Summary
Introduction
Picture this: you're a struggling musician in 1997, trying to sell your CD online, only to be told by every major distributor that you need a record deal first. Most people would give up or compromise their dreams. But what if there was another way? What if you could build something that not only solved your own problem but created a perfect world for thousands of others facing the same struggle?
This is exactly what happened when one musician decided to take matters into his own hands, accidentally creating a multimillion-dollar business that would revolutionize independent music distribution. His journey reveals three profound truths about entrepreneurship: that the best businesses start as solutions to your own problems, that success comes from serving others rather than chasing money, and that building a company is actually an opportunity to design your ideal world. Whether you're contemplating starting your own venture or wondering how to make your existing business more fulfilling, this story offers a refreshingly honest look at what it really takes to build something meaningful.
From $4 Commission to Revolution: Starting with Purpose
In 1997, Derek Sivers faced a problem that seemed insurmountable. He had pressed 1,500 copies of his CD and sold them at concerts, but when he tried to sell online, every major distributor gave him the same answer: "You need a major label deal first." The music distribution system was a nightmare for independent artists. Distributors would take thousands of CDs, pay artists a year later if at all, and kick out anyone who didn't sell well in the first few months. For an independent musician like Derek, it felt like an impossible barrier.
Rather than accept this broken system, Derek decided to build his own online store. It was 1997, before PayPal existed, so he had to get a credit card merchant account that cost $1,000 in setup fees and required three months of paperwork. The bank even sent an inspector to verify his business was legitimate. He taught himself programming by copying examples from books, struggling through trial and error until finally, he had a "buy now" button on his website.
When his musician friends saw what he'd built, they asked if he could sell their CDs too. Derek said yes, treating it as a simple favor. But word spread quickly. Two popular online music leaders announced it to their mailing lists, and fifty more musicians signed up overnight. What started as a personal solution had accidentally become a business.
The key was Derek's approach to this accidental business. Instead of trying to maximize profits, he wrote down what would be a perfect distributor from a musician's perspective: pay artists every week, share customer information so musicians could connect with their fans, never kick anyone out for low sales, and never allow paid placement that favored those with bigger budgets. These four principles became his mission statement, guiding every decision that followed. Derek understood that when you create a business, you're creating a small universe where you control the laws. By designing it as his perfect world, it became perfect for others facing the same struggles.
No Funding, No Problem: Growing Through Customer Love
While Derek was building CD Baby with a $25 programming book and homemade furniture, the dot-com boom was exploding around him. Entrepreneurs with vague business plans were receiving millions from investors, spending fortunes on fancy offices, pool tables, and development teams. When these well-funded competitors would describe their businesses, they talked about funding rounds, encrypted servers, and promotional parties, but couldn't clearly explain what their companies actually did.
Derek received weekly calls from investment firms wanting to fund CD Baby's expansion. His response was always the same: "No thanks. I want my business to be smaller, not bigger." This confused investors who assumed every business wanted to grow as large as possible. But Derek had discovered something powerful about having no funding. Without money to waste, he never wasted money. He learned programming out of necessity, built desks from planks and cinderblocks, and assembled office computers from parts. While his funded competitors spent $100,000 on systems he built for $1,000, Derek kept his attention focused entirely on customers.
The constraint of no funding forced brilliant solutions. When CD Baby needed better customer service, Derek hired the sweetest, most empathetic people and gave them unlimited time to make customers happy. When musicians called, representatives would spend time listening to their music and getting to know them personally. This was revolutionary in an industry where artists struggled to get anyone to pay attention to their work. Musicians would tell other musicians they chose CD Baby for one simple reason: "They pick up the phone! You can talk to a real person!"
This customer-first approach, born from financial necessity, became CD Baby's greatest competitive advantage. Derek learned that absolutely everything you do should be for your customers. Make every decision, even about expansion or hiring, based on what's best for the people you serve. While competitors focused on impressing investors and building impressive infrastructures, Derek's company grew from making customers so happy they became evangelists, telling everyone about this company that actually cared about musicians.
Delegate Without Abdication: Building Systems That Scale
By 2001, Derek was trapped in what he calls the self-employed prison. CD Baby had eight employees, but Derek was still doing everything himself, working 7 AM to 10 PM, seven days a week. Every five minutes brought another question: "Derek, someone wants to change their album art. What do I tell them?" "Derek, can we accept wire transfers?" "Derek, someone wants to combine two orders but refund the shipping difference?" He felt like he should just sit in the hallway full-time answering employee questions.
The breaking point came when Derek realized he was running from problems instead of solving them. He had to make himself unnecessary to the running of his business or risk burning out completely. The next day, when an employee asked about refunding a setup fee for someone who changed their mind, Derek didn't just answer the question. He called everyone together, repeated the situation, then explained both his answer and the philosophy behind it: "Yes, refund his money in full. Always do whatever would make the customer happiest, as long as it's not outrageous. Helping musicians is our first goal, profit is second."
