Netflix Co-Founder On Turning His Idea Into A $100 Billion Company | Marc Randolph

If I had to pick the single fundamental, most important lesson of entrepreneurship that I've learned, it's simply that, that, that there's no such thing really as a good idea. Here's where it's going. And I've got to do something now which will build equity for the future, but I've got to build something that works today.

Man, you know what? You had an incredible career. I've. I've got to be honest, I've become a fast admirer of all that you've done. One of the things that I admire most is your approach to leading teams. And as someone who's been more of a early stage micromanager, earlier in my business career, a lot more fluid now. I'm curious. You always had an innate innateness to protect your time, your energy, not just with your spouse and with your family, but more importantly with your team. Like, it seems counterintuitive. Why did you decide to let them kind of do what they were going to do and kind of not like, hold them to a direct schedule and all that kind of stuff?

You know, it's funny because I'm not a classic business person. You know, I haven't take. Didn't take business classes. I was a geology major. I got two Ds in economics. So, you know, I'm not the classically trained person. And in some ways, what I always tell people is that I kind of learned leadership in a really weird way because I learned it in the mountains. I learned it because from a very young age, I used to spend tons of time on these trips, backpacking trips, climbing trips, expeditions of one sort and another. And when you're leading a group there, you quickly realize you can't dictate. Yeah, you have to be extremely sensitive to the strength of your group. What they're capable of, what they're good at. Got to make sure you're getting feedback all the time. You have to learn how to communicate with clarity and confidence, things that you may in fact, not be very clear or confident about. And you've got to realize why you're doing it, that you're here to have fun, that it really is about the journey, not about the destination, as corny as that sounds. And the other thing you learn in the mountains is that something leadership is situational, that it's perfectly fine to go. Stephen. Okay, what do you think? You feeling hungry? You stop for lunch or what do you think, Bill? How about you, Mary? But then you can have this collaborative decision. Okay, we should all stop for lunch. But now when Someone gets hurt, you've got to go. Okay, here's what we're doing. Steven, you're heading for help. Mary, you. And it's a different thing. And it's not that I realized I was learning this. It naturally happens. So all of a sudden, when you're in an entrepreneurial situation and you're in these situations where you're leading a group, you recognize, well, okay. It's about fun. Okay. I've got to recognize the strengths of each member. I can only go as fast as they can. I realize that leadership is situational and perhaps the most important skill. I've got to be able to communicate with clarity and confidence where we're going, even if I may in fact, not be so clear or confident.

Ain't that. Oh, man. Well, you know, it's another interesting thing I was thinking about, too. And again, that'll never work, guys. It's an incredible book for you guys, for everybody that's watching and listening right now. I was telling Mark just before we officially kicked this thing off that it's one of the few books that I'm enjoying so much that I will finish all the way through it, because I'm enjoying it that much.

It's not just a group of amazing stories and stuff like that going through it. There's also a lot of valuable lessons. I'll tell you one of the ones that resonated with me as top of mind, top of heart, if you will, is the innate ability to see the strength in a specific team member. I myself have found myself trying to push people into maybe the potential that I see in them. Right. And then they don't necessarily measure up. We both get frustrated. I've also been in the situations where I've hired people just because they could fog up a mirror because I needed somebody and then didn't really spend a lot of time, like, figuring out if they were good or bad or whatever or kind of if they were skill set or good for that skill set. But one of the things that. That at least speaks loudly to me is that you have an innate ability to kind of see the strength that someone can play in a role of a team. So as a CEO, an operator, as a creator, and a founder, it's almost like moving chess pieces. Is that something that's innate, or is that something that was trained?

Oh, that's a good question. And you never really know those things until you look back and begin to go, well, what was I doing? And where did that come from? Come from, yeah, but, you know, I Think it really is just that I am kind of a people person fundamentally. I mean, I don't have any special skill, I don't know how to program. You know, I don't. There's people who are way better in finance, way better in marketing. My strength is that I learn I can find people who are really, really good at these things and then more importantly, motivate them to want to do these things, to want to contribute. And so part of it is, it's this lesson that I learned. Gosh, I don't know, I don't want to say how many years ago it was, which was what does motivate people? And, you know, I'm sure you're familiar with the big companies out here in Silicon Valley and they have fireman poles and nap pods, beanbags everywhere, beanbag kombucha on tap, you know, bring in, you know, yoga instructor. It's like ridiculous. And.

