From Beats to B2B

From Beats to B2B

Kison: With a 20 year career focused on transforming the global audio and music industry, olas launched multiple startups including co-founding Beats Music, later acquired by Apple and partnering with Spotify to build soundtrack. He's currently executing a [00:01:30] bold programmatic M&A strategy to consolidate the fragmented legacy background music market into this modern streaming platform.

Kison: Today we're gonna dive into lessons from his exits, including the Beats Music Sale to Apple, and how he's embracing a bio led M&A approach to accelerate soundtracks growth and reshape an outdated industry. Hoola, how you doing today? Good, Kai, how are you? Thanks for joining me. You're in Sweden. I'm in New York.

Ola Sars: I'm over here in the dark and [00:02:00] cold Stockholm, but I'm often over there in your beautiful city, so it's uh, kind of a second home to me.

Kison: Hey, when summer hit Stockholm, I gotta tell you, I went there two years ago and was blown away. I've never seen a city that's just had so much energy and then the sun comes in the other direction.

Kison: It's sunlight all day.

Ola Sars: Yeah. We put everything into one and a half month per year. That's why you saw all that energy.

Kison: It might be one of the best places to be in around that summertime,

Ola Sars: I'm raised and born and I'm back here again. So there's something [00:02:30] in the water for sure.

Kison: Absolutely. Can we kick things off a little bit about your background?

Ola Sars: I'm a specialized operator who found a, a macro or a market 20 years ago that I found very appealing, both from a kind of emotional perspective, loving music, being a music fan, and music playing a huge role in my life and my upbringing, but also from a rational perspective where 20 years ago something started happening in this huge global music industry, which was [00:03:00] digitization.

Ola Sars: So. We saw digitization coming to music production at the same time to music distribution and to music consumption through smartphones all happening at the same time. And kind of a whole new reality was born so-called tectonic shift in a massive global market, which the music market represents. And I used the other side of my brain to figure out how to make a living and build the companies in that space.

Ola Sars: And I've been doing that since then.

Kison: What does that look like from the businesses that [00:03:30] you started and feeds music everybody's familiar with, but with others? Before that?

Ola Sars: It started with a thesis basically in the same thesis that I've been working through in all my startups, which is five companies now in this space, and the thesis was.

Ola Sars: In a world of abundance, meaning in a global market where all the music in the world will be available anywhere, anytime. That was my thesis. That's what the music industry would look like. Remember, we were moving from CDs and vinyl to [00:04:00] a totally digitized value chain, and that market reality technologies or companies that would help solve for the distribution of the right music to the right place in the right time would be valuable assets in that digital market.

Ola Sars: So. I started building technology and companies around that thesis mainly. Obviously serving the distribution challenge. And the distribution challenge in music is sometimes referred to as curation, meaning choosing the right music for the right person if it's a [00:04:30] consumer market, or choosing the right music for the right brand if it's a B2B market.

Ola Sars: I built my first company, which was called Atium Pacemaker. We built hardware, the world's first pocket size DJ system. Raise the idea. We were in center page of Wired Magazine. We were four prizes at CES. It was basically full DJ set at the size of a peanut butter jelly sandwich where we would invite consumers to be creative with music, and we would connect to the DJs of the world.

Ola Sars: Because we wanted to [00:05:00] extract training data basically to train the first music recommendation engine. 'cause we thought that early, this is 16, 17 years ago, that AI would be a core component in the music industry, or ml, if you may, or machines helping to sort out in the music and the vast numbers of music tracks and then redistributing them out to broader consumer market.

Ola Sars: So. I started building on that thesis to build AI or music intelligence platforms, if you like. So the first iteration product was called Pacemaker. The company [00:05:30] was called Tanium. Then I pivoted out to a platform called Let's Mix, which was the world's first DJ driven music distribution platform. And that took off quite significantly.

Ola Sars: And then I sold Let's Mix to Beats Electronics and started Beats Music, the Beats Music Ambition, which was. Beats was initially a hardware company where Jimmy Iovine and Dr. Dre started with a thesis of being the mainstream music brand in the [00:06:00] us. So they started off with hardware, but obviously in the strategy music platform was a central component, which I then was tasked to build after they acquired my company.

Ola Sars: And then that pivoted into Apple Music, post the acquisition of the electronic and. From there, I moved back home to Sweden and founded Spotify business, which it was initially called together with Spotify, which then transformed into soundtrack. It was always an independent ambition, but then we [00:06:30] morphed it into an independent component and product and moved away from home from Spotify, so to speak, which was my.

Ola Sars: Founding partner for soundtrack and then Spotify business product became soundtrack and we rolled out worldwide. That's a very short kind of version of my last 18, 20 years in the digitized music industry.

Kison: The pocket DJ did that, have a happy ending.

Ola Sars: Yes and no. The hardware that we fell in love with and started spending all our time with, we funded the company [00:07:00] with $20 million, which was a lot of money back then for a music startup.

Ola Sars: Then on the second iteration of the product, we were able to fund the second iteration of the third. It became too tough to fund hardware, so we sold the hardware business to our ODM, our independent manufacturer in Southeast Asia. And then I pivoted out the software business to let's mix and the distribution platform.

Ola Sars: So yes and no.

Kison: I got you. To the next step.

Ola Sars: This has all been a stepping stone exercise, which it usually is, but same thesis, same industry. I'm still here. I'm [00:07:30] paying the rent.

Kison: You spent 20 years building around one thesis, this whole vision of where things are going on, digital transformation of music. What keeps you committed to that?

Kison: I feel like this is something that I struggled with so much early in my career. It's like every six months I wanna do something different.

