#36 How Netflix Went From Idea to Reality (Part 2)

One of the things I'm asked about most often is the Netflix culture. How do we establish it? What kind of presentations do we make to new employees? How do we figure out the way we wanted to work together, interact with one another, speak to each other? Now, of course, Netflix culture is famous. There's a much downloaded PowerPoint presentation given to all new employees. But the truth is, it wasn't the product of meetings or carefully planning. Or roundtable discussions. It rose organically through a shared set of values among a team of people who had been through their fair share of offices, startups, major corporations, and everywhere in between. Netflix, for all of us, was an opportunity to work at the kind of place we'd always dreamed about. It was a chance to do things truly our way. Culture isn't what you say; it's what you do. Welcome to Netflix Part Two. I just read an excerpt of That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea by Mark Randolph. I this is part two of this book, and I am starting in chapter seven. So I'm about seventy pages in. I actually finished this book a couple weeks ago, and. And I wanted to finish out this series because I think it's very helpful to learn about what Netflix was founded on and its core principles right now. So this is basically 6 to 8 years of the founding history of Netflix, and this does not cover everything. And that's why I want to read another book on Netflix at some point. It's called No Rules: Why Netflix— something about its culture. But it's by Reed Hastings, who still is at the company to this day, or he resigned in 2023. So I definitely want to read that. He came out with a book in 2019, probably covers a lot more than Marc Randolph. What I really appreciate about this book is like, what are the founding principles, what it takes to go from a startup idea and actually go through the phases and then build into a real company with raising real money and all these things. And the title of this chapter is We Were Almost Cinema Center. So I want to go on because there's a lot of helpful things within this chapter specifically, but also other chapters. So one of the biggest things is going through this and just really understanding what they were built upon. So this is 6 months until they launch. So he's talking about culture. I knew that I and everyone else on the initial team would thrive if given a lot of work to do and a lot of space to do it. That was really all our culture amounted to. Handpick a dozen brilliant, creative people, give them a set of delicious problems to solve, then give them space to solve them. I think of MrBeast's leaked memos, which I'm probably going to do an episode on at some point soon. I read that about 2 years ago, and it was a great just viewpoint of the biggest YouTube channel in history. So he's scaled— Jimmy Donaldson has scaled the MrBeast YouTube channel and all the other channels to over, I wanna say 700 million, 800 million if you include the big channel and all the smaller ones in terms of YouTube channels. MrBeast kind of talks about this same thing as well, where this whole thing of just getting A-players, getting them creative problems to solve, and this philosophy that no one can do it better than you, and we're going to work to find innovative solutions And solve these crazy impossible problems that we might have, but figure out how to do it and solve it. And then you give these people space to do it. So he goes on, Netflix would eventually codify this as freedom and responsibility, but that was years later. At that— at the time, it was just how we did things. We didn't want to have set hours for work. This is really interesting. You could come in when you wanted, leave when you wanted. You were being judged by what you could accomplish. That's a really interesting idea. It's not about how much hours you work, it's about how much you do in the time that you are there. So you were being judged by what you could accomplish. As long as you were solving problems and getting things done, I didn't care where you were, how hard you worked, or how long you stayed. My philosophy was informed by years of wilderness expeditions with Knowles. Knowles, he'll go into it in a second, but he basically learned a lot of good principles from this wilderness program. I love the smell of the mountain air, the stillness of the outdoors, the sense of peace that comes from reducing life to its barest essentials. But more than anything, what I love about backpacking trips are the people I take with me. When you're out in the woods, you're separate from the rest of human society, and as a result, you have the opportunity to form a new culture. With its own rules, laws, and traditions. What happens on a backpacking trip also turns out to be the perfect model for what happens in a startup. We call it being loosely coupled but tightly aligned. I love that idea, like being able to work together as a company, but hiring real innovators to actually innovate to where you're not holding their hand. Because a lot of people, what they want to do is you get them in, and if you're not— this is a two-way thing. If you're not a good leader, you hold their hand. And if they're not a great A player, or if they're a B player or C player, they want their hand held. So they, they want their hand to be held and you want to hold their hand because you're trying to show them the ropes. But what ends up happening is at the end of the day, you ultimately need an A player and you need to let them do their thing. And Steve Jobs knew this, all these founders. in history know this, that you need to be able to give— you need to give people liberty to do things amazingly, but also on the other side, be able to be tightly aligned. He says, from the beginning, I resolved to treat everyone who worked at Netflix as an adult. At Borland— and Borland is this company he worked at previously— and I think this is really key. This is a really important moment. Why? Well, all these founders talk about excess cost, excess weight. You need to trim the weight and the fat off because this is what can happen to your company. He says, at Borland, I'd seen what happened when companies decided not to do that, not to treat people as adults. When I worked at Borland, the company was at its decadent '80s height, set on a dozen beautifully landscaped acres. The campus boasted a koi pond in the lobby, a redwood grove, walking paths, a theater, a full restaurant, a health club with racquet courts, weight rooms, fitness studios, and an Olympic-sized pool. And of course, as befits a company where nothing was too good for its employees, there was a hot tub. But even a jacuzzi wasn't enough to ensure that everyone was happy. Now, this is like the top of the top. But he had a story in here where basically he like walked around the corner one time and there was people just soaking in the jacuzzi, like badmouthing the executives. And he did not want a culture like that. He wanted people— he wanted the executives in his company at Netflix to treat people like adults. And this is what he's saying. It's really important that you focus on being able to really ensure that people aren't treated like kids. Because once you do, once you start giving all these perks and benefits, it doesn't matter how bad or how good the amenities are. When