Eric Wahlforss
SoundCloud

Eric Wahlforss is a co-founder of Berlin-based SoundCloud, where he is responsible for product development and overall company strategy. His background as an electronic music artist plays a key in his work at SoundCloud.

Before moving to Berlin, he co-authored a book, People, Profiles & Trust: On Interpersonal Trust in Web-Mediated Social Spaces (Lulu.com, 2008). Earlier in his career, he worked as an interaction designer for gate5, a location-based services company.

SoundCloud started in Stockholm, Sweden, but was established in Berlin, Germany, in 2007. The initial vision for SoundCloud was to allow musicians to share recordings with each other; but it evolved into a full publishing tool.

In 2009, SoundCloud received €2.5 million Series A funding from Doughty Hanson Technology Ventures and in January 2011 raised an undisclosed Series B funding round from Union Square Ventures and Index Ventures.

In May 2010, SoundCloud had one million subscribers. By June 2011, the company had five million users and by November the number had grown to eight million. SoundCloud also has investments from actor Ashton Kutcher and Guy Oseary’s A-Grade Fund.

Pedro Santos: How did the actual idea for SoundCloud appear?

Eric Wahlforss: Alex [Ljung], the other co-founder, and I have a background in sound and music, so we were both working in that area. I was doing music and Alex was working in the sound studio. We met doing engineering studies. We were writing our thesis down in Silicon Valley for three months. And we were talking a lot about different ideas there. And then when we came back, we got really into the idea of making something in the space of music because we were both frustrated with the tools available for music sharing online.

So we, we did that. And basically, it began. We were still in school. We were still studying, both in our last year.

And, we ended up spending most of our time working on the actual product. At one point, we realized that we need to go somewhere else to do this. Maybe we should, we should leave Stockholm. So we went around in Europe and researched a little bit. We went to London, we went to Barcelona, went to Vienna, actually, and checked it out, and—yeah, decided in the end to move to Berlin. So that’s kind of how the idea started up.

Santos: And what was the reason that made you decide Berlin vs. London vs. Barcelona? What was the thing that made Berlin so special for you to decide to move there?

Wahlforss: I have a background in Berlin. I was there in 2001. I was working at a company called gate5 that got sold to Nokia. I knew the founder of that company pretty well. He is really a great guy. He is now a quite well-known business angel in Berlin. Christophe Maire.

He is the one that convinced us to move to Berlin because he was able to hook us up with some really good other angels and investors. And he showed us a bit of the scene, not only that there is a music scene in Berlin, because that we knew. I mean, we were really excited about the music scene here, but it was also that there is a music software cluster here as well.

So that’s interesting. Berlin is really a good city for a software start-up today. The rents are quite cheap, there is a creative atmosphere, there is a lot going on. Basically, the whole city is like one big start-up.

Santos: Going back to SoundCloud, did it change from the original idea to what it is now? How did you tweak it and what was the learning process?

Wahlforss: I think it took us quite a while. It took us a few months to get to the initial idea that seemed like it could work in a scalable way. So that took a couple of months, tweaking and prototyping a little bit and thinking about it. Then, as we had agreed more on a more final idea, we started developing that, but we’ve been very iterative in our development. We’ve been listening very closely to our users for a very long time.

And I think we were adjusting a little bit to our users’ needs as well. But, still, I think there’s been a pretty strong vision behind it, and the vision has expanded gradually to become larger. In the beginning, it was more for CMI [Computer Musical Instrument] professionals and other professionals and it was geared mostly for music. Now it’s all about “anybody can be a creator” and it’s not only music—it’s all kinds of sounds. We’re all about sound creators. And that potential user base is much, much bigger. So that’s on the order of hundreds of millions of people, whereas we used to be maybe on the order of tens of millions. Or even in the millions.

Santos: How do you decide which customers to listen to and which ones not? Do you have a process behind it? Or is it intuition?

Wahlforss: It’s a little bit of both, so it’s both intuition and process. And it’s synthesizing needs of many different people and trying to understand the holistic perspective, or the holistic picture.

To see if there’s something—because usually they are not very concrete about exactly what it is they need. They can maybe talk about the problem, but they cannot exactly specify the solution. Or they are very specific and they say, “I want this. I need this specific solution.” But that’s a sign that they want a solution to a problem and they might not necessarily have the right solution for it. So usually, it comes back to taking a step back, trying to understand the larger picture, and synthesize many different requirements into something that’s scalable.

That’s usually the key challenge. But then, we have a lot of our own vision in this. We have the philosophy that people aren’t going to tell you exactly what it is they want, but when they see it, they will want it. I would say we have a strong vision that we are also executing on.

Santos: In the early days of SoundCloud, when you were developing the prototype and launching it, how did you get the first listeners and the first music into the platform?

Wahlforss: That’s a really good question. I think one of the things we’ve done best is building our community. Just a few months into the project, we had a community manager on board. Both Alex and I were answering support e-mails. We were actively reaching out to our network. I used to be an active musician. I’m actually still doing music, but I used to be doing it almost on a professional basis, so I have a couple hundred people in my network that I was reaching out to as well. And we kind of got lucky in the sense that we found a very strong niche from the start in electronic music. And a couple of key people in that niche, people that I knew from before, friends of those people, ended up becoming very strong drivers for the whole community.