Ola Sars: Back to that statement, it all started actually on the island of a pizza in Mediterranean. I was always there with my best friend's, summertime, renting a house. Most of them were in the music industry.

Ola Sars: And the funny thing is they were there making money, [00:08:00] having fun. I was there spending money, having fun. I was working with completely different things. Previously where I was becoming more and more cynical and miserable, to be honest, on a personal level, it was kind of an emotional drive to see, okay, I need to work with something like they are doing, like it's money and and fun.

Ola Sars: But at the same time, I saw what was going on from my business perspective, that the music market was about to change significantly. We had Pirate Bay and Lime Wire, and. Very close to where I was and I was [00:08:30] close to music producers, seeing them go completely digital, basically producing on their laptops.

Ola Sars: Answering your question, I started thinking about could I really make a living by moving all my focus into the music industry? And I had no experience from the music industry, from a professional perspective previously. What moved me in that direction has kept me in that direction is the fact that the music industry is worldwide.

Ola Sars: It's growing. It's bigger than ever before. In terms of consumption, like more music [00:09:00] is being listened to than ever before, given through digital distribution, developing economies, music streaming is penetrating those market as well, and the consumption is massive. It's global and it's 70% of the global population are listening to music.

Ola Sars: So the general addressable opportunity in terms of usage can't be bigger. So that's obviously a good starting point. Then the other one was what I referred to previously. It was very clear moment where the whole [00:09:30] value chain was transforming at the same time in terms of a classical disruptive digitization of everything.

Ola Sars: The thesis was that would provide opportunity. The thesis was all the music available anywhere, anytime. And lo and behold, here we are

Kison: huge tam and certainty on the disruption that was gonna be significant. It's not like an incremental change.

Ola Sars: Once again, I've iterated a couple of times, so I've iterated in the consumer space, so I'm not claiming I'm a genius or anything.

Ola Sars: [00:10:00] Anyone can figure out what I figured out. It's all about learning and becoming better. Every time you execute and you operate, you become a specialist in a very complex industry because it is more complex than one would think. It's an IP driven industry. You need to. Create a synergy in between music creators, rights holders, and the consumer or the business buyer through technology, and you need to monetize that interrelationship in a smart way.

Ola Sars: Lots of complexity, but also a [00:10:30] market that is highly dysfunctional. Which I didn't understand in the beginning. Business logic doesn't always apply in the music industry. I've learned that the hard way, but that also provides opportunity. Once you understand what moves this market, you just dig a deeper and deeper moat.

Ola Sars: I've become better on execution every time I iterate it. My companies, it's fun, right? It's I, I get up in the morning, I get to work with something that I love, so that's probably one reason why I'm staying. Then the other one is the opportunity is [00:11:00] still as big as before and my thesis is just becoming more and more clear and true.

Ola Sars: So I'm still right in the middle of the digitization of the music industry and it's merely just begun.

Kison: Wow. You sold the hardware component of the business and you extracted the software, and that's what became Let's mix.

Ola Sars: Yep.

Kison: How'd that go? Did you have to raise money for that business before you ended up selling it?

Ola Sars: Actually, I had just spent five years working day night flying around the world, raising [00:11:30] money to fund the old Tony Pacemaker exercise, which we did successfully. This time I just decided to do it with a solid p and l. A profitable business, which we did from day one. That was a solid music distribution platform.

Ola Sars: Small team, small cost base, but global reach. So that was a profitable business

Kison: and then you built that up to a point where you ended up selling it.

Ola Sars: The funny thing about that was when we were around the world with the hardware distributing [00:12:00] it, that was in conjunction to where Piece by Dre was distributing their first hardware iterations.

Ola Sars: So we were meeting Jimmy and Dre and the team. On different trade shows and the same media, our products were being exposed. So they actually tried to come and acquire Tony and Pacemaker as a hardware component and the Beats brand because it was a very suitable product for them. A music created creativity product and it fitted right in.

Ola Sars: But we weren't able, I [00:12:30] wasn't able to facilitate that deal in between them and my investors. My investors probably didn't understand how powerful they were, so I wasn't able to transact on that one. But then the second iteration around, after we had sold the hardware business to our ODM and I bought out the software business, we were able to reengage.

Ola Sars: I. But then that was based on the fact that Beats needed kind of a core product in their ecosystem, which was the music streaming platform. And I was building that, and it was very different to [00:13:00] Spotify, which are my neighbors here in Stockholm. Spotify was more or less just building a kind of a robot or a digital distribution engine.

Ola Sars: Jimmy's and Dre's idea was to build more of an editorial driven music streaming service, which was pretty much what I was building. So they acquired Let's Mix, and that then transformed into Beats music. Actually, they were gonna call it something else. They were gonna call it Daisy, named after one of the guys' dogs in the office over there.

Ola Sars: And I was like, you guys are crazy. You have a great brand. We should call it Beats Music. I. I registered the [00:13:30] company in the domain, and from there we pushed into building a competitive product to Spotify.

Kison: How was that experience? It's interesting now, it's like an iconic brand that they built, but you're in the early stages of it.

Kison: How was it selling your business? What were the key takeaways? Because you had a business that you were trying to put together a deal. It didn't pan out. It sounded like the investors weren't ready for it. Then you ended up making it happen, like at that early stage. What were some of the things that you learned?

Ola Sars: Drivers are different depending on where you are in your maturity as an [00:14:00] entrepreneur and your maturity as a business. Very, very different context. If you're running a hardware business that's running outta money, you're not in a great position to transact with anyone. But when I was able to buy out the software and really the kind of music intelligence platform, and I created a sustainable business where we weren't forced to do anything, I could more or less engage with anyone on my terms, and that ended up with us joining forces with Beats and late, basically just [00:14:30] flipping, let's mix into becoming Beats music.

