Audible: Don Katz

Summary

Podcast Summary: How I Built This with Guy Raz

Episode: Audible: Don Katz
Host: Guy Raz
Guest: Don Katz, Founder of Audible
Date: November 1, 2021

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Overview

In this episode, Guy Raz interviews Don Katz, the founder of Audible, to unpack the story behind the rise of the world’s largest audiobook platform. Katz shares his journey from journalist and author to tech entrepreneur, discusses the early challenges of launching Audible amid skepticism and technological limitations, and reflects on the company’s near-collapse during the dot-com bust before its ultimate acquisition by Amazon. The conversation is deeply personal and rich in entrepreneurial insights, including facing doubts, capitalizing on lucky breaks, and revolutionizing how people engage with spoken word content.

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Key Discussion Points & Insights

1. Origins & Early Influences

• Upbringing & Family: Katz discusses his Chicago upbringing, strongly influenced by his father, a guitar manufacturer and war hero.
  • [06:44] Don Katz: “My father was just incredibly smart... he was also, he'd been a war hero...”
  • His father’s "You too can play guitar" campaign challenged status quos, influencing Don’s personal philosophy ([07:44]).
• Loss & Resilience: Katz lost his father suddenly at age 47, profoundly shaping his risk tolerance and career ambition ([08:59]).
• Academic Influences: At NYU, Katz was tutored by Ralph Ellison, who inspired his love for the spoken word ([10:22]):
  • “Ralph actually fleshed it out...gave me the confidence to try to be a professional writer.”

2. Writing Career & Transition to Entrepreneurship

• Breaking into Journalism:
  • Katz’s big break came through a chance dinner meeting that led to his first Rolling Stone assignment in Spain ([13:28]).
  • Coming from a non-standard journalism background, Katz felt imposter syndrome but leaned into opportunity ([15:37]).
• Book Writing and 'MBA in Real Time':
  • His writing about major corporations, like Sears, gave him business insights. He viewed storytelling about American institutions as a window into ambition, hubris, and innovation ([20:15], [22:02]).

3. The Genesis of Audible

• Personal Frustration Inspires Innovation:
  • Annoyed by the impracticality of audiobooks on cassette during his runs in Riverside Park, Katz wondered if there was a better way ([23:54]).
• Early Tech Curiosity:
  • Katz, aided by his tech genius friend Ed Lau, explored analog-to-digital compression and saw the potential for audio delivered over phone lines ([25:05]).
  • The concept evolved into a “solid state cassette” and a new business plan promising to “liberate the signal” ([27:39]).
  • Katz's vision: “When your eyes are busy but your mind is free” ([28:26]).
  • Early business plan leveraged transportation statistics—93 million Americans commuted alone—to market the idea ([29:58]).

4. Building a Hardware & Content Startup (Mid-1990s)

• Finding Co-founders and Investors:
  • First funding came from Tim Mott of Electronic Arts, who was energized by Don’s “primitive business plan” ([35:24]).
  • Persuaded a Bell Labs scientist, Guy Story, to join Audible with the lure of equity and a bold vision ([36:55]).
• Audible's First Device:
  • The team, flush with initial investment, worked with design firm IDEO and faced the realities of hardware manufacturing ([38:38], [43:40]).
  • The first Audible player launched in 1997—clunky, expensive, and low audio quality, but used by passionate early adopters ([44:03]).
  • “It sounded like somebody talking to you with a COVID mask in the bottom of a bathtub…” ([45:38]).

5. Dot-Com Boom, Bust, and Survival

• Venture Capital, IPO, and Tragedy:
  • Audible went public in 1999 despite having fewer than 6,000 customers. Robin Williams invested and participated in the roadshow ([49:36], [50:25]).
  • Katz recounts the sudden death of CEO Andy Huffman, catalyzing a survivor mentality among the team ([50:27]).
• Dot-Com Crash:
  • After the bubble burst, Audible's stock dropped from $29 to $0.04 ([03:12],[51:56]).
  • “...there were 1,500 public internet companies at the beginning of 2000 and 140 at the beginning of 2003. But it was that kind of decimation...” ([03:12]).

6. Pivots, Partnerships, and Steve Jobs’ Lifeline

• Strategic Pivot to 'Platform':
  • During the downturn, Audible quietly became the embedded audio platform (“Audible Ready”) for new MP3 players, locking in market share for future recovery ([56:09]).
• Cracking Audio Content Licensing:
  • Katz describes the challenge of convincing traditional book publishers to license audio rights and the breakthrough with subscription models ([58:44], [59:34]).
• Steve Jobs & The iPod Era:
  • In 2001, Katz received a fateful call from Steve Jobs, who was interested in Audible’s bookmarking and syncing technology ([60:51]).
  • Jobs and Katz bonded over the history of storytelling and the promise of technology to enhance it ([61:22]).
  • The iPod partnership let Audible ride the MP3 wave and escape the burdens of hardware manufacturing ([62:44]):
    • “Once we started giving away minis instead of our own player, it started to get better.”

7. The Business Model Breakthrough

• Transition to Audiobooks & Subscription:
  • The company shifted focus to audiobooks and digital licensing, creating a recurring, high-margin subscription model ([64:48], [65:41]).
  • “I would put my wallet on the desks of CEOs in the publishing industry. I said I need more content…” ([65:41]).
  • Audible produced its own content to meet rising demand and experimented with original programming ([65:19]).

8. Exiting Hardware, Growth, and Amazon Acquisition

• Out of Hardware, Into Content:
  • By 2005, Audible turned its first profit, a decade after founding ([67:13]).
• Growth Catalysts:
  • Broadband adoption and e-commerce normalization unlocked scale ([69:02]).
• Move to Newark and Social Impact:
  • Katz moved Audible’s HQ to Newark, NJ, as both a practical and community-minded decision—to foster culture and social change ([72:37], [74:02]).
• Amazon Acquisition:
  • In 2008, Amazon purchased Audible for $300 million ([75:09]), which Katz says enabled them to grow at unprecedented speed and impact.
  • “I was really in a moral crossroads... I knew that if I could hook back in with Jeff and Amazon, we could have access to several hundred million people…” ([76:26]).
• Retention:
  • Katz stayed on as CEO for as long post-acquisition as pre-acquisition, citing Amazon’s unusual commitment to entrepreneurial autonomy ([78:37]).

9. Luck vs. Persistence

• Reflection:
  • Katz believes his journey was about 51% grit and wise decision-making, 49% luck ([80:01]):
    • “Otherwise, how could I have made so many stupid boneheaded decisions along the way that didn’t kill us?”

