Denver Founders greeted 2017 by shifting permanently to our new how at the Commons on Champa. A solid crowd turned out on a chilly January evening to hear Sam Tarantino, the current founder and CEO of Chromatic FM, and the former co-founder of Grooveshark speak. Many people are probably familiar with the name Grooveshark, which was essentially one of the few unicorn companies that made it in the music streaming business. Well, at least until they lost it all.
As co-host Chris Franks noted, Grooveshark was Spotify before Spotify existed. Tarantino agreed and then begrudgingly admitted, “Spotify is the salt in the wound for me because I use Spotify.” Read on to find out why that’s so ironic…
What ensued once Tarantino put on his storyteller hat was nothing short of spellbinding and jaw dropping. At the same time, he approached his unique entrepreneurial experience with a combination of philosophical wisdom and hard-earned humility.
Tarantino has a background as a musician but ended up studying business at the University of Florida. There he met Josh Greenberg, a programmer, while attending an entrepreneurship workshop on campus in 2006. Greenberg was the yin to Tarantino’s yang, and the two decided to work together.
Now in 2006, the halcyon days of Napster were gone and Limewire was one of the major peer-to-peer file-sharing applications out there. Around the same time, YouTube was just getting started. So Tarantino and Greenberg started to think about alternative ways to exchange music online.
The first application they developed was essentially a second-hand market for people to swap music. Their user base was only around 2,000, but one of those users was the teenaged child of someone at Intel. Lo and behold, Intel wanted to invest in their company. As is typical of start-ups, the money came at a time when their runway was almost burned up.
An injection of $300,000 made a huge difference to the burgeoning Grooveshark. The company was based in Gainesville, Florida, so they could afford to hire college students cheap, offer them equity in the company and really get the ball rolling.
The (Inevitable) Pivot
Of course, it wasn’t long until the company was running low on funds again. In an effort to develop a new product, Tarantino initiated an intra-company competition with the winners getting a trip to Disney World.
Now Grooveshark allowed users to preview songs before downloading them. One of the teams in this competition dug into their platform’s usage data and noticed that 90% of users were previewing full tracks and never downloading them. Similar to how YouTube is a streaming service, Grooveshark quickly turned into one as well. Whereas their original platform had a mere 2,000 users, the new service started picking up 500,000 users per month.
At this time, Grooveshark’s servers lived on the University of Florida campus. Well, wouldn’t you know it, one day Tarantino received a call saying that their servers were using so much bandwidth that they were not only choking the network for the university, but also for the entire city of Gainesville. By 2008, they ended up moving their servers to Jacksonville, but with over 20 million users the same thing happened again! Finally, they transitioned to two data centers, one each in New York and Colorado.
No Money, Mo’ Problems
Around this time Grooveshark started having issues with record labels. There were four major labels (later two merged) and the company only had an agreement with one of them. While they worked to make deals with the other two all they ended up receiving for their trouble was a lawsuit.
Despite their insane growth, there still wasn’t enough money to go around and now there was a lawsuit hanging over the company’s head. Intel wanted to invest another million dollars, but this was during the fall of 2008 right after the global economy collapsed. This money came with strings attached; Grooveshark would have to raise another million on its own to get the money from Intel.
It got so bad that at Christmas there wasn’t enough money to pay his employees. Tarantino had to send everyone home without a paycheck. Remarkably, only one person quit, though. Tarantino credits the family-like culture at Grooveshark and the fact that employees had such a high equity stake in the company for the company’s ability to retain their talent.
Tarantino scrapped together $900,000, but at the same time, the company had amassed six months of arrears with their landlord. Tarantino took a meeting with his landlord and convinced him to invest the remaining $100,000 and in return, he’d not only pay his arrears, but Grooveshark would pay an additional six months in advance rent. The gamble worked and the company got their funding.
This was quite a lesson for Tarantino. He emphasized the role that luck plays in creating a successful company. Take all the meetings you can, he suggested, even the ones that you are sure won’t work out because you never know what might happen.
Mo’ Money, Mo’ Growth
With this injection of capital, Tarantino could afford to build a sales team. The company expanded, adding an office in New York City in 2009. But the “best day in an entrepreneur’s life” came in 2010 when the company finally broke even. Grooveshark generated most of its revenue through advertising; subscriptions accounted for about 20%.