you don't get the leadership right, it doesn't matter. And also, this is all excess weight, excess cost to the company. He says, what are the factors that really drive employee satisfaction? Satisfaction? Or more importantly, what does it take to get other people to sign on to help you with your dream and be happy doing it? What we found was surprising and, and surprisingly simple. People wanted to be treated like adults. They want to have a mission they believe in, a problem to solve, a space to solve it. They want to be surrounded by other adults whose abilities they respect. Again, it's A-players. He says What they really want is freedom and responsibility. They want to be loosely coupled but tightly aligned. Remember that. They want to be loosely coupled but tightly aligned. He goes on. When we started acquiring DVDs, there was only 300 or so titles available. By the time we launched in April of 1998, there were 800. So the whole— so they— Netflix, if you're listening in part 2, this is part 2. If you're listening to this and you haven't listened to part 1, basically Netflix was into DVDs before they got into streaming. The whole idea is that they want to acquire all the DVDs and get a bunch of them for the really successful movies so that basically instead of having to go to a Blockbuster where it was a physical location, you could go onto their website and basically just rent right there immediately and it would be shipped. And then they found some cool ideas where, and I think I go into it later in the book, but basically they're like, they could set up shop and someone could return it, or they could have 4 DVDs at a time, but you had to return one in order to get another one, which set up kind of this streaming-like service. So this is really interesting. In April of 1998, there were 800. The relatively low number of DVDs in existence was in some ways a boon for us. It meant that we could feasibly acquire a couple of copies of each one and accurately claim that we carried every DVD that had ever been released. But the relatively small DVD was also a— small DVD library was also a liability. Many of the titles available weren't exactly blockbuster material. So he's saying like, do we go for it all and acquire everything and say we have the world's biggest, or we have all the DVDs in the world? Or do, you know, all these films that people might not want necessarily, that could be a bad thing. So he says no one really knew if DVD was going to take off. So they are betting on DVD as a technology. And this guy earlier in the book had this interesting insight. He said that basically we're going to go from VHS to streaming. But what he was missing is this step in between. And this is where Netflix really got their ground. They basically came in right when VHS was transitioning into DVD because the studios didn't want DVD, or they didn't want VHS anymore. The reason why is because they were getting gypped out of money. So they went into the DVD market, they put a ton of money, and Netflix knew this. And they didn't realize this, but at some point that guy was right. You would go from analog to digital. But the only thing is that he missed the step of DVD. So Netflix basically comes in and they were pitching this guy. That's why the guy was giving them feedback. They pitched this guy, he didn't want anything to do with Netflix. And funny enough, he is right. He was right that they would go from DVDs to streaming, but it didn't happen in the time frame. The reason why, and you can listen to this in episode 1, is because if people wanted to watch online, they would have to download it to their computer, which would take like 3 or 4 days. It would take multiple days just to get one movie. And then by the time they got that one movie, then you couldn't even watch it on your TV because you could only have it on your computer. So it didn't make any sense for someone to do that. Nowadays, you can just go on your TV and click a button and watch the movie. But the thing is, back then they couldn't do that. And so DVD was basically the entrance for Netflix into the movie market. Into the rental space of the market. So they really capitalized this. And so he's trying to go through all of this in this short section, or he's— I'm giving you some context for this, but he's basically saying no one really knew if DVD was going to take off and how it would work if it did. Would DVDs be a format used mostly for movies? Were they a good technology for listening to music? Would people want to use DVD 5-channel sound to watch 2-hour live performances by the USC marching band in their home theaters? So manufacturers and studios were just kind of experimenting. The library was a mix of somewhat newish releases, established classics, forgotten oldies, and discs that seemed designed to show off some home theater equipment. Now what he's basically saying is he's connecting this to the 800 DVDs that they were trying to acquire. So there was 800 in the world, they had 300. And the reason why is because studios were trying to experiment. They didn't really know whether or not it would be good to go all in. So they're trying to release everything they can, which doesn't mean it's not— it's necessarily good for Netflix if they own all these, because people might not want all of them and they're not blockbuster material. And that's kind of how that relates. So in this idea of trying to get all of the DVDs Like he's saying, they wanted to acquire at least 2 copies of every DVD, and they would spend days tracking down titles. And their guy Mitch Lowe, who— he recruited Mitch Lowe to his company, and that was so valuable because Mitch Lowe studied all of the DVD industry. So how this relates to entrepreneurship, find someone that knows their field so well that the field preferably that you're in and you can hire them. This is what A-player— being an A-player means. It means that you get a successful person in your field that studies endlessly. And the funny thing is you can be that person because we are blessed with technology to the point where any one of us nowadays can go and learn about anything we want. So if you want to learn about trains, if you want to learn about How does a plane work? How does my Apple phone work? Who created Apple? Steve Jobs and Tim Cook. And now there's a new CEO, but like, who created Tesla? How did Elon Musk look into rocket ships? You can learn about Elon Musk, Einstein, Leonardo da Vinci, Benjamin Franklin. Like, there's so many people you can learn about and we are blessed. Like, you can even have AI summarize all this for you. I wouldn't recommend that because you should go do research yourself. And really read about these people. But the thing is, it's like we live in such an information era that could revolution— it has revolutionized the whole world. But what comes with that is the internet and social media and becoming so overstimulated that you actually lose your attention span, where short videos actually damage your attention. So it is important and even vital to read books, because if you read books, you're going to learn more about all these people. So we live in this information age. You need to start reading more. You need to start learning more. And even if, you know, it's interesting to learn about Netflix because Netflix is a really prominent company now. It has like over 200 or 300 