I used to work at this big software company called Borland. Back in the time, it was like a competitor at Microsoft. Not anymore, but we had the whole thing going. We had the corporate campus, we had tennis courts, we had the Olympic sized pool, we had the squash court, movie theater, I mean, every possible amenity to make our employees happy.

Then one afternoon, Patty McCord, who actually plays pretty figuratively in the Netflix story, and I were walking back from lunch and we saw some of the engineers and they're sitting in the hot tub. Of course we had a hot tub. So we stopped by to say hello. And once it got close, they are bitching about the company. And at first we were kind of laughing about the irony of this, that we had spent these millions, tens of millions of dollars and all these amenities, but they're sitting in the hot tub complaining. But it led to this really interesting thing, which is what does motivate people if it's not hot tubs and swimming pools and tennis courts and cafeterias. And it began this quest to realize what does it take to get someone to really want to come to work? And we realized that it's one of those simple things to say and really hard things to do, which is you have to treat them like an adult. What people really.

There's an interesting idea.

It is, but you think about how rarely it's done. I mean, I'm sure you're aware of the circumstances where you have the, you know, senior, you know, vice president of sales and he has a $50 million nut he's got to hit every quarter.

But he's got to fill out an expense report and has to be approved. And he has travel guidelines. And, and he's going, it infantilizes this guy like, well, you can't make a decision about what level class airline I can fly from, flying to Japan. And it's that sort of thing. And so in some ways, the Netflix experiment was what happens if instead of building this culture for people with bad judgment, putting in place guide rails so no one can make a mistake. What if you built an environment for people with good judgment that there's no rules, there is no vacation policy. You listen, you know better than I do when you can take vacations.

See, that would scare the mess out of me.

Yeah, there's, there's no, there's no vacation, there's no expense policy, there's no travel policy. I mean, there's no policies. There's one policy and it's called use your best judgment. And it's incredible how powerful and motivating that is, that people love being in an environment where they are truly given responsibility and freedom to make decisions. And so that goes way back. In any startup when you have only a handful of people, you don't have time for command and control. You don't have time to get everyone in and say, you do this, you do this, you this, this. All you can really do is point off in the distance and go, you know, see that hill over there? I'll meet you there in two weeks. And here's what you need to have. And I have no idea what you're going to encounter. You may have to go the long way or you go short way, or you might bump into something or someone gets hurt, but I trust you'll figure it out and you'll do what you have to do. And you'll be bloody and you'll be crawling, but you'll be on that peak in two weeks with the things. And every startup is like that. And what gets companies into trouble is they get a bit bigger and someone shows up late and the well meaning CEO goes, ooh, this is not good.

I need everyone to send in status reports. So just so I know what's going on, this can't happen again. And everyone goes, oh, status reports. And then someone else shows up on time, but they overspent. He goes, oh, this is no good. Everyone's got to pre approve any expense over $2,000 so we can protect ourselves against overspending. And that's what happens. And I think what I realized is that if I could build an environment where I could preserve that feeling of empowerment people have it would be incredibly motivating. It would allow me to hire incredible people and get the most out of them. Because everyone wants that. To be trusted, to be given real freedom to solve problems the way they see us solve them, but given responsibility to get things done. I could go on about this forever.

No, I love it. I thought it was important because I think a traditional entrepreneurial journey is the founder has the, you know, the founder has an idea, they're trying to turn that idea into reality. You know, they're going to, they're going to get into. That will never work, which I'm going to come back to in just a second because I think entrepreneurs hear that all the time in some way, shape or form. But when they get into the team and team environment, I think that a lot of times are, especially if they're, they're bootstrapped. Like most of my businesses that I've all been bootstrapped, I've self funded them in some way, shape or form. Largely because I didn't know you could raise money. But that was, that was then, this is now. But, but when I went through that whole scenario, I always felt like I was up against a hard place. A rock and a hard place. So therefore it starts off with a loving culture. Everybody's high fiving, let's kumbaya, let's have a blast. And then six months, in a year, in all of a sudden the money that you have invested is running dry and the pressure's on. And then that's when I found myself accidentally caving to the more micromanaging kind of thing. That's why I wanted to kind of bring that up because I feel like a lot of entrepreneurs are in that environment where they're probably already there. Right. They've been at their thing for a while, they're trying to make it possible and I feel like they get stuck there.

