In this column, Gregory Richards – the director of the Executive MBA Program at the University of Ottawa’s Telfer School of Management – reviews That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea, a book written by Netflix co-founder Marc Randolph.
Netflix is now a 7,000-employee company with a market capitalization of about $160 billion. But like most companies, it started with an idea that called for perseverance and a lot of faith to bring it to reality.
Marc Randolph, the co-founder and first CEO of the video-streaming giant, writes this book as a memoir covering the growth of the company from ideation through to its initial public offering. In describing the journey, he offers insights from both business and personal perspectives.
Among the many business lessons he provides, a few key ones stand out.
First, the ideation phase for Netflix lasted about a year as Randolph and a small team of colleagues tested ideas about how and why they would deliver movies through the mail. There were several critical things to think about, but the main task was understanding buyer behaviour.
To do this, the team had to address challenges with the way people currently watched movies at home (driving to the video store, searching the shelves for movies that might not be there, returning the video, incurring late fees, etc.) and how the new service would help solve those issues. An important point was that the VHS technology available at the time (1997) would not have allowed Netflix to launch: the tapes were too bulky to make videos by mail cost-effective. The arrival of DVDs made the difference.
Randolph raises a number of key takeaways from a business perspective:
- Put yourself in the buyer’s shoes;
- Whatever solution you come up with needs to be scalable and preferably provide for repeat sales;
- Take time to research everything properly, including technology, competitors, etc.; and
- Stay focused on the idea, because as new technologies emerge the idea might work much better (or worse!)
- Another key lesson Randolph explains in the book is that every company needs to maintain laser-like focus, especially in the early days.
After Netflix launched in April 1998, sales of DVDs made up close to 90 per cent of the company’s revenue. Amazon at that time was already a public company, and the Netflix founders knew they could not compete with their larger rival on DVD sales. They decided to drop DVD sales to concentrate on rentals. This put a lot of pressure on the company, but it also led it to rethink how to encourage more people to rent. According to Randolph, “If you had asked me on launch day to describe what Netflix would eventually look like, I never would have come up with a monthly subscription service.”
On the personal side, Randolph outlines the long hours and the emotional ups and downs involved in launching a startup. But two particularly painful events stood out.
At one point, the company needed to cut close to 40 per cent of its staff, some of whom had been with the founders from the beginning. At another key juncture, Randolph needed to admit that he was not the right person for the CEO job as the company moved into a more mature organizational phase. He now recognizes that despite the pain involved, these decisions were necessary for the good of the company.
Overall, the book provides an honest look at an entrepreneur’s journey that is both insightful and instructive.
Gregory Richards is the director of the Executive MBA Program at the University of Ottawa’s Telfer School of Management.