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Daniel Ek's Grand Ambition
How He Built Spotify Into a $38 Billion Industry-Leader
Justin Gordon
January 07, 2024
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Daniel Ek
Daniel Ek, the Co-Founder and CEO of Spotify, helped revolutionize the music industry.
Today, Spotify is a company valued at nearly $38 billion, with 574 million users, and 226 million premium subscribers.
The path to get there?
It’s been anything but easy.
How did Daniel, in the world of music piracy in 2006, take an idea for a better music product, convince labels to work with him using a new business model, and create an industry disruptor?
And what lessons can we learn from his journey?
Let’s get to it.
Early Days
Daniel grew up in Rågsved, a working-class suburb of Stockholm, Sweden.
In an interview with Tim Ferriss, he talked about his upbringing:
I grew up in very much a working class family. My mom worked in a daycare center. My stepdad was a car mechanic. No one I knew was an entrepreneur around me, so that certainly wasn’t something to aspire to.
But what I do think my parents gave me that it was incredibly important, and I think it’s certainly been a trait that I’ve been able to find with a lot of the entrepreneurs that are in my generation too, is a lot of psychological safety.
He also was heavily influenced by his grandfather who instilled in him the value of perseverance:
I actually come from a music family and my grandfather was an opera singer. For him, one of the biggest things was that I learn music properly and he was the old school of classically trained, you needed to do that, you needed to read, do all that stuff and it was incredibly tedious. I spent hours and hours per day doing it and I had to struggle for a few years, really, really struggle, and I hated it. I didn't enjoy it at all.
Then for some reason, I just passed a bump where I got over that initial hardship of learning that thing and I started enjoying it. Then as I got into my teens, I got into rock music and played in bands and I started enjoying it for real, in a massive way.
For me, music has been that left brain, right brain thing and it's a lot more almost mathematical than most people realize, it's got more formulas and more patterns... It's taught me a ton.
But the most important lesson I think he taught me is don't be afraid of the struggle. It would've been so easy for him to kind of give in and settle, "Well, he clearly doesn't enjoy this," but I've learned so much now about putting myself in situations where I don't know anything at all and just endure it for a period of time, because I know that I'll come to that hump where I'm going to start enjoying it. I don't know how long it will take and it's going to be very uncomfortable in the meantime, but he taught me that, and that was super valuable.
For Daniel, that struggle expanded beyond music.
While he got his first guitar at 4 years old, he got his first computer a year later and, not long after, asked a friend what the hardest language to learn was.
After discovering it was the programming language C++, Daniel took on the challenge of learning it.
He’d later say that he always loved learning and was driven by challenges.
In an interview in 2012, he said of taking on hard challenges:
I think I’m naive enough to think that things will always work out.
By 1997, at age 14, Daniel was already a skilled programmer which came in handy as companies wanted to have websites built.
Starting by charging a few hundred dollars and raising prices with each new customer, Daniel was eventually making $5,000 per website he built. All as a teenager.
But he didn’t stop there.
Expanding on his budding empire, he started building a team:
Fast forward, I’m now like in later stages in elementary school. I had all the people in my class that were good at math and I taught them how to do HTML for me and the people that were really good at design, I taught them Photoshop. I was basically running an illegal sweatshop, when I was 14. That was the start of my entrepreneurial career.
At one point, Daniel was making almost $50,000 per month!
Over the next few years, Daniel:
Was rejected from a job at Google because he didn’t have a college degree
Dropped out of college after eight weeks because it was too theoretical
Continued creating companies
One of those companies, an online marketing company called Advertigo, sold to Tradedoubler, an ad network, in 2006 for around $1.25 million.
Over six months he sold four companies, making a life-changing amount of money.
It was a godsend for Daniel who at the time was on the verge of personal bankruptcy stemming from the Swedish version of the IRS saying he owed hundreds of thousands in taxes.
A year prior, after Skype was sold to eBay for $2.6 billion, acquiring companies in Europe was in favor, the markets opened up, and Daniel benefited.
At 22 years old, Daniel essentially retired and lived what he thought was the dream life, buying a red Ferrari, frequenting clubs, and hanging with pretty girls.
