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

by Marc Randolph

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.

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

“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.”

When you start a company, what you’re really doing is getting other people to latch on to an idea.

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.

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.

Culture is a reflection of who you are and what you do—it doesn’t come from carefully worded mission statements and committee meetings.

I felt like my father, working on one of his trains. I found satisfaction in lining up all the tasks, investigating all the problems, and then working to solve them. I was in the basement, building something, knowing that someday in the near future I’d have to invite everyone else in to have a look.

I knew that I, and everyone else on that initial team, would thrive if given a lot of work to do and a lot of space to do it. That was really all our culture amounted to. Handpick a dozen brilliant, creative people, give them a set of delicious problems to solve, then give them space to solve them.

You could come in when you wanted, leave when you wanted. You were being judged by what you could accomplish. As long as you were solving problems and getting things done, I didn’t care where you were, how hard you worked, or how long you stayed.

What happens on a backpacking trip also turns out to be a perfect model for what happens in a startup. 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. And they often end up totally lost in the woods.

Your job as a leader is to let them figure that out. You’ve presumably chosen this group for such an arduous off-trail trip because you trust their judgment, and because they understand their job. 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.

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.

What they really want is freedom and responsibility. They want to be loosely coupled but tightly aligned.

In other words, I was doing what I’d been doing since the summer of 1997: strategizing. Before you launch, you’re making a beautiful battle plan, coordinating the future movements of your troops. The second you launch, you’re in the fog of war.

Most engineers can choose where they want to work, and the way they make their decision boils down to two questions: 1) Do I respect the people I’m working for? 2) Will I be given interesting problems to solve?

You see this all the time in business and in sports—a younger upstart tries something new, and when it works, the industry leader co-opts. Why? Because they can.

As we’ve found out the hard way, renting DVDs online is operationally difficult, which means that it will be difficult for potential competitors to figure it out. We have at least a year’s head start. Plus, the margins are higher, since you can rent the same disc dozens of times.

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.

I hadn’t even meant to work on the mailers when I returned to the office. But that’s how things are—there is always so much to do that making plans and to-do lists is a waste of time.

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. At a startup, it’s hard enough to get a single thing right, much less a whole bunch of things. Especially if the things you are trying to do are not only dissimilar but actively impede each other.

That’s what great entrepreneurs do, in the end: the impossible.

But one of the things I was learning, that first year, was that success creates problems. Growth is great—but with growth comes an entirely new set of complications. How can you preserve your identity even as you include new members on your team? How do you balance continued expansion with coherent identity? How do you ensure that you continue to take risks, now that you have something to lose?

It was a big swing. And a big miss. But if you’re trying to make a dream into reality, you have to be willing to swing at a lot of pitches.

Sometimes chasing a dream is like that: a singular pursuit of something nearly impossible.

When you try to explain your dream to other people, they won’t understand that it isn’t just about raising funds or customer conversion or daily monitors. It’s a surreal chase, a pursuit that gives your life meaning.

When your dream becomes a reality, it doesn’t just belong to you. It belongs to the people who helped you—your family, your friends, your co-workers. It belongs to the world.

Officially that spring, my title was “president.” Day-to-day, little about my job had changed. I was still in charge of the aspects of Netflix that I loved (and was good at): customer relations, marketing, PR, web design, all the movie content, and our ongoing relationships with DVD player manufacturers. Reed took over the back end: finances, operations, and engineering.

If you hired the right people—smart, capable, trustworthy—they’ll figure out what needs to be done, and they’ll go ahead and do it. They’ll solve problems on their own before you even know the problems exist. And if you didn’t hire the right person? It’ll be apparent, really quickly.

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.

In 2000, we were growing fast. And we were still hiring people with good judgment. But even people with good judgment had questions about culture and rules—and they shouldn’t always have to find me or Reed to ask them. We started to ask ourselves: What if you could build a process that was meant for people who had great judgment? What if you could free them from all the petty restrictions that drive the top performers crazy? How can we scale up this set of ideals that came so naturally to us, so that a growing company can benefit from them? How do you codify culture?

Same with vacation days. We hadn’t kept track of them before because we didn’t need to. The attitude was: If you need to take a day off, just take it. I don’t need to know about your root canal, or your kid’s school schedule. Just get your work done, and cover for yourself when you’re gone.

This is one of the facts of startup life: change. When you’re building something from nothing, you rely on talented, passionate generalists: people who can do a little bit of everything, who buy into the mission, and whom you trust with your time, money, and ideas. But once you’ve gone from 0 to 1, and the seed you’ve planted is starting to grow, some shuffling happens. Often the person who was right for the job at the beginning is not right for the middle. Sometimes bringing in people with decades of experience and institutional know-how is the necessary thing to do.

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.

When it comes to ideas, it’s more efficient to test ten bad ones than spend days trying to come up with something perfect.

“Nobody Knows Anything” isn’t an indictment. It’s a reminder. An encouragement. Because if Nobody Knows Anything—if it’s truly impossible to know in advance which ideas are the good ones and which aren’t, if it’s impossible to know who is going to succeed and who isn’t—then any idea could be the one to succeed. If Nobody Knows Anything, then you have to trust yourself. You have to test yourself. And you have to be willing to fail.

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. We’d suspected that next-day delivery was important, but we’d been myopic in our analysis of our tests, so we hadn’t understood why. It took an additional test, with a truly outside-the-box execution, to understand what we’d already intuited to be true. And once we understood it, we could refine the idea and maximize its potential—which was huge. Next-day delivery was like magic. We knew it had to be part of our plans going forward. Now we just needed to figure out a way to make it work without driving the DVDs ourselves or building enormous warehouses all over the country.

we were successful, and success is expensive. In fact, we were drowning in our own success. The faster new customers poured in, the faster money poured out. Our business model was hard to explain to potential customers, but we knew that if people tried our service, they’d be hooked. That’s why everyone who wanted to try Netflix got their first month free. That was expensive.

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. And when a company decides to seek strategic alternatives, what they’re saying is: We’ve got to sell this sucker. And fast.

It wasn’t easy. Most times, deciding what not to do is harder than deciding what to do.

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. In Netflix meetings, there was no seniority, and no one’s opinion was more valuable because of their title, age, or salary. Everyone was expected to fight for their point of view until a consensus had been reached. Still, no matter how passionate the argument, there was a shared expectation at Netflix that, once the self-evidently correct conclusion had been reached, it was time to fall in and implement it. Disagreement was collaborative, not ego-driven. It didn’t matter who was right—all that mattered was that we got it right.

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.

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.

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

If this book has taught you anything, I hope it’s shown you that the story behind Netflix was a little more complicated than that. And I also hope it’s shown you how useful narrative can be. When you’re trying to take down a juggernaut, the story of your company’s founding can’t be a 300-page book like this one. It has to be a paragraph. Reed’s oft-repeated origin story is branding at its finest, and I don’t begrudge him for it at all. Is it a lie? No—it’s a story. And it’s a fantastic one.

So many aspects of the corporate culture spring from the way Reed and I treated each other and the way we treated everyone else. Radical Honesty. Freedom and Responsibility. Those were there from the beginning—in the car on 17, in the Hobee’s dining room, in the first days in the bank vault.