Derek made sure everyone understood not just the decision, but the thinking process. He had someone write it in a manual and told everyone they could make similar decisions without him in the future. For two months, every question became a teaching moment. Derek would gather the team, answer the question, explain the philosophy, document it in the manual, and empower employees to handle similar situations independently. After two months, the questions stopped coming.
The transformation was remarkable. Derek moved to California to prove the business could run without him physically present. While he focused on improvements and innovations, his team grew the company from $1 million to $20 million in four years, expanding from 8 to 85 employees. But Derek learned a crucial distinction: there's a difference between delegation and abdication. When he later gave employees too much power, including control over profit-sharing that essentially gave all company profits to staff, he discovered he'd crossed the line from empowering others to abandoning his responsibilities as the business owner.
The $22 Million Exit: Knowing When You're Done
For years, Derek had sworn he'd never sell CD Baby. In a 2004 National Public Radio interview, he declared he'd stick with the company until the end. But by 2007, something had shifted. Derek had just completed a ground-up rewrite of the website software, the proudest achievement of his programming career. The code was beautiful, organized, and efficient, representing everything he'd learned over ten years. Yet when he looked at his plans for 2008 and beyond, he felt nothing.
All his future projects required huge effort for little reward. He'd broken his roadmap into twenty projects, each taking weeks or months to complete. But for the first time since starting CD Baby, Derek wasn't excited about any of them. He'd taken the company far beyond his original goals and realized he had no big vision for where it should go next. The bigger learning challenge for him wasn't staying on, but learning to let go.
That weekend, Derek opened his diary and seriously considered the question "What if I sold?" In previous years, the answer had always been an emphatic no, there was too much he wanted to do. This time was different. He imagined the relief of not having 85 employees and all that responsibility. He got excited about new projects he could pursue and the freedom he'd gain. When he called Seth Godin for advice, Seth's response was simple: "If you care, sell."
The point was profound: Derek's lack of enthusiastic vision was doing a disservice to his clients. It would be better for everyone if he put the company in more motivated hands. By the end of that introspective day, Derek was emotionally disconnected from CD Baby, like someone who'd already packed up and moved on. He chose the buyer who offered less money but better understood his clients. The decision wasn't about money, it was about recognizing when your chapter is complete and having the wisdom to pass the torch to someone who could write the next one with fresh enthusiasm.
Creating Your Perfect World: Business as Personal Expression
When Derek started CD Baby, he thought business was about building something big and impressive. But his journey taught him that business is actually as creative as fine arts, a chance to be unconventional, unique, and quirky. Your business becomes a reflection of who you are as a creator. Some people want billions and thousands of employees; others want to work alone. Some crave Silicon Valley fame; others prefer anonymity. The key is paying attention to what excites you versus what drains you, when you're being authentic versus trying to impress an invisible jury.
Derek discovered this truth through small details that made huge differences. CD Baby's confirmation emails didn't just say "your order has shipped." Instead, they told a whimsical story about how the CD was "gently taken from our shelves with sterilized gloves and placed on a satin pillow," inspected by fifty employees, packed by a specialist from Japan who lit a candle while the whole town of Portland waved goodbye to the package departing in CD Baby's "private jet." This silly email became legendary, creating thousands of new customers who shared it with friends.
Every interaction became an opportunity to create Derek's perfect world. They answered phones within two rings, seven days a week. Customer service reps had unlimited time to get to know callers and listen to their music. Outgoing emails customized the "From" field to say "CD Baby loves [customer's first name]." When musicians needed special favors, the policy was "We'll do anything for a pizza," literally accepting pizza deliveries in exchange for extra services. These touches made customers feel genuinely cared for in an industry notorious for treating artists poorly.
As CD Baby grew larger, Derek's stories about it became less happy. He realized he was happier with five employees than 85, and happiest working alone. Even though staying small might have limited business growth, it aligned with what made him fulfilled. Derek's final lesson was profound: whatever you make is your creation, so make it your personal dream come true. Business isn't just about serving others, it's about creating a world where you can be fully yourself while making a meaningful difference.
Summary
The ultimate lesson is this: build a business that serves others while staying true to what makes you happy, because purpose-driven work that aligns with your values will always outperform ventures motivated solely by money or external expectations.
Start by solving your own problem with the resources you have right now, rather than waiting for perfect conditions or funding. Focus obsessively on making customers so happy they become evangelists, delegate your thinking process rather than just tasks, and always remember that your business should be an expression of your perfect world. Pay attention to what excites versus drains you, and don't be afraid to stay small or change direction when your enthusiasm shifts. Most importantly, resist the urge to build what others expect and instead create something that reflects your authentic values and brings you genuine fulfillment.
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