Startup siblings become accidental entrepreneurs

December 11, 2013: 5:00 AM ET

Beth Kowitt took a break from her day job as a writer at Fortune to profile Arlyn and Eric Davich, siblings who both work in the New York City startup scene, for Bowdoin Magazine, Bowdoin College's alumni publication. The Davich siblings and Kowitt are all graduates of the Brunswick, Maine-based liberal arts school. The following is the entirety of the story from Bowdoin Magazine's Fall 2013 issue.

Fortune managing editor (and fellow Bowdoin graduate) Andy Serwer wrote about San Francisco mayor Ed Lee for the same issue.

At Bowdoin, Arlyn Davich and her brother Eric were music majors who never took an economics course. Yet, in founding their own companies, they've followed a common route to take them toward very different goals.

Siblings and entrepreneurs Eric and Arlyn Davich

Siblings and entrepreneurs Eric and Arlyn Davich

FORTUNE -- With two entrepreneurs in the family, get-togethers at the Davich household can sometimes resemble business meetings. Mother's Day this year involved a post-brunch session of Eric rehearsing an upcoming presentation in front of his parents and sister, Arlyn. During a recent winter ski trip, the family set up an ad-hoc office around the kitchen table of their Colorado home -- a mishmash of dueling laptops, iPhones, and iPads.

Being "on" 24/7 is part of the life that Arlyn and Eric signed up for when they decided to build their careers in startups. Arlyn is founder and CEO of Manhattan-based PayPerks, a financial capability and rewards platform for low- and middle-income consumers. Across the East River in Long Island City, Queens, Eric works as chief content officer for Songza, a company he co-founded that offers a streaming music service of curated playlists.

The two grew up in Randolph, New Jersey, with parents who were themselves entrepreneurial and encouraged the same spirit in their kids. "They instilled in us this idea that change is inevitable," Arlyn says, "so the people who are the most flexible are the people who are going to be the most successful." Their mom runs the business side of their dad's dental practice, which has consistently had the most up-to-date equipment. They were always the most computer-savvy parents on the block.

But entrepreneurship was accidental for the Davich siblings. At Bowdoin they were music majors, who never took an economics course. Yet, in founding their own companies, they've followed a common route to take them toward very different goals. For Eric, Songza was a way to impact the music industry without living the life of a struggling artist. By starting her own company, Arlyn discovered she could create something and take control of her own career. Their industries may not overlap, but they share that same startup world -- a coincidence that keeps them comparing notes on a professional existence that can be punctuated with extreme highs and extreme lows.

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Even at age fourteen, Eric Davich exhibited the early signs of a budding entrepreneur. He had ambitious career aspirations -- he wanted to be a rock star -- so he finagled his parents into buying him recording equipment, made a CD, and sold it in the school cafeteria.

Eric carried that business savvy to Bowdoin where as a music major he absorbed as much as he could about the industry. "I was always trying to learn every part of the business because I really thought I could make my own music empire," he says. That meant internships at Billboard magazine and Atlantic Records, along with a senior year honors project that he views as his first startup -- writing a composition for a forty-person ensemble and handling the logistics of producing it.

The day Eric graduated from Bowdoin in 2006, he packed up and moved to New York City to pursue his dreams of becoming a professional musician. It was by no means glamorous. He struggled to break into the scene with his band, Little Australia. (He plays multiple instruments but is primarily a guitarist.) He got a job at a record label to better understand how bands get signed, but more than anything it helped him gauge how tough the prospects were for artists and record labels. "Everyone that worked there, they were just scared all the time," he says. "Any day they could lose their jobs." It was his sister that helped clarify his thinking: Why was he considering a shrinking industry, Arlyn asked, rather than joining a part of the business that was growing?

Little Australia, which is on an indefinite hiatus, had been uploading its music to Amie Street, a dynamically priced music site -- the more popular the song, the more expensive to buy it. Eric sent the founders an e-mail with the subject line "I want to work for you." His audacity paid off with a job in 2007. "I saw an opportunity to get my foot in the door and get some experience," he says, "and have some cash to work with so I didn't have to worry about becoming a deadbeat broke musician." Typical of life at a startup, Eric did a little bit of everything.

In 2008 Amie Street bought Songza, a service that in its original incarnation was what Eric describes as Google for music. Type in a song, and the Internet would find it, usually via YouTube. Through Songza, Eric and his partners saw the potential in streaming music: It gave users instant access to songs without having to download them to their hard drives. The team decided to sell Amie Street to Amazon so they could focus on Songza, which they evolved into hyper-editorialized twelve-song playlists, each with a theme (think "'90s One-hit Wonders" or "Grown Men Making Grown Men Cry").

Through customer research, Eric and his cofounders realized that nobody thinks of music as a product. "People listen to music to make what they're doing better," Eric says, to get through their run or day at work. The team decided to position Songza as a lifestyle enhancer rather than a music discovery product. Feeling angsty? Check out the "'60s Proto-Punk Blastoff" playlist. Barbecuing? Check out the songs in "Cookout with the King." (Having that context is also attractive to advertisers who want to reach you when you're in your car or at the gym.) That seemingly simple shift in thinking led to some serious buzz and investor attention. After Apple's App Store featured Songza's iPad and iPhone apps on the same day in June 2012, the company added more than a million new users in ten days.

