That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea – Marc Randolph
Get the insider’s take on how Netflix went from one in a million ideas to one that revolutionized the entertainment industry.
For the first time, co-founder and first CEO Marc Randolph shares the company’s behind-the-scenes, beyond the popular story that Reed Hastings founded the company after a $40 late fee at Blockbuster.
The book tells the story of how he and his team revolutionized the way we watch TV and movies and how they overcame seemingly insurmountable obstacles to create the world’s leading streaming service. The book is an inspiring story of perseverance, resilience, and innovation.
The author shares lessons on how to build something from nothing, and how to succeed in the face of failure.
It’s a must-read for anyone looking for a behind-the-scenes account of how one of the most iconic companies in the world was created.
Everyone who has taken a shower has had an idea. But it’s the people who get out of the shower, towel off, and do something about it that makes the difference.
Hastings takes the reins
Hastings expressed concerns regarding Randolph’s strategic judgment, hiring, and financial instincts. Hastings felt that these errors would become more costly as the company grows. He proposed that he takes over as CEO and Randolph takes the role of President.
What Hastings said was harsh, but Randolph knew he was brutally honest. Randolph realized that he had two dreams: one of Netflix becoming successful, and another of him being the CEO. To do the best for the company, Randolph had to let Hastings take the reins.
Randolph knew that their partnership would significantly improve the chances for Netflix’s success and create a company that they would both be proud of.
DVD rental business – The unique Netflix way
Looking for a way to revolutionize the movie rental industry, Netflix’s team of passionate individuals took a big risk by focusing solely on DVD rentals. It was a bold move, but they knew it was necessary for their company’s success.
They worked hard to create a new monthly subscription model that allowed customers to rent DVDs from the comfort of their own homes.
The idea was a hit, with customers eager to try out the new service. Through hard work, perseverance, and trust in their own ideas, Netflix drove up site traffic by 300%.
The team’s innovative thinking and willingness to take risks ultimately led to the creation of a groundbreaking service that changed the movie rental industry forever.
The Dot-com Bubble Bursts
Netflix faced a major challenge when the Dot Com bubble burst, and funding became difficult to obtain. To survive, the company needed to become profitable, so they focused on streamlining the service and improving efficiency. They made deep budget cuts, which unfortunately resulted in nearly 40% of the company losing their jobs.
However, these efforts made Netflix leaner, more focused, and more creative, which created a culture of competitive excellence. Despite the painful layoffs, the company remained on track to acquire 500,000 users by the end of 2001 and ultimately hit 1 million subscribers by May 2002.
The story of Netflix showcases how an entrepreneur’s willingness to make tough decisions can ultimately lead to success.
Netflix culture
Netflix’s unique and successful culture was not the result of a premeditated plan, but rather a natural outcome of the shared values among the team. The company was built on the principles of hiring talented individuals, giving them tough problems, and the freedom to solve them.
This approach is summed up by the company’s core philosophy of “Freedom and Responsibility,” which emphasizes treating employees like adults, giving them a mission they believe in, and allowing them to figure out their own way to reach the company’s goals.
Netflix also places a high value on work-life balance, with flexibility and a focus on personal time being key components of the company’s culture. By November 1997, the company had an office, website, inventory, and a team with a great culture, and was preparing for its launch in April 1998.
The co-founder steps down
As Netflix grew, its co-founder Marc Randolph recognized that it was time to step down and allow new executives to take charge. After the company went public in 2002, Randolph downgraded his role and focused on leading smaller startups.
He learned that his true passion was working with smart people to tackle big challenges and turn ideas into reality. Netflix continued to thrive, and today it has over 230 million subscribers worldwide.
Randolph now mentors other startups as a CEO coach and encourages entrepreneurs to build, test, and sell their ideas. Randolph’s story is a testament to the power of entrepreneurship and the importance of adapting to change.
Launch Day
On launch day, Netflix faced many unexpected issues as they went live, and their servers crashed several times, causing much chaos. However, in two months, they managed to increase their monthly revenue to $94,000, although most of it came from DVD sales and not rentals.
To promote rentals, Randolph signed deals with Toshiba and Sony to offer free rentals to customers who purchased DVD players. Even though this strategy did not work, Randolph and Hastings turned down an acquisition offer from Amazon and decided to focus solely on the rental business, knowing that they could not afford any distractions in their startup.
Scaling culture
The early culture of Netflix was born from how Hastings and Randolph treated each other. Their principle of Radical Honesty meant raised voices and argumentations until the optimal solution was found. A culture of Freedom and Responsibility makes employees feel trusted and can give their utmost.
Most companies hired people who lacked good judgment and spent effort defining everything from stationery to holidays through long processes just to protect themselves from such poor judgment. Netflix wanted to build a process for people with great judgment. Freedom and Responsibility, coupled with Radical Honesty, would be transformative in the long haul.
But as the company grew, the question became how to scale it. This is where Patty McCord, the HR Head of Netflix, came in. She designed processes that encouraged freedom and fostered Netflix’s unique culture. Patty McCord pioneered concepts such unlimited vacation days and trust-based expense reimbursement, which went on to eventually redefine the field of HR itself.
Origins of Netflix
Marc Randolph was a successful marketer who, by the age of 40, had already founded a startup which was acquired by Reed Hastings. When Hastings’ company was about to undergo a merger, Randolph’s role as Vice President of Sales became redundant.
In order to find a new challenge, Randolph and Hastings began discussing ideas for a new e-commerce company, such as personalized surfboards and custom-made baseball bats, although all of these ideas were deemed infeasible.
Eventually, they settled on the idea of renting DVDs through the mail, and with Hastings’ seed investment of $1.9 million, the two agreed to launch a company in which Hastings would own 70% and Randolph would own 30%.
A Santa Cruz company
So basically, with some initial funding in place, the founders of Netflix got to work on turning their idea into a reality. They brought in Mitch Lowe, who had a lot of experience in the rental business, to help build the team and understand customer preferences.
They also decided to locate their office in Santa Cruz instead of Silicon Valley, in order to have a more laid-back environment and work-life balance.
They found a small office near Randolph’s home and invested in technology while being frugal in other areas.
The goal of Netflix was to have the most complete DVD collection in the world with multiple copies of popular titles, and Mitch Lowe’s expertise helped make this a reality.
The founders were excited to tackle the many challenges that come with leading a startup.
Focus on User Experience
Netflix’s success story highlights the importance of focus for entrepreneurs. The company decided to stay focused on their core business, even if it meant giving up on seemingly profitable ideas.
Netflix’s goal was to help people find movies they love, but the challenge was to recommend movies based on users’ viewing history. Through persistence and experimentation, the team developed the legendary Cinematch algorithm, which made predictions based on users’ qualitative reviews.
This innovation allowed Netflix to provide personalized recommendations, making it easier for customers to find movies they love. The lesson is clear: staying focused and pushing through challenges can lead to groundbreaking innovations that revolutionize entire industries.
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