Yeah, I certainly know that temptation, but it's this confidence that empowered people.

Can.

So dramatically multiply your efforts. I mean, because for example, when you're micromanaging, you're basically saying, I'll do all the thinning around here and all I'm doing is giving myself more arms. But it's so much more powerful to give yourself more heads.

Yeah.

And that's what empowering people gives you. But listen, as I said before, it's easy to say, it's really hard to do because if you're going to say that I'm going to empower people, if I'm going to have this freedom and responsibility culture as we called it at Netflix, you've got to have people who have great judgment, who you can trust, which means you've got to recognize that you can't have people without good judgment there. You didn't build the guardrails. You don't have all that stuff. And that means sometimes you've got to say goodbye to people. It's not at all easy. It's just powerful if you can pull it off. But, you know, listen, I'm. I'm not saying things. Don't get scary. And again, leadership is situational. Sometimes you get in those crunches and you go, we do not have time to make a single mistake here. And now I've got to say, here's what we're doing, or doing this right now, but, wow, that should be the exception rather than the rule.

Yeah, well, I think the freedom allowed. So first of all, I think you. I think you lived out the freedom to give them the confidence to operate within the freedom within themselves. So I think there's definitely leadership, leadership quality there. I also think it was a. You know, as I listened to the overall of the, of how Netflix became Netflix, right. All the different names you were. You were pondering with the company and all kinds of stuff. And, you know, one of the things I hear is I hear a lot of collaboration. I hear a lot of trust. I hear a lot of people protecting what they say they value with intention and action, not with just words. So I see a ton of that. But as a result, because of that trust factor that you shared with your team and then began to build your team around.

You got a list players for C list play for an extended amount of time because the dream was so big, right?

Yeah, it's a powerful thing. But again, getting people to come and work for you like that requires.

Giving them something important we're all trying to do and giving them this freedom to do it and picking the right people. I mean, a huge advantage at Netflix was the fact that I was 38 when I started Netflix, and Netflix is my sixth startup. So I had collected over the years this group of people who I knew were a loved having this freedom and responsibility, who I knew had great judgment, who I knew loved the struggle, who I knew loved solving problems, and who had that classic entrepreneurial trait, which was they were happy to work like dogs for three or four weeks on something, realize it's not working, come to work, the next day, that's abandoned, we're onto something else, and be excited about that rather than disappointed.

It's finding these People who. It's not like some magic of taking a bunch of people who have been. I was going to use with no disparagement in a career like accounting, which is kind of more linear and saying, now we're going to invent something and do it all differently. And.

It'S a mindset not saying people can all do it, but some people don't want to do it. And you've got to find the people who do. And that's tricky. But, you know, I want to. I gotta follow up on one thing you said, which is this whole modeling behavior.

So much of that is true, because this culture and all the stuff that I'm talking about is culture did not come from sitting down and putting together a PowerPoint and saying, here's what I want this culture to be. It came from. Its culture is observational, not aspirational.

Yeah.

So this all came from how I acted, how Reed Hastings, my co founder, acted, how we treated each other, how we treated employees, how we treated customers, how we made decisions, all of it done transparently. So people saw. This is how we expected people to be. Not because we were telling them, because they saw it. Yeah. Because, you know, you can basically go, we are. Customer always comes first. And look, there it is on the break room poster. And then during the meeting, and there's a flawed product. And, oh, geez, how do we. How do we skin. No one's going to notice. Maybe we'll only give a refund to people who complain. And you've basically said one thing and done another.

Yeah.

And that's not how. How those things get communicated. That's not how culture becomes a part of the company. It's what you do, not what you say.

But you can't build anything on hypocrisy. There's no doubt about that. The other thing that, from a principle that I took away from just watching what you guys have done with Netflix, is if you spend so much time telling people what to do, you can't trust them to scale. Right. And so it's either telling or scaling. And you don't get to the exit that many of you and your founders and stuff have had along the way without getting to a place of scaling. Right. So I do want to go ahead and change up the conversation a little bit and go ahead and pivot to. That will never work. There's this. This. This amazing story which. That I love in this. In the. In the book that refers to a young man who says, this is shit. Right.

