Audible's founder talks about selling his company to Amazon for $300 million, bonding with Jeff Bezos, and how he managed to have a 'nontoxic' midlife crisis (AMZN)

audible ceo don katz

Audible CEO Don Katz founded the digital audiobook company in 1995, launched with one of the world's first digital audio players.
The company made it through the late 1990s tech bubble and the death of a CEO Katz hired.
Katz sold Audible to Amazon in 2008 for $300 million, keeping it largely independent and retaining his role as CEO.
He shared what he learned from switching careers so late, and why he bonded with Amazon CEO Jeff Bezos.

Don Katz sounds more like a college English professor than a tech CEO. He's obsessed with literature and writing.

And it's why he started Audible, the audiobook company owned by Amazon, in 1995.

"It was all about the stories, and it was all about the voice of the stories," Katz said on Business Insider's podcast, "Success! How I Did It." "I was always an ear-driven writer, and I kind of heard things when I read it."

Katz has been running a tech company for over a decade, and he got his master's in economics in the '70s. But storytelling is his passion above all else.

He was one of the earliest writers for Rolling Stone, where he covered terrorism and revolutions around the world.

He had a long career as a writer. But in his 40s, he decided to take a giant leap into another direction. It all started with a fanny pack (or belly pack, as he calls it).

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The following transcript has been edited for clarity.

Don Katz: I loved listening to well-composed, artfully performed words when I jogged in Riverside Park. I would listen in the old-school way, which was to have tapes in my belly pack. I always talked about the fact that they were profoundly inefficient. They froze in the winter. They would bake in the dashboard in the summer. There's nothing worse when you're aerobically taxed than trying to futz with them and change them out in your Walkman, an ancient device. There was no question that I realized that there was an element of the standing business of audiobooks that was not very efficient. There are many other strains of why Audible exists, and clearly that one relates to the fact that when we did figure out the technology — and this was 1994 and 1995 — that included how to download a file, how to secure that file.

Richard Feloni: Like MP3 files.

Katz: Exactly, but this was before the term was used. As with most things we've done. (We had programming five years before a "podcast" was named.) To think that we survived — because usually you don't get to be six or seven years before market and survive — is one of the great mysteries.

Feloni: In the '90s.

Katz: Yeah, this was the mid-'90s, and I realized, "We have to make it so I can get this into my belly pack." And that led to the invention of the first solid state digital audio device, and that's why, in 1994, I was walking around trying to convince smart people I knew that there was this future of the best of civilization packed in these devices in our pocket. Which at the time was — to say that people thought I was crazy and didn't know what I was talking about was a huge understatement. When you think of how early we came out, five years before the iPod, it's still stunning that we survived those early days.

Feloni: Well, how'd you get the resources to make this device in the first place?

Katz: This was a case of just pretty classic venture capital working to support innovation, or as we have as a tenet at Audible, inventing before the customer asks. We share that with Amazon, and it is very different than the business school concept of solving the problem of a customer. When we had this concept, I wrote a 120-page business plan.

Feloni: Like a good author would!

Katz: Exactly. The joke there being that I showed it to a business person I knew was a real great business leader, and she said to me, "Where are the bullet points?" I memorably said, "What's a bullet point?"

Feloni: It was like basically a novel.

Katz: I was a prose writer, and so I write this plan. What I did is I used my journalism to become ever more expert on digital technology.

A hotshot young journalist traveling the world

Feloni: How long had you been a journalist at this point?

Katz: Well, I put my figurative pen down in 1995, and that was 20 years to the day that I made my living as an author and a writer. It was quite a long run. I was a writer in the sense of the old Rolling Stone voice. I was one of the original Rolling Stone writers, and we did non-fiction storytelling that was true. This kind of narrative non-fiction storytelling that we had developed there was based on novelistic recreation of the truth at a time when other outlets were not necessarily telling the truth about either civil rights, or the Vietnam War and the like.

Feloni: Can you tell us a little bit more about those early days at Rolling Stone?