Kison: Your leverage

Ola Sars: time with my leverage and knowledge and. That team had no idea how to build a streaming service. They were basically sourcing OD Ming, the hardware manufacturing of their headphones. They were great at building brand and they understood music industry, but they didn't understand anything about technology or specifically not building streaming technology, which I knew.

Ola Sars: So then I was able to use my position to obviously flip a small. Relative small startup into becoming the challenger in the [00:15:00] global market for music streaming. That was a different game. It was crazy. I was on the plane 200 days a year, and it was exhausting. We transacted with Apple and that was a bigger deal.

Ola Sars: Obviously I wasn't the core driver of that. It was driven by the full Beats team and previous relationships between Apple and Beats. Apple had lagged behind due to the fact that iTunes. Steve Jobs when he was still managing the company, he didn't believe in the streaming model. So that gave Daniel and Martin, my buddies here from [00:15:30] Stockholm, this free window to build out a global leader in music streaming with Spotify.

Ola Sars: And the reason why was because he didn't want to cannibalize iTunes. He didn't believe in the fact that streaming would be the model. He believed in downloads and that was the core component in the Apple ecosystem at that time. So that gave Spotify three to five years Head Start, which provided them with a position that they didn't lose.

Ola Sars: They're still the global leader. But actually after Steve Jobs passed away, the strategy changed overnight. We got a call, we were in [00:16:00] London and we had to go meet them, and then the transaction was go.

Kison: Happened fast. You went through basically integration twice, because that's a big thing people talk about where things can go good or more often than not go awry.

Ola Sars: Mm-hmm. You

Kison: went through this transaction when you sold it to Beats, but it sounds like there wasn't anything there so they, it wasn't much to like it. It

Ola Sars: was a very small team, very simple, and they had nothing. That one was, it worked out really well. We funded the project. [00:16:30] I got to recruit the team that I wanted to recruit.

Ola Sars: 'cause obviously we had to increase our capacity very quickly. And then we actually acquired a US streaming platform outta San Francisco called mog, and we moved the whole operation over San Francisco from Stockholm. The rest is history. So the mod, similar streaming business, it was a streaming service that didn't really take off, but it was a good backend infrastructure.

Ola Sars: And we realized that the US would be our launch market and we were sitting in Stockholm. So [00:17:00] we acquired them, moved the whole team over, moved our product over to their backend service, and then that helped us. Accelerate the launch plan of beats in the us, which we launched together with at t as a bundle.

Ola Sars: We used an M&A there also to accelerate our capacity in the US market.

Kison: Was that easy? Did that come together nice and smooth?

Ola Sars: Nothing is easy. It was not life as it was. I'm just so used to it that nothing shocks me anymore. It was, you know, a power battle and that team versus our team [00:17:30] and it was part of my English, but it was a complete shit show.

Ola Sars: But it all due to a couple of people who worked really hard, we were able to get the product out and yeah, rest is history. A

Kison: big part of Ireland LED is setting a deal for success, which is like. Plan as much integration as you possibly can. Do you think that would've made a difference if, Hey, here's what the plan is and how these teams are gonna come together, who's gonna be in charge of what and things like that?

Kison: Because it sounds like that wasn't clear.

Ola Sars: No, not at all. Remember, once again, the music industry isn't exactly the most [00:18:00] professional environment. This was not corporate level kind of M&A planning. It was like, oh, let's get this platform. We can accelerate and you just work it out. Ola. That was different to what I'm doing now, which is with soundtrack, we're now pursuing something that we, I don't know if it's an expression, you're the expert here, programmatic M&A, where we're trying to just consolidate market by smaller systemized acquisitions.

Ola Sars: That's complete different in this. That's everything is flushed out in that model. This [00:18:30] was totally ad hoc.

Kison: I wanna get to that, but I gotta ask, what was it like working with Jimmy Levine and, uh, Dr. Dre?

Ola Sars: It was just like you would imagine a music industry, big meetings, fancy hotels, private jets, but like extremely competent people, but had no experience in building major technology platforms.

Ola Sars: Once I just got the comment from Jamie that why don't you just get me a Spotify and we'll slap our brand on it? I'm like, Spotify's this like 3000 engineers, dude. [00:19:00] It's like the real deal building these platforms. It doesn't come overnight. So there's this huge discrepancy and delta of understanding of complexity of technology and.

Ola Sars: It is, but yeah, that's the industry I chose. I gotta deal with that reality.

Kison: Every, everybody, my industry's got the same answer. How was it then you did the deal with Apple and they obviously bring everything together under that roof, which is now you're talking huge worldwide. What was that experience like to just stick around through that transition?

Kison: I,

Ola Sars: I [00:19:30] wasn't really a part of the integration work. I checked out at that time. I had been able to take the dream of creating. As Jimmy for the New York Times for Music, or like a really human driven music streaming service. To the consumer, I was burnt out more or less. I was completely exhausted. But I had this idea also in my head, which is what I did with Soundtrack.

Ola Sars: The idea of soundtrack came from when I was at Beats and we would go out and Jimmy would send me to meet like brands for [00:20:00] some reason to find distribution synergies in the US market or something. And everyone would ask me the same question, like, how do we relate to music streaming? How do we get music into our stores, our restaurants, or into our cars?