And, you know, I think it just goes to show, I think. So you have an idea, you're working through it. What I want to do is maybe center the conversation for a couple minutes just on the entrepreneur who's got an idea, who they desperately believe in. Maybe it needs retooling, maybe it needs refining, maybe needs more collaboration. But taking it to the next level, not getting lost in one or two or ten people's negative feedback kind of thing.

Yeah, I think that's. If I had to pick the single fundamental, most important lesson of entrepreneurship that I've learned, it's simply that. That. That there's no such thing really as a good idea, despite what we are told all the time in brainstorming sessions. You know, there's no such thing as a bad idea. Bullshit. There is plenty of bad ideas, and they're all bad ideas.

I've had some with bad zeros as well. So, yeah, that's what.

That's. That's what an entrepreneur's job is, is to convert, figure out why it's a bad idea, figure out something about this customer's problem that you're original idea didn't work, but you got some insight that led you to the next step. To the next step. To the next step. There's no country, no company I know of genuinely who has become successful doing what they started. It is absolutely a twist and turns as you learn more and more and more. And that's why, I mean, I called the book that Will Never Work, and I have a podcast called that Will Never Work. And I use that because it should be the entrepreneur's secret handshake.

We've all heard it a million times. I mean, I heard it from every single person I pitched Netflix to. I heard it from the investors, I heard it from the employees. I heard it from my wife.

But nobody has any clue. They don't know. They're going, oh, it'll never work. That's not helpful. No one knows when you're doing something that hasn't been done before. Nobody knows. The only way to know is to figure out a way to try it. You know, to build something or make something or test something, or you got do something. Because you learn more in one hour of doing it than you do in six months of pitching it to one person after another and having them give you feedback. Yeah, nobody knows anything. Just do it and start learning yourself, and you'll become the world's expert on that particular problem that no one else in the world can tell you. So I called the book that Will Never Work. As a reminder that every idea doesn't work and great doesn't work. I'm onto something.

Yeah. Pivot. Yeah. No, I love it. In fact, you know, I think the book, the lesson, the principle, and this is something I think all entrepreneurs need to understand. It's not that it won't work. It just may not work in its current form. So one of the questions, so I used to hear if that will never work. My own father, you know, I was homeless at the time. I went to go start my first business. He says, you're out of your mind. I just got you a $12 an hour job, got you back on a framing crew. Like, what are you doing? And I just knew something deep inside that I, that this was going to be something. Right? And it became the first of several businesses. But in that moment, it was really hard for me to tell my father, this is where I'm going. This is. And this. I just know that. I know that I don't know what it's going to look like when it's finished. I just know it's going to work out. I say all that to say that one of the questions that I've, that I've learned to follow up with, and I think it's an undertone that I'm hearing in the. Is, okay, so you're saying it'll never work. Tell me how we could make it work.

Yeah, but actually, I'm going to rebut that they don't know how to make it work either. I mean.

I really believe the only way to figure this stuff out is to try it. And that the single biggest thing that you and I can do as people who are trying to support early stage entrepreneurs is, is encourage them to stop thinking and start doing it. There is no magic answer. You are not going to all of a sudden puzzle out. Exactly. Oh, I see. Exactly. You can't take the risk away. It's impossible. You can't get to the point. You go, I am now 100% confident. And now you're going to start and you're going to see 100 people ahead of you. All the people who are willing to start before they had it all figured out. So that's why I dismiss. I don't. I don't even. Okay, I'm gonna change pivot for a second on this whole topic.

Absolutely.

That was a full pivot.

Close enough. So.

There'S this interesting aspect of changing your mind.

How do I say this? There's a special skill that the best entrepreneurs have, and it's actually a combination of two contradictory skills.

Okay.

Because on one hand, you have to be unbelievably self confident. You have to believe even though everyone's telling you that will never work. Oh, no, no, I got this. I am going to make it work. That's crazy. I'm going to do it anyway. You need to have that belief that this optimism. But it can't be blind optimism. You have to be able to listen. You've got to be able to hear other people's objections and factor them in and evaluate for yourself. How do I consider this? Is this person credible? Is this thing he's saying apply to me? I'm not going to stop what I'm doing. But I'd be a fool not to listen to someone who may have been down that path before. And I think it's that weird combination of those two traits. Like I think Adam Grant said, the sociologist said, you want to argue like you're right, but listen like you're wrong.