million subscribers. Almost everyone has it. Almost everyone knows about it. It makes trending news every single time they put out a release. Like, there's so many things about Netflix. And so to learn about the founding, like how they went, um, and started in the DVD industry and then how they went to streaming and all these little details of like how Marc Randolph met Jeff Bezos before Amazon was anything— and Amazon is massive— it's like all these little details matter because you're learning about history, you're learning about how did this guy do it then. If I can learn about the internet back in the '90s, in 1998, when people were just starting to come on, maybe there's something relevant in that time period that I can take. And it's in every time period. There's this idea of change. I was just listening to Rick Rubin on the Diary of the CEO podcast and this idea of the Industrial Revolution. We went from, like, it's in everything, whether you went from Um, horse-drawn carriages to cars, or, you know, carriages to trains, or trains to planes, or there's all these things that you can basically take, right? Internet. So we go from no smartphones to smartphones. And this idea of the internet to AI, like AI, there's so many good— it's a tool basically in our current world. And the idea is like learning about these people There's something important within this. There's something really important learning about history. You know, history might not repeat itself, but human nature does. So whether or not, like people in the 1900s, they freaked out about the banking crisis, the Great Depression, there's all these things human nature does repeat. And that's the same thing even now, right? We see people worried about AI. And people were worried about even the internet and the coming 2000s. So this is common, but what we need to do is we need to read in order to understand. And that's why I'm really doing this Netflix episode, is because I want to understand, okay, even if there's a lot of nitty-gritty details about Netflix and DVDs and streaming and how they got the streaming idea and how they got rental DVDs to work I want to learn about that, and we should all learn about that because it's important to, one, get our attention spans back, but two, read these books. And three, it's like the founder of this company who's now in his 60s, 70s, I don't know how old he is, but he is imparting all this knowledge, what he started, and this massive company out in the world now is a result from this. So I think it's really important. That's kind of off on a tangent, but the idea is that like you want to become so valuable in your industry, you want to become an A-player, and so you need to learn about everything. That's the same thing with Mitch Lowe right here. Mitch Lowe was invaluable. He knew how to deal with distributors. And this idea of being invaluable, it's like we live in this information age, and this is kind of tying back to what I was originally saying. It's like We live in this information age, so you have no excuse not to be the most knowledgeable you can be in your field. We can learn about all these certain people and all these certain timeframes, and it can be overwhelming, but just get started. That's the key. Just like start reading one book and that's all you need to do. So I want to keep going. One of the most valuable skills he had was knowing exactly how many copies to buy. In those early days, there was no algorithm. No equation, just Mitch. He knew when to buy 3 copies and when to buy 30. 2 copies of every DVD was our minimum, but we bought many more for titles that Mitch thought would be in demand, far more than a video store would have for a comparable VHS title. The question of inventory was one that we thought would give us an edge over the video stores. There was a finite amount of space in a brick-and-mortar video store. So part of their job was learning how to deal with inevitable shortages. Mitch and others in the business, most notably Blockbuster, called this manage dissatisfaction. What do you do when a customer comes into the store looking for a copy of Die Hard 2, but all the copies are checked out? You try to rent them something else that they might like just as much. You try to make them happy enough so that they'll come back. But even then, customers leave with a bad taste in their mouth. So this is really interesting. He's basically talking about the limitations that a physical store or Blockbuster would have. And so he goes on, second, the cost of all those extra discs wasn't expensive inventory, it was inexpensive advertising. It was like those old MasterCard commercials— a disc, $20, a reputation for every DVD and always being in stock, priceless. Third, we were counting on the DVD market continuing to grow. So this is the aspect of risk-taking. What seemed like 10 times too many copies today might very well be just what we needed when the market was 10 times as big. And he says, and lastly, well, if we screwed up, we would— we could always sell our extra DVDs. So he is taking a risk on this, but in reality, he is talking about— so they— so what are the different steps? Well, one, They know that they could have priceless advertising if they get all the DVDs. 2, they're betting on the DVD market. 3, they are betting on the limitations of a physical store, and that's why they should move it online. And now Netflix is really starting to grow into their space, but he is trying to figure out these principles. He goes on a couple pages later and he says, I love negotiation and I'm pretty good at it. In a large— in large part, this is because it's easy for me, for me to identify with other people's needs. I'm able to understand what another party in a negotiation wants, what they need, and how they feel about getting it. This is the idea of like putting yourself in someone else's shoes. He says, because I can quickly identify what the other side wants, I'm able to strategize more efficiently about how we can come to a mutually beneficial solution. So he's talking about this idea that he loves negotiation. He can figure out— he's really good with understanding the other person's needs, being able to go into their shoes. What do they want? How can we get what we want? And that's really interesting. As a business owner or someone into this stuff, you actually need to study the psychology of people. I actually put out an episode, it's called It's episode number 18. It's the first, um, it's about impressions. So the first time you see someone, it's by Vanessa Van Edwards, and it's this idea that you understand, you get to know someone before you even talk to them. So the moment you see them, you can know their posture, the way they're acting, like certain things about them just by seeing them or making eye contact. And then when you meet them There's certain ways. It's super fascinating. You should listen to the episode. It's one of my most downloaded episodes where basically the way the feet are pointed, that means that they're either more open or less open to having a conversation with you. The way if they cross their arms, that means they're closed off to conversation. The way they're looking at you, even certain facial expressions. There's certain things that are really interesting about the body and the way someone presents themselves. So it's really interesting to learn about