Ola Sars: And that kind of describes how broad. The music application is, it's everywhere. And I just realized there's this whole untouched market outside of the consumer's headphone that's going to digitize as well. And for me that was appealing 'cause a B2B market, there's this natural tendency that a [00:20:30] consumer business kind of transforms into into B2B business or augments into B2B business or the other way around.

Ola Sars: And that was very clear that would, there would be a B2B play for music streaming. And I said, that's a business that I wanna build and own. I moved back home, Stockholm, Sweden, and went over to my buddies on the enemy side, previously Daniel Martin, but here in Stockholm. It's a small town and everyone knows each other and founders of Spotify.

Ola Sars: And I presented the idea of. Hey, if there's a B2B play in music streaming, I want to do it. You guys wanna join forces? So [00:21:00] we did and we set up soundtrack together. I invested in Spotify ab, which is the holding company out of Stockholm, invested, and we were off to races to build a B2B SaaS product for music, which was then called Spotify Business initially, and then Spotify Enterprise, and then more FIT soundtrack.

Kison: How'd that work and like working with Spotify, like what were the details around that relationship and how you come up with terms to work together?

Ola Sars: The idea was very simple. It was like, Hey, a music streaming probably has an [00:21:30] expansion path into the B2B market. And I started looking at what was referred to as background music, which is what the music industry calls the music playing in your local restaurant or retailer.

Ola Sars: That market was the segment of the music market that God forgot about. It was the most unsexy, untouched area, and I like that as a starting point. 'cause that provides opportunity to me. My thesis that I presented Spotify was, look, the whole logic of music [00:22:00] distribution through streaming is the same at Beats.

Ola Sars: We built our own music backend, which is the backend service that serves hundreds of millions of tracks in real time to hundreds of millions of consumers. Super complex engine that takes 20, $30 million to build and two years to build. I said like, why don't I use your music backend? And I focus on the idea of building kind of the SaaS layer, the software layer for the business use case.

Ola Sars: We check it out and see if there's a B2B market here. [00:22:30] So we agreed on that and they thought it was cool with some parallel innovation. They obviously were intrigued to pick someone from the enemy side as well. Fellow Swede. We set up shop and we started building the first kind of iterations of what a music service for a business looks like, which by the way, is completely different than what we're consuming as consumers, the centralized distribution system, rather than an endpoint.

Ola Sars: We iterated quickly and got a couple of products out here in the the Nordics, which is Sweden, Finland and [00:23:00] Norway to test it out. And we very quickly got a commercial proof of concept that lo and behold, businesses wanna buy music streaming, they wanna play the right music at the right place, at the right time to sell more coffee.

Ola Sars: And they wanted digitize their retail experience. And we fulfilled both of those. On top of that, the music industry, not so much back then, but now are looking for an incremental opportunity on top of the consumer markets. So that fits very well into kind of synergizing the music. Industry's [00:23:30] search for new markets and the retail and hospitality industries search for new technology to drive customer experience.

Ola Sars: So I put those two together with soundtrack and off to the races again.

Kison: What was the terms of the deal? Was it structured like kind of like a joint venture? Like what, what did that ultimately look like?

Ola Sars: It wasn't actually technically a joint venture. It was a new CO that we set up. I invested privately into it and Spotify AB invested, but the [00:24:00] governing structure was different than a joint venture.

Ola Sars: I actually controlled the company. They had levers of course, and governing principles, but I was always clear with Daniel Martin, I wanna build my own company. This is probably something big enough to be its own brand, but let's start off like this. It was a trade off. They had the music backend. They did the initial licensing, which meant that the product had to be called Spotify business initially, and I [00:24:30] recruited the team, funded the project, and built the initial technology and product that was the setup.

Ola Sars: Very quickly, we got signal, meaning clearly we were able to sell subscriptions to business, had a rate of five x on retail price and consumer, and then realizing that background music was everywhere worldwide. We took the. Decision to pivot into independence, and that took me three years because I had to do licensing and build [00:25:00] infrastructure technology before we could kind of move away from the Spotify platform.

Kison: You've raised over a hundred million dollars and closed over 13,000 licensing deal over some of the biggest operational strategic hurdles in building a platform. On that scale,

Ola Sars: once again, back to my, the story of my life, which is a story of stepping stones, as you all know, preaching to the choir, it's hard to raise money.

Ola Sars: It's super difficult. People think that music streaming is quite easy. It's extremely complex technology to build. It's very front [00:25:30] loaded. You need to raise a bunch of money. It takes a long while before you see kind of monetization of the software. So the biggest challenge was to get investors to believe in the thesis and stay with me long enough to build this heavy front loaded technology build.

Ola Sars: And the three years it took me to go fly around the world again and do. Licensing deals with the world's biggest music companies, meaning universal music, warning music, Sony Music, both on the label and the publishing side. That takes time and [00:26:00] getting to a point, rolling out the first market and showing the first kind of monetization outside of the test markets here up in the Nordics.

Ola Sars: Just summarizing, the biggest challenge was funding the whole build based on the thesis that it would be big in five, six years.

Kison: How'd you do that?

Ola Sars: Again, you appreciate how simple the idea is. Hey, music streaming. Seems to be the next distribution model for music. Music streaming seems to be relevant both for consumer markets and B2B [00:26:30] markets.

Ola Sars: I have built one of the leading technologies on the consumer markets before in the world. I'm now looking for this incremental opportunity to build a leading technology platform for the business markets and no one else is doing it. So I'm first out, I have a great team. I have a first iteration of a product.

Ola Sars: Signal that it works, but it's gonna. A bunch of money and it's gonna take three, four years before we start seeing some return. But there are a couple of others. Like I had been able to [00:27:00] build a company, sell it to Apple. I had been able to incorporate together with Spotify, pretty clear signals that I had, some proof points that I was legit in combination with a very big addressable market.

