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

by Marc Randolph

I’m usually wary of title inflation – although it’s something that seems like it costs you nothing to give, it actually is far more expensive than it seems, since it causes a cascading series of overpromotions. For just this reason, I had already decided that no one would get a VP title – at least at first. Instead, they would all be directors, and their titles would reflect what they actually did, not what they wanted to do.

Culture isn’t what you say. It’s what you do.

Netflix would eventually codify this as Freedom and Responsibility. But that was years later. At the time, it was just how we did things. We didn’t have set hours for work. You could come in when you wanted, leave when you wanted. You were being judged by what you could accomplish.

Startups are small, they’re often lean, and they’ve separated themselves from the dominant mode of thinking within their space. They’re made up of like-minded people who are on a journey, who share a common goal.

So as a leader, the best way to ensure that everyone arrives at the campsite is to tell them where to go, not how to get there. Give them clear coordinates and let them figure it out.

It’s the same at a startup. Real innovation comes not from top-down pronouncements and narrowly defined tasks. It comes from hiring innovators focused on the big picture who can orient themselves within a problem and solve it without having their hand held the whole time. We call it being loosely coupled but tightly aligned.

People want to be treated like adults. They want to have a mission they believe in, a problem to solve, and space to solve it. They want to be surrounded by other adults whose abilities they respect.

But when I needed a morning off, to mountain bike and clear my head, I took it. When Te wanted to chew over PR stunts during a manicure, she booked an appointment. Nowadays, they call that “self-care.” Back then, we just called it common sense. If we were going to try to fundamentally change an entire industry, we needed to have our wits about us.

“Kinda puts all our eggs in one basket,” he said. “That’s the only way to make sure you don’t break any,” I replied. That’s true, by the way. One of the key lessons I learned at Netflix was the necessity not only of creative ideation, or of having the right people around you, but of focus.

Do the math: every paying customer is costing us $300. We call that CAC. Pronounced kack, it stands for “cost of acquiring a customer.” It’s also the noise you make when you realize that you’ll never be able to make enough money to justify CAC being so big.

But that’s the thing about startups – you’re almost always on the razor’s edge between total success and total failure. You learn to live there.

We’d built a company where freewheeling discussions sometimes turned heated – and it was okay. Where ideas were more important than chain of command. Where it didn’t matter who solved a problem – only that it got solved. Where dedication and creativity mattered a lot more than dress codes or meeting times. It was special, and I knew it. Even then.

It all went by in a blur, but one thing he said really stuck out. “You don’t appear tough and candid enough to hold strong people’s respect,” he said. “On the good side, no one good has quit, and your people like you.” I had to smile at that. Forget radical honesty. This was brutal honesty. Ruthless honesty.

Radical honesty is great, until it’s aimed at you. I’m not going to lie to you, or to myself. What Reed said to me that day in mid-September hurt. It really hurt. Not because Reed was being unkind – he wasn’t – but because he was being honest. Brutally, astringently, rip-the-bandage-off honest.

And the more I thought about it, the more the PowerPoint touched me. Was it clumsy? Yes. Was it totally like Reed to try to frame a delicate, emotionally volatile conversation within the safe confines of a series of animated slides – a presentation of a type that I had taught him to deliver? Also yes. But insulting? No. I could see, now that he was out of the room and I was sitting in the dark, that Reed had been so nervous about giving me honest feedback that he’d needed a prompt, a set of written reminders, something to make him feel like he was on solid ground. He’d wanted to make sure that he did it right. He wanted to make sure he said the things that needed to be said.

A culture of freedom and responsibility, coupled with radical honesty, worked like a charm. Not only did we get great results, but employees loved it. People who have the judgment to make decisions responsibly love having the freedom to do so. They love being trusted. But that just makes sense, right? If you fill your company with people who lack good judgment, then you have to build all kinds of guardrails to keep them in line. You have to define everything for them: how much they can spend on office supplies, how many vacation days they take, when they are expected to be at their desk. Most companies end up building a system to protect themselves from people who lack judgment. And that only ends up frustrating the people who have it. Remember the engineers in the hot tub? If you treat people like children, it doesn’t matter how many beanbag chairs and beer parties you throw at them. They will resent you.

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.

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.

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.

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.

Every programmer is accustomed to having their code subjected to peer review, in which fellow coders evaluate its brevity, elegance, cleverness, simplicity, and ultimate effectiveness. It’s all there in black and white. It matters not at all what you look or dress like; what you talk or smell like. You don’t need to speak English. If your code is good, you’re in. If your code sucks, it’s immediately apparent to everybody.

And what about the money? Would that change me? Lorraine and I would certainly worry less, I knew that. But I didn’t think we would be any happier. If growing up in Chappaqua had taught me anything, it was that happiness existed on a totally different axis than money. I grew up around fabulously wealthy, fantastically miserable people. You could spot them a mile away – impeccable loafers, beautiful bespoke suits, and an empty half smile on their face.

neat engineer’s handwriting. It read:

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.

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.

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.

You’ll learn more in one hour of doing something than in a lifetime of thinking about it.