Santos: In the last four months, you passed from five million users to eight million users. How are you dealing with the almost exponential growth of users?

Wahlforss: I mean, it’s like everybody says: it’s a good problem to have. But it is very hard. It is very hard in a sense, on many different levels, but ultimately, for me, it comes down to scaling the organization. And that is more complicated than scaling the technology, or scaling up our community efforts, or whatever it might be. The hardest part is the fact that this leads to us having to recruit a lot of people and integrate and build a great team. And the team is what it always comes down to. It comes down to great teamwork behind all these things. So, that’s the key challenge for me in the meantime.

Santos: And, how do you tackle that challenge? How do you keep the culture while growing so fast?

Wahlforss: Yes, that’s not very easy.

We try very hard to keep the start-up culture. We’re about eighty people now, so we are a slightly larger company, but we’re still trying to keep that atmosphere, to keep a very flat organization, and to empower people to do stuff independently. That’s the key. That’s the best approach we’ve found so far. I think—in terms of hiring—we’re constantly stepping up our hiring bar, so it’s a lot of international hiring. It’s trying to find the very best people in the world.

A key challenge is to get and to motivate people to come to Berlin. And then it’s a challenge keeping multiple offices synched up and sharing the same culture. We have offices in London and San Francisco, for example, and that’s also challenging.

Santos: What is the key driver for you to have an office in London and Silicon Valley?

Wahlforss: The London office we’ve had for quite a while. And that’s mainly about our content partners and our community creation efforts. Because we’re doing so and they have a very clear focus. We have a very good guy there who runs the London office and he’s a very early employee in the company, so he has quite some experience and we know each other really well. So that’s working out well. And that’s absolutely key for us, to be present in the UK or to be present in London because that’s where a lot of the music initiatives are happening as well.

In San Francisco, it’s more about a business focus. We are going to have operations people there. We are going to have community people there as well. But the strong driver there is the business angle because in the Valley and in San Francisco, many of our important partners are there or they are passing through there on a regular basis, so it’s the best place for networking and hooking up with the rest of the industry.

Santos: And you have an open API where other companies can build on top of it. Why did you decide to have it open? And what are the main benefits that you got from it until now?

Wahlforss: Well, our API, I mean, that’s like fifty percent of our product.

It’s really, really important because we’re a piece of infrastructure for sound sharing, so we’re very much like YouTube or Flickr in the sense that we are a platform. So that was absolutely essential because a lot of the use cases that people have with the site is that they want to store sounds in one way or another, but to integrate them in some other context. So whether it’s sharing sound from a sound-creating application or discovering sound on some third-party site—we can power those things.

So that was very key. We also want to keep SoundCloud very focused as a product. We want to keep it simple to use and not bloat the features set, or bloat the product. So then having an API is a very good way of doing that because you can give the power users—the people who really need very specialized things—the tools they need so that they can build on top of the API. Whereas the rest get a very simple product. So I think it’s a win-win situation.

Santos: And did you have the vision to have the API from the start?

Wahlforss: Actually, more or less. We were very inspired by Flickr at the start. We wanted to do a Flickr for sound. So, that’s kind of what it is. Flickr had a very successful API, back in the day, and we modeled it like that.

Santos: Regarding the business model, did you have the premium users from the start or did it change?

Wahlforss: In terms of the business model, the premium idea was in the product from very early on. Actually, at the point when we launched publicly in 2008, the model was already in place, so that’s been in there. We made tweaks a few times to our pricing model and so on, and that’s helped a lot in terms of increasing the conversion, but, yeah, the model remains largely the same.

Santos: And in terms of the API and the business development, do you make agreements with companies or is it completely free and open to be used?

Wahlforss: We still don’t have any partner that’s actually paying money. I believe we have a few agreements in place, but they’re not very strict at all. It’s relatively straightforward and we try to keep it very informal.

Santos: Until now, have you had any problems with copyright content? How do you prevent someone from uploading copyrighted content?

Wahlforss: So one of the cooler parts of our infrastructure is our content ID system. We are constantly developing it and we’re working hard on making sure that every piece of content that gets submitted to the site is filtered. And if it’s copyrighted content, that content gets taken down. So if you try to upload a Madonna track or whatever to SoundCloud now, it won’t work.

So that system is already in place. There are a lot of technical challenges with that, but we’re making great progress, so it’s looking good.

Santos: In the beginning, how did you cope with that problem?

Wahlforss: The nice thing was that in the very beginning, and even today, we’ve had a very strong SoundCloud community, because they’re all creators on the site. So, people have a very strong sense of what’s appropriate on the site and what’s not and what the site is about. So the piracy issue or the copyright issue hasn’t been a very big one. It’s only lately now that we have millions and millions of users that we really need to tackle it.