Ola Sars: Of course, what all investors look for

Kison: was M&A part of that plan. At that point,

Ola Sars: there was no M&A at that point. I was just doing what I do best, like operating. Product and technology building. Just building a team and just zooming in on a typical kind of ICP or typical customer [00:27:30] building solution for that customer, for her worldwide.

Ola Sars: So that was just like heads down product. Then by the way, we had little interesting period with Covid, which I was just through funding stage I, we were near death experience. Again, I was able to close around. This was in beginning of 2020. Literally, it looked up from my desk closing the round. I had to reshuffle my board.

Ola Sars: I looked down on the street and it's like, what's going on? It's empty. We had [00:28:00] two years of covid where basically my whole market shut down 'cause it's restaurants and hospitality. That was a nice little extra twist to the challenge, but coming out of that, getting the organic growth. Model going, which is leads us to the subject of today, which is at least what you wanna address is like when you've built scalable, functioning, organic business.

Ola Sars: We're doing really well right now on the organic, but the growth trajectory of the organic [00:28:30] plan that we see right now doesn't capture as meaningful a part of the addressable market as I would want it to do in the timeframe. That's when I started thinking, are there inorganic options to accelerate growth in terms of market share?

Ola Sars: And in our specific market and instances, the fact that I did not invent background music, 95% of businesses used music, but they're using legacy [00:29:00] platforms like CD radio or clunky streaming services that are linear streaming services. So. There's a massive global legacy market background music. I am the digital new platform provider.

Ola Sars: The thesis of my inorganic M&A driven path here is adding incremental growth to the platform, meaning acquiring legacy providers in mass and moving them to my platform. I view it as a incremental [00:29:30] growth engine to becoming the global leader in background music.

Kison: It sounds like more messy integration.

Ola Sars: No, because this time I control the process and I'm in no rush. I have a profitable, nicely growing market leader in a massive market, and I have, I've just closed a significant funding round, so I have time on my side. Patients so I can really architect what this would look like in terms of target mapping, target identification, [00:30:00] evaluation, and then applying the programmatic meaning the same process every time, which is pay you a premium for your business.

Ola Sars: When that business is migrated or transitioned onto our platform, so we could run three or four parallel processes here with four targets. We're not doing it. I'm just in theory that we're just like, okay, let's just say there's a player in Germany that has 10,000 subscriptions. We'll set a price for the 10,000 [00:30:30] subscriptions based on the quality of the customer base, the financial quality, and the cohort quality of those customers.

Ola Sars: And then we would say, we would pay you x. Fully migrated and that team will start migrating. And when they've migrated a hundred percent, they've received a hundred percent of the consideration. So it's kind of more of a customer acquisition M&A model rather than, we don't buy any technology assets.

Ola Sars: We might acquire some of the team on the local market for customer success or sales, but no [00:31:00] technology. Only customers.

Kison: Oh wow. So this is actually really interesting 'cause now you can make this repeatable playbook, even though the business model might be different, but you have a way to migrate them essentially to your platform.

Kison: They have a hardware component. You're saying, Hey, it's not part of the deal. That probably ends up getting sunset, I take it.

Ola Sars: Yes. And I'm very clear upfront, and this is also to the playbook, me being very clear on what I want. And being humble about the fact that not all people wanna sell to me according to my rules of engagement and being [00:31:30] upfront with, I'm only looking at this asset based on the customers that you've achieved in your local market.

Ola Sars: You've done a great job. You have a sound business. I totally understand if you're not interested, but if you would choose to transact with us, you have the option of a premium. There's not too many buyers in this market either. That's the upside. Like you would think that entrepreneur is thinking, okay, here comes the big technology platform.

Ola Sars: Probably they're gonna build their own team. In my market, if I sell now, I'll get paid. [00:32:00] If I wait three years, I risk losing it. There's a little bit of a carrot and a stick dynamic in me approaching them saying, look, I'm gonna invest in Germany. You can be part of us, or you can go against us, and I totally accept you doing that and respect that.

Ola Sars: Here's an option for you to join and you could roll into cash, but you could also roll into a component equity, which also provides you with a future upside of supposedly global leader platform. At this point, it's a good blend of opportunity for the potential seller. [00:32:30] Then it's a tough job to migrate the customers and only get paid for the customer's migrated.

Kison: Do you feel like you're convincing these people to sell.

Ola Sars: I'm just in the beginning of this process. I'm not gonna call it a success yet, just to be clear, but I am getting strong signals. We're currently processing four of these at the same time to see if we can close. We closed one so far. But no, I'm not forcing anyone to do anything.

Ola Sars: I'm presenting them with an opportunity and an option.

Kison: You got the interesting narrative of, Hey, here's this transformation. It goes back to your [00:33:00] original thesis of this, the broad industry, and either you're gonna be part of it or you're gonna be against it. Hey, if you're part of it. You could take cash or come along for the ride and be part of the growth.

Kison: That sounds like a good pitch,

Ola Sars: right? The good news is, it's my perception of course, but I'm very transparent. I have no hidden agenda. That's what I'm telling them. You've done a great job, you've built an amazing customer base here, and probably you could do that for the next five, 10 years, but I. Don't really see an alternative exit [00:33:30] market for these family style businesses.

Ola Sars: So if you're interested in actually capturing an exit opportunity in this market, I'm probably the only option. I know how these companies are, few companies that transact in this legacy market, how they're priced. I can be competitive on pricing. And kind of show them the comps on that. And then I offer them an opportunity to cash and equity or whatever you want, choose.

