Decoding Growth: 4 Surprising Billion-Dollar Lessons from Netflix

I’m obsessed with unpacking business growth stories—both successes and failures—to learn from them. The more I research, the more common patterns emerge. I’m on a mission to share my findings as I go. If you love a good real-world business story, subscribe to follow along!?

Netflix might be a famous success story, but there are many aspects of their journey that I wasn’t aware of until I listened to the Diary of a CEO podcast interview with Co-Founder Marc Randolph.?

Netflix went from nearly going bust with over $50 million in debt to outpacing Blockbuster—a global giant with over 9,000 stores and $5.9 billion in annual revenues. Today, Netflix boasts an estimated market capitalization of $298 billion. But what are the hidden gems? How did it happen??

More importantly, what can we learn from their journey??

1. A More Minimal MVP?

Netflix started out as a digital mail-order company, shipping rental DVDs to customers via online bookings. However, Co-Founders Reed Hastings and Marc Randolph didn’t land on this business idea by chance. They brainstormed a variety of business ideas and rigorously challenged their commercial viability. They weren’t necessarily passionate about this particular idea; they were committed to pursuing a commercially strong model that could scale. From the outset, they thought BIG!?

For each idea with potential, they performed the absolute minimum testing needed to validate their core assumptions. For Netflix, on the same morning the idea emerged, they bought a CD (they couldn’t find a DVD!) and posted it to themselves to see if it would arrive undamaged, how quickly it would arrive, and at what cost.??

DVDs were extremely new to the market, so this basic test was essential to validate the premise that they could be mailed quickly, cost-effectively, and without damage. They got successful validation within 24 hours at the minimal cost of postage!?

Marc Randolph doesn’t build a minimum viable product (MVP); he prefers something even more basic. In a classic example, when mentoring a founder who wanted to start a dress rental service, he had her handwrite a poster and put it on her university dorm door to test the foundational principle—whether people would be willing to borrow someone else’s dress. She received feedback the same day to validate her idea, at no cost.?

Takeaways:?

• If your goal is to go big, think big from the outset.?
• Don’t get too attached to the idea; rigorously challenge its commercial viability.?
• Test your assumptions quickly and inexpensively to get real-time market feedback.?

2. A Culture of Continuous Testing?

The DNA of continuous testing is a core component of what eventually propelled Netflix to success. They were committed to running tests continuously, striking a balance between not being too slow and waiting for perfection, and not being too fast and compromising quality of the test. One test they ran was to remove late fees. Little did they know that this would become a pivotal move. Customers hated Blockbuster’s $40 late fees (which generated $800 million in revenue!), and by eliminating them, Netflix hit a nerve with customers. The test resulted in thousands of new subscribers, and the market feedback was loud and clear about what customers wanted.?

What resonates most with me is that if Netflix hadn’t kept iterating, iterating, and iterating their offer and go-to-market —with always on testing - they wouldn’t have hit on the model that finally soared!?

Takeaways:?

• Lean into customer pain points—like Netflix did with Blockbuster’s late fees.?
• How can you embed a culture of continuous testing??

3. Business before Ego?

When Netflix was founded, Marc Randolph took the reins as CEO, successfully bringing the company to market during its initial scaling phase. Eighteen months in, Reed Hastings challenged Marc’s ability to continue in the CEO seat, suggesting that Reed might be better suited to attract investors and scale the company further.?

Marc later reflected in an interview that stepping down as CEO “was probably the smartest decision I ever made” at Netflix. He transitioned to the role of COO, and the two co-founders continued to run the business together. Marc’s ability to recognise what was best for Netflix and set aside his ego is rare.?

The CEO who leads during a startup phase might not be the best fit during a scale-up or other stages of a business’s journey. Marc’s foresight and self-awareness are truly remarkable.?

Takeaway:?

What kind of leadership your business needs at its current stage.?

4. Emerging Trends?

At the time, the emerging trend was digital business rather than Blockbusters physical stores. Netflix seized this opportunity, while Blockbuster was slow to develop a digital strategy.?

When Netflix found themselves $50 million in debt, struggling after the dot-com crash, they offered to sell to Blockbuster. Blockbuster laughed them out of the room.?

Blockbuster eventually picked up the pace on their digital strategy, and both Netflix co-founders have spoken about how close Netflix came to not making it. However, fortune favoured Netflix when Blockbuster’s CEO left after a rumoured fallout with the board, stalling Blockbuster’s digital efforts just as they were gaining traction.?

Blockbuster’s former CEO, John Antioco, wrote in a Harvard Business Review article,

“I firmly believe that if our online strategy had not been essentially abandoned, Blockbuster Online would have 10 million subscribers today, and we’d be rivaling Netflix for the leadership position in the internet downloading business.”?

Blockbuster also faced substantial debt, but failing to evolve quickly enough to the digital market was likely a key factor in their eventual bankruptcy in 2010.?

There are a couple of key takeaways here:?

• Lean into emerging opportunities and trends.?
• Move and execute faster than your competition. Win on speed!?
• Timing is everything!??
• Leadership and board disputes whilst never intentional, can be very costly!?

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