Nearly every startup pivots.
In this Tough Things First podcast episode, Ray Zinn chats with Shariq Shah, one of Ray’s ZinnStarter fellows, to discuss how they are pivoting, why it is important, and why entrepreneurs should plan on pivoting.
Ray Zinn: Hello everyone. Welcome to another fabulous podcast of toughthingsfirst.com. Really grateful today to have Shariq Shah with me. Shariq was a student at San Jose State University, was a Zinn fellow, part of our ZinnStarter program, and I’ll explain a little bit about that. But first, let me welcome Shariq. How are you doing, Shariq?
Shariq Shah: Thank you, Ray. It’s a pleasure to be here.
Ray Zinn: Yeah, it’s great to have you, too. So I got to know a Shariq on a personal level as he developed his little company called Ambii. So it’s really neat to see how much progress he’s had. So what ZinnStarter is, it’s a program for universities, kind of like Kickstarter for universities. It includes that both academic and some hands-on effort of developing a company. I also help fund ZinnStarter at the various universities that we host. It’s a great little program, you can read more about it on our website, Tough Things First. You can look up more about ZinnStarter if you’d like. Anyway, it’s a good program for students. Just briefly, Shariq, how did you find ZinnStarter’s help?
Shariq Shah: So, ZinnStarter was probably one of the things that enabled me to continue my company outside of school. I just graduated a little while ago and turned down job offers because I decided, “Hey, I have this amazing opportunity. I’m going to take it.” And ZinnStarter and the program surrounding it was the thing that allowed me to take the first step into the world of entrepreneurship. Otherwise, right now I would have probably become just a programmer.
Ray Zinn: Nothing wrong with that, however.
Shariq Shah: Nothing wrong with that.
Ray Zinn: No, but you wanted to be an entrepreneur and ZinnStarter gave you that opportunity to develop your company while you were yet in school. And that’s kind of what ZinnStarter is all about. Let’s go into it, Shariq. Where are you? How can I help? Let’s talk about where you are with Ambii and what help you need.
Shariq Shah: Sure. So to begin with, we were a platform that allowed groups of people to enjoy music together. That’s the concept that I worked on all throughout the ZinnStarter program. And as we evolved, we solved more and more problems, I started understanding more of the music industry and more of the problems that surround it. And as time moves forward, we launch our initial consumer platform and I see an opportunity, a better opportunity for me to solve a much more tangible problem. And that problem is that 83% of businesses as of right now illegally play unlicensed music in their business establishments. And they are risking over $300,000 of fines and essentially they’re stealing $2 billion from the labels and the artists. When you tell them that, “Hey, you’re doing something illegal,” half of them don’t know what they’re doing, and then once you do tell them, most of them don’t want to pay.
And that hearkens back to about a decade ago when music piracy was on the rise. And back then nobody wanted to pay for music either. So I thought about it and what was the solution for consumer based music piracy. Spotify said, hey look, free music for everybody powered by ads. And then now, almost every single individual has either a Spotify or a Pandora or Apple Music membership. And that was how consumer music piracy was quote unquote solved.
We want to be the Spotify for business background music. We are currently working with Universal Music Group to provide free licensed music to every single business in the country, powered by ads. We can leverage the huge amount of time that these businesses are active over 200 hours, and supply very, very unintrusive ads over the course of those 200 hours to make back more than enough to pay back the labels, to pay back the artists, and to put a little bit of change in our markets as well.
Ray Zinn: Okay, so you did a pivot. Okay. You went from consumer to commercial. And so, that’s what companies have to do. I remember when I started Micrel I did about four pivots. And in fact, I think I pivoted about every four or five years. And so, that’s what companies do to stay current and keep their product fresh is to pivot. And you did that. So how can I help you? What’s your question? What can we solve?
Shariq Shah: As of right now we’re finalizing deals to obtain music licensing, but as we’re doing that we need a solid strategy for growth. We need to be in as many businesses as we can so that when we do put ads on the platform, we can start making enough revenue to pay everyone out. My question is, what do you think would be the best way to approach obtaining small businesses as a customer? As a user actually, because at the end of the day they’re not paying and we’re just helping them make sure that they are legal.
Ray Zinn: The marketing is what it’s all about to get yourself launched into the market you want to go. So what you need to do is find out what markets will accept music that have ads. Not everybody wants to to be in a store and all of a sudden hear an ad come over it, especially if the ad conflicts with what their store is selling, because they don’t want to hear their competitor’s ad. So you’re going to have to find out what kind of ads are going to be acceptable to different businesses, and they’re not all going to be the same. And so that’s going to be the challenge, is not having ads that are going to be obnoxious and also will impact the propriety of that business. So, you have a complex problem, Shariq, because unless you go strictly to like dentists offices or doctor’s offices or to small retail outlets, you’re going to have some conflicts with regard to the kind of ads you can run, if you understand what I’m saying.