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Notable Quotes

• On starting Audible:
  • “When your eyes are busy but your mind is free, we would create a higher level of purpose...” – Don Katz [28:26]
• On being early to market:
  • “The idea was way ahead of its time and often when that happens businesses don’t make it because they’re too early.” – Guy Raz [43:40]
• On doubt and founder’s imposter syndrome:
  • “Oh my god, I'm a fraud and they're about to find it out...” – Don Katz [15:37]
• On Amazon's acquisition:
  • “If I could hook back in with Jeff and Amazon... we would have that many more millions of people the freedom to even do the things [we're] doing in Newark that was meaningful to me.” – Don Katz [76:26]
• On luck and persistence:
  • “I think it’s something on the order of fifty point five to fifty one percent purposeful good calls and brave moments...the rest of it is definitely luck…” – Don Katz [80:01]

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Timestamps for Key Segments

| Topic | Timestamp | |-------------------------------------------|--------------| | Dot-com crash and context | 03:12 | | Family background and father’s influence | 06:44 | | Mentorship by Ralph Ellison | 10:22 | | Early journalism break & impostor syndrome| 13:28-15:37 | | Inspiration for Audible | 23:54-25:05 | | First hardware and business plan | 27:39-29:58 | | Raising funds, quitting writing, new cofounders | 35:24-36:55 | | First hardware launch, flaws, and feedback| 43:40-45:38 | | IPO, loss of CEO, Robin Williams connection| 49:36-50:27 | | Dot-com bust aftermath | 51:56-53:06 | | Audible’s “platform” pivot | 56:09 | | Steve Jobs and iPod partnership | 60:51-62:56 | | Breakthrough to profitability & Amazon deal| 67:13, 75:09 | | Discussion on luck vs. persistence | 80:01 |

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Memorable Moments

• Katz explaining his father's habit of leaving him Purple Hearts on his pillow after sports injuries, blending heroism and kindness ([06:44]).
• His “non-toxic midlife crisis” as described by his wife when transitioning from writing to entrepreneurship ([19:21]).
• Audible’s original download: a customer in Cave Creek, Arizona downloaded “Men Are from Mars, Women Are from Venus” – the first ever ([42:52]).
• Steve Jobs calling Katz to collaborate—emphasizing how storytelling history and technology can intersect ([61:22]).
• Katz’s reflection on luck: “...how could I have made so many stupid boneheaded decisions along the way that didn't kill us…” ([80:01]).

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Conclusion

Don Katz’s journey in building Audible is a testament to perseverance, vision, and seizing opportunity amid formidable odds. The episode spotlights the evolution from analog frustration to digital dominance, the challenges of being ahead of the market, and the value of both grit and serendipity. For entrepreneurs and storytellers alike, Katz offers a compelling, candid blueprint for turning passion into an iconic brand.

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Transcript

[Guy Raz]

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[Don Katz]

It crashes yeah there were fifteen hundred public internet companies at the beginning of two thousand and one hundred forty at the beginning of two thousand three but it was that kind of you know of decimation and the stock price which was once dollar twenty nine or something it went down to four cents at the end of two thousand four cent.

[Guy Raz]

From npr it's how i built this a show about innovators entrepreneurs idealists and the stories behind the movements they built i'm guy raz and on the show today how in the era of clunky cassette tapes don katz created a whole new kind of audio experience online and on demand with audible back in the mid nineteen nineties back before you could plug in a pair of earbuds and choose from hundreds of thousands of different books millions of different podcasts or tens of millions of different songs back before any of that a former journalist turned writer named don katz had a problem during his daily jog in new york city he would listen to books on tape literally on tape as in cassette tapes and don wondered why do i have to lug around a cassette player and then flip the cassette to side b in the middle of my run surely there must be an easier way he thought and in fact at the time there was mp three technology existed except almost no one used it in the mid nineteen nineties compact disc sales were on a tear it would take another seven years before cd's began to decline but don was optimistic and at the age of forty two he decided to ditch his successful career as a writer and try to start something he knew nothing about a tech company a company that would create a digital audio catalog of books and storytelling and spoken word and deliver those stories to users through a device specially designed to play that audio and as you will hear in the early days not many people came to the party the technology was way ahead of its time probably too ahead of its time in fact audible the company don founded almost collapsed in the early two thousands when its stock price hovered at around four cents a share but today of course audible holds the biggest audiobook catalog in the world it dominates the space with a library of over six hundred thousand titles and the company is now part of the amazon family which bought audible for three hundred million dollars in two thousand eight but getting to that point was painful and full of setbacks and the story includes a cameo appearance from none other than steve jobs don katz was a staff writer for rolling stone magazine during its heyday in the late seventies and eighties he grew up in chicago in the fifties and sixties and strongly identified with his dad who owned a small.

[Don Katz]

Business so my father was just incredibly kind of smart kind and you know it's a cliche but he was one of these guys you would want to be your kind of best friend i looked at up to him i probably wished he was home more because he was frankly like i became someone who worked a lot and he was also he'd been a war hero he ran away from home basically at seventeen and was behind enemy lines highly decorated where was he italy or he was in the black forest in germany in germany wow and he didn't really talk about it he wasn't one of those guys but he had different purple hearts every time i broke a leg in hockey or something i would wake up and find the purple heart on my pillow.

[Guy Raz]

And your dad from what i understand he had a music store in chicago called i guess called k musical instruments and it was it was actually a.

[Don Katz]

Guitar manufacturer yeah my dad made guitars he made them for sears silvertones but i remember that there were some pretty great bands of the era one called spirit that had a fantastic guitarist named randy california who only would play ks and the like but my dad's kind of claim to fame at that time was that he put chord books in guitars and started this whole idea that you too can play the guitar and it alienated a lot of the musicians including barney kessel and les paul and people that he was friends with because they were infuriated to say that their instrument was any easier to play than a violin and of course he said yeah but you know it is and so it ended up that my family was all in newsweek magazine taking our guitar lessons together because my dad had decided to be part of this you too can play the guitar which was part of the whole mid sixties folk music kind of movement so i think back and he was definitely somebody who also liked to challenge the status quo which i think i have come by.

[Guy Raz]

Honestly so was he financially successful he.

[Don Katz]

Was financially successful in the way of a rising entrepreneur of his time but very tragically he went out to play tennis at forty seven years old on a saturday and i got a call when i was in college saying that he died playing tennis very suddenly of a massive heart attack and it really marked my life in so many ways it was definitely a formative experience i've heard and you probably have heard this too that there's a lot of patterns of fatherlessness in highly entrepreneurial people whether it's through abandonment or early death including taking ridiculous risks as a journalist in the early part of my career where i could have easily gotten killed several times i think i was working out his heroism and other kinds of things so you know you come to these things a little later in life but it is interesting to reflect on it.

[Guy Raz]

So for college i know that you went to nyu and you majored in english and from what i understand ralph ellison like the ralph ellison the invisible man ralph ellison was a professor there and and you kind of had an opportunity to sort of work with him to be tutored by him right he.

[Don Katz]

Taught me how to read in a way that i fully didn't understand and i knew that i loved more than anything the sound of literature and i was just and how it felt to me but ralph actually kind of fleshed it out in a way that it became something that i was fully able to understand he also he also gave me the i think the confidence to try to be a professional writer which i proceeded to do for twenty years.

[Guy Raz]

Was ralph ellison your like your thesis.

[Don Katz]

Advisor yeah he basically was and ralph was a deep and exacting intellectual so i had to work really hard and read really hard anyways it was an amazing experience he he would sit with a big stogie and he had this amazing storytelling voice with his oklahoma i've said that his voice was like a coal car coming out of a mine and i would just be mesmerized and he was a big supporter and later even the audible transition right at the time he died he was incredibly supportive of what i did.

[Guy Raz]

So you graduate from nyu and you're sort of thinking that you want to be a writer but it's not that easy to do so and you did what lots of people do which is you decide to go to graduate school and to continue studying i assume you went to london to the london school of economics yeah am i assuming correctly that you didn't really know what you wanted to do you wanted to kind of buy some.