Yeah. Oh, that's good.

And that's the contradictory set of forces I think, that entrepreneurs have to hold in their head at the same time.

Yeah, absolutely. And I would totally agree with that. I would say that at any given moment on the entrepreneur journey, you're probably leaning one way or the other. Maybe you could be listening a little too much, which makes you indecisive. You could be directing too much where it makes you not listening. Right. So there's, I think that's a maturity thing that comes over time.

No, seriously.

The other thing I was thinking of too, that I really appreciated when you said this and I had to ask myself when you said this, is it something that I actually enjoy? And I think part of me does at times and part of me doesn't, which is this essence of falling in love with the problem. You said that great entrepreneurs fall in love with the problem. And I have to admit that early in my early stage entrepreneurship, I resisted all problems. Like I just, I didn't want him to be there.

Right.

Just make the problems go away. And then I learned over time that the problems actually made the dream possible. How did you like decide? Was it a decision? Was it something, again, innate? Because I don't think it's natural for us to fall in love with a problem.

Well, just to be clear, I'm not sure those are the types of problems I meant that I was falling in love with. Those day to day problems. I was really saying, in contrast to the people who fall in love with their idea. Okay.

Yeah.

They've Got, oh, I got this great idea. And my God, it's this precious child and it's nurtured. And, you know, they envision it growing up to be like a Heisman Trophy winner or the, you know, CEO or valedictorian. And it's all in their head and they don't care. Things keep failing. And that idea, I'm going to make that idea work. That's the worst thing you can do. But if you fall in love with the problem you're solving, the problem that that idea was meant to solve, that will never abandon you because that gets richer and richer and more nuanced and more interesting. So I'm talking about that fundamental underlying problem that I want you to fall in love with, the day to day stuff. Thank you. I'm not a guy who comes to work every day going, gosh, I love how much this is, how difficult this is.

Can you give me a plate of problems, please? That would be awesome.

Y. Exactly. With a side of problems also.

Oh, my gosh. Well, I got to be honest with you. Your book was very encouraging me, even to me right now in this particular season. So I've got, on one hand, I've got a very successful business that I built well into the eight, almost nine figures, right. So that's wonderful and I feel blessed. And it's been a long journey, 25 years it took to kind of get there and stuff like that. On the other hand, I've got holding companies that obviously handle real estate and stuff like that. And then I've got my passion projects, right? This, this thought leadership world, this, this idea that I can take what I've learned and bless the world with it somehow, some way. And I just went through a recent phase where I was actually repositioning the brand, repositioning the message, reposition even the name of the business in an effort to be more succinct with who I was and where I thought I was going. And I think I really appreciate the areas in the book specifically that talk about it's okay to pivot. Like, I was wondering if you maybe you would walk us through just one of the stories, even with the naming of Netflix, of how it was required to pivot, because I feel like going back to your earlier point where entrepreneurs, this was this one idea and I'm guilty of this. I told my spouse I was going to do this, I'm going to do it and I'm going to do it.

I'm going to prove her wrong.

Like that kind of thing. Almost obviously, I Was a bad boy, like I had to go back and apologize, but that, that hardheadedness. Whereas as I hold things with more of an open hand, things seem to shape out. So I was wondering if you could talk on that for a couple of seconds.

Yeah, I think it's a critical skill which really comes into play as you. Again, this falling in love with the. With the problem is you recognize the direction you're going is not the right direction. And that's an easy thing to do when it's a thought experiment, but it's very, very difficult to do in that wrong direction. Is generating lots of revenue when it's paying your salary, when you have all kinds of people invested and depending on that, and you can see into the future. And again, I'll give you a specific case. And this is, you know, at the beginning, as you probably know, Netflix was not a streaming company. We started off as a DVD rental by mail company. So we had a website and you came in and you picked out a movie and I mailed it to you on a DVD and you watched it and then you mailed it back. And that was the idea that everyone said would never work. And I must confess, they were right. It was a terrible idea. It did not really work. But we also, as an afterthought on day one, decided, you know, we went to all this effort to find a source for every single movie that's currently on DVD. We have everything. Let's sell DVDs now. That business worked. And so in those first three to six months of Netflix, we had this gangbuster we were doing for us. We were doing almost more than $100,000 a month. Can you believe it? Million dollar run rate, bigger than a single Blockbuster store. But it was all sales. And on one hand it was great having orders coming in so we could fix the problems with the website and people were motivated, There was energy. But I could see this was a terrible thing because sales is a commodity business. Everyone's selling the same thing. And so eventually Amazon's going to sell DVDs and then Walmart's going to sell DVDs, and then Kmart and Petsmart, and then margins go to zero. I don't know when that was going to happen, but I knew that was inevitable. Inevitable. So rental, hugely promising because it had high margins, operationally complex, defensible, but no one was doing it.