Shariq Shah: That makes total sense.
Ray Zinn: So to grow your business means you’re going to have to have ads that are specific to that business and are not going to be obnoxious to the customers. I often go through stores and they have these little ads playing on little laptop type device or a little tablets, and I mostly ignore them. But they do have these ads that they show for different products and those are done in the store itself, and of course, the store allows that to happen, like in Bed Bath and Beyonds and so forth. So any case, you’ve got to very carefully target your ads and make sure they’re not obnoxious or noncompliant with your customer base.
Shariq Shah: That makes sense. And on that note then, the current ad technologies that are out there allow the ad sellers to create metadata for those ads to ensure that the advertisement that you’re playing correlate properly with the businesses that are playing them. So we can understand if an ad is for a cafe or for a product or for a bar or for a pizza. And so I believe what you’re saying is that we need to be careful to use that metadata to ensure that our ads don’t conflict with the interests of our users.
Ray Zinn: So, you’re going to be charging the customer less than he would have to pay if he were to obtain a license from a legitimate studio?
Shariq Shah: We would be free. Our licensing is completely free, powered by ads. There is no other platform on the market that is doing that. All other platforms are forcing businesses to pay, and after talking to thousands of them, businesses do not want to pay for music.
Ray Zinn: Well, my point though is that you’re going to have to charge your customers something and that has to be less than what they would have to pay if they were legitimately acquire licenses for that music. That’s what I meant.
Shariq Shah: Correct.
Ray Zinn: So you have a pricing issue you have to deal with too, and that’s important to businesses. Make sure that your pricing is in line with … Or would be less than what they would have to pay if they were to go outside to acquire that same service.
Shariq Shah: Yes.
Ray Zinn: Okay, so what other question can I help you with?
Shariq Shah: Another challenge that we are having is in terms of a chicken and the egg problem when it comes to fundraising. So in order to obtain funding, as always, we need traction. In order to obtain traction, we need customers. And in order to obtain customers, we need a product. And in order to finalize our product, we need music licensing. And music licensing itself has a cost of about $100,000 to $200,000. And so unfortunately, I’m not able to pay out that $200,000 to obtain the licensing, which means that we can’t move forward on our traction, which means that we can’t obtain funding.
Ray Zinn: Well, you have choices. You can try the bank, if the bank will loan you the money. You have to show a profitable operation. And most banks now, not most, many banks will accept new startups as long as they can show that they can make their debt service for that loan. So that’s what I did at Micrel, was I proved to them that I could be profitable from day one and so they gave me a loan at a certain interest rate. So that’s the way I did it at Micrel. So if you’re not able to get bank loans then you’ll either have to go to angel funds or to to other VSs that will loan you the money. But remember, they’re going to want a percentage of your company. You’ll just have to try different sources and see which ones will best fit your particular goals, whether it be a VC type funding or bank debt.
Shariq Shah: Do you think that an angel would invest in a company that has not shown traction?
Ray Zinn: They do it all the time. I mean, that’s the whole concept of angels is to invest in companies that are early stage. And you’re very early stage. You watch Shark Tank, you’ll see that probably half to two-thirds of the companies on Shark Tank have no revenues. They’re pre-revenue. And so you’re just going to have to go out and sell yourself to the particular investor, whether it be a bank or a VC, and show them when and how you’re going to turn a profit.
Shariq Shah: Makes Sense.
Ray Zinn: Like all young entrepreneurs, you have a lot of challenges. And as long as you stay passionate with your business and can accept the stumbling blocks that are going to be thrown in front of you, I think you’ll do well, Shariq. And I wish you all the best and thank you for coming on this podcast. It’s certainly a pleasure to talk to one of my ZinnStarter fellows and see how they’re doing. So I wish you all the best because I want you to be successful as a consequence of having the benefit of ZinnStarter at your school.
So the school that Shariq went to is San Jose State University in San Jose, California. Great School, great academic education there. Appreciate what you’re doing here, Shariq, and how far you’ve come with your business. So, with that, we’ll end our podcast for today. Thanks again, Shariq, for joining me on this program. I hope that the listeners get a lot of value out of it because some of the applications and the principles that we talked about today will applicable at almost any business.
So, this is, again, Tough Things First. We really appreciate you being here today. Get my book, Tough Things First, which you can get through Amazon or any other known retailer, and my new book Zen of Zinn, which is really a philosophical book, but one that you will certainly enjoy and you can put it to work immediately in your life. So join us again, send us questions, go to our website, log on, ask us what questions you have and we’ll see what we can do to help you. So again, thanks, Shariq, for joining us today and we’ll see everyone next time.