Santos: And looking back at the history of SoundCloud until now, what were the main challenges that you’ve had to face, both technically and in the organization?

Wahlforss: I think probably the single biggest challenge we had was raising funds in early 2009 because the climate was so bad and we essentially had very little money. We pretty much had no money at all, so we were fundraising in that climate. And that was really tough because we had a site that very few people understood would be something big. And most VCs were a bit scared to invest at all, in any kind of company, and even less so in a company that has a lot to do with the music industry. They’ve seen what has happened to sites like imeem and Myspace and so on.

So that was very tricky. I think in terms of technical challenges, we’ve had a few big things. We just had recently a DDoS [distributed denial-of-service] attack, so we had almost twenty-four hours of outage because of that. And so security challenges are kind of increasing. We’ve had issues with scaling in various ways, but that’s kind of an ongoing thing.

Santos: You raised the first funds in 2009, but how did you survive the first two years? Was it business angel money?

Wahlforss: We took one original angel and then we took a second one. So in total about €400,000 of angel money. So a very small amount actually, in total.

Santos: And the second amount that you got in 2009, was it from a European venture capital firm or from an American?

Wahlforss: It was from a European. I was Doughty Hanson Technology Ventures. Doughty Hanson understood us, so they were one of the few who really got it. And they decided to do a round.

Santos: Okay. And how much time did it actually take you to raise the first round?

Wahlforss: The first round was painful. The first round took almost six months.

Santos: And did you tour around Europe? Did you go to the US? How did you try to raise this round?

Wahlforss: I can’t remember. I don’t think we actually went to the US. We went to London several times and we went to a few conferences. We did meet a couple of US VCs, but none of them were interested.

Santos: What were the main lessons personally that you learned by building SoundCloud until now?

Wahlforss: I started out having an engineering mindset. Building stuff directly. So, working very hands-on, thinking about what is the right product. And I still do that today, but I’m not working hands-on anymore with the actual code.

So, for me, personally it’s been a huge learning experience in how to build an organization, how to run a business, how to scale a platform, work with a community. Lots of different things that I wouldn’t have learned otherwise. It’s a crazy learning experience. I’m learning every day from the great people that we have. I’m always trying to hire people that are smarter than me. There are lots of smart people here that teach me stuff every day, so it’s a great experience.

Santos: What would be the one thing that you would change if you could?

Wahlforss: I think we could have easily done this in one year faster if we would have been a little bit more bold and thinking a little bit more in terms of scale early on. I think we could have done this faster because we kind of came from an underdog perspective. We started out very small, had almost no money at all, and a very small team. I think we could have been bolder and actually done it even faster. From one perspective, it’s kind of how much can you ask for. We’ve been around publicly for three years, so it’s not that long a time to get to almost ten million users, but, still, I think with the speed of the internet today and how fast these things can happen, it feels like we could probably have done this faster.

But I think we’re very bold now. We don’t have those problems anymore.

Santos: By “being bolder,” do you mean raising more capital more aggressively in the beginning?

Wahlforss: Yes, and running with a bigger vision from the start. Hiring more people. Stuff like that.

Santos: Do you want to add anything that you find relevant to pass on?

Wahlforss: Yeah, there’s a lot of stuff to talk about. But it’s interesting how every company has their own culture. We’re now in the portfolio of Index [Ventures] and Union Square Ventures, so we have Fred Wilson on our board. And Fred Wilson is a very active VC.

And he has this blog on VC and he has a very great portfolio of companies as well. He has Twitter and Foursquare and Tumblr—all these great companies. And it’s fascinating going around to visit all of them and to see that we’ve actually developed our own, quite unique culture.

Santos: Can you give an example of that uniqueness?

Wahlforss: Yeah. It’s just a vibe in general, right? So you come into the office and you immediately feel that this is something unique. This is a very special thing we’re doing here. We’re marrying creators, sound creators, and a large global community with the help of technology. So I think that’s a very special vibe. There are not that many of these companies in Berlin. Basically, zero. All of the other companies are either in New York or San Francisco, so just that in itself makes it very, very unique.

There are model companies that we try to be like, but we’re still very, very different. We try to do a lot of the good things that they are doing, but we still have a very distinctly different culture.

Santos: But is it a culture designed by you? Or did it evolve by itself?

Wahlforss: It evolved. But I think it has a lot to do with the founders in any company. So it definitely has to do with me and Alex—how we are and how we run things.

Santos: One final question. What advice would you give to an entrepreneur that just read your interview?

Wahlforss: Right. Well, if it’s before starting a company, I would say, “Do it.” It’s the best decision I’ve ever done in my whole life. I’m so happy that I actually dared to do it. I was studying at the business school in Stockholm, right? And I was studying engineering as well, and I had one hundred classmates. And I know that almost zero of them actually went on to start a company, which is kind of crazy because I know a lot of them have good ideas. But none of them quite felt that they were able to pull it off.

I think if you have doubt in your mind that you’re able to pull it off, put the doubt aside and run with it for a while and see if you can do it. I think you’ll be surprised by yourself.