of them is taking risks, failing. And how do you do that when you have 8,000 or 9,000 people inside of a company responsibly? How do you, when the common status quo is you don't like failure, you don't get promoted based on failure. You get promoted based on being successful. Annie Duke has this thinking in bets. She talks about, I love that, is thinking about poker ships on the table. And she said one time when we spoke, she said to me, it's like a company is like everyone has ships at the table. We just don't know how many we have. And so the people that have been successful have way more. So they have leniency and allowancy in the culture of any organizations to do more than

30:53someone who just started and perhaps have lesser ones. And if you failed enough times, what's naturally going to happen is that you won't have the same agency in a large organization to impact things too. So then the counterpoint to that would be, well, how do you then create an environment where people are allowed to take risks and then balance that with, say, Spotify at this point, where we have a huge amount of responsibility too. We have tens of millions of creators that have their livelihood on the platform. We can't just experiment with how we're paying out and so on and so forth, right? And 550 million consumers, we have to be responsible with their data. We can't put new things in front of them

31:40without testing them and so on and so forth. And so there's this constant tension between being innovative, taking risks, and, you know, at the same time, obviously being responsible. And that's hard. But that's all about culture. When you're trying to scale a business, you can't afford to waste time patching up broken systems so if internet outages or juggling multiple contracts are slowing your team down check out super broadband from t-mobile it pairs 5g on the ground with starlink satellites in space giving you the ultimate resilient connection so you can keep your business moving discover more at superbroadband.com speeds may vary due to local network characteristics and management satellite connectivity requires hardware installation and

32:29clear view of the sky with a 36 month commitment as a founder building a business when i was in my early 20s i think i always had a deep sense of imposter syndrome because there was something that i wasn't good at and that that thing was finances. Finance and understanding your financial position as a small business is the great enabler of all of your dreams. I was running from it until I discovered a platform called Xero. Xero is an accounting and financial management platform specifically for small businesses. And it brings brings accounting payments payroll and analytics all into one place even for people that don't love doing finances zero wants to do the financial work for you but its core ambition is to go beyond keeping the financial record because zero wants to

33:15help you understand what's happening in your business and increasingly and this is maybe the most important thing is help you make decisions finally we have a partner who can enable us in a simple way for those people that are both left brain or right brain and enable our dreams. You can learn more about Xero by going to xero.com. Thank you to Xero. Thank you for sponsoring this podcast, but also thank you for helping me to scale my business as somebody that, quite frankly, has never loved finances that much. Running a small business can feel a lot like being alone at sea. And too often, you're not steering the ship yourself. You're getting dragged underneath all of the admin, things like offer letters, onboarding, wages, payroll,

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34:32That's three months of free payroll at gusto.com slash diary. That's gusto.com slash diary.