Ola Sars: And in some instances, I'm honest and saying, look, I really think your team is good and I want to keep on a couple [00:34:00] of people in this 'cause you have local relevance, but I'm also very clear I'm only interested in your customers and I'm willing to pay premium for it.

Kison: Interesting, and that's where I was referencing like convincing isn't necessarily a force, but it's like are you reaching out to companies that are just for sale and you happen to catch 'em at the right time?

Kison: They've been thinking about selling versus you're giving them a proposition that gets 'em to think about selling.

Ola Sars: It's back to your whole, like this podcast thesis is being proactive. What does that encompass? I'm by no [00:34:30] means an M&A expert. On the contrary, I've been just. Accidentally ended up in a couple of M&As in my life, but this is true, truly trying to market the thesis to everyone.

Ola Sars: So I want everyone to know about my thesis and say, Hey, I'm buying. I'm the buyer here. It's a pretty fair deal. You can choose how to do it according to your preferences, but the market will change and I've invested a hundred million dollars. To put behind that. And I've been [00:35:00] around and I'm telling you, you're not gonna be able to conduct business as smoothly as you're doing today in three to five years.

Ola Sars: 'cause that's just the reality of it. It's gonna be tougher to do licensing. We're just gonna keep investing our, in our technology. And at the end of the day, that's how we're schooled up here in Sweden. We have no domestic market. We gotta build product and I will keep investing in product and we will the leading platform.

Kison: Yeah. Actually I was really curious about like these license deals that you mentioned. You think about just even everything in some form of sales at the end of the [00:35:30] day when, when you describe a M&A, it's like literally a sales, like you build a pipeline and you start, you know, qualifying folks and then you pitch 'em.

Kison: I was almost curious about how'd your experience from doing license deals transfer over to M&A? Just 'cause it sounded like it kind of had that kind of lockdown pitch because of that.

Ola Sars: Yeah. I mean now when I think about it, every day I'm on some call at night with some rights holder negotiating five days a week maybe.

Ola Sars: That's trained my mind to think [00:36:00] about game theory approach to these things. I. Systematically, like what's a win-win and when, when are we getting to the loose lose? And kind of how do you walk away or how do you turn a loose lose into win-win? Because deal making is, in my world at least, finding synergy and the win-win.

Ola Sars: I probably, because I'm so clear on what I can take when I walk in, what I'm, when I'm gonna accept and not accept.

Kison: I think so you might be early in journey, but like the pitch sound very mature and I was like, it's gotta be from that experience

Ola Sars: when negotiating [00:36:30] from zero leverage, which is my reality.

Ola Sars: You're a small DSP digital service provider negotiating with the world's biggest music companies, basically can tell you to bug off. That's been quite challenging. But at the end of the day even they look for incremental revenue and I'm incremental revenue for them on a IP asset that they're sitting on anyway.

Ola Sars: So.

Kison: Yeah, why not

Ola Sars: monetize

Kison: free money? Yeah. How do you determine if a company is a good fit to be acquired versus not?

Ola Sars: The playbook is pretty simple. [00:37:00] We sell background music subscriptions, so the target needs to have an interesting amount of background music subscriptions. Some of these companies have background music subscriptions and they have a bunch of other ancillary services and God knows what they're doing.

Ola Sars: They're selling TV screens for cafes and digital signage and things like that. That's not a clean buy for me 'cause I'm only interested in the background. So a clean background music subscription customer base is a starting point. There could be some white [00:37:30] noise with some additional services, but truly what I'm looking for is the background music customer base.

Ola Sars: Second step is. What's the quality of that customer base? And that quality is obviously based on an analysis, but shortly put, what price have they been able to extract on a subscription basis that kind of proves how good they are in providing a service. So if the price is 20 bucks per subscription versus somebody who's been able to extract 40 bucks, that translates into better [00:38:00] margin for me down the line.

Ola Sars: So the customer base with $40 per subscription is, was more valuable to me. We operate on a subscription base cross margin. So that's the second step. And then the third step is technology migration feasibility. So some of them have clunky, really weird technology. Some of them have more digital platforms that they built themself.

Ola Sars: The ladder is easier to migrate, so if it's, if the migration project will be [00:38:30] easy, we're willing to pay a bit more for it because it's faster, we can just move it over to our platform. Then there might be some assets in terms of competence that we could price. Also, a sales team or a good customer success team, that's a easy exercise.

Ola Sars: But it does start with what's the quality of the customer base and would you be willing to engage through my model and no other model?

Kison: Yeah, that's so interesting. And then you have your own hardware?

Ola Sars: We have hardware and software, like we're platform agnostic, so we can swap out [00:39:00] hardware, we can integrate software on their current hardware.

Ola Sars: If they have a hardware player, if they're running on software, that's easy. But the US for example, you guys have satellite technology. Some distribution platforms like SiriusXM for example, that is a tougher migration path. If it's a satellite receiver that's not IP based, that's probably a no go for us.

Kison: Long time ago I used to own a salon and I remember that we had this like DMX box. I'm looking at it, this profusion they used to like send you every month or [00:39:30] so and you had to like update it that way.

Ola Sars: You've been there.

Kison: I was trying to source leads for you. I'm gonna,

Ola Sars: yeah. Wanna

Kison: sell for that. Transition is using that as example.

Kison: You're basically coming in, you acknowledge that, hey, they've got X amount of salons or whatever businesses, that's a customer base. That's where most of your diligence on is knowing what's the quality of customers. Is this fit into our thesis and where we're trying to grow? Then the actual plan, you're just upfront, this is what we're gonna do, is we're accelerating this digital transformation for these customer [00:40:00] experience and then working with that team, they would essentially move that product out.

