Best Lines
- Creativity involves gathering diverse inspirations and connecting them in new ways to create something original.
- There’s no such thing as a good idea initially; every idea is inherently bad until we understand why.
- Instead of dreaming about how amazing the idea is, focus on how to quickly, cheaply, and easily test it with real people to determine if it’s actually good or bad.
- A major reason entrepreneurs either fail to start or can’t stop is because they have built their idea into something so complex in their minds that beginning seems nearly impossible, or they are too invested to abandon it.
- Entrepreneurship often involves addressing two challenges: creating something a customer might want and finding a way to turn it into a viable business.
- One key role of a CEO is ensuring that the best people are in the right roles, which sometimes means saying goodbye to those who are not the right fit for the company’s next phase.
- Marketing is an interesting discipline because it requires you to imagine how people will react since you’re not there to see their faces as they engage with your content.
- Hard work alone is not the key to success. The notion that sheer hard work leads to success is a myth.
- The key to balance as an entrepreneur is recognizing that being smart about the things you choose to focus on makes 99% of the difference, and all the extra work doesn’t significantly change the outcome.
- Success lies not in having a single good idea but in creating a process and culture that enables you to test and iterate through numerous ideas.
- It’s important to let people know that failing is not only okay but expected and beneficial.
- Success, in my view, is the ability to spend your time doing what you truly want to do.
- Culture isn’t aspirational; it’s observational. It’s not something you dream up or aspire to; culture is defined by how you, as founders and senior executives, actually behave.
About Mark Randolph
- An accomplished American entrepreneur, co-founded and served as the first CEO of Netflix.
- With over 40 years of experience, he has launched seven startups and is now dedicated to mentoring the next generation of entrepreneurs.
Current Mission
- After decades of building companies, Mark has shifted his focus to mentorship.
- He believes his appetite for starting new ventures has waned, but his passion for helping others succeed remains strong.
- His goal is to share the lessons he’s learned to increase others’ chances of success.
Insights from His Book: That Will Never Work
- In the book, Mark challenges the glamorized image of entrepreneurship often portrayed in the media.
- He wrote the book to reveal the reality of turning a “crazy idea” into a successful business.
- If a reader finishes the book thinking, “This sounds great,” Mark believes they might have what it takes to be an entrepreneur.
Early Experiences that fed into the creation of Netflix
- Mark Randolph’s first venture into direct response marketing began when he took charge of the mail-order division at a sheet music company. By experimenting and expanding the division, he essentially built a company within a company.
- This experience proved invaluable for Netflix, as direct marketing is fundamentally about testing and analytics.
- When the internet emerged, Mark immediately saw its potential to supercharge direct marketing, enabling the personalization of every web page for individual users.
- Creativity, in Mark’s view, involves gathering diverse inspirations and connecting them in new ways to create something original.
- Often, you don’t realize at the moment that you’re in the right place at the right time.
- Jeff Bezos was among the first to recognize the internet’s power to sell products.
- The idea of Netflix’s video rental by mail was heavily influenced by Mark’s extensive experience in the catalog business, where he gained deep insights into shipping logistics and fast delivery.
- When faced with a problem, your mind often draws on past experiences to find innovative solutions.
Meeting with Reed Hashtings
- Meeting Reed Hastings was an instant connection between two like minds, even though they approached problems differently.
- Mark’s marketing intuition allowed him to sense how people would respond, while Reed’s background in Mathematics and Computer Science brought an analytical perspective.
- As they began solving problems together, they realized how well their skills integrated.
- Both believed life was too short to avoid the truth, so they always spoke honestly and respectfully, without hidden motives, which strengthened their partnership.
- Their time at Pure Atria was brief, just 7 or 8 months, before the company was acquired.
- With the acquisition, both were set to lose their jobs, as the new company already had a CEO, leaving them with just six months to figure out their next steps.
Searching Business Idea
- Reed would pick me up at my house, and I’d say, “Okay Reed, I’ve got one idea.” One time, it was personalized shampoo: “You’re going to cut off a lock of your hair, mail it to us, and we’ll have a team of hair scientists formulate a custom blend. People will subscribe to it.” No matter what I pitched, there’d be silence.
- After 5 or 10 minutes, Reed would eventually turn to me and say, “That will never work,” and he’d list all the reasons why it was a bad idea. We’d argue all the way to the office, and sometimes all the way home, until we decided whether there was any promise. Almost every time, there was very little promise in these ideas.
