Self-Publishing Masterclass :: Smashwords :: Mark Coker

The rise and rise of a successful publishing business built on fun, problem-solving and putting people first…

A few weeks ago I came across a blog post by the founder of Smashwords, Mark Coker, entitled ‘How to Bring a Book Back from the Doldrums‘. Aside from helpful and unflinching advice from someone who knows the self-publishing business inside out, the piece also featured the transcript of a conversation Coker had had on Facebook with a disgruntled self-published author. Despite the fact that the author comes across as desperate, paranoid and petulant, Coker himself is patient, reasonable and never less than compassionate, in a way that it’s hard to imagine many CEOs of Forbes’ Top 100 American Most Promising Companies being.

“Where other people see intractable problems, I see opportunities”

Smashwords, for those who don’t know, is the world’s largest distributor of independent books. It’s a self-publishing platform and ebook distributor, much like Amazon’s Kindle Direct Publishing, but a kind of grassroots version – Kindle with a soul, you might say. Indeed, in these dark days of gangster bankers and morally bankrupt CEOs, Smashwords is the kind of burgeoning business that gives you hope that capitalism doesn’t necessarily need to be burned to the ground if humanity is to prosper. And it’s Coker’s belief that ‘people always come first’ that makes it so. Therefore, it should really come as no surprise (although frankly it still does) that when I asked him if he’d answer a few questions for this blog, he said he’d be happy to. Here’s what we talked about…

 

Early love of business. From eggs to email…

‘Ever since I can remember,’ says Coker, ‘I’ve enjoyed business. When I was six or seven, I would sell my pet chickens’ eggs door to door in my neighbourhood.’ Then when he was at high school, he began investing in the stock market, and even though he was pretty useless at it, he immersed himself in it, reading The Wall Street Journal, Forbes and Fortune in his spare time. ‘It was fun for me then – as it is now – to study what made companies successful, and what made them fail.’

Coker’s dad too was a businessman – an inventor and habitual problem-solver who quit a good job at IBM to start his own company. Irritated by the fact that his kids didn’t seem capable of turning off a light before leaving a room, Coker Senior invented a timer that could switch off a light after a set period of time. ‘Problem solved,’ says Coker. Then his dad started selling and distributing them through local hardware stores. ‘We manufactured them at home. I remember how we’d clear the table after dinner, and the family would sit around the kitchen table with soldering irons in hand, soldering wires to printed circuit boards and assembling the timers.’ This was Coker’s first experience of a production line, and like most of his consequent business experiences, he found it a source of great fun.

“Our challenge is to provide the greatest possible value to the greatest number of authors while still earning enough to keep the lights on”

After school he had his heart set on UC Berkeley, so much so that he didn’t bother applying anywhere else. ‘I heard they had a good economics program, and I felt an affinity to the school.’ That affinity was due in no small part to the fact that his parents had been students there in the ’60s – ‘I don’t remember it, but my mom tells me she brought me to the free speech demonstrations in my stroller’ – and that Coker himself was born there. Berkeley was in his blood.

Whilst there, Coker founded a publication called The Ridge Roach out of his student-run dorm. (The ‘Ridge’ part came from the dorm’s name, The Ridge Project. The ‘Roach’ part quite possibly having something to do with the thickness of the paper it was printed on.) The monthly newsletter featured poetry, illustrations, articles and stories all sourced from members of Coker’s dorm. ‘I got local businesses to advertise in it, and it actually turned a profit for the house.’ Coker was also responsible for a slightly scurrilous gossip column, which was loved and loathed in equal measure by fellow students. More importantly, he says, ‘The Ridge Roach gave me a great appreciation for the amazing talent locked in the minds and fingertips of ordinary people.’

