That Will Never Work (Netflix)

When I started this newsletter, I highlighted my love for the ideation stage of a business. The coffee table chat; being so frustrated you create a business to do something about it; or in Netflix’s case two people sharing long car rides down the motorway dreaming up crazy ideas. This is the story from Marc Randolph, Founder of Netflix, on how they dreamed up the idea.

Knowing the outcome of the story doesn’t matter. The fact that Randolph and Reed Hastings (the co-founder and ultimate CEO) at one point tried to sell themselves to Blockbuster makes this the ultimate startup vs Goliath story. Is Blockbuster’s decision not to buy Netflix for $50m the worst business decision ever made? Netflix is now worth $150bn and Blockbuster doesn’t exist (save for one store).

I’m a bit late with this edition of Founders’ Chronicles, apologies, I was speaking at SaaStr last week on “Losing Product Market Fit”. Please do check out this podcast interview I did on the same subject! Why do I bring this up, firstly for a self-promoting plug, and secondly because so many of the lessons in Randolph’s book are focused on not Losing Product Market Fit!

I really enjoyed this book. It’s all about ideas, business models and focusing on what your good at, a startup’s number 1 advantage, these are my key takeaways:

1) “The Canada Problem”. Early on in Netflix life they had the opportunity to enter Canada. It would have probably increased revenue by 10%. But they decided not to because it had different postage, different regulations, different logistics etc. Randolph sums it up perfectly when he explains that if they had done it, then the US business would have had less resource and have not grown as fast... so why do it. Throughout the book Randolph references the “Canada Problem” whenever he wants to highlight why they made a decision not to do something or too many things at once. Perhaps the most common advice I try to give to founders (now I have a name and an anecdote for it!).

2) Job Titles. Randolph believes they should say what they do. I couldn’t agree more. For example, I’m not keen on the title “Founder” on its own. Often happens when the founder has been replaced as the CEO but doesn’t want to lose rank. Give clarity by giving people job titles relevant to their role on what they do.

3) Culture. Netflix was in its adolescent at the time of the first dotcom boom. When gimmicks and opulence were at their pinnacle. But Randolph makes the point that people don’t actually want hot tubs and onsite massage. They want responsibility and the freedom to fulfil that responsibility. Worth remembering when organising teams.

4) Changing roles. I’ve written about this in other newsletters, but Randolph also highlights the changing roles within a startup, and that not all, in fact many, of the founding team will not be those that lead you into phase 2. He highlights that as a business develops peoples’ roles need to get more focused and therefore the good generalists are no longer as necessary. Build your organisational structure for today’s opportunity; not for yesterday’s team. Perhaps the hardest thing is recognising when things have changed!

5) Dogs. I like that throughout the book he references the fact that if your product is no good, then it doesn’t matter what you do. For me there’s often an overweighting on GTM strategy and positioning. But as Hastings puts it “If they don’t want what you’ve got, breaking down the door won’t make a dam bit of difference”. Randolph himself puts it less eloquently. “It doesn’t make a difference how good the ads are if the dogs don’t eat the dog food”.

6) Business Model. There are so many great conversations around business model. For example, Randolph talks through the maths of how the early business models just didn’t make sense and that the LTV to CAC just wasn’t high enough. The subscription model which has come to define Netflix, and now every other B2C online business, was almost invented by accident, but it came because Randolph and Hastings were relentless in getting the unit economics right and then focusing down on a single business model. When they did they started to fly.

7) The Bravest Decision. Randolph is brutally honest about how Hastings asked him to step down as CEO. But more the introspection is incredible. Randolph’s acceptance of the decision, although not immediate, is admirable and I’ve so much respect for him for having made this decision as very few would. If you’re a Founder / CEO and things aren’t working out, then perhaps it’s not your best position in the company. But it takes a very brave person to admit this. Just remember the Netflix founder did and for you this book could be really helpful.

8) Layoffs. Randolph describes the anguish of layoffs. How brutal they were and also how much it hurt him personally. Which if the book is a fair reflection of the person, I believe to be true. The lesson I found most interesting though is that Randolph suggests they were better after the layoffs. More efficient and less time wasted with just the best people remaining. I’ve seen this so often where companies assume that layoffs will lead to disaster and instead the people regroup, and things improve with a renewed focus and energy.

9)?Final Lesson. “You just need to start”.

If nothing else, you should read this book for the story about how Netflix accidently sent a load of “adult movies” to its subscribers when trying to do a public service. I would love to have been a fly on the wall to see how they went about deciding how to remedy the situation.

Overall, it’s a really entertaining read with some fantastic lessons.

#founderchronicles, #netflixstory, #startups