And the third problem is that doing both of those things at the same time was awful. It was confusing to customers. Do they sell or they rent? And imagine designing A checkout process to handle rentals and sales and the warehousing where some disk went out and stayed out, some went out and had to come back. Our reporting was, everything was made harder. And so you have the strategic decision where you go, do you need to focus? And do I focus on the thing that's paying 99% of our salaries, which is going to be going great for who knows how long until eventually it's not? Or do I focus on this thing, which is not working, but if I get it to work, could be huge. And it required saying, I've got a bet on the future. I can't defend the past.

And we can't. By hedging our bets and maintaining our sales business, we are ironically making it even harder for ourselves to get the future right. And it requires that courage to say, I'm going to walk away, we're going to turn it off, we're going to stop selling DVDs. And in one single day, we pulled the plug and stopped selling DVDs and bet everything that we could figure rental out. And when you walk away from 99% of your revenue, it clearly focuses you on the problem you have to solve. But that was, I'll say, relatively easy. I did that when it was hundreds of thousands of dollars of revenue. You know, Netflix nine years later faced a very similar problem where they now had a DVD by mail business and a streaming business. And one was the past, which was the dvd, one was the future. The one in the past was paying 99% of the bills, but doing both at the same time. It was the same. The old problem just writ large. And even then, you know, I had the courage to do it when we were doing hundreds of thousands of dollars of revenue and Reed had the courage to pivot the company into focusing entirely on streaming when it was hundreds of millions of dollars in revenue. But every company has to do that. And if you don't, if you're saying, I can't walk away from that because my big high priced salesperson will quit or my big distributors will be so mad at me they might take my business away or fill in the blank. But the customer could care less about your high priced salesman and the customer could care less about your distribut not being happy. He wants good or service. And if you're not willing to put everything you have into getting that right at the expense of your existing business, well, I promise you, I have tons of people I work with in Silicon Valley who will come after it and be happy to Take that business for you.

Oh, man. Well, let me ask you this, and maybe this is subjective because I know, I know a little. I've, you know, Tom and Lisa and everybody. Everybody's good, good people and stuff. And one of the things I heard you mentioned in talking to him is this contrast between blockbust. I want to ask a different question. What do you think that Netflix got right and Blockbuster got wrong? That inevitably cast the dice.

We bet early. I mean, when we were all in, we recognized that this was going to be a viable. This is a better way to consume entertainment. And we did everything we could to optimize on that. And listen, it's overly simplistic to say that Netflix was the reason that Blockbuster went down, but there was some fundamental decisions that they made, which was, for example, there got to a point where they said, wow, this DVD by mail thing, this looks legitimate. Customers do like this. But they didn't. At the same time, they had to make this decision. Do we take our best executives and our best engineers and put them on this business that if we do great, it could do $50 million this year, or do we leave them on the business, which is generating $6 billion this year now? I wouldn't want to have to be the CEO. How to make that call. That's guts. And Netflix has always been willing to do that. They're always willing to walk away from the past or the present to get the future right. And I think in a nutshell, Blockbuster didn't make that decision soon enough.

Yeah, no. I think, you know, with what little I know about Netflix, obviously there was years of work and energy and things that went into making it, the success it's become, but from just memory of as a user, as a client, as a customer. Right. I've been a Netflix customer for a long time, longer than I can remember. And even back when you guys were mailing DVDs, I have actually got some of those myself.

Thank you.