What five years of university also gave Coker was a more well-defined interest in business, leadership and the media. Meanwhile, the Berkeley anti-Apartheid demonstrations gave him his first taste of how individual business decisions could have a positive impact on the world at large. ‘At first,’ he remembers, ‘I thought it was stupid that the students were holding rallies to demand that the Regents [the governing body of the University of California] divest their portfolios of any companies doing business in South Africa. But then as the movement spread, and companies supporting the Apartheid government started making concessions, it all made sense to me. A company lives and dies by its stock price, so if large pension funds start selling the stock, the stock goes down, the executives earn less money, and suddenly their pants are on fire. Hit them where it hurts.’

Anti-Apartheid rally at UC Berkeley

Meanwhile, it was in the mid-80s that the tech economy was beginning to emerge and although Coker felt no natural affinity with technology, his father had sold his switch-timer business and set up a one-man startup specialising in email software. It was, Coker recalls, for ‘a lark’ that his dad printed up business cards for him, conferring upon him the title VP of Marketing and Sales. But Coker took it seriously. ‘I started working for him out of my dorm room at Berkeley, for no pay. He didn’t give me a marketing budget either, so I had to figure out a way to make the phone ring without spending money. That’s how I fell into PR.’

“We try to learn from our mistakes. All we can do is try our best, stay honest and aim high”

In search of press coverage for his dad’s product, Coker started calling up reporters and asking for reviews. ‘I had absolutely no clue what I was doing, but that was part of the fun. As long as you know what problem you want to solve, and you know how to ask questions, you can work your way toward the solution… One reporter asked me to send him a press kit. “What’s a press kit?” I asked.’ The reporter was kind enough to tell him, explaining that it should include a press release. ‘What’s a press release?’ he asked.

Coker had so much fun doing PR for his dad’s company that he almost dropped out of school to pursue it full-time. Luckily, he says, ‘better sense prevailed’ and he managed to graduate with a marketing degree while working all the while for his dad on the side. ‘Then I moved home and worked out of the garage with him for another three years.’

After which, while waiting to hear from a bunch of MBA programmes to which he’d applied, Coker found himself a blue collar job building mainframe hard disk drives on the IBM assembly line. Here Coker’s childlike fascination with how things work garnered him a reputation as someone who asked too many questions, and his love of problem-solving earned him a couple of IBM’s cash incentive awards when he fixed a dodgy conveyor belt and a poor product-pallet interface. ‘Where other people see intractable problems,’ he says, ‘I see opportunities.’

“It’s important our authors know we’re profitable because it means we’ll be around tomorrow to serve them, and to pay them “

While at IBM, he was accepted on Carnegie Mellon University’s MBA program, specialising in Entrepreneurship. However, since he was ‘having so much fun working the assembly line’, he deferred. Then, during the recession of 1991, he was laid off and suddenly found himself out of work and with no formal business experience outside of doing his dad’s PR. So he scouted around and soon found himself work at a large Silicon Valley PR agency.

‘That was a fun job,’ he says. His clients were the CEOs of new startups and large publicly traded companies. ‘I was always blown away that these super-successful CEOs were turning to me for counsel on PR. They thought we were magicians because the press coverage we got helped make them, their products and their companies more successful.’

Coker stayed there for two years, first of all specialising in disk storage clients, because of his IBM experience, then diversifying. Another early client was a then unknown anti-virus software startup called McAfee Associates. Coker was McAfee’s first external PR guy and his affiliation with the company would prove to be hugely significant…

 

Setting up on his own. From PR to publishing…

After just under two years, Coker began to get itchy feet. Although it had always been his dream to start his own business, he had assumed that, like his father before him, it would involve manufacturing a product he’d invented. But it wasn’t. It was a PR company called Dovetail.

‘Although I knew how to get great PR coverage for my clients,’ he says, ‘I had no clue what was involved in running a PR agency.’ Of course this is what made the whole venture a challenge, and therefore fun. ‘You learn by doing,’ he adds.

