Every founder goes through it.
When Facebook introduced the “timeline,” its few-million-strong user base grew enraged at the privacy violations that came with involuntarily sharing everything you did with others. But Mark Zuckerberg had no choice; he needed to grow his revenue, and this was the path forward. Uber went through it when the company defiantly refused to eliminate its “surge pricing” model, which would make customers’ car rides double, triple, and in some instances even octuple without much warning. But Travis Kalanick had no choice; he needed to grow his revenue. Every tech company has faced these challenges: Twitter, Google, Apple, Yahoo! All seemingly screwing over their customers for their own gain. People don’t realize that these are simply some of the tough decisions a CEO must make in order to survive. So if Ross wanted to continue to grow the Silk Road, he had to make these kinds of grueling decisions too. And just as in the revolts at Facebook and Uber and every other start-up in Silicon Valley that had pissed off its users, the drug dealers on the Silk Road were outraged at the latest decisions of the Dread Pirate Roberts. So much so that there was talk of a mutiny on the HMS Silk Road.
Rumors had been rumbling up through the decks of the ship for weeks about such a rebellion. At first Ross had justly brushed them off as just that, rumors, assuming they were just hearsay from a couple of unhappy vendors who were spreading gossip. Yet now the chatter was growing louder, and there was talk of an insurgency, or even of a mass exodus, that could be in the works on the site.
The turmoil had begun earlier in the year when Ross had made the decision to raise the commission rate he was charging dealers on the site. Back then, whether someone bought a tiny baggie of weed seeds for $5 or $5,000 worth of cocaine, the Silk Road would take a 6.23 percent commission for helping facilitate the deal.
This tax worked out really well for the little guys, who ended up paying pennies for each transaction. But the dealers who were moving the largest volumes of drugs were being forced to pay massive commissions. To get around the fee, some of the top dealers had started doing side deals off the site, in which the Silk Road got nothing.
So the Dread Pirate Roberts and Variety Jones had a plan. They penned a “State of the Road” address, announcing that the commission rates were going to change. “Now, instead of charging a flat commission,” Ross wrote in a letter to the site’s users, “we will charge a higher amount for low priced items and a lower amount for high priced items, similar to how eBay does it.” The announcement went on to explain that the site would take a 10 percent commission on orders less than $50 and 1.5 percent for orders more than $1,000, with a few other fees in-between, hopefully balancing out the scales of commissions. Ross ended his State of the Road address in the same way Fidel Castro ended a homily in 1962 after he had successfully led the Cuban revolution: “I believe our future is bright and we will emerge victorious.”
But not all of the buyers and sellers on the site agreed about this new future. Some were happy about the rate hike (especially those who hawked larger shipments of drugs), but others were furious, specifically the dealers who trafficked vast numbers of small doses. In a matter of minutes a chaotic debate ensued on the Silk Road forums.
Ross was genuinely perplexed by the reaction. He was even hurt by the response. Didn’t these people realize that if it weren’t for him and his revolutionary ideas, there wouldn’t be a Silk Road? Didn’t they understand that he was putting his entire life at risk for them? If it weren’t for his work, they would all still be buying and selling drugs on the street, risking arrest or, worse, caught up in violent turf wars, being robbed, beaten, or even killed in a deal gone awry. And yet they had the audacity to complain about a small commission change. Didn’t they know that this entire thing couldn’t run itself? That this wasn’t a fudging nonprofit? It was a gosh darn business!
Ross became so worked up over the backlash to the commission changes that he responded in a way that essentially told everyone on the site to go fuck themselves. “Whether you like it or not, I am the captain of this ship,” he shouted in response to the outcry. “If you don’t like the rules of the game, or you don’t trust your captain, you can get off the boat.”
It was not the best pep talk for the troops.
Thankfully, as time went by, the uproar simmered down and most people accepted the rate changes. But a select few disconsolate dealers were still unhappy. And rumors of what they were planning started making their way to Ross.
“I suspect that several are talking about making backup plans to jump ship, or create competing sites,” DPR wrote to VJ in a chat. “I don’t want a mutiny.”
So Variety Jones decided to venture to the lower decks of the site to mingle with the dealers and buyers, with the goal of finding out how many people were involved in the insurgency and whether an actual uprising might take place.