You're very welcome. I was trying to help you keep the lights on, but in the grand scheme of things, one of the things that I've found very interesting with Netflix specifically is not just the ability to pivot, not just the ability to walk down that path, but you guys basically disrupted and innovated or created, from what I can remember, the streaming service to begin with. And now we've got Discovery and Disney and all these different, these different outlets now for, for streaming services. Was that already. I mean, inevitably competitors come when you're successful at whatever niche it is. Right. Netflix has gone on to do now production and some other things. Right, Was that, was that something you be, you guys began to see, you know, five years ago, or it's like, I'm curious about what the process is or what the thought goes into, you know, where we're going to be in three years, five years, 10 years, that kind of thing.

Yeah, it's a, it's an interesting challenge and probably one of the smartest things that we got right, which was when, you know, I, you've heard me say several times in this last 30 or so minutes that that will never work. And that's what everyone said about the idea. And they had two fundamental objections. And one, of course, was blockbuster. Blockbuster in every corner. Why would anybody want to wait a day or two for the movie to arrive by mail, blah, blah, blah. But the other objection was DVDs are digital. This is just a matter of weeks before everyone is going to be streaming them or downloading them or something like that. And the thing is, we knew they were right. Yes, it was absolutely inevitable that eventually we'd all be receiving our movies digitally. But we didn't know how long that would take. And in fact, we were pretty cynical that it would be soon, that we knew it would be years before the bandwidth was there, before the digital rights management software was correct, before Hollywood had the guts to put their bits into the clear and not get Napster.

So we had to build a business which would work in a DVD by mail world, but also prepare us for when at some point in the unforeseeable future, the unpredictable future, the world would shift and all of a sudden everyone is now streaming. So if we had said Netflix is the world's fastest shipper of plastic, that might have been the right positioning for a DVD by mail business, but it would have crushed us when all of a sudden streaming happened. But if we had said Netflix is the first place for your streaming needs, that would no business at all, because no one was streaming or there's like two titles available. And so we were orthogonal about it and we said basically, Netflix is a place to discover great stories. And then made great efforts to make that true with great content, with software which shall predict what you might want to make sure that you send something back, that title was there immediately of something you wanted to see. Because that positioning didn't make a difference on the delivery mechanism. It was delivery agnostic, that it works when I mail you the disc with the content, that great story on plastic, but it still works when I send you that great story. By streaming. And it will still work in 20 years when we can beam it into your head. A hologram.

Yeah, the holograms.

However we do it now, you can live the movie. And so that was. The clever thing is we built this equity around something which was timeless, which meant that every single day we were building this feeling amongst customers. This is a great place for me to get content from. I don't care how it comes. So, yes, in 2007, nine years later, even took longer than I thought, we streamed our first movies. It was really no bat of an eye. I get my movies by disk now I'm getting them streamed. And then lo and behold, 10 years later, when all of a sudden the rest of the world goes, oh, my gosh, this is like a great way, this Internet tv. This is fantastic. We had been doing it already for 10 years.

Or more than 10 years, and had huge experience in what customers wanted and how to interact with them and how a subscription mechanism works. And we knew customers taste so we could create great content. It was a fundamentally important thing. And it came from the fact that we realized in day one, there's where it's going, and I've got to do something now which will build equity for the future, but I've got to build something that works today. And balancing that, it's like riding a mountain bike downhill. You would better be holding those handlebars tight and looking about five feet ahead of your front wheel or you're going to hit a log or a hole and go flying over the handlebars. But, yeah, every so often you've got to look up and make sure you're going generally in the right direction.

I love it. Well, from me to you, thank you guys for removing commercials early on. Like, you're not making that something we had to deal with. And I appreciate that. I think practically I have a. I got a framework that I currently use, and in the couple minutes we got left, I want to just kind of get your thoughts on it. I use a mentality called Test Invest Scale. So test the idea, try to troubleshoot the idea, try to break the idea, try to look at it from different angles. If you get past that stage. Now, let's invest some capital, some human capital, some resources into that. Can we stretch it? And then if that works, then onto scalability. Was there ever a practical framework that you used in your thought process in trying to scale Netflix to the success it became?