For the next few years, the company continued to try to work with the major labels for a deal, but were unsuccessful. “Because we didn’t die right away they threw all their weight at us,” Tarantino said. The two record companies they still lacked agreements with filed personal lawsuits against him. He revealed that this was frustrating because at that point the company had already surpassed all of the milestones–major and minor–when companies typically fail. At this point, fear became a constant presence for Tarantino, with the biggest one being “what if it doesn’t work?” He had 150 employees counting on him.
By 2015, Grooveshark was preparing to go to trial with the adversarial record companies, and facing legal costs of $1 million per week. Ultimately, they had the option to possibly win, but go broke in the process, or lose and still go broke. It was a lose-lose situation, so Tarantino and Greenberg decided to wind down the company in the spring of 2015.
The worst part about this wasn’t just that they had to layoff 150 people, but that because of legal issues they couldn’t tell their employees until four days before the company would shutter its doors. “We were like the 300 [Spartans],” Tarantino recalled, “in the end, they all die, and that’s what happened to us.”
The Hits Keep Coming
Despite the company’s demise, Tarantino and Greenberg decided to start anew once they had finished the process of winding down the company and taking a bit of time off. But tragedy struck in July 2015. Tarantino received a phone call one day informing him that Greenberg, his best friend, and business partner was dead. He had died in his sleep without warning. The loss of his friend left Tarantino “shattered.” He didn’t even have a cause to rally around and put his energy into because an autopsy could not find a cause of death.
Tarantino was very candid about his experience, admitting that he slipped into a severe depression. With this came a lot of doubt and second-guessing. Tarantino was concerned that he would become an entrepreneurial one-hit wonder. He questioned how he would be able to succeed without his tech guy.
After several months of this, Tarantino received a call from a couple of his former employees. They disliked their jobs since Grooveshark’s demise and wanted to know when he was going to start something new.
At this, the proverbial scales from Tarantino’s eyes and he began to emerge from his depression. He was shocked that in the face of failure on such a drastic scale that people still believed in him. While ego often plays a major role in entrepreneurship, Tarantino noted that self-doubt is also a central tenet.
In early 2016, Tarantino sought out his prior investors and was similarly shocked that they were gung-ho about investing in his next project as well. He moved from New York City, which he deemed to gray, to Colorado. Throughout the session, Tarantino talked about how the outdoors offered him an outlet that he came to rely on to achieve balance. Colorado offered the physical environment he needed to be successful.
Chromatic FM, Tarantino’s new project is a type of internet radio, which notably requires a different type of licensing agreement than what Grooveshark needed. Once bitten, twice shy. When asked what he would have done differently with the labels, Tarantino was at a loss because there simply wasn’t any case law to reference. Grooveshark became part of the case law so the hindsight game was a difficult one to play in that regard. Still, he admitted that his ego probably got in the way to some extent as well. He said he was too focused on being big and didn’t realize how hard the labels would push back.
A Passion for Entrepreneurship
Tarantino’s experience building a wildly successful company and then losing it all–and more–has left him with a lot of perspective, especially for someone who’s barely eclipsed 30 years of age.
“There are times in our lives that will challenge us to our very fundamentals. Everything I grew up believing was challenged in 2015. The question becomes ‘what are you going to do about it?’”
Entrepreneurship isn’t something that one can train for. If anything, he likened it to stepping into the ring with Evander Holyfield and having him pummel you for a while. Tarantino has learned a lot along the way. Using the corrective lenses of hindsight, he observed that when you’re younger starting a company is all about making money and getting attention. He said, “people get into entrepreneurship for the glitz, but you can’t do that.” There’s a lot more gore than glitz after all.
Nowadays, the challenge for Tarantino is to avoid getting jaded. Having balance is critical for creativity and resilience. While it may occasionally be necessary to put in 80–100 hours per week to push a project through, maintaining that type of pace for any significant period of time is detrimental. Having that balance not only helps to keep you grounded but makes you more creative. In other words, burning out is bad for your business.
When asked if he’s still afraid to fail, his response was immediate and direct: “Oh, I don’t give a shit anymore.” Once you’ve failed big, you’re not afraid of all the stuff you were scared of before, he noted.
Tarantino finished the evening with some sage advice for the group, especially for early stage entrepreneurs. He encouraged people to leave no stone unturned because part of being successful is a numbers game. You hear a lot of “No”s, but, you can glean a lot of things along the way. Some of his biggest successes came from what he anticipated would be failed meetings. Besides, there are other things that people can teach that you can re-use later in life; it’s not just about money.
To say that Sam Tarantino is a welcome and valuable addition to the Denver Startup scene might be the understatement of 2017.