These days Eric works mostly on marketing and business development. He's technically chief content officer, but at a fast-growing company with a staff of twenty-eight, his responsibilities change regularly. Despite the fact that he's not making a living playing his guitar full time, in some ways he's fulfilled his purpose as a musician. "When I did my honors project at Bowdoin, my goal was to showcase my knowledge of all of the genres of music I've learned about in school," he explains. "[Today] I get to expose people to all those different kinds of music in a way that's really easy and contextually relevant." Now that he's no longer trying to make a career out of making music, he's more productive creatively. "Oddly enough," he says, "that's when I started to become more successful."

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During her junior year at Bowdoin, Arlyn Davich was given an assignment to envision where she saw herself in twenty years. She was a music major (she sings) but claims not to be the best musical talent, so she answered by saying she was going to start a record label. She thought that having her own business would allow her to have a career where she could create something. "That's what appeals to me about being an entrepreneur," she says. "It's what initially attracted me to music at Bowdoin, but I didn't have the talent to realize that creativity."

After graduating, Arlyn got a job in public relations through a Bowdoin connection. It helped her discover she liked working best with small businesses and could even start one herself. In 2007 she enrolled at Columbia University's business school to get the quantitative skills she needed to launch her own enterprise.

Arlyn was determined to start a business while at Columbia, but she was missing an essential ingredient -- a good idea. In brainstorming with a professor, she mentioned how much she liked working with a company during her PR days that put coupons in people's paychecks. The professor's reaction was, "People still get printed paychecks?" "It was the question that led me to this business," Arlyn says. After that meeting she started researching the "underbanked" -- people without bank accounts, and was shocked by how big a market it was.

At the time, prepaid debit cards were a new phenomenon and underutilized by the people who could gain from them the most. "The way you market anything is by educating people on the benefits in an engaging way," she says. "I thought, 'What would it look like to create an engaging and educational experience for this segment of consumers?' That was the problem that I aimed to solve with PayPerks." The solution? A sweepstakes-based rewards program that incentivizes learning about the benefits of financial products and, in turn, helps consumers capitalize off of them.

Arlyn decided to take her idea to Columbia's business plan competition. During early-morning running sessions with her brother, Arlyn practiced telling the PayPerks story to prepare. Arlyn was good at presenting; it was like rehearsing for a performance back at Bowdoin. Eric would give her feedback using the musical terms they both innately understood -- increase your tempo, start softer. Arlyn went on to win, gaining Columbia as her first investor. "It was just me at that point -- just me, a Powerpoint, and a dream," she jokes. She brought in a co-founder who had more experience on the technology side and spent the first year convincing MasterCard to sign on as a customer.

As an example of how PayPerks works, take a look at its partnership with the U.S. Treasury. Every year the Treasury pays billions in social security disbursement. A large portion goes to people without bank accounts, with most receiving benefits through the Treasury's own prepaid card called the Direct Express Debit MasterCard. Cardholders often go right to the ATM, Arlyn says, to take all their money out, negating the card's advantages. On April 1, PayPerks launched its rewards program for the Direct Express card. Users received a scratch-off game piece, which comes with an activation code. After registering the code to opt into the rewards program, users win points by following an educational curriculum on the benefits of the card. Soon they'll also be able to earn points by using the card in ways that help them save money -- avoiding ATM fees, enrolling in low balance alerts. Every point is a chance to win a cash prize with the winnings going back onto the card to drive ongoing engagement with the program.

PayPerks has 100,000 users and is targeting 250,000 by the end of the year. With more than half of the world's population living without a bank account, Arlyn thinks PayPerks has global applications. "We're looking to be the leading financial service marketplace for low- and middle-income consumers globally," she says. The business model clearly has a Common Good aspect to it, which Arlyn says wasn't by design. She didn't start out exclusively looking to launch a social venture, but in doing research she came across the idea of a shared-value company -- one in which the social mission reinforces the profit mission. "It's not a compromise," she says. "It's truly an alignment of intentions."

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The informal guidance Arlyn and Eric have provided one another over the years is something they're now taking back to Bowdoin. Eric's partners had come up with the idea of their original business during a class at Brown, and the Davich siblings wished they had similar exposure to a startup culture during their time as undergrads. It was a sentiment they regularly heard echoed by other Bowdoin alumni who had started their own businesses.

This fall Arlyn and Eric are launching the Bowdoin Startup Series, a chance for current students to see firsthand examples of alumni who have been successful in different ways as entrepreneurs. Several guest lecturers will visit the application-only course each Friday. Already, twenty alumni have agreed to come back to tell their stories, which will also help students build a broad network.

While Eric and Arlyn shrug off the idea of starting a business together, they're looking at investing in other startups together. Their primary criterion is that the founders have exceptional personal qualities: "The underlying belief is in order to be a successful entrepreneur you have to be hungry, flexible, and relentlessly persistent," Arlyn says. It's something that you can't see on paper. In their case, it takes one to know one.

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