this. And he's talking about how can I, as a business owner, understand the needs of someone else? How can I understand our needs and then find a way to bridge the gap of those of us, of those two parties, and understand what would mutually benefit both sides? So it's really interesting and really fascinating. He says, "My own approach has always been more measured. I think people are more productive when they're happy." He's talking about people. in their jobs. He says when their lives outside of work aren't totally subsumed by their job. So people are more productive when they're happy, when their work is not consuming their lives. So in this whole section, he's talking about making Netflix a reality, and he said that they knew the hours would be long. They were all Silicon Valley veterans, and they had done the 50, 60, 70-hour work week before Uh, the work weeks, uh, before. But the interesting thing about this and why it was different is they were working for themselves and they weren't working for someone else's dream, and they were choosing to do that. They were choosing it. That was the difference. Instead of working at Borland or all these other companies, it's like the ability to actually go work at these other companies and to do it well, that was what they wanted. The Freedom, the responsibility, and that's what all startups are. All startups, all companies—they are the ability, and especially if you work really, really well in a company—it's the ability to have freedom within the company to do amazing work, not to be confined by other companies. You know, you have a life's mission and purpose, and to really take that and go fulfill it in a company, whether you're starting the company or you're working at the company. Or you're higher up in the company. It's like, to be able to do that, that's the key. That's important. He says, even in the launches or in the trenches of pre-launch Netflix, I kept to a longstanding tradition with Lorraine. This is really cool. I really like this part because he's talking about even though he's so busy with a startup, Netflix, he and his wife are trying to preserve their marriage and they're actually still married to this day. And that's pretty rare for people that work in the movie industry, in businesses. That's not something you see. It's, it's not that common. So he says, on Tuesdays, no matter what, I kept the— I left the office promptly at 5 and spent the evening with my wife. We'd hire a babysitter, go for a walk on the beach, and then head to our favorite restaurant, Bittersweet Bistro, for some roasted salmon and a few glasses of wine. Sometimes we hit the theater in downtown Santa Cruz to catch a movie. I needed that time with Lorraine, just the two of us, no kids, no domestic duties. I needed to recharge, to be with my best friend for a few hours and not think about anything else. This is really interesting because the whole idea of what is a perfect, like a well-balanced life. Well, We know, you know, I've studied a lot of these people, or I've learned about a lot of these people. I haven't, you know, studied in depth a lot of people, but I want to. And the biggest thing, because I've listened to over 200 episodes of Founders Podcast where he's talking about people like this, he said one of his biggest— and this David Sinner on Founders Podcast— he says the biggest inspiration for him was Edward Thorp, you know, and he You know, David Sinner kind of classifies, and I actually agree with this for the most part, the idea of having a well-balanced life. It's like you prioritize relationships, relationships, family, God, fitness. Like you're prioritizing all these things, and that's not necessarily David Sinner, but also a mix of Ben Greenfield. We just did a documentary on Ben Greenfield. It's actually in the top charts right now, which is awesome. It just came out September 22nd, and it's September 25th when I'm recording this. But what's really interesting is this documentary, Boundless: The Man Who Became Human, we really go into this element. You can achieve success, but if it means almost getting a divorce or losing your family, that is not what it means to live fully. You need a relationship with, you know, your community. You need a relationship with your family. And then, you know, if success comes, that's great. Rick Rubin Was just on Diary of a CEO, like I mentioned. And what's really interesting is I'm learning about what he's talking about. And he's saying like, success is, in David's terms and Charlie Munger's terms, is like the inner scorecard. And the inner scorecard is like, if you think it's good and successful, like to you, that's great. That's all that matters. None of the outside success, none of the worldly stuff. matters if you're fulfilling your life's purpose and if you're doing what you love to do. And that's the big key with a lot of this stuff. It's like you need to have a well balance of everything. You need to have a balance between working out and fitness and then also your family and relationships and prioritizing, you know, all these certain things. But, and you know, if success comes, that's great, but you need to fulfill your life's purpose. So I think it's really interesting when we look at what Mark Randolph is talking about, the fact that he was really able to prioritize his relationship with his wife. That's really rare because in all these stories, a lot of people, even if they're super successful, they don't spend time with their wife and then they get a divorce, or they've been married 3 times, or their kids grow up and it's not great. Um, there, there's all these things that we see with these founders. And I've talked about this on the podcast. Why do we learn from people like these? Well, it's to know— well, it's kind of twofold. So one is that it's actually important to learn from these people because we can learn from their mistakes. So we're learning 2 sides. So we're learning one, the good stuff that they did, how they built a successful company in the time that they were at. Maybe we We can take the ideas from Andrew Carnegie when he was building the railroad industry and maybe apply that to the Industrial Revolution, or even to now with the AI revolution, or, you know, stories about Netflix and the way they built their company and maybe the dawn of the internet and, you know, translate that over into what we're doing now with AI. Like, there's so many cool things, but also we can learn about what this person did wrong. You can learn just as much from someone by what they don't do well. And the reason why that is, is because, you know, you can see a lot of these people— George Lucas, Walt Disney— they didn't have great dads. A lot of these founders, and surprisingly filmmakers, they didn't have great dads. And you can kind of see that in them. But there's this common maxim: the story of the father is embedded in the son. The story of the father is embedded in the son. Now, what's really interesting about this quote in particular is when you don't have a good father, he doesn't do something well, you have kind of this thing within all these founders and entrepreneurs where they have this like either one, they never really amount to anything. But most of the time, even with Michael Jordan, you know, his dad spent a lot of other time with his other siblings. And Michael and Walt Disney and George Lucas, all