[Don Katz]

Time absolutely in fact i thought at the time almost everybody thought if you didn't know what you should do you should go to law school yes but i studied european economics and politics and international history and i was living with my old friend barbara who was a rock writer she had gone to be a rock and roll writer in london and so we just paired up and shared a flat and so i would come home and there would be you know rod stewart and keith richards and so that's who she hung out with.

[Guy Raz]

Wow and your roommate barbara this is somebody you knew from college from high.

[Don Katz]

School from high school and just to make money barbara got me little gigs reviewing albums for the british music like melody maker or nme yeah exactly new musical express sounds and i'll never forget i wrote one about frankie valli and the four seasons i got to interview frankie valli and the like and i was just kind of trying to trying to figure it out i matriculated for a phd but i just didn't know you know what i wanted to do.

[Guy Raz]

All right so you're doing a little writing and kind of getting into the music scene in london and i guess one night you're out at dinner and you meet a guy who winds up kind of launching your career in journalism.

[Don Katz]

What'S the story absolutely sitting next to a guy named robert greenfield who introduces himself as a rolling stonewriter and we just get chatting and i basically told him about some of the things that were going on notably what was going on in spain at the end of franco and i talked to him about what was going on in northern ireland because i had a a very different perspective on the world because i was based in london and reading the european press and he said you know you should package one of these things and write this guy jan wenner who i work with at rolling stone a letter with some ideas because you could just write about these are great stories you've got and i went ahead and i sat down and i wrote this letter the two or three ideas and presumably.

[Guy Raz]

This is a handwritten letter or typed letter that you write no no i.

[Don Katz]

Typed the letter to yan winnow on.

[Guy Raz]

My typewriter did you pitch an idea for an article which was what what did you write in the letter what.

[Don Katz]

Was the pitch one of them was that at the point franco who was ancient begins to die the great dictator of spain it would be very interesting to illuminate the liberation movement of the eta basque separatists and the perspective of this last dictator going down and that basically the last of the world war two era dictators and it would be an interesting story and i get a telegram saying go to spain and i'm not so sure anyone i work with at audible or my children know what a telegram even looks like because that was the fast way to get to me was to say get out of here go write the story and it basically said write write five to seven thousand words and we'll pay you one thousand five hundred dollars and reasonable expenses.

[Guy Raz]

This sounds like a this sounds like a dispatch from hunter thompson right he would say oh and reasonable expenses from jan winter but i mean you get this telegram from him just curious did you have a mild panic attack as you were twenty three and rolling stone was hugely influential by that point the.

[Don Katz]

Attack that actually i think attacks all people who go way out with crazy ideas whatever they are which is that oh my god i'm a fraud and they're about to find it out yeah right that is exactly what happened but it's not the only time in my life that you know i've kind of you know had that feeling so i had no idea what to do and i got myself to madrid i knew i'd have to get basically credentialed to cover what was supposed to be a funeral and so what happened was all of the of the world war two era journalists who were still around the wire service guys they all descended on madrid for almost like a last hurrah and they took me under their collective wing and showed me a whole lot of stuff about how to be a more traditional journalist and i sat down and i wrote this story and it came out as i'd written it and on the COVID it said dispatch from the valley of the fallen with my name on it on rolling stone magazine now i'm twenty three years old and i was like i can't believe this and of course because i really hadn't been a student journalist i just wrote you know i didn't know that as it was explained to me later that usually they like to edit these things a lot but they didn't sure they didn't they just put it in and.

[Guy Raz]

So i guess i mean you start writing more and more pieces for rolling stone and then eventually some other publications and you start to travel more like to northern ireland and i think you went to ethiopia and a bunch of different war zones yeah but i mean you were also incredibly young when you were getting those bylines and i read a story and i love this story that you were so self conscious about being found out that you know because you were so young that whenever one of one of your american editors would come to london you would actually not be there deliberately like you so you wouldn't have to meet them face to.

[Don Katz]

Face i thought if they saw how young i think i looked like i was twelve when i was twenty three years old i was incredibly self conscious and i did try to be out on assignment when the editors i was working with you know telephonically were in town for a while and eventually when i revealed myself and i met them they did exactly what i expected oh come on you're not done are you like they were incredulous that i was.

[Guy Raz]

Putting out this precocious stuff imagine so i guess you stayed in europe for several years and i guess by the like the late seventies you moved to new york to work at rolling stone and i think you also got married around then how did you meet your.

[Don Katz]

Wife i met my wife leslie in nineteen eighty two on a river raft trip in pennsylvania out of jim thorpe pennsylvania and we were both with different people and we kind of hit it off and i went off to china for national geographic and spent literally months traveling the silk road it was an incredible trip but it was long and when i got back the relationship with my former girlfriend was over and she said to me i know who you're going to call people said leslie larson and that she was right because you.

[Guy Raz]

Had connected with her on that river.

[Don Katz]

Rafting trip definitely i thought she was great and life went on from there and it's been an amazing marriage and just about nothing i can think of that has been good for me she hasn't been an amazing part of including memorably referring to my sudden u turn from writer to entrepreneur as a non toxic midlife crisis which we'll get to.

[Guy Raz]

In a moment but i mean at that time you were still a journalist for rolling stone you got this great job you're getting paid and a salary when did you i know that you you wrote your first book which was the story of sears the department store i guess the history of sears and then kind of like the rise and fall of it and that book came out in like eighty seven why did you want to write a book about.

[Don Katz]

Sears well i kind of thought how weird would it be to take this you know this hippie counterculture storytelling and write about a big old american company and what happened to it and i wrote another letter i wrote a letter to the ceo and chairman of sears a guy named ed telling who was famous for never having given an interview completely introverted guy the beat reporters couldn't get anything out of ed telling and basically i said that if he can deal with the great american corporation of the twentieth century changing itself so as to continue to be the most beloved and trusted company of the century it's a matter of historical record and he just decided that he'd let me in and this is really rare because as you all know corporations tend to be pentagon like in their control over the truth and so i proceeded to show up as a bearded still looking quite young guy and people who worked at sears decided i was okay because i had sold ed telling on something they never thought anybody would sell him on so i was a salesman in their eyes and i just tried you know i spent years on this wow and did i get an mba in real.

[Guy Raz]

Time i'm wondering if ed telling because he was widely reviled by the business press right he was considered to be a disastrous leader in the end one could argue he redeemed himself but do you think that he wanted you to write this book so he would come.

[Don Katz]

Out being redeemed i think he wanted to be part of history i think he like so many of these sears guys who they came and transferred their battlefield loyalties from world war two to this heartland corporation they lived these lives where they would move fourteen sixteen times i mean that was part of a corporate life in those days but boy oh boy it was a pretty epic task to then turn it into this you know this tale of america but it was a tale of hubris it was a tale of the final founder sowing the seeds of the destruction of the company i have a whole chapter remember in there about the building of the sears tower they made this genius conception of every customer thought sears was the friendly guy down the street the member of the kiwanis club and that sears was this localized reality and once they built that tower and said that they're one of the most powerful companies in the world all the bad stuff started happening because it was just thought to be such a you know an unfortunate statement of their purpose but that company's story is very much about the end of what ended up happening in the seventies eighties is americans realized that other countries actually sometimes were even more productive than they were and all those all that wake up call was part.

[Guy Raz]

Of that story you are a runner right or were a runner or maybe.

[Don Katz]

Well i'm a hockey player who runs or did run a lot so as to keep in shape but i definitely liked to run in my my regimen when i was living in new york as a writer was to take off in riverside park and run several miles at the end of the day and.