The PR agency job allowed him to work directly with more CEOs of tech companies, large and small. ‘I was a sponge,’ he says. ‘I learned so much from them, while at the time applying my problem-solving skills to the practice of PR. This is also when I honed my writing skills, and my thinking about strategic communications strategy. PR is grounded in good writing and smart thinking. Your job is to create awareness and perceptions that help you achieve a business objective. The best, most powerful PR is always grounded in the truth, and this was a philosophy I always practised with my clients.’

A few years’ later, Coker would write a book about PR, passing on his passion for what he saw as an ‘amazingly powerful, magical tool. I used my skills to help my clients become very successful at opening new markets and creating leadership positions. I helped create a lot of wealth for my clients.’

Things changed again when Coker was invited by the new CEO of McAfee to listen in on his first quarterly conference call with Wall Street analysts. ‘This is something all publicly traded companies do. Each quarter, minutes after announcing their quarterly earnings, they hold a conference call with Wall Street analysts and large investors to talk about the quarter… Listening to the call, I was blown away by the great information I learned. That gave me the idea to start attending the conference calls of some of the companies I’d invested in.’

One of the companies he’d invested in, however – Legato Systems = refused to let him in on their call. They said the call was only open to large investors and analysts. ‘I responded that I was an investor,’ says Coker, ‘and it shouldn’t matter if I owned one share or one million. I felt I had a right to attend the call.’ It felt to Coker like selective disclosure, which held up a middle finger to the little man and ‘allowed the Wall Street bigwigs to trade on the information before it became known to the smaller individual investors such as myself.’

“Our little startup helped change the way Wall Street communicates with investors”

Legato ignored his arguments, however, and shut him out. So Coker did a little research and discovered that over 90% of publicly traded companies had a similar policy of excluding small investors. Dismayed, he decided to do something about it and set about creating BestCalls.com.

In order to do this, he sold the stock of his PR company and plough his $120,000 profit into the creation of this new company, which was a publicly accessible directory of conference calls that were open to small investors. ‘We would publish the schedules and access information for the few companies who did allow small investors. My goal was to celebrate the companies who allowed small investors to attend, and shame the companies who didn’t. I figured the progressive companies would earn more investor trust, earn more investors, and as a result get higher stock prices.’

Using his magical PR skills, he placed stories about BestCalls in the Wall Street Journal, the San Francisco Chronicle, Forbes, Fortune, Wired and Time Magazine. He also lobbied the Securities and Exchange Commission and eventually helped spark a public uproar that led the SEC to introduce new regulation on fair disclosure. ‘Regulation FD prohibited selective disclosure on conference calls. That blew the doors wide open and today all companies allow small investors to listen in.

‘My BestCalls experience taught me how to use a startup to rally the little guys together to achieve a higher social purpose. Our little startup helped change the way Wall Street communicates with investors.’

In many ways, Coker is like the Harry Tuttle of the business world. Tuttle was the renegade plumber in Terry Gilliam’s darkling dystopia, Brazil. Played by Robert de Niro, he was the guy who abseiled into the thwarted lives of the little man and sorted out their tubes when the government didn’t give a damn. He was the one for whom the state slogan, ‘We’re all in it together’, was more than just an empty soundbite.

Harry Tuttle: the Mark Coker of underground plumbing.

Soon after the Fair Disclosure regulation was passed, in the first years of the new millennium, the dot come bubble had burst and Coker found that the fun was beginning to leak out of the PR business. He was becoming interested in different things. So he sold BestCalls.com, and he got married. Coker’s wife, Lesleyann, was a former reporter for Soap Opera Weekly, and consequently a mine of stories of soap star ego and petty excess. Coker suggested she write a book about it. Lesleyann suggested they do it together and, being more than ready for something new, her husband agreed.

So they dropped everything, moved to Burbank for two months and took advice on how to become investigative journalists from a reporter friend of Coker’s who’d covered the Monica Lewinsky scandal. ‘We asked questions, developed sources, and collected a lot of dirt,’ he says. ‘Then we moved to Vermont for four months, holed ourselves up in a cabin in the woods and wrote the book.’