- The breakthrough came when Reed stopped me and said, “I gotta tell you about something I read about—there’s a technology called the DVD; it holds a movie.” We brainstormed and realized this could be the key to that old video rental by mail idea we’d talked about.
- We bought a used CD, the same size and weight as a DVD, put it in an envelope addressed to Reed’s house, and dropped it in the mail. The next morning, Reed picked me up, holding a little pink envelope with an unbroken CD that had arrived in less than 24 hours for the price of a stamp. That was the moment we thought, “This actually might work.” We began saying, “This could be the idea.“
Framework to know your idea
- The framework begins with the assumption that every idea is stupid.
- There’s no such thing as a good idea initially; every idea is inherently bad until we understand why.
- I approach each idea with the mindset that they are all ridiculous and unlikely to work.
- Starting from this position helps avoid the worst mistake an entrepreneur can make: falling in love with their idea.
- Instead of dreaming about how amazing the idea is, focus on how to quickly, cheaply, and easily test it with real people to determine if it’s actually good or bad. Implement hacks to quickly find out if customers would want it. If it fails, move on to the next idea.
- This approach is crucial and a fundamental part of the framework everyone should adopt.
- The key is not just having an idea but being clever in creating a quick, cheap, and easy way to test its viability.
How to Test Your Idea
- Assuming your idea is good can make it seem overly large and complicated in your mind, leading you to think you need to build it immediately.
- Often, this means you might end up building the wrong thing. Instead, start with real information rather than assumptions.
- For example, consider a university student with an idea for a peer-to-peer clothing sharing service. She might wonder if she should build a team or drop out of college.
- Mark suggests a quick, cheap, and easy test: Take a piece of paper, write “Would you like to borrow my clothes? Knock,” and tape it outside your dorm room. If someone knocks, you’ll learn about the complexities of the idea with just paper, a marker, and tape. By the time you’re ready to move forward, you’ll know what you’re raising money for and whether it’s worth dropping out of school.
- This approach, known as a validation hack, is crucial for entrepreneurs. Quickly, cheaply, and easily test your idea; if it fails, abandon it and move on to the next.
Take Feedback
- Humility is crucial; if you’re emotionally attached to your idea, you may struggle to accept feedback that conflicts with your beliefs.
- A major reason entrepreneurs either fail to start or can’t stop is because they have built their idea into something so complex in their minds that beginning seems nearly impossible, or they are too invested to abandon it. This is a tragic scenario.
- Start with the assumption that your idea might be bad. This mindset makes it easier to walk away if you find out you’re right.
- Develop the discipline to test your idea immediately.
- Young entrepreneurs often focus on being right, while seasoned entrepreneurs prioritize success, regardless of whether their idea turns out to be correct.
- Disagreements are common, but eventually, you’ll find the best approach. Once decided, focus on executing it without dwelling on who was right or wrong.
History of Netflix
- In August 1997, I could never have imagined the company Netflix would become. It’s a testament to the unpredictable nature of entrepreneurship.
- Entrepreneurship often involves addressing two challenges: creating something a customer might want and finding a way to turn it into a viable business.
- At the start, our innovation wasn’t in the business model but in having a centralized online store that allowed us to offer every DVD available. We maintained perfect inventory and focused on mailing movies on plastic discs.
- Key factors that made Netflix successful were the internet, a single store serving the entire country, and a small team of 12 to 15 people. The DVD was a gamble; if it hadn’t become widely adopted, Netflix might never have succeeded.
Meeting with Jeff Bezos
- In its early days, Amazon was just a bookstore, but Jeff Bezos had grander ambitions. He envisioned Amazon as the “everything store,” with music and movies as the next categories.
- We were invited to meet Jeff at Amazon’s headquarters. When we arrived, it was hard to believe this was the headquarters of a world-changing e-commerce company. The office was a mess—people worked in cramped spaces, closets, and desks made from doors, with pizza boxes everywhere.
- At the end of the meeting, the CFO mentioned, “I just want to set your expectations that if we decide to make an offer, it will likely be in the low 8 figures.” Reed and I looked at each other, thinking that’s a decent return for 12 to 18 months of work. However, we felt we had already solved the major problems, built a functioning e-commerce website, and weren’t ready to hand over control to Jeff.
- I found it more intriguing to take the chance and see what Netflix could become rather than walk away.
Moving from a CEO
- In late 1999, Reed and I had agreed that he would be the angel investor and I would be the CEO. One afternoon, Reed came to my office with a PowerPoint presentation and began discussing my performance as CEO, highlighting both strengths and weaknesses.
