That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea

by Marc Randolph

Overplanning and overdesigning is often just overthinking – or just plain old procrastination. When it comes to ideas, it’s more efficient to test ten bad ones than spend days trying to come up with something perfect.

Home Rental Library × Serialized Delivery × Subscription. Just the last three halfway decent ideas we’d had, thrown into one pot.

According to Goldman, those three words are the key to understanding everything about Hollywood. Nobody really knows how well a movie is going to do…until after it’s already done it.

“Nobody Knows Anything” isn’t an indictment. It’s a reminder. An encouragement.

If Nobody Knows Anything, then you have to trust yourself. You have to test yourself. And you have to be willing to fail.

Silicon Valley brainstorming sessions often begin with someone saying, “There are no bad ideas.” I’ve always disagreed. There are bad ideas. But you don’t know an idea is bad until you’ve tried it.

The subscription model saved Netflix and quickly came to define it. But it wasn’t something that we thought our way toward – it wasn’t something anyone could have predicted ahead of time. It took a lot of hard work, a lot of hard thought.

By divorcing value from unit, we were, in effect, daring them to use our service as much as possible. And by lessening the penalties for doing so, we were – for the first time – openly daring the video store competition to stop us.

Focus. It’s an entrepreneur’s secret weapon. Again and again in the Netflix story – dropping DVD sales, dropping à la carte rentals, and eventually dropping many members of the original Netflix team – we had to be willing to abandon parts of the past in service of the future. Sometimes, focus this intense looks like ruthlessness – and it is, a little bit. But it’s more than that. It’s something akin to courage.

Christina was right. The longer we ran the test, the more apparent it was that next-day delivery was a real game changer – just not in the ways we thought. It didn’t affect retention – it affected sign-ups.

The whole saga had provided a valuable lesson: trust your gut, but also test it. Before you do anything concrete, the data has to agree.

If we wanted any chance of surviving long-term, we had to convince customers that we were giving them something better than an online library and quick shipping. Neither the technology nor the delivery method mattered. What counted was seamlessly connecting our users with movies we knew they’d love.

After his 1998 IPO, he famously said, “Got the girl. Got the money. Now I’m ready to live a disgusting, frivolous life.”

It was time to seek strategic alternatives. Sound like jargon? That’s because it is. Silicon Valley is full of nonsense phrases just like it. For instance, when someone says that he’s leaving to spend more time with his family, what that really means is my ass got fired. When someone says this marketing copy just needs some wordsmithing, what they really mean is this sucks and needs to be completely rewritten. When someone says we decided to pivot, what they really mean is we fucked up, royally.

I think the reason the Valley is so casual is because, unlike most industries, tech is about as close to a true meritocracy as you can get. In many disciplines, being a smooth talker or a snappy dresser can grease your ascent to the executive suite. But in Silicon Valley the only thing that really matters is the quality of your work. It’s a programmer’s world, with a programmer’s ethos.

In a place where you’re evaluated solely on the quality of your work, no one really cares about your appearance.

Companies are like boats: sometimes you have to put them in dry dock to remove the barnacles that have accreted on the hull, slowing down forward progress.

We were eventually sued over one of our more interesting experiments, in which we expedited service to some customers to see if that encouraged the light renters (“birds,” in Netflix parlance) and artificially slowed down service to discourage heavier users (internally – and secretly – called “pigs”).

An outdated feature was a barnacle. The drag it imposed might be tiny – but multiplied by a thousand? It slowed us down and cost us money.

After a while, we got pretty callous about it. Let ’em scream, we would rationalize. We’re okay with upsetting a thousand if it means we get it right for ten thousand.

It’s a maxim of startup life: you’re going to get things wrong. You just don’t want to get the same things wrong twice.

At Netflix, there was nothing wrong with disagreement. In fact, disagreement was a critical component of our culture of radical honesty. We expected disagreement, because we encouraged vigorous debate.

Disagreement was collaborative, not ego-driven. It didn’t matter who was right – all that mattered was that we got it right.