[Guy Raz]

While you ran what would you listen.

[Don Katz]

To music well i ran with a partner and we would just chat the whole time or i listened to the early audiobooks on cassette on cassette in walkman how painful it was at a sony walkman in a belly pack knocking around and i just remember the utter irritation of trying to change the tapes when you're aerobically taxed and how because you rented them in these big brown boxes that they would often not work at all which was really irritating when you're a couple miles from home but i remember listening to john reed's ten days that shook the world i would take on these long kind of books and jog along and listen but at that point i was the only person i knew who did that okay so.

[Guy Raz]

I think this is the early nineteen nineties and during this time i guess you're also researching another book which i think it was a book about the burgeoning tech industry so at what point were you like wait i may have a business idea here how did that.

[Don Katz]

Happen so i had this book contract i began to connect with people who were teaching me what i didn't know about technology and one of the people who was my key contacts was my college roommate from nyu ed lau one of my close friends to this day who was a computer friggin genius and we were talking about signal compression basically about analog to digital signal compression and i was asking all these questions about how text fit through the internet which was wait for it the phone lines there was no broadband at all and these discussions were happening in ninety three ninety four and he had this thought he said you know you could get voice through the phone line it could be compressed and we went back and forth and i said ed you know if you could take audio books and send them through the phone line the cost of the packaging and all those tapes wouldn't be there you could lower the cost i remember saying we liberate the signal meaning how do we get the audio into my belly pack so i can go around with it or how are we going to get it into cars because that's where people have a lot of time i remember thinking if you took these audiobooks you could actually liberate time for people and we got kind of more excited about it and i got more and more interested in what it would mean to do this because nobody else was doing it.

[Guy Raz]

Okay so you're thinking of making some new type of digital device or like a system for playing audio so what.

[Don Katz]

Did you start to do so throughout nineteen ninety four i spent time trying to find anyone i could find to talk about a future that involved these little devices that were filled with the soundscape of culture basically the soundtrack of culture i remember talking in various ways or the sound of civilization i remember all these things coming out saying can't you see it and people thought i was out of my mind i mean i couldn't find anybody who knew what i was talking about except for ed and we just decided to write it up into a business plan to do.

[Guy Raz]

A business plan to create to create.

[Don Katz]

A company that we decided should be called audible words and it would be.

[Guy Raz]

A company that made what books on tape that were digital believe it or.

[Don Katz]

Not guy it was actually a solid state cassette it was a cassette that you hooked to the phone line that was the first patent and the idea was you'd have the signal come over you'd capture it in the cassette flash memory you'd push it into the tape bed in your car which incidentally everybody had at that point and you'd be able to listen and we just played with it but i have to tell you i wrote the business plan and it was like one hundred ten page.

[Guy Raz]

Narrative what was the story it was a narrative saying what the story was.

[Don Katz]

That we would occupy this time of people's life which was and we said when your eyes are busy but your mind is free we would create a higher level of purpose that the am fm radio was for everybody it wasn't just for you and you would be able to program your own listening time in the future through digital technology and that we would have a company that would sell a solid state digital device as well as content it would be about books and literature it would allow you to listen to fresh air and marketplace and all these shows that played at two o' clock in the afternoon and we got a patent together on a downloadable system of for media that would be captured by a solid state device and i remember it was fourteen thousand dollars that i put on my credit card wow and because you know what did we know now i know of course you know without a portfolio patents are worthless but you know at that point i didn't so that was the first thing we did but we actually started to get really excited about.

[Guy Raz]

This so instead of terrestrial radio you could get it delivered through the internet instead of an audiobook on tape or a book or a speech on tape or some kind of you know inspiring i don't know inspirational thing you just basically say this business is going to deliver this stuff to you through your phone line through the internet i didn't.

[Don Katz]

Play up the book part of it because the business itself was so infinitesimal and small what i did was i realized through just basic journalistic research that ninety three million americans drove to work alone every morning at that point only department of transportation number which you could extrapolate to hundreds of millions of hours of time people sit in traffic i then matched the sociological data that showed that the most frustrating time of people's days and least valuable time is sitting in traffic and i basically just we said if we only penetrate of them at ten dollars a month for a service that enriched their lives here's how big the business would be right and that's how we were able to get what's now very small amounts of money but was then to us a lot of money to make audible before you.

[Guy Raz]

Went out to seek capital for this right because you were writing a book how did this idea just take over your mind and your life because all of us get ideas we've all had a business idea and sometimes it captures us for a week or two weeks.

[Don Katz]

But this was really i think there were multiple things inspiring me at the time one was i just thought it was interesting that i daydreamed about this more than i was daydreaming about the next paragraph or the next day's writing the other thing was i kept going to people who i otherwise respected who thought i was crazy they thought you.

[Guy Raz]

Were crazy because you had a great gig and you were respected they were.

[Don Katz]

So dismissive of it yeah yeah i mean it was like they just didn't get it i mean even people who took the time said why don't you just package it and try to sell it to sony for twenty five thousand dollars it might be something they're interested in it was such a dismissive reaction to it and that made me more inspired really to go ahead and try try to do it yeah when we.

[Guy Raz]

Come back in just a moment turns out that building a new type of audio player and a new type of audio marketplace and a whole new type of audio experience is hard and that's before the dot com bust stay with us i'm guy roz and you're listening to how i built this from npr if you've been listening to the show these last couple of episodes you've probably heard me mention the airbnb original experience that i'm hosting and i'm so excited to have a chance to connect with listeners in a completely new way it's called the reinvention lab and it's designed to help you think about how to unlock your next big move in your career or even in your life i'll help you discover your own own story in ways i do on this show with my guests and attendees will get a chance to take a deeper dive with me on so many lessons i've learned from this show lessons that have transformed how i work and think about the future all proceeds from the event will go to support the ronald mcdonald houses that helps families stay near their children who are being treated at nearby hospitals it's going to be really fun and i can't wait to meet you so come join me in san francisco and take your idea to the next level to grab your spot visit airbnb dot com guy it's going to be.

[Don Katz]

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[Guy Raz]

Ai built for business ibm every day it feels like there are new headlines speculating about how ai is coming for our jobs of course all of this can be a bit anxiety inducing but a recent survey from miro found that seventy six percent of respondents believe that ai can benefit their role still over half said they struggle to know when to use ai enter miro's innovation workspace an intelligent platform that brings people and ai together to get great work done teams can work with miro ai to turn unstructured data like sticky notes or screenshots into usable diagrams or product briefs and prototypes in minutes i've actually been using miro ai and it's really helped my team gather a bunch of ideas together in one place and brainstorm more productively help your teams get great done with miro check out miro dot com to find out how that's miro dot com hey welcome back to how i built this i'm guy raz so it's around nineteen ninety five and don katz is trying to build an audio player and platform for audiobooks interviews comedy and more what will become audible but first he has to raise money and one of the first people he calls is a former source from the world of tech a guy named tim mott and.

[Don Katz]

Tim mott was a great entrepreneur and is a great great great person he was one of the founding people at electronic arts the three people who developed electronic arts yeah and when tim mott read the primitive business plan he called me up and said i would fund this this is amazing don when you.

[Guy Raz]

Went to your wife and you said hey i want to do this i want to start a business what was her reaction was she like go for.

[Don Katz]

It i think at one point she said it was a it sounds a little sexist now but she said it's better than a blonde she'd already been such an amazing partner for someone who was willing to live without a net because you know i was freelance and book writer and everything but i was scared i mean i had three kids.