Katz: I had one of these weirdly precocious starts to a career. I was a student at the London School of Economics and I had just finished my masters. My roommate from Chicago was a rock writer, and she was always a rock and roll fan. I went out for dinner with her one night, and I'm sitting next to this guy who says he's from Rolling Stone. I tell him what I'm doing, and he basically says, "You know, you should write a letter to this guy, Jann Wenner, and you've got such good access to what's going on in Europe. You should just do some storytelling, if you like writing." I told him I was an English major before I went to economic school.

Long story short, I get a letter from the magazine when Francisco Franco, the dictator of Spain, starts to die. I'm asked to go to Spain and cover the death. In that period, I learned to be a journalist because it was the last hurrah of all the World War II correspondents. And one way or another, I write a 5,000 or 6,000-word story, and it proceeds to come out on the front page of Rolling Stone, and with almost no edits. It's called "Dispatch from the Valley of the Fallen." I went into the head of the London School of Economics and said, "I'm out of here."

I proceeded to become a freelance writer who worked mostly for Rolling Stone, but I avoided the editors whenever they would come to London. Because I looked like I was about 11 when I was 23. It was just an amazing thing to be part of the first 10 years. I would do crazy things: I covered the Ethiopian revolution — I was the only American on the ground; I ran around with the guys who became the Red Brigade in Italy; I covered the Northern Ireland crisis when there was shooting. I think I was probably thinking that if I almost got killed, that they'd publish me.

Feloni: Just a kid going into war zones.

Katz: Rolling Stone for my generation was a kind of literary Bible. It was like a dream to be able to write for them. Then they consolidated from San Francisco to New York, and I was brought back to be a foreign correspondent and feature writer. It was just an amazing couple of years. In many ways my current life is not that far unconnected. I often say that Audible is precisely the business a professional writer would make if they were interested in the business and organizational underpinnings of how they made a living. It is a fantastic background. I wouldn't trade those 20 years as a writer for anything.

From writer to inventor

Feloni: When did you decide to go from journalism to being an inventor?

Katz: My whole thing was: "What do these things mean, as opposed to what they do?" The Rolling Stone idea was you'd get close to, as I did, to terrorists, or to people throughout the '70s who were fighting wars of liberation, willing to die for a cause. What was it like to have that happen? Then when I wrote books about business — and I wrote a book about Sears, a 600-page tome; I wrote a book about Nike. I asked: What do these companies mean to all the constituents around them and to the culture in general?

I think that allowed Audible to grow up as a company that was really consistent about opening up opportunities to consumers in particular. This weirdness of customer centricity is what I bonded with Jeff Bezos on, where you really are working backwards from a different idea. How can you actually import something profound to people, because of the power of an organization, as opposed to measuring yourself in dollars and cents or just permutations on a theme?

We went at it saying there's a media type that doesn't exist in America for all sorts of artificial reasons, and that is the spoken word. This civilization, this American culture, and all of our literature is based on an oral and vernacular tradition.

Feloni: It was all about the stories for you.

Katz: It was all about the stories, and it was all about the voice of the stories. I was always an ear-driven writer, and I heard things when I read.

Feloni: It wasn't as big a leap as it might have been.

Katz: It wasn't. But I knew that the general snobbery around the idea of recording a book came from this idea that textual culture was somehow morally and intellectually superior. I never bought it. The reason I never bought it was my mentor in college was Ralph Ellison, the great American writer, and Ralph was an unbelievably deep student of the vernacular tradition. I read a lot of the studies, from the 1920s in particular, about how American literature became this function of oral culture. Of course, historically, there was no written culture. From the ancient Greeks through the end of St. Augustine, all found writing intellectually inferior, because it would atrophy memory and the ability to think.

Audible came into existence for a lot of different reasons, but I was a pretty rare literary writer who actually thought the sound of literature had the same integrity as the look of it.

Feloni: Why wait 20 years into your career?