these guys had like this burning sensation to prove themselves. Chris Williamson talks about this on the Modern Wisdom Podcast. And, you know, this idea of like this burning desire to prove yourselves, to conquer the world, to do something great, that's in a lot of these people. And so you see that and they do it, but you see, maybe they weren't as, you know, either one, they want to be better fathers because they never had one, or two, They aren't as good because they didn't have a father. And so anyways, to get back to the point, because that's kind of another tangent, the idea is that like prioritizing your family, prioritizing what you're doing, and doing something that you think is successful that fulfills you, that's important. That's really important because at the end of the day, you could do something you never love or make a ton of money and that still doesn't fulfill you because that's not the end goal. And at the end of the day, you need to take what Marc Randolph is saying and also all these other things we just talked about. And that is what success looks like because you see, and that's the important reason of why we're learning from these founders, even people nowadays, it's like learning from more modern people. Marc Randolph is still alive, like learning from these people who are still alive, people in the past, like people in the, you know, a couple thousand years ago, it's important to learn from everyone. Because you're understanding what did they do wrong, what are they doing right, how did they start a successful business or company or whatever they're doing in that field, whether it's a film or a website or business or whatever it is, podcast, you know, it could be whatever. And the idea is like, if they're creating something, they're making something beautiful, like that's what matters. So, um, I don't want to get too, like, too off on a tangent, but I just want to bring that point where it's like Spending time with his family kept him sane in a way, because otherwise you get like a lot of these people where you don't spend time with your family, you are probably going to get divorced eventually, and it's not great. He says, at first this occasioned some conflict, but eventually, after people got the memo and after I remained firm in the face of numerous challenges, my colleagues knew not to schedule anything that would conflict with my deadline. They both respected and worked around it. So he's talking about this idea of, hey, at 5, I'm leaving the office on Tuesdays to spend time with my wife. That was a big, you know, thing in his company. And then people learned to respect and like respect that and grow and work around that. That was a big thing. He said, in the fall of 1997, as we built our company, it would have been easy for me to break the Tuesday night tradition. There were so many things to do, so many problems to solve, and I had my hand in hundreds of them. My usual routine was to hit the office at around 7 in the morning, eat lunch at my desk, and work all afternoon until 6 or so. Then I drive the 5 minutes back to my house to be home in time for dinner with, with my kids. I'd help Lorraine put them back to bed or put them to bed, and then more often than not, I'd head back to the office for a few hours, eventually quitting Around 10 or 11, then back home for some winding down and a few hours of sleep. I think I was averaging about 5 hours a night in those days, often less. We were moving up and it was thrilling to think of how high we could go. But no matter how high I climbed or how many steps I saw ahead of me, I always left the office at 5 PM sharp on Tuesdays. I didn't want to be one of those successful entrepreneurs who are on their second or third startup But also on their third or fourth spouse. Saving a night for my wife kept us both sane and in tune with each other. That's a big key with a lot of this, right? That is something we see most successful entrepreneurs. They know when to stop. They know, you know, I need to spend time with my wife, my family, my kids. And for most people, it can be hard. To do that, to stop doing that, to be obsessed with work. And especially if you're an A-type personality, it's like to stop and slow down and to focus on other people. You know, that's a, that's a big thing. Now let's keep going. By November of 1997, we had an office. We had a semi-functional website that we were testing. We had dozens of mailer prototypes. We had the beginning of an inventory. We even had a launch date, March 10th, 19— '98. What we didn't have was a name. Oh, this is a crazy part in the story where they're trying to find a name. And this is really fun and fascinating because if you want to understand the idea of how companies get their name, this is a really cool moment. So he says, what we didn't have was a name. This is often the case for early startups. Most companies don't keep the same name from ideation to funding to launch. Names are important, and sometimes they take forever to find. This is crazy. Amazon was originally called Cadabra. Twitter started off as Status. You have to allow for serendipity for the right name to come along as you develop your service. Sometimes that takes months. But in the meantime, you typically have a beta name, a working title that you can use to test your site, set up the email accounts, and write on bank documents. And it can't just be the Untitled Marc Randolph Project. Our beta name was Kibble, as in dog food. Kibble was his idea. It was a terrible name, and so they knew they had to change it. So he goes on and says, no matter how well you sold it, nothing mattered if the product was lackluster. That's a big thing. You know, there's this idea in business, especially with Steve Jobs, where it's like the product should sell itself. That was something that David Ogilvy said. It's like the product should be so good that you should just put it out there and it can just sell itself. It, it could literally be its own marketing. And now you still, like, now couple that with masterful storytelling from a Steve Jobs-like figure. Now that's going to be dynamite. If you have a great product, a truly great product, and you couple that with a storyteller or someone that knows how to tell a story like Steve Jobs, It's going to be dynamite, and that turned into Apple. You know, actually funny. I hate getting off on all these tangents, but dude Steve Jobs, I have to do an episode on him at some point because people don't realize the the guy is genius. He started Apple when in the eighties he this guy maybe even in the seventies he started Apple. He got kicked out of Apple, started Next. Which Apple bought for $500 million and bought Pixar from George Lucas when it was a computer company. They wanted to be the first company in the world to create computer animation, so their first film was Toy Story. And then Toy Story— they IPO'd with Toy Story. And IPO in the sense of they IPO'd The actual company of Pixar when Toy Story came out. So Toy Story was their first ever movie. It did, I think, like a billion dollars. It was super successful. They had a budget of like nine million. It was insane. I actually, I don't think it was a billion, but it did a lot. And then eventually Disney bought Pixar, and Steve Jobs went back to Apple, and Apple crushed. And now we know it as this big brand that almost everyone has a phone and