Kison: They would work. Those customers tell 'em like, Hey, we're now part of something bigger. With that, we're gonna be changing, updating your equipment and then you work with our CS team, if that makes sense, to transition all that out.

Ola Sars: Exactly. And be very open about it. And some people wanna exit, some people wanna join in and be part of our growth story, and that's also an option if it's the right team.

Ola Sars: We're having that discussion with one European market where we have no presence and it's a great team, so [00:40:30] people absorb the whole team. And another interesting perspective to it is how do we price that? For me, it's more of customer acquisition, relative pricing exercise where I know where my CAC is on my organic business and what would I pay then for a subscription in my inorganic growth path, meaning acquiring customer bases.

Ola Sars: I'm never gonna get to the same low level or efficient level or a CAC that I get from my organic business when I'm buying. 'cause there's a premium of the [00:41:00] security of acquiring an actual customer and contract. Roughly like we would be paying XX on our cac. That's how we view it for velocity to revenue.

Ola Sars: Alright, I'm growing at 35% of my organic business. I buy this business. I'm gonna come out of this year at 50%. The arbitrage on that, on my enterprise value of moving my growth from 30 to 50 is significant. So I justify the premium on customer acquisition costs on the arbitrage that I [00:41:30] take home on the enterprise value effect on my business growing faster.

Ola Sars: That's how I think about the incremental opportunity from acquiring growth alongside my organic path.

Kison: This is interesting 'cause when we were talking through this, I was in my head, I'm the software business and some of these companies I look at are legacy providers. It's been around 20 years, outdated software.

Kison: And that's sometimes the thesis is that it's like, Hey, why don't we sunset their product, move the customers over. And that's the same lens that you're talking about. And I've always [00:42:00] struggled on how do you evaluate that? Because you're right, here's what we know is our customer acquisition costs and in that perspective, but then it's, you're never gonna get it for that low.

Kison: For them. They're always looking at the typical valuation metrics they want multiply everybody in software these days want multiplier revenue. If you were to walk through that, I wanted to try to get a better understanding of how would I take a business. Let's say we found a software business doing, I don't know, let's make a simple math, like 10 million revenue.

Kison: But I would look at the each individual [00:42:30] acquisition cost of a customer, which. Let's say $150, but is it just off of that, of what the acquisition cost is and saying, Hey, I'm just kind of, oh, you're,

Ola Sars: you're completely right. It's the same for us, like the enterprise value of the company perceived by the entrepreneur, based on what she or he is trying to understand from market.

Ola Sars: The transactions that are in the market are usually a multiple of EBITDA in this market, or a multiple of revenue or a RR, depending on where you are. The good news for me, and then [00:43:00] my CAC is. Times their subscription amount is obviously much, much lower as a starting point sum, but it's somewhere in between.

Ola Sars: We both find like a meeting point where we find like the compromise because in my case, this is a legacy market. There's really no one buying. So the multiple that they might have been able to extract somewhere, which by the way is very low in my market 'cause there's legacy business and there's no transaction.

Ola Sars: So I'm starting from a good point. [00:43:30] In the perception or expectation on value. And I explain to them how I view it. I see it as a customer acquisition, but I'm willing to pay you a premium. And in my world, usually it's the Delta's not massive, it's maybe two x, and we can meet one and a half in between that equation.

Ola Sars: So it really depends on industry. I would assume. For you it's completely difficult. You're in software where multiples are way more aggressive, even if it's legacy. And once again, the profile of the business are small family businesses. [00:44:00] PL, they're probably never gonna transact if they don't transact with me.

Ola Sars: So their option is, okay, I'm just gonna grind another 10 years and I'll get a sailboat. Or I get the sailboat now and I'll take half off and I'll put half in, I'll join. So there's a flexibility premium of when I'm coming to the table as well for them. That kind of will will make them move. Their price expectation.

Ola Sars: They can also obviously invest in the future by rolling into the joint venture [00:44:30] or into soundtrack and be part of the next five years equity development of soundtrack with half of the money and then take half off the table. You know, it's just like deal making and psychology, but it's exactly what you said.

Ola Sars: The value delta between operational, CAC math and financial enterprise value math is significant.

Kison: I just feel like I'm doing the bigger, big ass spread than you are.

Ola Sars: Depends on how you're talking with. The good news is I'm so clear on what I'm willing to pay from day one, that it's easy to [00:45:00] flush out.

Ola Sars: People who are ready for or not, and it's totally fine to, Nope, we're just gonna keep going and that's good for you.

Kison: You know, the problem is, I got the news every time any software company at all gets sold for 20 x multiplier or something crazy, and it's a reference point for like every software company up there.

Ola Sars: Nobody reads about the software companies going out of business.

Kison: That's what I mean. I'm like, your revenues are going down. There's a huge difference here. But it's a really good point.

Ola Sars: Once again, I mean, it's like kind of phishing broad. You gotta get the [00:45:30] message out and then it's timing, it's sliding doors.

Ola Sars: One year you, they sit in the room and it's, do we really wanna do this another three years? Like that guy, that weird Swedish guy who was here talking, I. Last year about acquiring our business, shouldn't we just give 'em a call? And that's what I'm hoping out there marketing the opportunity right now. And maybe we'll get some fish.

Kison: It is so true. I've had one point from, I think it was a person done a ton of deals, but it's like an average around one year, a relationship building. And then I've talked to folks that had it over 10 [00:46:00] years where they finally got the deal. So you're right, you have to play long on it. Now that you're pursuing a buyer led M&A strategy, how does this shift your mindset when approaching deals compared to the past?

