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July 10 - July 16, 2023
“If you really want to change the world,” he said, “you don’t need millions of dollars. You need billions.”
I had climbed mountains. Rafted rivers. Run triathlons. But this was the hardest thing I had ever tried to do. And then I finally did it. A friendly-looking woman, about my mother’s age, turned the corner and walked toward me. She was moving fast enough to be going somewhere, but slow enough to look like she was enjoying herself. I mustered up the courage to look her in the eye and ask, my voice barely a whisper, “Do you have any spare change?”
After a pitch, you’ll typically hear a sentence that begins with “This is great, but…” You get so used to it that if you hear a sentence starting with “This is great,” you mentally start gathering your papers and feeling for your keys. This is great, but I’d love to see more traction before committing. This is great, but why don’t we talk again when you have ten thousand subscribers? This is great, but that’s not an investment premise we’re focusing on right now. Alexandre didn’t tell us, This is great. He told us, This is shit. And that scared the hell out of us.
I was most nervous about asking my mother. Plenty of people ask their parents for money during the seed stage of startups. In fact, back then nobody even called it a “seed round.” People called it the “friends and family round.”
All of us—and I mean all of us—initially shied away from Netflix.com. Sure, it was two syllables. And sure, it satisfied both criteria, movies and internet. But there was a lot of worry in the office about the connotations of “flix.” “It just makes me think of porno,” Jim said at our meeting. “Skin flicks.”
Christina had come up with it: a button a user could push that would flag a movie you were interested in, so that next time you saw it, an icon would appear. The icon? A finger with a red thread wrapped around it. “The engineers hate it,” I told Steve. “They call it the Bloody Finger.”
Corey’s black-ops tactics haven’t stopped, post-launch. He has seventeen different personas, each of them engineered for a different site, and now that Netflix is a go, he can keep track of who is actually visiting the site and ordering from us.
Whatever his reasoning, I’m eternally thankful to Steve Nickerson for taking the plunge. In my estimation, he’s one of the single most important players in the Netflix story. Without his help, there is absolutely no way the company would have succeeded. I’d flown up to New Jersey, the NMO in tow, and over the course of a few days in April, Steve and I had settled on a deal. In every DVD player Toshiba sold, they’d allow us to include a small promotional flyer, offering three free DVD rentals through our site.
It was a win-win. We got direct access to DVD player owners, at precisely the moment when they needed us most. And Toshiba solved its biggest problem: convincing reluctant buyers that they’d actually be able to find something to play on their new machine. The
But it was more than a win-win. It was a revelation. You see, a startup is a lonely place. You are working on something that no one believes in, that you’ve been told time and time again will never work. It’s you against the world. But the reality is that you can’t really do it on your own. You need to enlist help. Bring others around to your way of thinking. Let them share in your enthusiasm.
Although I’m upset, I’m not entirely surprised. The second your dream becomes a reality, things get complicated. You simply can’t know how things are going to behave until you’ve actually tried them. Go ahead and write up a plan, but don’t put too much faith in it. The only real way to find something out is to do it.
Do the math: every paying customer is costing us $300.
Eventually, they decided to fund us. But that had less to do with my pitch than Reed’s presence. Reed was a known quantity, venture capitalist catnip. He’d orchestrated major deals, he’d appeared—reluctantly—on the cover of USA Today next to his Porsche.
IVP funded us not because our forecast was good, or our pitch was perfect, or because I’d wowed them with my slides and enthusiasm. IVP funded us because, despite how impossible things looked, Reed was a miracle worker, and Reed was on board.
If you bought a Sony DVD player in the fall of 1998, there was a promotional sticker on the outside of the box, promising ten free DVD rentals and five free DVDs. All you had to do was head to Netflix.com, enter your DVD player’s unique serial number, and bingo: ten free DVDs to rent, five free DVDs to keep. It would have been better if the coupons were on the inside of the box, but Sony’s methodical production schedule didn’t allow for it. Besides, you still had to buy the DVD player to get the serial number, right? Wrong.