[Guy Raz]

At a mortgage you were forty three.

[Don Katz]

I was forty three years old and i took an eighty five percent year over year pay cut to start audible.

[Guy Raz]

And meanwhile from what i know of the story you were looking for a business partner and you wanted it to be ed lau who's your former roommate the guy who was that computer genius but he wasn't able to join you right so you needed to find presumably.

[Don Katz]

Someone else right yeah i went out to find a new science partner and found my lifelong friend and wonderful person guy story who was a senior person at bell labs and guy decided to hear the siren song and he joined.

[Guy Raz]

Me early how did you convince him how did you convince him or how.

[Don Katz]

Did you i basically said i don't know if we're going to overcome what a venture capitalist would call the tech risk and the execution risk but whatever we build we're going to put in front of consumers and you'll get to say that and i said you don't have to take the eighty five percent year over year pay cut i took but you have to take sixty and you're going to get all these options and guy jumped into the merry band.

[Guy Raz]

Your initial backer tim mott put in i think like four hundred thousand dollars in seed capital yep and what did you know at the time about how to you know like how to deal with equity and valuations i mean now of course every company doesn't matter what the company is it seems like their perceived level of valuation is twenty million dollars oh my company is valued at twenty million dollars and you're like what are you making nothing we're giving ourselves a twenty million dollars valuation how did you know how to do that and how to you know because i literally.

[Don Katz]

Trusted tim and you know i was a fast study as journalists are and so i was picking the stuff up and and taking it in pretty quickly and tim's first round was you know allowed us to evolve the team and we took over a doctor's office in montclair a single room not far in new jersey where i'm speaking in new jersey and we painted it on a sunday and moved in on a monday so now we've moved out of my attic and had a place to you know to gather yeah and then tim and i hit the road for california.

[Guy Raz]

To raise more money to raise more.

[Don Katz]

Money and also begin the process of building the first download system the first way of actually securing the intellectual property this was years before the terms about digital rights management were there yep because i'd had so many outside magazine articles ripped off on the unix internet and people put their own names on them and the like that i kind of had this idea that this kind of professional grade creativity might need to be protected so a company very well known called ideo which does industrial design came in and they were totally excited about all this stuff including everything from you know the idea of securing the ip and the download system and building a device with us so that process started and yeah we went out and spent a lot of time going up and down sandhill road getting to know people.

[Guy Raz]

All right so you're able to secure the capital i think i think i guess a few million dollars to get an audio player built but also i mean you've got to you've got to get content for that audio player and you were going to be the ceo of the company you were going to manage people and manage a team is.

[Don Katz]

That right yes so i was president and ceo and tim was chairman and we formed a board and i believe this idea of seeing the future and seeing these opportunities and doing something that had been done and persuading people to be part of it was the most important thing but it is also true that you know managing people is a different art and science which but i did have all those years of watching both entrepreneurs and others lead to me.

[Guy Raz]

It just sounds incredibly overwhelming like an overwhelming amount of things to do i understand that you had written books about leaders but you never had like a leadership position at any of the publications where you worked you weren't an editor at rolling stone were you nervous about becoming a manager of people in any.

[Don Katz]

Way i was definitely nervous but i was i was on point you know look i definitely felt more concerned about having put three point five million dollars into play that was other people's money and feeling deeply responsible to them and to others particularly people who left perfectly good jobs because a lot of these people left really nice jobs to join this vision of the possible so yeah it was incredibly stressful but but you did say that part of the thing was about getting the content and i would argue that probably our original funders discounted how hard it was going to be to convince the gatekeepers of the content that existed to see this particular.

[Guy Raz]

Future what was the content that you envisioned being on this player because you had two paths right you got two things you got to do at the same time you've got one team building the actual device that's going to play the stuff and then presumably another team getting the content so what did you think the content was going to be.

[Don Katz]

I thought the content would be frankly what it became a mixture of literally the best possible public expression in words you know if the churchill club had profound speeches i wanted to carry that gotcha we turned the san jose mercury news into an audio program you have.

[Guy Raz]

People reading the newspaper as content yeah okay so what else what other kind.

[Don Katz]

Of content well we got some of your buddies at npr so we could have car talk or marketplace car talk.

[Guy Raz]

Which was owned by those guys so you didn't have to deal with npr.

[Don Katz]

Right by ninety nine i'd signed up robin williams to do original programming for us and yes we wanted wanted the audiobooks too but it was many many years we had much more content that was just different kinds of public content.

[Guy Raz]

Whatever you could get yeah that we.

[Don Katz]

Either narrated or other things before we had a lot of books but the first download when it finally happened was in october thirty first of ninety seven it was men are from mars and women are from venus the the self help book and i remember it was to a customer in cave creek arizona and that was and it was done at a then pretty famous technology conference called the agenda conference which is where we unveiled the service and gave everybody from you know bill gates to steve jobs and michael jell this digital audio player we made and i'm sure the majority of them were sawed in half back in various labs when people got home to see what's inside them the.

[Guy Raz]

Idea was way ahead of its time and often when that happens businesses don't make it because they're too early which.

[Don Katz]

I think ninety five percent of the time or something like that on the metrics and we were i think we were seven years before the vibrancy of the market so it's a very unusual story to be alive that long so.

[Guy Raz]

You have this device that comes out in ninety seven and how did the user experience this device it was you buy this thing it's in a docking station and then what you go to the audible website and there's a menu of things you can get car talk you can get the speeches from whatever the commonwealth club whatever it was and you would a la carte buy those things and then they would download to this device that was connected to your computer through a serial port am i.

[Don Katz]

Describing this right that's exactly right that's how it worked and now it did take a long time to come down the internet was incredibly choppy over the phone lines before broadband so we had really sophisticated resume features which ended up being being another things people celebrated for our tech chops later because it would drop off and that way you know it was always kind of waiting for you in the morning and then you were supposed to drive to work and come home and put it back in the dock and get to work smarter than the guy in the next cube as we used to say and that was it now it should be said it sounded like crap i mean the audio quality was not good it literally sounded like somebody talking to you with a covid mask in the bottom of a bathtub or something it was just not it was not good audio but we kept pushing the science forward so guy and i would go around and visit these rocket scientists who develop codecs sure and we would work with them.

[Guy Raz]

The codex is i should say i say sure because i'm an audio right.

[Don Katz]

But it's basically a software algorithm that deals with the compress factor of the audio and gives you relative sound clarity versus not and we did push the labs out there to make much better sounding audio even month over month that allowed us to the clarity to go up but in the end the user experience was really clunky and primitive to the point that when i meet people who are original customers i always say we should have been paying you don.

[Guy Raz]

When you pitched this idea to investors you talked about ninety three million commuters people in their cars not using that time valuably well this device was not designed for the car so who was when this came out in november of nineteen ninety seven did you sell any of them was it successful we didn't.

[Don Katz]

Sell many but the people who got them they did use them in their car they just they plugged them into a little speaker that sat on their seat we gave them a cassette converter that we had that would ah yes.

[Guy Raz]

You could put that in your cassette.

[Don Katz]

Remember that remember that yes and then.

[Guy Raz]

They would play out of your speakers exactly you could plug that into the.

[Don Katz]

Output yeah but it cost us dollar two hundred eight to make that little device and we tried to sell it for two hundred and fifteen dollars wow and that was a lot of money for people to get something that was of that quality and mostly that they didn't even understand what it was so.