It was around this time, on a late afternoon in mid-April, that an e-mail popped into the in-box of the Dread Pirate Roberts, with an obscure offer. “Mr. Silk Road, I am a great admirer of your work,” the message began, and then offered a brief explanation of who the sender was: a man who called himself Nob and said he had been smuggling drugs for decades in South America. The end of the letter was the best part.
“I want to buy the site.”
If a random offer to buy the site had landed in Ross’s in-box five months earlier, when stress was at its peak and his personal relationships at their lowest, he probably would have said yes without even a thought. Give me a bag of Bitcoin and it’s yours. Be careful: it isn’t house-trained yet. But today, in mid-April—even with the chatter about a potential riot on the site—how Ross felt about the future was very different.
He was now running a real business. He had almost a dozen employees rewriting code, monitoring the forums, and dealing with support issues. Variety Jones was by his side helping to steer the ship, and Ross was starting to comprehend that the Silk Road was going to be bigger than anything he had ever imagined. More important, Ross had recently had an epiphany that this—this Web site, which had begun as a tiny dream—would be his life’s work.
And what a magnum opus it was turning into.
Still, Ross reasoned, it couldn’t hurt to reply to this Nob character, whoever he was, and see what he was willing to pay for the site. If this were a start-up in Silicon Valley, a financial offer would be one way to gauge its worth. After all, what was the worst that could happen? He could receive a lowball offer from Nob, and that would be the end of the conversation. Ross clicked the “reply” button on his computer, typed a very short eleven-word response, and hit “send.” “I’m open to the idea,” the e-mail said. “What did you have in mind?”
As he waited for word from VJ about the mutiny, Ross went about his day, preparing for a camping trip he was about to go on with his old buddies from high school.
Ross had returned to Texas a couple of weeks earlier. As he had promised Variety Jones, he was meditating in the early mornings or late afternoons, then working for a few hours on the site. To keep his sanity, and to keep his fears of law enforcement in check, he would socialize after work like any other normal programmer with a nine-to-five job. He went on hikes in the forest just outside Austin. He smoked some weed with his high school friends and went rock climbing with others. And he had, thankfully, avoided running into Julia since he’d returned to the Lone Star State.
A few days went by before Ross heard back from Nob. But the e-mail was perplexing. Nob said that in order to make an official offer to buy the Silk Road, he would need to see financials, including “monthly gross sales from the site, net sales, percentage charged to sellers, total sellers, total buyers, site maintenance and upgrade costs (?), salaries for the administrator and monitors.”
Ha! That’s never going to happen!
There were only two people on earth who had seen those numbers; one was named Dread Pirate Roberts and the other was Ross Ulbricht. Even Variety Jones didn’t know all those details.
DPR politely declined to share the numbers with Nob, citing the risk that such sensitive information could easily fall into the hands of law enforcement. But still, he decided to throw out a potential sale price for the site to see if the buyer was even remotely interested in an acquisition. At the very least, it was titillating to ponder the value of his creation. Facebook was now being valued at around $80 billion; Twitter was worth some $10 billion, and that place was run like a clown car. Surely the Silk Road offered something that, if not quite at their value (yet), was at least in the range for the right buyer. “I think an offer for the entire operation would need to be 9 figures for me to consider it,” Ross wrote to Nob.
As this conversation continued, Variety Jones returned with whispers in his ear and reports ready for the Dread Pirate Roberts. It seemed the rumors about the mutiny were indeed correct. A group of dealers on the site weren’t happy with the new commission fees and they were weighing what to do next.
Option one for these mutineers, Ross learned, would be to jump ship to a new, much smaller competing Web site that had recently come on the scene called Black Market. Then there was option two: for those behind the rebellion to go off and literally build a competing drug site that had much lower fees. Or finally, the worst-case scenario was not too dissimilar to what happens daily in real-world businesses when a CEO is ousted by the board. In this scenario the dealers were talking about hacking into the site (given its massive security vulnerabilities) and commandeering the Silk Road.
But more disconcerting than any of these options was the other piece of intelligence that Variety Jones had discovered during his reconnaissance mission. The problem, as VJ explained to DPR, wasn’t just that people were upset about the high commission fees on the site. There was a much bigger issue looming. One that Ross could never have envisioned when he had the idea for the Silk Road years earlier.