All our scammer had to do was walk down the aisle of his nearest Best Buy, pad and pencil in hand, and he’d have dozens of serial numbers to type into our promotional form. He didn’t have to buy a single thing.
But that’s the thing about startups—you’re almost always on the razor’s edge between total success and total failure. You
I’m losing faith in your ability to lead the company alone. Your strategic sense is erratic—sometimes right on, and sometime way off. I’ve seen issues with judgment, hiring, financial instincts. And I’m concerned that I’m seeing these kinds of issues at our small size. Next year’s problems and the year after’s will be much harder, and the consequences for missteps much more severe. Things are only going to get worse as the company grows.”
When the deal collapsed, Reed informed us that it had never been that important. Everyone was crestfallen, especially Christina. From the beginning, she had opposed the deal, but as always, she’d been a complete team player—and had worked hard on the Netflix end. A lot of conversations with Reed (and with Patty) were needed to get him to realize how demoralizing it could be, when you made something a priority, asked people to break their backs doing something they didn’t agree with—and then didn’t honor the work they put in.
If people want what you have, they will break down your door, leap over broken links, and beg you for more. If they don’t want what you’ve got, changing the color palette won’t make a damn bit of difference.
Home Rental Library × Serialized Delivery × Subscription. Just the last three halfway decent ideas we’d had, thrown into one pot. “This probably won’t work,” I told Christina. “But, hey, at least we’ll know.”
William Goldman is most famous for writing three words: Nobody. Knows. Anything. 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.
we would automatically roll customers into their next month of membership—and bill their credit card—unless they proactively canceled. You see this all the time now—Amazon Prime and virtually every subscription plan does it. But at the time it seemed like an overly aggressive money grab—verging on sleazy. Reed hated 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.
Moving the business entirely to Marquee almost immediately took one of our biggest liabilities—delivery time—and in one fell swoop turned it into one of our biggest advantages. Now we weren’t several days slower than going to a Blockbuster—we were many times faster! If you wanted to watch a movie, no more driving to the store. There was already a stack of movies waiting for you, right on top of your TV. It was as close to “movies on demand” as we could get.
just define how to build the list—maybe call the list ‘thrillers’ and let the system randomly pick from any movie we have that is tagged as a thriller.” If I recall correctly, I reacted with horror to this suggestion. I hated it. It seemed cold, computerized, random—all the things we weren’t trying to be. But have you used Netflix lately? Reed’s slot structure survives—with alterations.
We had proved whether it did each of these things and knew exactly by how much. But once we’d learned what we needed to learn, the usefulness of the test fell to zero for us. Unfortunately, the cost stayed the same. And each new feature we added on to the service had to then work flawlessly with the old ones, so as to accommodate all our customers, no matter which plan they were on. Doing so meant that design got complicated. Testing got harder. And everything slowed down.
It turned out that none of the candidates had actually been offered the job the first time around. N. W. Ayer knew that being an account executive was a selling job. A turning-a-no-into-a-yes type of job. So they had said no to all of us. And I was the only one of the candidates who hadn’t taken no for an answer.
Soon after assuming the role of CEO, Reed had asked me to give up my seat so that an investor could take it. I’d refused, adamantly, arguing that I’d give up my title as CEO, I’d even give up some shares—but I wouldn’t give up my seat on the board of directors.
“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.”
I left Netflix because I realized that the finished product of Netflix wasn’t my dream. My dream was building things. My dream was the process of making Netflix.
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.”
The best journeys rarely proceed linearly. Relax. Find something that strikes your interest. And don’t be afraid to take a trail just because you can’t see the end of it.
Netflix started out as video rental by mail (with due dates and late fees) before eventually morphing into a subscription service, and then (nine years after launch) to a streaming company.
True entrepreneurs almost never ask that. We are just not wired that way. There is always one more thing to try. One more possibility that just might work. Giving up is usually something that is forced on us externally—often by nothing more than running out of money.