[Guy Raz]

I mean it comes out in ninety seven and this is your product that all these investment banker venture capitalists and stuff have put money in and it sounds like it was a bomb it.

[Don Katz]

Was kind of a bomb but we didn't ever stop to think that way we just kind of went forward thinking like what are we going to do now and of course the tech deliverables were so difficult i mean i have to tell you being in the hardware business to this day is not an easy business as anyone who makes hardware will tell you but i just remember missing a milestone that was a big milestone for another funding and i get to this company called flextronics which is a very sophisticated contract manufacturing company that was making the player and i just said what do you mean it's another three months he said we're out of crystals i said what do you mean we're out of crystals he said do you know about crystals i said i think i know about crystals he said well don you can't shit a crystal because they had to grow them they had to grow the friggin crystals wait.

[Guy Raz]

These are crystals for the liquid crystal.

[Don Katz]

Yeah these were like traditional crystals that were in the device and you couldn't believe how complicated it was to get.

[Guy Raz]

This thing built don at a certain point i guess in the first years you ended up bringing on a guy named andrew huffman to become the ceo and he died i mean nineteen ninety nine he was just there for a.

[Don Katz]

Couple of years yeah so andy huffman was a pure tech guy and really good guy but he was absolutely a pure product and tech guy and in that period what i was doing and now we're talking ninety nine was convincing my venture capitalists that they weren't the cowboys anymore because what was going on was a bizarre situation in ninety eight ninety nine where companies like ours were going public and they were grabbing a whole lot of money it was this.

[Guy Raz]

Was the boom the dot com this.

[Don Katz]

Was a boom yeah and it was very much a bubble but it was a bubble that i did not want to miss because if nothing else my london school of economic training is like when capital costs almost nothing you probably should take it so i just we.

[Guy Raz]

Pushed forward you went to your investors and you said i want to go.

[Don Katz]

Public yeah and of course most of them said what are you talking about you know you only have three thousand eight hundred customers you know so robin williams had come in and bought like five hundred thousand shares of common stock before it went public he was part of the roadshow and he was because he was a real techie guy and and so it was a blast actually and the whole thing of selling of going to europe and selling it was a real experience and how did you.

[Guy Raz]

Do by the way when you went.

[Don Katz]

Public great we walked away with almost forty million dollars we had five thousand seven hundred customers so the investors made a great return yeah but in that year a few months later andy at thirty nine years old was a university of maryland basketball star was playing basketball on a saturday with people like ralph sampson who was a great nba star from the past and others in a new jersey game and he died of a brain aneurysm and this was you know one of those moments where i realized i was the only person of the thirty eight of us who'd ever experienced sudden loss and trauma and i brought in actually a great friend who was a grief counselor and we kind of worked this through together but it ended up i think stealing those of us who were left to a survivor mentality that probably served us well.

[Guy Raz]

All right so you guys go public in the fall of nineteen ninety nine and by the spring of two thousand the dot com bubble bursts it crashes so i think when a company goes public the officers have to hold their stock right like they can't sell the stock immediately so i mean did anybody make money off of audible going public yeah.

[Don Katz]

A bunch of venture capitalists certainly did.

[Guy Raz]

Because because they could yeah because they.

[Don Katz]

Could yeah a couple of them and here's the term in the day was like you know yeah i would never have sold i mean i thought you know i thought it was you know i was told it was immoral for a founder to sell a share of stock and i took that fairly seriously but some of our vc's right after we went public began to as the term was puke out their shares in very public filings and they were right yeah i mean they made a lot of money off audible and because what happened next was not pretty but you know i should say for context i've heard that there were fifteen hundred public internet companies at the beginning of two thousand and one hundred forty at the beginning of two thousand three so there were combinations there there were you know some takeovers there were other things that went on but it was that kind of you know of decimation and the stock price which was once twenty nine dollars or something it went down to four cents at the end of two.

[Guy Raz]

Thousand four cents when we come back in just a moment how don was able to chart a new path for audible with help from one of the smartest and scariest people in silicon valley stay with us i'm guy raz and you're listening to how i built this from npr if you've started your own business you know just how many challenges there are big and small i mean look at how i built this building this show came with a lot of trials late nights very very early mornings but even though there were challenges getting started there is something that makes setting up a new business easier getting connected with at and t business it doesn't matter what your business is dealing with at and t business helps to make it much much easier and that's the point of a provider in the first place making building your dream easier wake up to the power of att business at business dot att dot com that's business dot att dot com one point three percent it's a small number but in the right context it's a powerful one stripe processed just over one point four trillion dollars last year that figure works out to about one point three percent of global gdp it's a lot but also just one point three percent and gdp isn't capped there's a ton of headroom for growth especially with gale force tailwinds like ai and stablecoins stripe aims to be both the fastest improving infrastructure to build on and the most reliable platform to grow with for the millions of stripe users worldwide but that number isn't capped either so join the ranks of industry leaders like salesforce openai nvidia and pepsi that are using stripe to grow faster and grow the gdp learn how stripe can help your business grow at stripe dot com hey welcome back to how i built this i'm guy raz so it's two thousand one the dot com bubble has burst audible's stock price has plummeted and don katz is trying to stay calm i was.

[Don Katz]

Incredibly anxious but i just kind of had an attitude about it because we weren't out of capital yet and we had investors who had not given up hope and it felt like there was just always another reason to keep fighting.

[Guy Raz]

But still don i mean your stock was down you guys were weren't profitable yet i mean that the market for what you were making hadn't really taken off so how are you strategizing i mean how are you going to guide the company through such a tough time.

[Don Katz]

Well what happened during this period of time is we did hunker down and when you went public you had to basically be trained to say one thing to all the fund investors which was we are technology agnostic and what that was code for was that we will not build or say the word platform because the word was in the nineties and life has changed a lot is that if anyone said they were building a platform microsoft would make it their business to destroy your company which if you look at some of the suits against myself there was some pretty good evidence it was true so we decided to not be technology agnostic and during this period when nobody was looking we decided to take our pretty good science and call this the audible ready platform which would be the de facto way that spoken word was transmitted and played back in the new generation of mp three players that were coming out and we not only got all those deals done we had texas instrument chips that were already audible ready so when the dust started to clear a little bit and life started to get a little bit better we come out with all these mp three players which people were buying at the time with our bits inside the device and our marketing collateral inside the box so it kind of got hard to compete with us at that particular time because we were of all these different companies that wanted to be doing the same kind of thing in a pretty good position so that was one of those i always think you get to where we got by having about fifty one percent of the things you're doing being smart cnet named us the number one entertainment app on the web and things that made us feel pretty good but as you also point out the the financial stuff got really dark being a public company was.

[Guy Raz]

Not fun yeah i mean it would still take a couple years before mp three players would take off and of course that happened with the ipod which we'll get to in a moment but how were you getting rights for audiobooks because audiobooks were still books on cassette and books on cd so how were you getting the rights to get digital versions of that was it hard or was it pretty easy no it was.

[Don Katz]

Definitely hard and it was difficult to bridge a world that is very much not technology focused no publishing no book publishing is people who love books meaning that they're willing to get paid less or they have the wherewithal to not get paid a lot and you know and they go into a world and usually they stand for the status quo and they usually resist you know technological change in particular and others it's a longer story but it's been like this forever so it was difficult but eventually we did start to break through and be able to carry these audiobooks at a different cost and then the other thing that we did figure it out was the subscription model yeah how did.