Yeah, there is absolutely this element of Test Invest scale that we used. My whole background was in direct marketing before Even the Internet was invented. I had done 10 years as a direct marketing guy doing direct mail and doing direct response television and doing magazine circulation. So it was in my blood, this testing, and evaluating people's behavior about informally, what to do next and what worked and what didn't work. And so when we started Netflix, and Reid was a mathematician, so the combination of those two things meant that testing was built into our blood from the very beginning. But it's interesting because testing, we learn in direct marketing, is that there's two types of tests. There's breakthrough testing and there's iterative testing. And in iterative testing, you're going to okay, the red envelope, beat the blue envelope. So now let's try dark red versus red versus light red.

You're iterating your way through. But at the same time, if you do that, you're never going to get to the realization that you shouldn't use an envelope at all. You should. I don't know, my analogy breaks down here, but you get the idea.

Yeah, absolutely.

You gotta be mixing these big moonshot tests with these iterative tests. But the most important thing, at least in my belief, is I would never do anything until I decided in advance, what was the proof going to be that this worked? What am I looking for? What is the evidence that this test is going to tell me? I don't want to have arguing afterwards about, what does this mean? Yeah, if you have an idea, how are we going to test it? How are we going to know if it works? How are we going to measure it? Let's instrument the site properly. It's this basics of trying, trying lots of stuff. And I'll give you one more testing story, since I've got. I got a million of them. And I know we're at running time, but the most important thing I learned about testing was I, at first, was this perfectionist. And all my little tests were works of art. I had custom photography, and every word a copy was handcrafted. And we'd have a copy editor look, and they take weeks. And of course it wouldn't work. And so too much time wasted. Do it in a week, do it in a day. Pretty soon there's 100 things a day. And it got crappier and crappier and crappier and crappier. And I never hit bottom. I never got to the point where I said, oh, wow, that was just too poorly executed. Even when the wrong image is in there, even when there's misspellings and typos, even when there's dead links and you crash the site. Because I always learned. And the benefit was it's so much more important to figure out a way to quickly, cheaply and easily try as many bad ideas as you can than it is to spend all this time trying to come up with the perfect test for this one. Good idea.

That's so good. Well, I know we're closing in on the 45 minute mark. In fact, we're one minute over and I got to get you back to your bride because I know it's, I think for you right now it's 4:45. And I know that. I know this is walking to the car with Mark. But first of all, thank you for today. Yeah, thank you for today. I've had a blast. Learned a ton. I know the audience is going to take away a ton as well. I do want to encourage him to go ahead and pick up the book as well because it is a fantastic read. It is a lot of fun. So much so, I'm going to challenge you to call your friends at Netflix and say, hey, this should be a movie. This should be a movie. Because there's so many ups and downs and twists and turns and colors and things throughout the course of the book.

That I think should also be told in movie form.

It wouldn't be a book about Netflix if it wasn't Bingeable.

That's very true. Well, maybe it's a series then. Right?

There you go.

You know, so, but anyway, thank you.

For describing it that way because I really was trying to write something which was not a business book. This is a. This is a story about what it's really like for a handful of people with no experience in video to make a company and eventually make something pretty big.

It really is. It really is a fun and interesting read. And there's the undertones for entrepreneurs. The amount of undertones that an entrepreneur can pick up are priceless. Right? There's two ways to learn. By your own mistakes and by the mistakes of others. I'd rather learn by the ones that you've already made. Save myself a little time and energy.

Yeah. Appreciate it. I know we gotta wrap up, but. But let me ask you this. Where's the best place for everybody to stay connected with you? Actually join your podcast? Where can they find the podcast? All the good stuff?

So the best place for all things Marc Randolph is to start at the website, which is markrandolph.com and there you can actually find links to the book, to the podcast, also cleverly called that Will Never work where I actually sit down with real entrepreneurs, not famous people, and just help them work through their business problems. But also you can find links to if you don't have the time for a book or a podcast and you want everything carved into 32 word nuggets, well, you can find all the social media links there. It's markrandolph.com, mark with a C and Randolph with a Ph at the end.

Love it, man. Thank you again for coming on, my friend.

Oh, Steven, it's been a pleasure. Thanks.

Awesome, my friend. Take care. Peace. If you like that interview, I know.

You'Re going to love this one right here.

So go ahead and check it out.

Yes, the way you approach life, our genetic history plays a part. Life circumstances, yes, play a part. But a huge approximately 40 to 45% of our experience is based on our choices.