- I interrupted him, saying, “Reed, I’m not going to sit here and listen to a pitch about my shortcomings.” He closed the laptop but continued to express concerns about minor errors in my judgment. His main point was that we needed flawless execution. Eventually, he proposed that he return to the company full-time as CEO, while I would become COO, and we would run the company together.
- I was shocked, sitting there in the dark, feeling crushed. I thought, “This is so unfair—this is my company, my idea, I hired the people. How dare you take this from me?“
- I had to consider whether Reed taking over as CEO would increase our chances of success. It was a difficult decision, but by the end of the day, I concluded that he was right. If we wanted the best chance for success, I needed to step down as CEO and let him take over.
- Reflecting now, putting my ego aside and making that decision was likely the smartest move I made during my time at Netflix. Many of the things that shaped the company’s future happened during those years, and seeing the company’s continued success since then has been astounding.
- One key role of a CEO is ensuring that the best people are in the right roles, which sometimes means saying goodbye to those who are not the right fit for the company’s next phase. Even those who worked tirelessly and met every expectation may not be suited for the company’s evolving needs.
- Founders often need to ask themselves, “I’m the right person for yesterday, and I might even be the right person for today, but am I the right person for tomorrow?“
- Reed had experience taking a company through an IPO and scaling from 2 employees to 1,000. He had demonstrated his ability to hire exceptionally talented people. His move wasn’t about questioning my capabilities but about maximizing our chances of success.
Having Tough Conversations
- Marketing is an interesting discipline because it requires you to imagine how people will react since you’re not there to see their faces as they engage with your content.
- This skill is also a gift in salesmanship and negotiation, allowing me to anticipate how someone will react before I say something.
- Delivering bad news is very painful for me, but I’ve become good at it over time.
- How did I stop being a people pleaser? I realized there’s no way to avoid the hurt. I’ve stopped searching for a way to do it that doesn’t hurt and accepted that it’s going to hurt, but I have to do it anyway.
- I deeply respect Reed for having the courage and discipline to suggest ideas that could make the company more successful, even when they might cause pain.
- Reed has an incredible ability to tackle complicated problems with many moving pieces, instantly seeing the right path to take. He’s extremely analytical, non-emotional, and capable of making very hard decisions—he’s remarkable.
Does Hard Work Matter
- Hard work alone is not the key to success. The notion that sheer hard work leads to success is a myth.
- When you’re starting out and lack direction, working exceptionally hard is necessary. It helps you navigate through many false leads and gain experience. However, as you advance, it’s important to recognize when to slow down.
- In certain stages of your career, hard work is essential, but it’s not always the most effective approach.
- Many entrepreneurs overwork themselves, staying up all night and obsessing over every detail. However, experience shows that this relentless effort often makes little difference.
- The key to balance as an entrepreneur is recognizing that being smart about the things you choose to focus on makes 99% of the difference, and all the extra work doesn’t significantly change the outcome.
- I fundamentally believe that if I’m really smart about which problems I choose to focus on, I’ll make the difference. I don’t need to get everything right because most things don’t matter—some things do.
Finding a Product-Market Fit
- Product-market fit is achieved when you finally have something that customers actually want.
- The late fees concept was ineffective; it didn’t work. Initially, no one wanted to rent from us, and those who did rarely returned. We experimented with hundreds of strategies to encourage DVD rentals by mail.
- Eventually, we learned that testing quickly is crucial. Rapid testing revealed that even if the test was imperfect, a good idea would shine through. The key insight was that a bad idea wouldn’t be saved by an elaborate test, but a promising idea could succeed despite a flawed test.
- Success lies not in having a single good idea but in creating a process and culture that enables you to test and iterate through numerous ideas.
How Netflix Turned on Subscriptions
- One day, Reed and I were in the warehouse, looking at all these DVDs just sitting there, not doing any good. We thought, what if we could store them at our customers’ homes? Let them keep the DVDs, and when they’re done, they send them back, and we simply replace them.
- Instead of making customers pay each time they rented a movie, we thought, why not charge a monthly fee or subscription? They could rent as often as they wanted, with no due dates and no late fees.
- When I pitched this idea, everyone said, “That will never work.” One reason was the looming rise of streaming; they said it’s a digital medium, and in days, everyone will be streaming—who needs DVDs? But while streaming was inevitable, it could still be years away. The other reason was Blockbuster—why would anyone wait days for a movie to arrive in the mail when they could drive to Blockbuster in 20 minutes?