everyone has an iPad or whatever. Everyone knows what Apple is. It's insane. But the point is, it's like if you have a great product and you have a great thing, I'm gonna have to cover Steve Jobs at some point. It's just inevitable. We'll have to cover him soon. I need to read either Ed Catmull's book. He is the co-founder of Pixar. I just listened to the podcast episode with David Sinra. That was a great episode. And in that, he kind of talks about Steve and he says, Walter Isaacson wrote a biography on Steve Jobs called Steve Jobs. You can look it up. It's a big book. I have it. It's like 600 pages. What's really interesting about that book though is it only tells one side of the story. Now there's a lot of stories circulating about Steve Jobs where they think that, you know, Kevin O'Leary came on Diary of a CEO and he talked about how mean and rude Steve Jobs was. That's only one side of the story. And the other side is like the Pixar where Steve actually chilled out a lot more and he was making really good moves. And there was actually this time— I know a lot about Steve Jobs even though I haven't read about him. There's this time in Steve Jobs' life where basically he just kind of— it was like literally year after year of failure. It was just like failure for a while. And then he finally came back and grew from that. So anyways, Going back to the point of you can have this incredible storyteller who makes a great product, and that's Apple, that's Dell computers, that's pretty much, there's a lot of products out there that are great, but the Apple is like one of the best because it's so simple and it's so elegant and minimal, but it's still brilliant and complex in the simplicity, which is kind of a paradox, but that's a big key, that's a big key in design. Is you know you have something so simple, but it's complex in the simplicity. Now essentially just skipping out, you know on these certain things. So they had the beta name of Kibble, and what they wanted to do is they wanted to mix something about movies and something about the internet. So they came up with, you know, he he said picking a name is incredibly difficult. For one thing, you need something catchy, something that rolls off the tongue and is easy to remember. One or two syllable words are best, and ideally the emphasis should be on the first syllable. Think of the most popular website names: Google, Facebook. These names open with a bang. Too many syllables, too many letters, and you run the risk of people misspelling your website. Too few letters and you risk for that— you risk them forgetting your name. Why I find this section so interesting is like, this is something not really talked about a lot. This is really interesting. I want to figure out Why did they name Netflix Netflix, and how do people, um, know the psychology of what to name their company? So he said, I, I reproduced our final list of names below. Take 1, take 2, scene 1, scene 2. Flix.com, Fast Forward, Now Showing, DirectPix, VideoPix, eFlix.com, Netflix, Cinema Center, WebFlix, Cinema Direct, NetPix. He says, and this is the key, this is the key right here, all of us, and I mean all of us, initially shied away from Netflix.com. Sure, it was 2 syllables, and sure, it satisfied both criteria— movies and internet. Now, this, this is really fascinating. They didn't think Netflix was the right name, and the reason why they had Netflix.com is because there's this, there's this thing back in the internet Like the early internet phase where it was amazon.com or, you know, all these different companies, they had like the .com as the, the name brand to kind of show that it was an internet brand. And so amazon.com eventually became Amazon, netflix.com eventually became Netflix. But what's really interesting is he is going through the psychology— or not psychology, but just the idea That maybe, just maybe, you know the name that we all know today. They didn't like back then, and he says we've got to settle something. We got to settle on something, and it's really interesting. They decided there was no vote, no momentous ballot casting. We printed out that spreadsheet and stared at it. Everyone went home to sleep on it. The next day, we all agreed we were Netflix.com. It wasn't perfect. That's really fascinating. It's like this idea that the name that everyone knows, Netflix, was almost not going to be the name, and that could have changed everything. And whether it's the logo, whether it's whatever Netflix has, it's like it could have changed everything, and it's just the name that we all know. Now this part is really fascinating. And he goes into this in the next chapter. And this idea that there was a pre-queue before there was a queue. So they called it the list. And you know how you go on Netflix, if you have Netflix or even Apple TV now, there's a lot of platforms that have adopted this, especially streaming platforms where you have this queue. And even Spotify has this, funny enough, where you could add music to the queue or podcasts to the queue. Now, you know, Netflix had this idea of a thing called The List. And what's really fascinating is like you add your movies to The List. And this is— this was for people back on, you know, netflix.com when they would log into the website or they would just go onto the website and they wanted to save these movies to get DVDs of in the future. And what's really interesting is he says, for instance, we want to do a thing called The List. Which would let you save a list of titles that you wanted to watch. Mitch has this idea to have a digital clerk who helps you find movies he knows you like. So in, in a way, what they're talking about now is like the algorithm. The algorithm can serve up. And what's really interesting is algorithms are really hard to make, especially in this timeframe. They were super hard to make. And so they just kind of had to make it. And he goes into it a little bit more. But it is really fascinating, the idea behind like what it takes to just get the right movies in front of the right people in order for them to buy. And it's the same thing what Netflix does nowadays within the algorithm. He talks about this idea of the, like, what was it like being a startup? And so he says in the 6 months since Reed had written that check, We had done so much. We had assembled an inventory, put together a website, built a company with a culture. We had worked tirelessly to make our dream of an e-commerce site for DVDs a reality. But up until now, it still had the feeling of an unresolved dream. The site existed for us, but not for anyone else. The problems we anticipated, and we had racked our brains anticipating them, were still in the future. We weren't even sure if we had identified the right problems. The successes too were in the unrealized days and months ahead. There are a great many stages in the lifecycle of a startup, but a tectonic shift happens on launch day. Before you go live, you're in the dreamy zone of planning and forecasts. Your efforts are provisional. You're making predictions about what can go wrong and what can go right. It's a very creative heady short of work. It is essentially optimistic. The day your site launches, something shifts. Your work is no longer predictive and anticipatory. It's fundamentally reactive. Those problems you anticipated, you didn't know the half of it. Your planned