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

by Marc Randolph

But I know what’s behind that look: a rapid-fire evaluation of pros and cons, a high-speed cost-benefit analysis, a near-instantaneous predictive model about possible risks and scalability.

Silicon Valley loves a good origin story. The idea that changed everything, the middle-of-the-night lightbulb moment, the what if we could do this differently? conversation.

Origin stories often hinge on epiphanies. The stories told to skeptical investors, wary board members, inquisitive reporters, and—eventually—the public usually highlight a specific moment: the moment it all became clear. Brian Chesky and Joe Gebbia can’t afford their San Francisco rent, then realize that they can blow up an air mattress and charge people to sleep on it—that’s Airbnb. Travis Kalanick spends $800 on a private driver on New Year’s Eve and thinks there has to be a cheaper way—that’s Uber.

Epiphanies are rare. And when they appear in origin stories, they’re often oversimplified or just plain false. We like these tales because they align with a romantic idea about inspiration and genius. We want our Isaac Newtons to be sitting under the apple tree when the apple falls. We want Archimedes in his bathtub. But the truth is usually more complicated than that. The truth is that for every good idea, there are a thousand bad ones. And sometimes it can be hard to tell the difference.

Truths like: Distrust epiphanies. The best ideas rarely come on a mountaintop in a flash of lightning. They don’t even come to you on the side of a mountain, when you’re stuck in traffic behind a sand truck. They make themselves apparent more slowly, gradually, over weeks and months. And in fact, when you finally have one, you might not realize it for a long time.

Joseph Swan)

Over time, I realized that for my dad, it wasn’t finishing the train that he liked. It was the years of labor: the days at the lathe, the thousands of hours at the drill press and milling machine.

“If you really want to build an estate, own your own business. Control your own life.”

I’m an idea guy. Give me hours of empty time in a Silicon Valley office with a fast internet connection and multiple whiteboards, and you’re going to need to buy more dry-erase markers.

When you find people as capable, smart, and easy to work with as Christina and Te, you need to keep them around.

So I started looping them in on my ideas for a new company. They were perfect sounding boards. I’m a great idea guy, but I’m horrible at follow-through. I’m not good at details. But Christina and Te are.

“You want something where the effort it takes to sell a dozen is identical to the effort it takes to sell just one. And while you’re at it, try and find something that’s more than just a onetime sale, so that once you’ve found a customer, you’ll be able to sell to them over and over again.”

“We need a product that already exists in the world,” I said. “But that we can help people access online. Bezos did it with books. You don’t have to write books to sell them.”

There’s a reason the only tapes we had in our house were kids’ movies—back in the nineties, the only studio that was pricing VHS tapes to sell was Disney.

Prior to 1997, DVDs were only available in Japan. And even if you found one, there was no way to play it—no DVD players were for sale in the States. It was easier, far easier, to find a laser disc than a DVD.

Even on March 1, 1997, when the first DVD players went on sale in U.S. test markets, there were no DVDs available for purchase outside of Japan. It took until March 19 for any titles to be released in the United States, and the few that were available weren’t exactly hot new releases. The Tropical Rainforest. Animation Greats. Africa: The Serengeti. The first mass release of titles—thirty-two in total—came a week later from Warner Bros.

cinephiles

A CD was much smaller than a VHS tape. And much lighter. In fact, it occurred to me that it was probably small and light enough to fit into a standard business envelope, requiring nothing more than a 32-cent stamp to mail.

(by buying one VHS cassette and then renting it out hundreds of times—a right established by the Supreme Court as the “first sale” doctrine),

With the whole world consumed by VHS rental, we might be able to make DVD rental by mail work—and have the video rental by mail category to ourselves for a while.

There was something tempting about a job that you could leave behind at the end of the day.

The hay is never in the barn. - coach Keith Armstrong - When you do important stuff you take the job home with you. When your working for yourself, the work never stops. Trying to squeeze out every idea.

The truth is, I like headaches. I like a problem in front of me every day, something to chew on. Something to solve.

Patsy Cline

We were close enough to actually launching that I decided I needed to see exactly how our DVDs would move through a post office, so we could tweak the design of our mailers.

When you are close to doing something, you need to turn over every rock in the process. Not only did he put the CD in the mail before, but he also doubled back and went through the actual process in the post office as well. This is what it takes as a business owner.

Even in places where DVDs were available in the United States, there weren’t that many titles. By mid-1997, there were still only about 125 titles to choose from. There were tens of thousands of movies on VHS.

You have to convince your future employees, investors, business partners, and board members that your idea is worth spending money, reputation, and time on. Nowadays, you do that by validating your product ahead of time. You build a website or a prototype, you create the product, you measure traffic or early sales—all so that when you go to potential investors, palm outstretched, you have numbers to prove that what you’re trying to do isn’t just a good idea, but already exists and works.

But before you could accept that first dollar and sell your very first share of stock, you had to put a dollar sign on it. This is called valuation. You come up with a number: What your idea is worth.

To wit: Netflix is currently worth around $150 billion. Back in 1997, though, Reed and I decided that the intellectual property—the idea for DVD by mail, plus the fact that he and I were the ones working on it—was worth $3 million. That wasn’t a ton—but it seemed like enough. Enough to take seriously, but not so much that no one would want to risk money on it.

My risk was my time. His was his money.

“dilution.”

This didn’t bother me at all. Dilution is a normal part of the startup world.

Most business plans—with their exhaustive go-to-market strategies, detailed projections of revenue and expenses, and optimistic forecasts of market share—are a complete waste of time. They become obsolete the minute the business starts and you realize how wildly off the mark you were with all your expectations.

The truth is that no business plan survives a collision with a real customer. So the trick is to take your idea and set it on a collision course with reality as soon as possible.

nebulous

By the mid-nineties, things had changed. Jeff Bezos’s success at Amazon had shown us that it wasn’t just more powerful hardware or more innovative software that would lead to future progress—it was the internet itself. You could leverage it to sell things. It was the future.

In 1995, when I was wrapping up my time at Borland, you could actually buy a published book that listed every website in existence. Since there were only about 25,000 sites, that book was less than one hundred pages long. But by March of 1997, when Reed and I were making our brainstorming commutes over the Santa Cruz Mountains, there were about 300,000 websites. By the end of that year, there were a million—and the number of users had grown to a hundred times that number.

The monumental increase in the internet within the span of a year showed how much the internet and access had grown. Wonder how many websites there are now? We have so many users because we all have the internet in the palm of our hands.

monetize

I’d realized by then that telling people about my idea was a good thing. The more people I told my idea to, the more I received good feedback, and the more I learned about previous failed efforts. Telling people helped me refine the idea—and it usually made people want to join the party.

In casual California, where shorts and flip-flops were the norm, he was never seen in anything except a button-down shirt. But the very qualities that attracted me to Duane—he was careful, organized, and risk-averse—were the ones that kept him from committing to becoming part of our merry little group of outsiders.

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.

People in Santa Cruz are typically against development. They’ve opposed widening the roads. They don’t want it to grow.

If I was going to start my own company, I wanted it to seamlessly integrate with my life. I wanted my kids to be able to come by the office for lunch, and I wanted to be able to drive home for dinner with them without spending hours inching along in a conga line of cars.

Time is cruel,

subterfuge.

festooned

demurred.

Other People’s Money.

It forced us to validate the idea.

Patagonia.

I had never been looked at like that before.