For the next couple of years, they hired professional editors, did dozens of rewrites and eventually found a top New York agent who – over a period of two whole years – completely failed to find a publisher. Soap opera novels hadn’t sold well in the past so they were not considered commercially viable. No one would touch it.

‘Our inability to find a publisher is how I stumbled into the problem with traditional publishing. I imagined millions of other writers like us who’d never be able to reach readers with their books simply because a publisher didn’t think they could sell it.’ This, he decided, was a big problem. ‘It was a social injustice to writers and readers alike. Books are more valuable to humankind than commercial merit.’ As he told Forbes magazine in June last year, ‘Commercial merit is a dangerous way to judge a book. It means you get more stuff by Kim Kardashian than by undiscovered authors potentially writing future classics.’

The Kardashians, killers of klassics.

Once he felt the problem in his gut, he began to think about a solution. ‘The problem was that big publishers were unable to take a risk on every author. In fact, they had no interest in taking a risk on every author. The solution I came up with was Smashwords. My idea was simple, and started with a question: “What if I could create a web site that would allow any writer, anywhere in the world, to publish an ebook for free?” One thing that attracted me to the challenge was that it was a totally crazy idea. It went against the grain of conventional thinking.’

 

The birth of Smashwords. From struggling startup to profitable publisher…

In 2005, when Coker first began work on Smashwords, there was still a huge negative stigma associated with self-publishing. ‘Self-published authors,’ Coker points out, ‘were viewed as failures according to conventional wisdom. I thought conventional wisdom was wrong. I felt the world needed something like this some day, because you can’t deny writers the ability to publish. Such a platform, I imagined, could unlock and unleash the true potential of writers. If we let readers decide which books were really worth reading, the cream would rise to the top. I felt every writer deserved the right to be published as a matter of free speech.’

The business model for Smashwords remains unconventional, mostly because it has the word ‘free’ at the heart of it. It’s one of the things that’s most refreshing about Coker’s business ethos, that he seems to put people before profit.

‘People – whether they be our authors, partners or employees – always come first, but profit is the fuel that allows you to continue serving your people. This is one of the lessons I learned with BestCalls. When I started BestCalls, it was a cause wrapped in a web site’s clothing. I didn’t think about the business model prior to launch because the cause overpowered everything. I had to figure out the business model afterward, and that limited our ability to generate income and hire personnel.

‘Although BestCalls was a tremendous success from the perspective of changing the world for the better, it took us a while to get the business model to even meagre profitability.

“Most writers don’t have a lot of money, and even if they did, I don’t want it”

‘With Smashwords, the cause was always central, but I decided in advance that this time, I wanted to build a strong business model behind it. I figured that if I could build a successful, profitable business, it would give me the ability to hire more people and further prosecute the mission at hand, which was – and remains – to give authors to the tools to become successful publishers.

‘When I studied the competitive landscape, it was clear to me that most author services companies were parasitic - they were taking advantage of authors, and taking their money. They were selling expensive service packages to authors and the authors would never earn that money back in book sales. That’s not a long term sustainable model, because long term, the authors will wise up. Such parasites will eventually be replaced by service providers that serve the authors with greater ethical integrity and value. The right way to build a business in this space is to help authors sell books, not sell things to authors.

‘It was important to me from day one that we never take money from authors. I wanted the money to flow to authors, just as the money flows to authors with traditional publishing deals. The publisher invests in the author, becomes a partner in their success, and then hopefully both parties do well together.

‘[Keeping it] free was important to me because I wanted to make the service accessible and affordable to all writers. Most writers don’t have a lot of money, and even if they did, I don’t want it.

“We try really hard to serve our authors with passion, compassion, patience and integrity. Most of the time I think we succeed”

‘We only earn money if the author earns money, and the author always earns more money than us, which is how I think it should be. This aligns our interests with those of the author. We need to help our authors sell books.