Ola Sars: It's a shift because I am now approaching deals proactively, like it's a part of my business. I've, I brought in someone who's better than I am on this and systemizing the process and operationalizing it as a workflow at soundtrack out there, talking to and expanding the list of potential targets, keeping them up to speed on where we are and [00:46:30] how we're transacting what the opportunity looks like over time.

Ola Sars: So it's really a systemized, operationalized M&A process. Very different to not having anything like being reactive. We have had multiple incoming inquiries of acquiring soundtrack, so it's not like we haven't been in M&A discussions throughout this process. When you were running outta money and you were like.

Ola Sars: Close to death, of course, you need to look at options, which we've been through like every startup, [00:47:00] multiple times. So we've been discussing sale of the company many times, and I've been able to just fight it off. A couple of times it was a cutthroat, but that's part of the game. That's always the case.

Ola Sars: Like I've never seen it not end up like that. Now I got money in the bank. I have additional funding from a potential revolver to do these things on top of what I have on my balance sheet. And I'm a profitable growing company. So I've set myself up for a long organized, systematic approach. [00:47:30] And if my thesis on the macros, like more and more pressure is gonna come from rights holders.

Ola Sars: Meaning music rights holders, that they wanna move all of this business onto the digital value chain. So I also have a macro moving in my favor and maybe there's a couple of lawsuits to spice it up a little bit to players out there not complying to the rules of engagement.

Kison: Yeah. A lot of interesting things ahead, which, what's next for soundtrack?

Kison: How do you see M&A playing a role in your vision over the next few years?

Ola Sars: Once again, I wanna be clear, [00:48:00] I have not proven out this beautiful theoretical model I've led here. So. Most likely it's gonna blow up somehow and my beautiful logic's gonna prove not to work. We'll see for the opposite, like maybe the thesis is we can roll up 10, 20, 20 customer bases and build a very nice complimentary growth stream to our organic, and that then obviously customer gets customers and volume and market kind of creates a network effect then.

Ola Sars: We probably have a better product in terms of expansion business, [00:48:30] so once they're on our platform, we can probably extract more value on a cohort basis than we're paying for it. That's the thesis, but there is a next step, and that is can I also play big a big game? Can I do bigger deals? There are a couple of bigger companies out there that could potentially not just be part of a programmatic, it could be like a game changing move.

Ola Sars: So I'm seeing if I can educate myself on those opportunities as well. But for an operator, a simple operator like myself, there's [00:49:00] always this question at night, finishing a long day and like excited about the theories that you've been discussing, and you're like, wait a minute, am I gonna pay a hundred million dollars for this?

Ola Sars: What could I do with my organic business with a hundred million? As an example, I'm just putting an example. That's not actually a discussion I'm having, but that's what we did at Beats. That's what I know a lot of tech companies do. We have an opportunity to acquire, but hey, why don't we just take half of that and just invest it in our organic business?

Ola Sars: 'cause it's more scalable. It [00:49:30] like, we'll, I'll compete them and we'll get them for 10% of the price later down the line.

Kison: That's a whole other conversation, my friend, of that balance between your organic and inorganic, which is something I ponder on to as an earlier stage business.

Ola Sars: It's opportunity investment or opportunity cost for investment or opportunity return or different like organic versus inorganic.

Ola Sars: But that's what you as an operator learning to engage in M&A need to think about.

Kison: We'll re revisit this in three years.

Ola Sars: Yeah, we'll [00:50:00] see. Let's see what happens with my amazing theory here.

Kison: Well, what's the craziest thing you've seen in M&A?

Ola Sars: I can tell you the story. When I realized that we were gonna sell to Apple late at night, and I didn't know about it 'cause I didn't think the deal was gonna fall through and I actually just sold my equity.

Ola Sars: In beats at a good price. Before the deal, I was two months away from transacting all the equity of my holding in beats into the Apple transaction. That was an interesting dynamic situation, and it was me and another [00:50:30] guy and we were like, he just pinged me three o'clock at night in middle of night. He was like, have you seen.

Ola Sars: He sent this like transaction closed, 3.2 billion and he's got see at the bridge, which is a big bridge that you're in Stockholm, where people jump and you're like, let's, but you know, it was more of a joke. That's my craziest experience of missing out, but I make good on that deal, so I'm fine and I was able to reinvest in the right direction.

Ola Sars: I haven't seen any major crazy, but I have read some reports. Which [00:51:00] I was reading up a little bit when you reached out to me. Okay. I haven't thought about more than the stuff I'm doing. What's the updates on M&A? It doesn't seem to be like a lot of M&A come out with really impressive value creation.

Ola Sars: I was reading some McKinsey report and some year they write about how great it is and some year they write about how bad it is. But my perception, big M&A transactions like maybe two out of 10 seem to come out with some true value creation.

Kison: Yeah, that's what they say. But for me it's always what is the [00:51:30] definition of it being a creative versus not.

Kison: The companies always miss the mark on the timeframe, and some of this stuff will pan out over time. 'cause it's just integration's always harder than they expect. But then you're right, there's like deals you totally missed the mark on,

Ola Sars: which tells you how hard it is. And to your point, I find it interesting like the buyer led makes so much more sense when you have a thought of how you want to do it and you have a process and you have all that planning that we were lacking at beats, but that I now believe I [00:52:00] have at soundtrack.

Kison: That's pretty crazy 'cause that's how unpredictable M&A is. You never know. I, uh, appreciate taking this time for this conversation. Ola, I've learned a lot. I really enjoyed listening to your story. You've helped me become a better MA scientist.

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