Katz: I'm still more the student and the celebrator of advanced technology than I am the creator of it. I often say that being an inquisitive journalist is probably one of the best backgrounds to start a company, because if you're good as a reporter, you actually know you don't know enough. You have to then, in some basically moral level of honesty, go out and find the truth, and you have to supplement it by getting people to trust you, tell you the realities of things. I think that it's a fantastic way to be honest about what you don't know.

Now that I'm a very active angel investor and started a venture fund, I see that there is an instinct with particularly pure tech younger entrepreneurs, that they can do it all, and it's just not true, and I think you do actually have to have this fearless inventory of what you just don't know. Otherwise, you can't write the truth.

audible mobile player

Feloni: You and your roommate, you're able to complement each other's skill sets, and you have this great idea. When did you decide that this could actually become a company, and when did you make that leap?

Katz: It was literally us just riffing on an idea, which sounded like a business idea, with all the rationalization of cost and a focus on more consumer choice. The weird thing was that Ed Lau, who's one of my best friends to this day, knew how to do spreadsheets, unlike me. The business plan began to really look like a business plan.

Feloni: It went from a novel to an actual business plan.

Katz: It did, and very quickly. I got a lot of under-employed geniuses out of Bell Labs to build from whole cloth all of the code. You don't think about how many things you needed to invent in that day, to say nothing of designing the hardware and the like.

It had a lot of funny moments to it — I remember $14,000 on my credit card. As a working writer with a house and kids, it was a stress point. I took an 85% year-over-year pay cut between my last year as a writer and my first year as an entrepreneur.

Feloni: What did your family think of that?

Katz: My wife has always supported me working without a net. You can't do this stuff without that kind of home support.

The funny thing about the patent I got was that it was for a solid state cassette. It was shaped like an old school cassette. The idea was you loaded up off the phone lines. You stuck it in the tape bed in your car, and that proceeded to turn electro-mechanical controls into digital controls. You look back and think, well the tape bed was going out of existence, and so it was one of those kind of like "good idea at the time things." In our many cases of Audible-ready devices, they are all the museum pieces at Audible headquarters. The original sits there as the first thing we thought of.

Surviving the tech bubble and a tragedy

Feloni: What was it like trying to survive in the early years?

Katz: We really took off in 2003, and it was '95 we started the company. Usually you don't get more than months, let alone years.

We did a lot of smart things to survive, and I think part of it was I had watched business as a student. In many ways I was more of a student of larger organizations than I was a starter of smaller companies. I knew enough to know that I was not going to give our IPO money, from when we went public in the summer of 1999, to either Yahoo or AOL — which almost everyone did at that point. Because as soon as the bubble broke in April of 2000, they had no money. We kept our money.

We partnered precociously with big companies, which was one of our distinctive angles, to succeed by partnering with the competition. We did end up having big partners, like Microsoft and Bertelsmann, who were there to back us up during tough times. All the tech companies were in a dark place for much of 2000 until probably the middle of 2003. The decimation, I've heard, is on the order of 1,500 publicly traded internet companies down to 140 by the end.

Feloni: It was devastating. To step back to day one, what was it like going from journalist to the CEO of a team of these very talented people you had assembled?

Katz: The best thing for me was I wasn't much of a lone wolf. The kind of job I had before, I would go off on these long features or books that would take me several years. I learned a lot from so many people, but ultimately I'd come back and I would have to be in a room writing. It was me and the ideas.

But I realized at various points in my life, notably raising a whole lot of money to rebuild a library in my hometown, that I was pretty good at galvanizing teams around ideas and visions, and creating missions that you could build consensus around. I just thought, "How great would it be to have colleagues?" One of the biggest changes was just being together.

I remember we were at a retreat in 1996 for all 11 of us or whatever. We go off and everybody goes around the room to say what's exciting about this to them. The office manager spoke and she said, "Well, the amazing thing for me is that my boss never worked in an office before." I said, "Well, there was an office. There was just no one else there." I think that's part of it, is just the camaraderie was edifying. To this day, I think I'm really one of those people who thinks that Audible had lots of founders.