solutions, they're a drop in the bucket, and there are hundreds, thousands of issues that you could have never imagined and now have to deal with. So he's talking about this idea Of you might prepare, like if you're in a startup and you're going to have a launch day, you're basically preparing to just get everything ready for launch day. You're preparing with the team, you're making sure the website looks good. You're, you know, people can actually check out and you're trying it multiple, multiple times. But until it launches, you didn't know half of the problems. And what's really fascinating is you can take that in a story. You can take that in any entrepreneur's story. You can really apply everyone's entrepreneurial journey to this, like this framework, and not necessarily what Marc Randolph experienced, but in broad, in general, where there's this idea that, you know, in order— you basically prepare all you want. And there's 2 lessons to this, what I'm telling you. One is you can have all these ideas of like, all right, I'm gonna have a podcast. And I'm going to work on every single thing. I'm going to make it perfect. I'm going to do this, this, and this. And this is with any business. You can prepare so much that if you never have any action, it's not actually worth anything because you never put it out and you're not refining it once you put it out. Now, the other part is, and so the idea is like action expresses priority, action solves everything. That's the idea that you want to actually be acting. Now, once you start acting, Once you put that act out into the world, like you put a podcast episode out or you put something out, now you endlessly refine to make it better. You refine that piece of gold to make it shine. You need to keep on doing that because now he's saying like it's reactive. You're reacting to that action. So you are predicting, you're making sure, you know, you can be in that phase all you want, but when launch day happens, it happens. And you need to basically go from there and make it better. So this part of the story is really interesting because he basically goes through the experience of what it's like on the first day. So he says, that morning, watching the sunrise over the mountains, I was positioning the various teams in my mind, imagining what the day would bring for Jim Kutz's crew, for Eric's programmers, for Tay and the marketing squad. I ran through the day's plan, the 9 a.m. launch, the morning full of press calls, the process of order to shipment. In other words, I was doing what I've been doing since the summer of 1997. This was the previous year. Strategizing before you launch, you're making a beautiful battle plan, coordinating the future movements of your troops. The second you launch, you're in the fog of war. I love that statement. I love that statement. So you're in a big, beautiful battle. You're in this big, beautiful battle. You're like playing pieces of chess. But once you're actually— the second you launch, the moment you're in it, you don't know where you're at or how well you're doing necessarily. And he keeps on going. For months, Tay had been lining up reporters and news outlets who would be interested in writing a story about our startup. Hitting her Rolodex hard so that when our day came, people would read about it. Now, so Mark Randolph is talking about what it kind of sounded like. So he said, here's an excerpt: With this morning's launch of the nation's first internet DVD rental store, every DVD owner, no matter where he lives, no matter how far he lives from a video rental store, is now guaranteed access to every DVD title available to buy or to rent. So it's really fascinating because they are basically all preparing for the launch at 9, uh, 9 AM in the morning. And so this is the big key. So, um, some of his people have been, you know, they're setting up press calls, they're talking to, um, some of the people in his office are talking to the people that are like nerds when it comes to DVDs and collectors and all that. And then, you know, people are like stressed out. But this is kind of the key. This is the moment that I want to skip to because this is a really cool part in the story. So he says, by 8:59, the office was so quiet that I could hear my watch's second hand. At 9 on the dot, Eric leaned over, punched a few keys, and we were live. We held our breath. Eric had hooked up a bell to his computer, not unlike the kind that businesses leave on the computer to alert employees that a customer needs help, and rigged it up so that it would ring each time an order came, came through. I filled out the day's first order as a test. I, Mark Randolph, requested a copy of Casino to be delivered to my address outside Scotts Valley. I hit enter to place the order, and moments later the bell rang. Almost immediately, we had 3 others in the queue, each sounding the bell as credit cards were authorized. Inventory decremented and packing slips printed. I patted Eric's computer for good luck and walked back into the office for press calls. Within minutes, the bell sounded like a machine gun, even with the doors closed. Even as I carried on a conversation with Steve Perez at the Santa Cruz Sentinel, I could hear it. I could hear it pinging in the next room. That's incredible. That's like launch day at Netflix. So you have this launch day at Netflix and they go over, they go over at some point where basically the computer shuts down and it's super unfortunate. Um, they have to like set up this whole like, uh, basically server. Um, and then they have to get multiple because it keeps shutting down throughout the day. They get a second one. They have like prepared all this time. And it keeps shutting down. And that's a, that's a big part in the, in this launch day story. But it shows you that launch days, like when you first put out your product, and especially for Netflix, when they had their launch day, it's like, it's not necessarily glamorous. Like you're not going to put out your first podcast episode and say that's the best it will ever be because you want to constantly refine, you want to constantly get better. And once you get to that point where you are getting better, you know, you should be able to say, On your 100th episode, this is better than when I first started because you tried to refine, you tried to get better. And that's the key. That's a really cool part. But the first day is not always glamorous. That's another thing. And I did just say that, but it's like the first day isn't always glamorous. So if you really take in what you've been given and you try to make it better and the product you're making, whether it's a business, Whether it's a podcast episode, whatever it is. So if you constantly refine and make it better, that's going to be worth it way more than anything else. Now he says, it wasn't hard to get excited riffing about our business that day. I could see it through the window right there in front of me, the dream I had been working on in full color. At the Netflix website, we make it fast and easy to find the right movies and we deliver them in 2 or 3 days. Customers keep them seven days and then get to watch them as often as they like. When they are finished, they simply replace the discs in the envelope we provide and drop in the nearest mailbox. We even prepay the return postage. So that was their whole process. Now a couple more