A Guest Post From Derek Sivers
Tim's Note: In last week’s post, “It’s About You, Not Me,” I announced that to celebrate the release of my new book co-authored with Jim Stovall, The Ultimate Financial Plan, I’d be featuring four consecutive guest posts from some of the most compelling authors and bloggers you’ll read today. I can’t tell you how honored I am that any of them—much less all four—would’ve accepted my invitation, and we get kicked off today with a post that will blow your mind from entrepreneur and best-selling author, Derek Sivers.
In short, Derek is a musician with enough technical ingenuity, passion and vision to have truly changed the way music is delivered today. (You’ve probably benefited from his work without even knowing it!)
Frustrated that there were no online outlets on which independent musicians (most of the musicians out there who haven’t received a big record contract), could sell their music, Derek created one, simply to sell his own music. After a few other bands asked if he could replicate the trick on their websites, he realized he may be able to create a company that would provide this and other services to independent musicians. Years later, Apple’s famous leader, Steve Jobs, was knocking on Derek’s door asking him to make his extensive online library of independent music available on iTunes.[i][ii]
At the peak of his success, Derek felt the call to leave his baby—CD Baby—in the qualified hands of others and he sold the company. For $22 million! (Not bad for a “struggling musician.”) But get this—he had already placed CD Baby in a trust that would irrevocably give the proceeds to charity. Here’s a piece of his story:
Two friends were at a party held at the mansion of a billionaire. One said, “Wow! Look at this place! This guy has everything!” The other said, “Yes, but I have something he'll never have: enough.”
When I decided to sell my company in 2008, I already had enough.
I live simply. I hate waste and excess. I have a good apartment, a good laptop, and a few other basics. But the less I own, the happier I am. The lack of possessions gives me the priceless freedom to live anywhere anytime.
Having too much money can be harmful. It throws off perspective. It makes people do stupid things like buy “extra” cars or houses they don't use - or upgrade to first class for “only” $10,000 so they can be a little more comfortable for a few hours.
So I didn't need or even want the money from the sale of the company. I just wanted to make sure I had enough for a simple comfortable life. The rest should go to music education, since that's what made such a difference in my life.
So I found a great way to do this. I created a charitable trust called the “Independent Musicians Charitable Remainder Unitrust.” When I die, all of its assets will go to music education. But while I'm alive, it pays out 5% of its value per year to me.
(Note: 5% is the minimum allowed by law. It's still too much. I would have preferred 1%, but oh well. I'm free to use it to start new businesses to help people, or whatever.)
A few months before the sale, I transferred the ownership of CD Baby and HostBaby, all the intellectual property like trademarks and software, into the trust.
It was irreversibly and irrevokably gone. It was no longer mine. It all belonged to the charitable trust.
Then, when Disc Makers bought it, they bought it not from me but from the trust, turning it into $22 million cash to benefit music education.
So instead of me selling the company - (getting taxed on the income, and giving what's left to charity) - that move of giving away the company to charity then having the charity sell it saved about $5 million in taxes. (That means $5 million more going to music education.)
Also, the move of giving it away into a trust now - instead of holding on to it until I die - means its investments get to grow and compound tax-free for life, which again means more goes to musicians in the end.
I'm only writing this article because many people have asked why I gave it away, so I thought I'd write my long explanation once and for all.
It's not that I'm altruistic. I'm sacrificing nothing. I've just learned what makes me happy. And doing it this way made me the happiest.
I get the deeper happiness of knowing the lucky streak I've had in my life will benefit tons of people - not just me.
I get the pride of knowing I did something irreversibly smart before I could change my mind.
I get the safety of knowing I won't be the target of a frivolous lawsuit, since I have very little net worth.
I get the unburdened freedom of having it out of my hands so I can't do something stupid.
But most of all, I get the constant priceless reminder that I have enough.
I have not seen anyone more personify “The Gift of Enough,” as Jim and I discuss it in The Ultimate Financial Plan. I encourage you to indulge in more of Derek’s story outlined in his book, Anything You Want. The surprises don’t end with his massive gift, and whether you’re a successful business owner or a starving artist, you’ll find a ton of money-and-life wisdom in his book and his blog.
Thanks for sharing part of your story with us, Derek!
[i] Since when does Steve Jobs have to ask for ANYTHING?? (Except, of course, for rights to the Beatles library…which he eventually got.)
[ii] Interestingly, I’ve had the privilege to see Derek’s brainchild at work. Outside of personal finance, my foremost hobby is music, and as the drummer for my brother’s band—The Jon Maurer Band—we were recently able to release our debut EP through the company Derek created, CD Baby. For little more than peanuts, here’s what our profile page looks like on the CD Baby site: http://www.cdbaby.com/cd/thejonmaurerband.