But it ended up being depressing.
He needed something different.
So he thought about what mattered to him:
None of that money mattered, it didn’t make me happier. In fact, it was kinda sad to think the thing I strived for didn’t mean anything in the end. So I started thinking about what truly mattered to me and I realized that there was two things in my life that had always been really present, which was music and technology.
He also had several conversations with Martin Lorentzon, the Co-Founder of Tradedoubler, which had acquired Daniel’s company. Martin was also looking for a new project, had sold his Tradedoubler stock options for $70 million after the company went public in 2005, and they decided to team up.
Daniel wanted an environment where he could have fun, learn from other smart people, and work on a big enough problem to change the world.
He’d soon have it.
Starting Spotify
Before committing to work on building Spotify, Daniel spent about 500 hours learning about the problems in the music industry.
The main one?
Piracy.
It was all over and a massive problem, but one Daniel thought he could solve:
It came back to me constantly that Napster was such an amazing consumer experience, and I wanted to see if it could be a viable business.
We said, “The problem with the music industry is piracy. Great consumer product, not a great business model. But you can’t beat technology. Technology always wins. But what if you can make a better product than piracy?”
Piracy was kind of hard. It took a few minutes to download a song, it was kind of cumbersome, you had to worry about viruses. It’s not like people want to be pirates. They just want a great experience. So we started sketching what that would look like.
That didn’t mean he was confident it would be a viable business.
Daniel described one conversation with his Co-Founder, Martin:
I told him from the beginning that hey this is probably gonna lose us a lot of money. I have a hard time seeing this ever being a sustainable business but I'm in, let's do this and he said, “Great, let's do it.”
Unlike the music pirates, Daniel took a different approach:
I wanted to do something where in the end, the artists, and the labels, and everyone in the ecosystem was part of the development.
And remember his depression after selling his last company and retiring?
Starting Spotify quickly made him feel happier:
It was about a year when I was going through this transition of just having fun being retired. First month was fun. Six months in, depressing. Nine months in, am I ever gonna get out of this depression, to then kind of a year in finding something else that I truly look forward to that felt crazy and I honestly did not think we would succeed but if we succeeded I knew it was going to be a big thing.
Taking a massive risk, Daniel and Martin personally invested $10 million in total to get Spotify started and keep it alive in the early days.
They’d need it.
Closing deals with record labels turned out to be much more difficult than Daniel initially expected.
Teaming up with Fred Davis, a music industry dealmaker whom he met while briefly serving as CTO at an online fashion community, Stardoll, Daniel went big from the start, going after global music rights.
He was promptly rejected.
Think about it.
He’s 23 years old at this time, based in Sweden, and wants every major record label to license their music so he can give it away for free on the internet.
At the time, this was absurd.
Undeterred, Daniel pressed on, narrowing his focus, and pursuing the European licenses with the major labels:
If you looked at Sweden, at that time, I think, it had lost more than 80% of its entire revenue base. It was really in shambles.
Going from the beginning where I tried to get everything in all markets and realizing that that wasn’t going to work, I decided to shift strategy and instead take a very narrow market where they lost most of it and said, “Look, why don’t I prove this to you and take it to my own home country?” I essentially told them like, “I guarantee you one year’s worth of revenue in that market if you enable this business model.”
It was a smart approach, but progress was slow.
During this time, Daniel said the company almost died four times. He repeatedly thought it wasn’t going to work, gained 30 pounds, and lost all his hair.
But he pressed on.
Martin was also an important factor in keeping him going:
Through it all my co-founder, Martin, probably 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 amazingingly supportortive… and then he also said a few times when that wasn't enough, “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 push that I needed to do this and again talking about not giving advice but to the advice that I do give to other people is to share the burden with someone, it is so important.
They kept growing the team and working on the product even before they had the deals with the labels finalized.
They had to.
The product had to be fast and it’d take time to develop:
I read in this book that the human brain takes about 200 milliseconds to perceive anything, like at all. I said to the engineering team, we gotta get this down to 200 milliseconds. At that time, that was 2006, that was considered crazy.
It took more than two years to convince the record labels in Europe to work with Spotify.
What finally got the deals done?
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