Feloni: In a couple years then you had brought in an external CEO, right?

Katz: Yeah, I did. I was easy about whether I was a chairman, or the driving presence, the CEO. There was a point where the tech build, particularly being in the hardware business, was so specific that I recruited a great guy to just be CEO for the tech development capacity he had. He unfortunately died on a basketball court at 39 years old, of an aneurysm. I often said that, of those of us around, then the 30 some of us, it totally steeled people to some of the external realities of life. I think it actually toughened people up. I realized I was the only one in the company who had ever really had tragic sudden death kind of loss in their life. A grief counselor came in and everything. It was a painful passage. The guy's name was Andy Huffman. He was a great, great guy.

I took back over, and then there was another point where there was briefly another CEO who came out of big media, and that was another era for the early internet 1.0 era, where it became very sexy to work at companies like Audible. But that didn't keep, and I was CEO again.

I've been there. I'm one of those strange animals in that I'm a founder still there after all this time.

Meeting Jeff Bezos

Feloni: When did you and Jeff Bezos have your first conversation about the deal?

Katz: The first conversation we had about it probably was in 2006, and then we consummated the marriage in 2008. It was a lot of discussion, but we were always interacting. I'd go to Seattle and I would pitch digital ideas. He and his team were not ready for digital going way back — and he was not necessarily wrong, because it was difficult to get a lot of traction in digital media before a lot of infrastructure was there. We had a big part of it, and we did actually empower the real revenue and the real content of a lot of the devices in that day.

What happened was that, when the bubble blew out, we decided to just double down on serving customers in the best possible way, and that meant we developed all kinds of SDKs [software development kits] and firmware that would be built into the MP3 players so that they natively worked with Audible. That's what happened with the iPod. We had chips that were made that were Audible compatible. And then we created a membership program, which, again, was not normal. Most people thought it was just going to be you sold a book à la carte.

The quality of the service, the customer care, and the content kept going up and up. And then became the largest maker of spoken word audio, as well as the largest seller. It ended up being that what we were doing is creating these lifelong loyalists. In normal retail you can have loyalty, but it's not something people do every day, like they do with Audible.

Feloni: Could you tell me what the conversation was like with Bezos when you realized that this would be a good partnership?

Katz: I forget who came up with the idea first, but when we got together it was just to trade ideas, which was always what I did from the time I met him in the mid '90s. Which was just: What do you think about this and what are you thinking about this? It always was a great way to interact when we saw each other.

We also shared this whole idea that he's very specific on, which is about "missionaries" and "mercenaries." Mercenaries are those people who sell the company before it's anything, changed jobs all the time. They're in it for them. They're really good at review time, but they don't actually add value. It's a pretty negative critique, but let's face it, there's a lot of people who see the world that way and often go into businesses where you are measuring things only in money. Then there's these missionaries, who just get hooked on an idea and can't let it go. They subordinate the noise to that stuff. I don't necessarily — I see the gray area a lot.

Those are the kinds of things we always talked about that made me admire him from the beginning.

Feloni: Amazon bought your company for $300 million in 2008, and you and Bezos had established this personal connection. So it just felt right at that point and it seemed like this is what could take Audible to the next stage?

Katz: Yeah. I mean, there were negotiations, and we were a public company, so fiduciarily we talked to other companies, which is what you do. It's part of the rules and the law and shareholder responsibility.

But it was pretty easy, because a lot of the people that I still work with there I had known since 2000, because that's when we sold 5% of Audible to Jeff. The first thing we did after acquisition was have about 150 engineers working on transferring our massive code base over to be compatible with Amazon's. Then you could use your Amazon ID to be a member and that opened up access to the greatest agglomeration of consumers probably in the history of commerce, Amazon, to Audible. That whole idea of how high we could go started happening fairly quickly after acquisition.

Tying Audible's success to Newark's

newark new jersey

Feloni: Why did you move Audible to Newark in 2007?