lines here and just explains like you know their unglamorous first day. It's like the site. He says the site crashed all day. And because we had no way to measure site traffic yet, we didn't know how many potential customers we were missing. It's what we hoped for. It's what we hoped for, of course, but it was still astonishing. So he's now, he's talking about just how many people brought in. It was like 134 orders in the moment to see it. As I watched the orders come in and listened to the printer printing them out, I had an enormous sense of relief. Our big reveal hadn't been greeted by an orchestra of crickets. It was popular. In fact, it was a bit too popular. We ran out of boxes. We ran out of tape. We ran out of paper. We ran out of ink. After the 40th printer jam of the day, I walked to Corey's desk and asked him if he could slow things down a little bit. The servers were down, the printers were jammed, and we had Christina's entire content team typing individual confirmation emails for the orders we had already received. Turns out an automated email should have been higher on the to-do list. Now that, that's a crazy thing. It's like, you know, you have jam printers, you know, your, your, your servers are down, so your website's down, people can't order anymore. Now he talks about how many people they actually got orders from. He said, we expected 50 or 20 people to use the site to order our DVD. We had gotten 137. And potentially we had gotten more than that since we didn't know how many people had tried to access the site when it was down. It was an enormously promising start, but that's all it was, a start. There were hundreds, no, thousands of changes we still needed to make. We needed to automate confirmation emails. There were dozens of problems with the online ordering form, which it turned out was fine at catching bad state codes, Not so good at validating zip codes and clueless for international orders. Who knew people would try to order them from other countries? We still needed an algorithm that would ensure that high-demand titles were always in stock and figure out how to steer customers to lower-demand titles in a way that made them actually want to rent them. Just like Netflix, I thought we had built it, but it wasn't finished yet. It was probably never going to be finished truthfully. Every day we'd have to work to keep it upright. He's talking about his house and kind of comparing that to Netflix, but in a broader lens, it's like you can build something, but it will never be finished. You could build a company, but it'll never be finished because you can constantly get better. There's this idea of— I think it's like eternal, eternal dissatisfaction or something that James Dyson, who is the founder of the Dyson company. I've talked about it a lot on previous podcast episodes, but he owns the Dyson vacuum company. You probably see it when you're going into like an airport and you're drying your hands. He has dryers, he has vacuums. It's about $20— it's worth about $20 billion and he owns 100% of it. He's never taken any investors. And what's really interesting is like this guy, he knows that you can't be satisfied with a product because it can always get better. You know, you look at Apple and they're still making better and better phones every year, and that's kind of their model. But what's fascinating about, you know, James Dyson is like this idea that you're never going to be satisfied with it. And at some point, you know, you can take that too far, but the idea is that you can always make it better. You can always make it just a little bit better, and each 1% adds up. And James Clear has this interesting hypothesis, and this is regarding habits or just 1% every day. If you're getting better 1% every day, you're getting 36 to 37% better every year. But if you get 1% worse every year, it, I think it adds up a lot more. So what's fascinating is you want to be getting 1% better every day, whether it's learning something new from, you know, some founder or entrepreneur, or even listening to a podcast episode like this. Like being able to take that time and really learn and study and understand, oh, this is something, you know, even if you just take one thing from this podcast episode and apply it to your life, that's going to be 1% better. You're getting 1% better. And that's a good reminder for a lot of people because they think they need to do all these things. And yes, we live in this information age, but in reality, you don't need to do all that. You can just learn one thing. Even if this is— this might sound crazy, but even when I'm reading books, if there is one thing I took away from a book, or even like 2 to 3 things, or 1 to 3 things, if I take like one thing from one book, even if it's like a fiction book or something I'm just reading for fun, if I take one thing from that book and really apply it to my life, that's a lot better than never reading the book or Never, or just reading it and not trying to apply something. So I think in everything that you're learning from everything that you're doing, try to find one thing you can take away from that and really apply it to your life. Now I want to go back to this Netflix story as we end this chapter and we end the second part to our Netflix series. I might have to do three or four parts now looking at this. Which is crazy. But what he says, just like Netflix— I'll repeat this— just like Netflix, I thought we had built it, but it wasn't finished yet. It would probably never be finished, truthfully. Every day we'd have to work to keep it upright. That's how Netflix felt, had felt all spring, a blue haze buzzing around all of our heads. But starting on April 14th, Netflix wasn't just a potential energy anymore. It It was a live current, positive meeting negative. It was a lightning strike, but now we had to figure out how to manage it. Thank you for listening to this episode. I know I went on some tangents, but I think they're very helpful tangents and they really help with you, especially anyone listening to this. I will probably have to make 3 or 4 parts on this, so Part one has already come out. This will be part two. Part three will be coming out probably next week or in the next couple weeks, and then I'll probably make a part four. It's really helpful to be able to go through all these highlights, and Naval has this idea of like redistilling the information. If you can, so I read the book, I'm going through it, and I'm just reviewing everything. I'm making highlights, and then to be able to go back through and make a podcast episode and really distill that information down even more from the highlights. To you guys, so you're getting as most value from you know the book and the highlights as possible. That's really the key. So if I can distill that into the microphone, and then I edit the episode, so I listen to it a third time, or I'm getting the information a third time, and then I even listen to the episode when it comes out. So that's a fourth time. So I'm really you know taking in and digesting the information. And trying to find something that I can also apply to my life. So again, thank you guys for listening to this episode. This is part 2 of the Netflix story by Mike— by Mark Randolph. Again, the book is That Will Never Work. Thank you guys for listening to this episode, and I will talk to you guys again soon.