[Guy Raz]

That because from what i understand it was up until this point it was you buy a player which you're asking a lot of people you're asking them to spend two hundred bucks on an mp three player and then ten five dollars on a book that's a lot to ask people right yes and that.

[Don Katz]

Was the challenge so what if you just got an audio book a month and a player and you get a year subscription and that really helped that helped a lot particularly since at that point we had these audible ready devices that other people you know bought but we started giving away a little blue mp three player called the otus we got rid of the audible mobile player and let that become the artifact it.

[Guy Raz]

Needed to be and the the otis was free if you got a subscription.

[Don Katz]

Yep and we just gave them away.

[Guy Raz]

And what was the commitment you had to do a year subscription or it was a year commitment and what was.

[Don Katz]

The price it was actually nine point nine five for two audiobooks when we started okay a month yeah a month and it gained traction yeah and frankly the phone call i got around this period from cupertino california from steve jobs was a ray of hope that was.

[Guy Raz]

Really meaningful okay so let's talk about this steve jobs calls you in two thousand one and he said hey i like this thing you're making he did.

[Don Katz]

He said more than that he said tell me about this round tripping how you bookmark the content i said i want to hear more about this and then he asked all sorts of questions about the tech and very enthusiastically which was kind of ironic because you know steve was kind of known for a not invented here view on tech stealing.

[Guy Raz]

Stuff yeah.

[Don Katz]

But he was very very focused on this and he went on actually to talk in ways that we began to have fairly rich conversations because we shared this historic view of the interplay of technology and invention and culture this whole idea that you know from chisels in caves to parchment you have this amazing creative unleashing he understood i was surprised for what i thought would be a pure tech guy the golden age of radio and how you know what that meant and how the music business exploded with creativity when it's shifted from sheet music i mean so we talked about this kind of stuff and he told me that he would weep copiously when he listened to edmund white read charlotte's web and he's you know he so he just basically decided to tell me that he had this plan around this ipod and that i went home and i remember telling my wife that steve said he's going to spend fifteen million dollars marketing their audio player and i said can you imagine if we had fifteen million dollars to market you know at audible and this one thing led to another and the second generation ipod came out it worked commercially.

[Guy Raz]

With audible so basically you would plug in because you used to have to plug in your ipod to your computer through that you know interface and you would go to the audible website and that would download directly to the ipod.

[Don Katz]

Yep and that was it and so it would load up and and they were these sweet little devices they were very cool the only thing we didn't get to do was put our marketing collateral in the boxes so it didn't.

[Guy Raz]

Say audible anywhere it did say that.

[Don Katz]

It was audible ready and that was that term that we'd kind of coined at the time and that it started to mean something at least in the world of people buying mp three players so we were able to garner our cost structure to be for the stakeholders who were going to get this so we were able to target market to the people buying these newfangled players and we were basically compatible with all of them and once we started giving away minis instead of our own player it started to get better all right so.

[Guy Raz]

Just to be clear instead of giving away your own devices as a way to get people to subscribe you started to give away the apple ipod and i think you did that for several years i mean i mean steve jobs kind of gave you a lifeline there and so i'm assuming that pretty soon you know after that you just kind of stopped being a hardware company like because eventually it would have been sort.

[Don Katz]

Of pointless right no that's absolutely right and you know we were happy to get out of it and basically declare that you know hardware was a means to an end there would be other transmission methodologies we know we had partnerships with everybody including the companies that were that were making cd burners at the time and the like so i always wanted it to be means to an.

[Guy Raz]

End you had a i think by two thousand five so you're now completely out of the hardware business you're focused mainly on licensing audio and really you pivot towards audio books when did that happen what was the thinking around that.

[Don Katz]

I think it was just because it took off two thousand seven we still had twenty thousand audiobooks now we have many many hundreds of thousands obviously we had twenty thousand audiobooks in two thousand seven and forty five thousand other kinds of content including robin's programs ricky gervais's programs the amazing susie bright erotica series which is which was these were pre.

[Guy Raz]

Podcasts basically oh it was before the.

[Don Katz]

Timeline yeah they were all short form programs yeah they were just part of.

[Guy Raz]

The repertoire i mean you became the global supplier of audiobooks to itunes already in two thousand three so by that point it was clear that audiobooks was where you were headed towards do you remember what the pivot point was where you were like okay we've broken through the publishing industry is cooperating yeah i.

[Don Katz]

Think that the utility of the service the idea of positioning this as a way to use your time now it was also true that only about fifteen percent of the books coming out were in audio so our crusade was always to get more audiobooks made or to try to get the rights ourselves from the agent and the author to get them made because we literally would run out of mysteries and i would go at one point i remember i would put my wallet on the desks of ceo's in the publishing industry i said i need more content so at that point it wasn't coming and we broke in to getting the rights ourselves and making a whole lot of audiobooks we also figured out how to make an audiobook for about a tenth of the cost that the just using technology you know so we just started making a lot of audiobooks and it got better and better and there was something called project hollywood in twenty eleven and twenty twelve where we just said let's just go find out what the greatest actors will do and when i heard kate winslet do theresa raquin one of the darkest zola novels of all the zola novels and people heard what she could do i remember thinking we could take this whole thing to a new level and make this about acting as much as it's about writing don i think.

[Guy Raz]

By two thousand five so this is like ten years since you launched the business you're ten years in it's the first year you actually turn a profit just reflect on that i just want to reflect on that for a moment because a lot of i don't think enough people understand how long it can take especially with a complex hardware content business like the one you created how long it takes to actually make a profit and even up until that point i think two thousand five you were still basically a small business right i mean you had fewer than one hundred employees i think right yeah that's probably about right you took an eighty percent pay cut to start this business in nineteen ninety five until two thousand five did you ever get back to what you were paid in nineteen ninety five.

[Don Katz]

In salary yeah i definitely did if you look at the you know the vesting and the equity pieces and all.

[Guy Raz]

That but did you have to like cut family expenses and things like that.

[Don Katz]

For a while yeah there must have been some hairy moments but but the truth of the matter is i never really measured my ideas on money i always thought the number of customers the retention rate the kinds of amazing content we could make including tons of original thinking i don't know that stuff turned me on more and i still probably approach things that so it's interesting because.

[Guy Raz]

We did a story about lynda dot com comma which eventually sold to linkedin and their rise and your rise really mirror each other because you began around the same time and i think a lot of that has to do with.

[Don Katz]

Broadband access yes i mean obviously broadband access the download that system the trust of everything about from the e commerce system to people using their credit cards yep and then we just started to have you know now we have this massive kind of brand momentum brand equity and like i mean people started discovering this thing called audible and we started to build up our teams we started to expand internationally and kind of where yeah i admit it i thought we'd be year three which is why you know those survival years but i got to tell you the the warrior spirit of those formative years that is one of the reasons i still think we're so successful because the people who work at the company do try to see themselves as these kinds of people who want to invent and stay ahead as.

[Guy Raz]

Opposed to manage you had this business plan right which was audio delivered to people through the internet onto devices but when you think about that right do you almost wish that you would have and there's no way to know right that businesses is most businesses just evolve like there really is no master plan like jeff bezos kind of had a plan but it unfolded in ways that he probably couldn't really have anticipated although maybe he did but when you look back do you often sort of kick yourself and say god i should have known from the beginning this was going to be audio books and never have wasted my time on the devices on making the devices and just focus just.

