The Lessons Netflix Learned to go from an Unsuccessful DVD-by-Mail Service to a Multi-Billion Dollar Empire
In the beginning, co-founder and former CEO of Netflix, Marc Randolph and his business partners were on target to be $50 million dollars in the red. That’s when they realized their idea was never going to work.
So, how does a failing company go from renting DVDs by mail to becoming the world’s largest and most widely-available internet streaming service?
By being willing to let their original ideas die in favor of better ones.
“I guarantee I've never, ever seen a successful company ever that's successful the way their original idea was,” said Randolph. “The people who are successful are the ones who take the idea and start, and then they find out why it's a bad idea. And then if they're clever, they try something different based on what they learned.”
I recently interviewed Marc Randolph on my podcast, On Purpose. The amount of wisdom and mentorship he brought was absolutely incredible.
Not only has Marc founded a half dozen successful startups, he is also the mentor to early stage entrepreneurs and an angel investor for a number of tech ventures. He gives a behind-the-scenes look at how ideas shape success in his new book, That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea. Here are some of my favorite takeaways from our time together.
His Wife is (Kind of) His Idea Sounding Board
My wife is my mainstream test. If I’m thinking about something and wondering if it will work or if it’s scalable, I’ll run it by my wife. Marc Randolph does the same thing, but with a twist.
“The joke between us is that I've learned she's kind of a reverse indicator,” said Randolph with a chuckle. “If she doesn't like an idea, it’s like, ‘Alright! I'm on to something!’”
In all seriousness though, Marc Randolph and his wife are such an inspiration. I once heard him say at a conference that his number one rule in life was to stay married, and he means it.
“I know a lot of guys who are on their sixth startup and their sixth wife, and I don't want that to be me,” Randolph said. “The thing I'm most proud of in my life is not starting this company with a 150 million subscribers or any of the other things I have accomplished. It's that I did all that stuff and stayed married to the same woman, that my kids know me and like me, and that I get a chance to pursue other passions in my life at the same time.”
Netflix Once Made a Pitch to Blockbuster
Today, we all know Netflix as the pioneer of online media streaming services, but did you know that the original idea for Netflix looked nothing like it does today?
Netflix began as a DVD-by-mail service that didn’t quite work the way its founders had imagined. After two and a half years, Randolph and his business partners reached $5 million in sales, and $50 million in expenses. Something had to give, and they decided there was only one strategic alternative – pitch the idea of a merger to Blockbuster.
There was just one catch. When they finally heard from Blockbuster, they were told they only had 24 hours to get from California to Texas for a meeting. They chartered a plane with nothing but the clothes on their backs and made it just in time for the meeting.
“And so we did that thing that prudent entrepreneurs do when they're $50 million in debt. We chartered a private jet,” laughed Randolph. Needless to say, Blockbuster didn’t jump on the opportunity.
That failure was the turning point in the Netflix story.
“My dad used to say, ‘You know, Marc, sometimes the only way out is through,’” Randolph said. “And it was that moment where we went, okay, if we're gonna make this happen, we're going to have to figure this out.”
Your Idea is Your Starting Point
I see it all the time – people waiting around, trying to come up with the next big idea. According to Marc Randolph, that mentality is a one-way ticket to nowhere. He didn’t want Netflix to become the next victim of idea idolatry, so he chose another tactic.
“What I try and tell people is, your idea is nothing,” states Randolph. “Your idea isn't going to be what happens. Your idea is your starting point.”
That was how the Netflix founders chose to approach their situation. They recognized their original plan for video rental by mail was, in Randolph’s own words, “A terrible idea”, and decided to make some improvements. It was all part of the journey, though, and Randolph has no regrets.
Taking an idea down a path requires courage to start, even if you’re not sure what the end result will be.
“You have to start and try, and you have to do something.” Randolph went on to explain that the real problem isn’t that ideas fail; it’s that people aren’t prepared to pivot quickly when they do.
Fall in Love With the Problem, Not the Idea
It’s so easy to get so attached to our ideas. We fall in love with what we want to happen and the goal we want to achieve. We forget that at any moment, everything could change.
Netflix is a great example of this. The DVD-by-mail service’s initial success wasn’t sustainable. Since they weren’t married to the original ideal, however, Netflix was not only able to survive, but succeed beyond all expectations.
How? The team focused on solving problems.
“What you have to do is fall in love with the problem,” Randolph said. “And the reason I say that is because the problem won't get old. You'll never give up on the problem. Eventually, you'll figure something out.”
Instead of holding onto their idea, Randolph and his business partners began focusing on problems they could solve. They trained themselves to look for the things that were causing issues, then figured out ways to solve them.
They started by testing each of their ideas on their target audience. They gauged the success of an idea on whether or not it really solved a problem for them. Randolph compares testing an idea to climbing.
“You can't always see all the way to the top from the bottom,” said Randolph. “So what you have to do is go up the first four or five holds and see the next four or five. You go up those and all of a sudden the route reveals itself to you.”
Model the Behavior You Want to See
After six successful startups, an entrepreneur coaching business, and numerous tech ventures, Randolph still makes balance a priority in his life. This wasn’t always an easy thing to do, especially in the early days.
“I'm not going to sugar coat it,” Randolph stated honestly. “Launching Netflix was like having a second family, a family who woke up in the middle of the night and cried.”
In managing his startup and his young family at the same time, Randolph knew it was up to him to purposefully choose balance. He started with regular date nights with his wife every Tuesday night at 5:00 p.m. sharp.
He knew it was good for his marriage and family. What he didn’t realize was how good it would be for his company. Once his employees and business partners realized Tuesday after 5 was off limits, it gave them the freedom to take that time for themselves and their families too.
“We can talk all we want about how we believe in family and balance, but then no one ever takes vacations and everyone is there until midnight every night,” Randolph said. He has found that a company’s culture and priorities are a reflection of the behavior modeled by the CEO.
Randolph continues to raise the standard of excellence not only on startup development but also on prioritizing family and connections. There is much more I’d love to share with you about my time with Marc Randolph.