Winnowing our staff made us leaner and more focused. We no longer had time to waste, so we didn’t waste it. And while we certainly had to lay off some very talented individuals, we’d been left only with superstar players. With superstar players doing all of the work, it was no wonder that our quality of work was very high.

Hiring and keeping star players is about much more than just quality of work, however. It’s a culture thing. When you retain only star players, you create a culture of competitive excellence. It’s more fun to come to work when you know you’re part of the handpicked elite. Plus, it’s much easier to attract other elite talent to your team when you’ve established a reputation for superstar talent.

Tom had applied to shipping a principle we all understood intuitively: when it came to movies, people were lemmings. They wanted to watch what everyone else was watching. If you’d finished Apollo 13 yesterday, then it was highly likely that somebody else wanted it today.

Tom analyzed hundreds of thousands of data points to figure out where to place small Netflix shipping “hubs,” basically storefronts the size of your neighborhood Greek restaurant. His data showed that you could service 95 percent of the country with next-day delivery if you judiciously placed about sixty of these hubs all across the country.

The process worked obscenely well. Out of every hundred discs that arrived each day, ninety of them had a customer in that region who wanted them,

This might sound like hyperbole, but Tom’s method was one of the greatest innovations in the history of shipping. It was efficient, fast, and cheap.

Here’s what I’ve learned: when it comes to making your dream a reality, one of the most powerful weapons at your disposal is dogged, bullheaded insistence. It pays to be the person who won’t take no for an answer, since in business, no doesn’t always mean no.

“Everyone who’s ever been on a board says that they’re only interested in the success of the company,” I’d told Reed. “But you and I both know that ‘success’ means a slightly different thing to VCs than it does to a company’s founders.”

This is true, by the way. It’s something I tell startup founders all the time now. VCs will always say that they’re aligned with your mission, that they want what’s best for the company. But what they really want is what’s best for their investment in the company. Which isn’t always the same thing.

RANDOLPH’S RULES FOR SUCCESS 1. Do at least 10% more than you are asked. 2. Never, ever, to anybody present as fact opinions on things you don’t know. Takes great care and discipline. 3. Be courteous and considerate always – up and down. 4. Don’t knock, don’t complain – stick to constructive, serious criticism. 5. Don’t be afraid to make decisions when you have the facts on which to make them. 6. Quantify where possible. 7. Be open-minded but skeptical. 8. Be prompt.

(#5). I see the seeds for Netflix’s culture of Radical Honesty in #4’s admonition to stick to constructive, serious criticism.

And of course there’s a direct path from rule #1 – Do at least 10% more than you are asked – to all the espresso- and pizza-fueled late nights in the Netflix offices.

As you get older, if you’re at all self-aware, you learn two important things about yourself: what you like and what you’re good at. Anyone who gets to spend his day doing both of those things is a lucky man.

I have an almost obsessive ability to focus on those singular things – single-mindedly attacking them at the expense of everything else until I have wrestled them to the ground. I have the ability to inspire people to quit their jobs, take a pay cut, and help wage an improbable battle against an apparently implacable foe. These are critical skills for running a startup.

I missed the feeling of all hands on deck, and the expectation that every day you’d be working on a problem that wasn’t strictly tied to your job description.

But I’ve come to realize that success is not defined by what a company accomplishes. Instead, I have a different definition: Success is what you accomplish. It’s being in a position to do what you like, do what you do well, and pursue the things that are important to you.

Fulfilling your goals, making your dreams a reality, nourished by the love of your family. Forget money, forget stock options. That’s success.

(And to be fair to her, the idea as originally conceived wouldn’t have worked. It took years of adjustments, changes in strategy, new ideas, and plain old luck for us to land on a version of the idea that worked.)

The most powerful step that anyone can take to turn their dreams into reality is a simple one: you just need to start. The only real way to find out if your idea is a good one is to do it. You’ll learn more in one hour of doing something than in a lifetime of thinking about it.

Nolan Bushnell, the co-founder of Atari, once said something that has always resonated with me. “Everyone who has taken a shower has had an idea,” he said. “But it’s the people who get out of the shower, towel off, and do something about it that make the difference.”