Katz: That was really part of this whole idea of: What does a company mean in ways that can transcend what it does? We knew we wanted to move to a place that these amazing number of voice actors we were now employing could get to more easily, and Newark is only 17 or 18 minutes from Penn Station — one of its great advantages in its massive comeback.

I was always interested in urban transformation, and you saw how you could teach a kid out of poverty through the amazing dedication of teachers. I was very focused on that, and I got to know Newark that way. We wanted to move in and start to define the culture through these other things, like embracing as a customer set people without socioeconomic privilege, just because it seemed like the right thing to do.

First thing we did is we made a rule that all the nepotistic hiring of the kids of my friends and things like that was going to end, because you had to be a kid from Newark to be a paid intern at Audible. That immediately changed the culture for the better. These amazing kids came into our world. Now we're the biggest employer of actors in the New York area. The kids are there. Rocket-scientist-level technologists alongside English majors turned into business people. It becomes this really rich place to work, and even so much better for being in Newark.

Then I began to get pulled into the idea of being the chairman of the economic development corporation. You began to see all sorts of ways to be disruptively progressive about how to create growth and change. That led to things like the founding of Newark Venture Partners, which is an old school venture fund that's really taking off. It's right in our building because if you do the more advanced research, you see that tech actually is a key to urban transformation. You see it in other cities, because it actually generates massive numbers of jobs at all levels for every tech or coding job.

Feloni: How did you avoid seeming like an outsider parachuting in? Kind of being like, "I know what's good for you, and just follow what we do."

Katz: One thing is you just have to be much more schooled on history than frankly a lot of college graduates who want to do good are. Just to understand that will lower some level of appearing to be patronizing. You can't change the color of your skin, but you can do the right thing, and I found amazing allies from all political walks of life. Partly, too, it's just because we put our money where our mouth is. We make sure the school system has Audible service, like we've done this year. We do things like subsidize our employees living in the city. Just trying to get other corporations to get with it.

Feloni: What's next for Audible?

Katz: I think Audible's just going to keep getting weirdly bigger at massive scale, which is not easy to manage. There's not many companies that have achieved high growth and high scale. My kids would call it a first world problem!

It's beyond my original dream for it. But the big thing for us now is that we're inviting the professional creative class to write and perform to a very distinctive aesthetic, and going way beyond audio books, as we have been from the beginning. Robin Williams, Ricky Gervais — people like that worked for us five years before the word podcast was in the lexicon.

It's really been fascinating — we opened a whole new theater fund to enfranchise playwrights who are writing one- and two-voice productions. The dream there is to potentially become the electronic analog to theater. There's just so much talent. An amazing number of young playwrights are, I would say, underemployed. We're looking at that class.

You just consistently see new opportunities. Again, I'm wondering how high we can go. That's the fun for me after all these years.

How to have a productive midlife crisis

Feloni: What advice would you give to someone who — maybe they are 20 years into their career, as you were — is considering a big change, or starting their own business?

Katz: Well, my wife would say that it's better to have a nontoxic midlife crisis like I did, rather than some of the other things people get up to when they hit the middle of their lives. I would recommend trying to start a business, rather than other things people get up to.

The question is, can you take what you probably get to know a little bit more, because you've accumulated more experience, and then be as inventive as somebody younger who has this monolithic belief in a new idea? You have to be one of these relentless people. If I listened to a lot of the people around me, largely people who went to business school, we'd have shut the company down six or seven different times, just to be "responsible." I was nothing but irresponsible. I always found more money. We always got through the problems.

You keep your energy up and look for opportunities. I think that the other thing, though, is don't avoid history. No matter what you think up, you probably need to have historical context. Then you also have to have colleagues you trust. You have to define your vision around the right kind of metrics, because you need to have a vision of what you're going to measure in the early days. Because if you don't, the people you get the money from will tell you how to measure, and you won't necessarily want that until it's the right time.

Feloni: Well, thank you so much, Don.

Katz: Thank you, guys. It was great.

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