‘We try really hard to serve our authors with passion, compassion, patience and integrity. Most of the time I think we succeed, though given our volume and the number of authors we’re supporting, we invariably fall short for some. We try to learn from our mistakes. All we can do is try our best, stay honest and aim high.’

Keeping the service free, too, has always been central to the Smashwords model. ‘It meant that it made it more difficult to reach profitability, but in the long run I think it makes us more competitive, and more sustainable.’

Since its very humble first stirrings, Smashwords has gone from strength to strength. It has now been profitable for close to three years, and this profitability is increasing exponentially.

‘We’ve managed to grow our business to over 200,000 books from over 50,000 authors, and we’ve done that with a staff of only 20 people, all the while helping our authors sell more books, and increasing our profitability. I think it’s important our authors know we’re profitable, because it means we’ll be around tomorrow to serve them, and to pay them.’

All of this has been achieved without the aid of venture capital, meaning that Coker and his team are free to pursue their unconventional business model without the interference of outside investors.

‘If we’d had outside investors, they likely would have pushed us to take shortcuts that go against our grain, like charging for services. While I’m confident we would have won those battles, such battles are distracting, and as an entrepreneur with limited resources, you can’t afford distraction.

‘You need to be careful not to let outside forces corrupt the purity of your vision, yet at the same time you need to remain open-minded enough to recognise when you’re making mistakes. When you’re a scrappy, near-broke startup as every bootstrapped startup is, it forces you to make smarter capital allocation decisions, and smarter business decisions. You learn to triage. Since you can’t do everything, you learn to do what matters most. For us, we have over 1,000 new enhancements planned for our roadmap. We can’t do them all, all at once. Every day we ask ourselves, “What can we do today that will yield the greatest number of our authors the greatest benefit?” And that’s what we try to do.’

Despite the success of Smashwords, meaning that Coker’s presence is now requested at prestigious events such as the London Book Fair, he is still remarkably approachable.

‘I try to remain accessible to our authors,’ he says. ‘I participate in blogs and online forums, and they know my email address. It’s getting tough though, to remain so accessible. Sometimes it’s impossible for me to reply to every email, and I hate to think anyone thinks I’m ignoring them.’

I ask him about his views on compassion in business. I ask if in reality it’s possible to consistently put people before profit.

“The industry is in rapid flux. I take nothing for granted”

‘I think it’s about balance,’ he says. ‘No question, you have to treat your constituents with compassion, honesty and high ethical standards, otherwise those upon which you depend will not support you. You need to add value. At Smashwords, we’d be nothing without the support of our authors or our retail partners. For that reason, we need to support them with everything we’ve got. They deserve nothing less.

‘Smashwords, just like a publisher, an editor, a cover designer or a retailer, is a service provider to authors. If we’re going to take a cut of their earnings, we need to provide them value in excess of our cut. If we don’t, they’ll go elsewhere.

‘There are myriad measures that go into the calculus of value, because authors value different things differently. Our challenge is to provide the greatest possible value to the greatest number of authors while still earning enough to keep the lights on. We also have to realise that we can’t be all things to all authors. It’s an exciting challenge.’

So far it’s a challenge to which Smashwords seems more than equal, and with more and more authors beginning to break out into mainstream success, the future must seem like an exciting place. But Coker refuses to get complacent.

‘Although things have gone well for us the last few years,’ he says, ‘the future is far from certain. We’ve had our fair share of growing pains, which we’ve been very transparent about. The industry is in rapid flux. I take nothing for granted. Every day we need to continue pushing forward to create the future we want for our authors. If we succeed, I think we’ll turn a lot of heads in the next few years.’

…

 

See also Self-Publishing Masterclass :: Cover Design :: CL Smith.

Berkeley demo image courtesy of Jim Mitchell

Coker image courtesy of sfgate.com