[Don Katz]

On the audiobooks no because then you're not going to be the leader unless you take the big risk at the point that people don't believe and then the question is how early is it but look i am stunned by how quickly some of the companies formed after us did come together but you know what most companies are based on productivity improvements it's like uber gets you from here to here like a taxi but it just it's better most businesses you know have some level of productivity improvement like all software businesses and the like that wasn't this idea this was creating a media category this was basically creating a spoken word category when it didn't exist in the country whose entire literary canon was based on how we talked about and told stories i wanted to basically say there would be a spoken word category called audible if it had to be that sat next to all permutations of video and movies and tv it sat next to books and it sat next to music and we kind of pried this thing into the light and that's just a little different than a better way to use your computer.

[Guy Raz]

You know we've told the story of shopify which was founded and continues to exist in ottawa and lynda dot com was in ojai california and then in ventura california these were not in not near sandhill road in silicon valley or in seattle and you were based in wayne new jersey and then moved to newark which was not a place where companies are going i mean it was still big parts of that city in two thousand seven were still boarded up parts of it are still boarded up.

[Don Katz]

Today i mean you could just go all the way newark was thought to be a scary city i mean newark was everything you heard about newark was that this was a place that you know time had forgotten and that it was just crime ridden and had nothing good going for it that was the word and frankly that's why i wanted to move us there when it came we were outgrowing this very ramshackle headquarters which incidentally was twelve dollars a square foot with furniture and wiring talk about you know cost effective we needed to go somewhere and i said let's move to downtown newark and besides we were becoming at that point the largest employer of actors in the new york area which we've been for a while and i said the actors can jump on at penn station they can get off at broad street station the board guys and we had a consultant that said you're out of your mind you're going to lose we think thirty percent of your workforce simply by moving that far and all the fear factor and we moved in with one hundred twenty people and and nobody left and we started to just try to create either models that other companies or other cities could use to just be part of a.

[Guy Raz]

City'S comeback so what kinds of things.

[Don Katz]

Were you doing so one of the first things we did was just said you can't be a nepotistic intern anymore you gotta be a kid from newark and you'll be a paid intern in our little world so then you get like this carpet culture which includes these incredible cutting edge technologists and all these english majors turned into business people like me and then all the best some of the best actors in the world hanging out and these kids and you start to realize that this is an unusually rich company culture and you know we started paying our employees dollar five hundred after taxes rent to frame and if they moved downtown newark and to be part urban pioneers i started newark venture partners which has become an international level of success drawing companies from all over the world to newark to an accelerator it's anyways it's just applying the kind of entrepreneurial thinking that gets to create an audible to.

[Guy Raz]

Social purpose in two thousand seven your annual revenue at audible was like one hundred ten million dollars and in january of two thousand eight amazon announced that they would acquire audible for three hundred million dollars in cash which in retrospect they got a great deal for you look back on it especially given that your revenue was one hundred ten million the year before obviously you didn't control a company you were a shareholder but at the time did you think it was the right.

[Don Katz]

Move for audible at the time i was the only one who thought it was the right move so this was me look it was a blast to be a nasdaq ceo even all the trials and tribulations there were things about it that i loved because it was just another adventure into a new world but by the time people two thousand seven two thousand eight came along i was really in a moral crossroads because if you read everything from the law to milton friedman the only purpose of a ceo and a chair and ceo as i was is to enrich their.

[Guy Raz]

Shareholders maximize shareholder profit that's what it.

[Don Katz]

Is and so i was basically working for people that i stopped feeling like i was honestly waking up in the morning i was in caring about them and it was very hard to because a lot of them were freaking computer programs that were whipping our stock around after hours in various complex high velocity models and others were one hundred percent speculators who could have cared less about being real investors and i just wasn't into it and on top of that i knew that if i could hook back in with jeff and with amazon we could have access to several hundred million people with credit cards who were likely to be our customers we would grow even faster and we'd have that many more millions of people the freedom to even do the things doing in newark that was meaningful to me and it's somewhat rare a lot of founders don't they go away as soon as a transaction happens but in this case it's an independent subsidiary that works it's.

[Guy Raz]

Interesting amazon has a lot of haters because it's the eight hundred pound gorilla on the block and it's just going to happen it's going to be that way but if you look at amazon compared to other giants that acquire their companies they have a great track record of allowing their acquisition companies to remain independent i mean look at zappos the late tony hsieh was a guest on our show an amazing entrepreneur i mean that company was and is totally independent audible is an amazon company but i mean it's you stayed on i think i was thinking about this you stayed on as ceo of audible after amazon acquired you for as long as you were the head of the company when it was independent when it was so that alone suggests that it was a pretty good marriage yeah it's a pretty.

[Don Katz]

Unusual story and i frankly can't believe that it's as now longer than my writing career and also come on let's face it most people know that senior people at amazon get paid in amazon stock we did the transaction the stock was like dollar fifty a share you might want to check out what it is now so one way or another whatever happens from here it's been an amazing adventure and not many people i know who had two careers where you get to turn ideas into reality i've been pretty lucky a lot of things.

[Guy Raz]

Happen to a lot of people that are lucky i know you've mentioned meeting your wife for example is a lucky moment and i would say the same about mine have or the fact that jan wenner said go to spain and cover this thing and you met all these guys who covered the you know the spanish civil war and like hey we'll show you the ropes here you know somebody who gave you a lucky break or this guy mott who thought your idea was great when everyone else thought it was kooky so there were a lot of lucky moments but you also grinded and grinded and worked really hard but when you think about this story that you've told me and you reflect on it how much of it do you think has to do with luck and and how much do you think it has to do with the.

[Don Katz]

Work you put in i think it's something on the order of fifty point five to fifty one percent purposeful good calls and brave moments and times when you just didn't give up the rest of it is definitely luck because otherwise how could i have made so many stupid boneheaded decisions along the way that didn't kill us so i think there's a fine line you're making calls all the time and particularly if you're a leader you kind of got to do it but i don't know i think about it about it all the time but i feel i was out there playing ice hockey last night and not many people my age get to play ice hockey is that luck i think it's luck and i think it's also that ice i just made it my business to try to elongate my hockey career and i do a lot of stuff to make that real.

[Guy Raz]

That'S don katz founder and executive chairman of audible by the way a few years back the company put together a list of some of its most popular audiobooks over the past twenty years the best selling memoir was bossypants by tina fey the best selling business book the seven habits of highly effective people the most repeated listen was harry potter and the sorcerer's stone which makes a lot of sense and here's one that all of you can probably guess in advance the most searched for author on audible over the past twenty years was of course stephen king hey thanks so much for listening to the show this week if you don't follow our show please do follow wherever you listen to podcasts if you want to write to us our email address is hivtpr dot org if you want to follow the show on twitter it's owibuiltthis or my personal account guy raz our instagram is how i built this npr and mine is guy raz this episode was produced by james delahousy with music composed by ramtin arablouei it was edited by neva grant with research help from claire murashima our production staff also includes casey herman liz metzger farah safari jc howard julia carney and elaine coates our intern is kathryn seifer jeff rogers is our executive producer i'm guy raz and you've been listening to how i built this this is npr if you like how i built this you can listen early and ad free right now by joining wondery plus in the wondery app or on apple podcasts prime members can listen ad free on amazon music before you go tell us about yourself by filling out a short survey at wondery dot com survey got an.

[Don Katz]

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