- The game changer was the lack of due dates and late fees. With our service, people could order movies, keep them as long as they wanted, and when they wanted to watch something new, there was no lag time—unlike the 20-minute drive to Blockbuster.
- Blockbuster’s biggest complaint from customers was about late fees. By eliminating those, we gained a huge competitive advantage. Late fees felt like an unwanted, unpleasant punishment for customers.
- No due dates, no late fees—this was so profoundly game-changing for us that it defined the company for the next 5 to 7 years. Transitioning to a subscription model was huge; today, everything from software to services operates on subscriptions.
- It’s important to let people know that failing is not only okay but expected and beneficial. I don’t even consider them failures; they’re tests that didn’t necessarily work, but they did in the sense that we learned something from them.
Saying Goodbye to Dad
- My dad was extremely risk-averse. As an investment advisor, he managed money for others and could not understand why I was pursuing my unconventional path. It made no sense to him.
- He was present when I spoke to the DVD Manufacturers Association in New York. He was incredibly proud to see that what I was saying mattered and interested people. Unfortunately, he was in New York at the time for treatment of a brain tumor.
- A tragic aspect of my father’s death before the dotcom collapse is that he never saw that he was right. He couldn’t understand how companies with ridiculous valuations and minimal revenue or profit could be real. As we all found out soon after, they weren’t.
- What was remarkable about my father was his authenticity. He was comfortable being a contrarian, holding different opinions. His passing reinforced the idea that you can be true to yourself and fulfilled without chasing trends.
- When I started my first job at around 22, my dad called me into the den. He tore a page from a yellow pad and wrote “Randolph’s Rules of Success” in pencil. He shared these lessons from his career as a business person, advising me to do 10% more than you’re asked, be prompt, avoid complaints, stick to constructive criticism, and don’t express opinions about things that you don’t have the facts for.
The DotCom Crash
- A subscription model allows for greater investment in customer acquisition. If you spend $100 to acquire a customer who will pay $10 a month, you’re confident that the initial expense will be recouped over time. In the first month, you spend $100 but make $10.
- However, the initial cash required to service these customers is substantial, while the immediate revenue is minimal.
- During the dotcom crash, having a dotcom in your name suddenly lost its appeal and value.
- We faced severe trouble, on the brink of bankruptcy despite our success. We urgently needed to sell the company. Blockbuster emerged as a potential strategic alternative.
- At that point, we had incurred about $50 million in losses with only $5 million in revenue. When opportunities vanished, we found ourselves in a upside down situation.
Call from Blockbuster
- At the time, Netflix was generating $5 million annually, while Blockbuster’s revenue was $6 billion. Netflix had 150 employees, compared to Blockbuster’s 60,000. We were a tiny player in their world.
- After months of waiting, we finally received the call. During a corporate retreat in Santa Barbara, we chartered a jet and flew to Dallas to meet Blockbuster.
- The meeting started well, with Blockbuster asking insightful questions. However, when we revealed our valuation of $50 million, there was a moment of silence. It was clear they struggled to keep a straight face, finding it hard to believe that our small company could be worth that much.
- The meeting quickly deteriorated after that. The ride back to the airport was quiet, and the flight back to Santa Barbara even quieter. I had been confident that if we could just present our blended model, they would recognize its value and support us, but now it was clear they intended to compete against us.
- My dad used to say, “Sometimes the only way out is through.” Facing this challenge head-on became our only option. There was no easy solution.
- To survive, we had to compete fiercely with Blockbuster. We made tough decisions: layoffs, cutting non-core businesses, and focusing solely on our core mission. This strategy allowed us to eventually surpass Blockbuster, which ultimately went bankrupt.
- Unlike Blockbuster, Netflix was a software company at its core, with a team dedicated to software development. Despite coming close to failure, our focus and adaptability made us stronger each time we faced adversity.
Blockbuster CEO Left and We Were Saved
- Blockbuster’s CEO, John Antioco, left after being denied his bonus. His replacement had a background in retail stores and believed Blockbuster should focus on selling products like gum and clothing rather than investing in digital technology.
- In Stephen Spielberg’s film school project, a robot operates on a cost-benefit analysis. In one scene, the robot is about to grab someone but stops just before doing so, calculating that the sunk cost of its time would not justify the action. This was analogous to Blockbuster’s decision-making process.
- Blockbuster was on the verge of eliminating Netflix when their leadership shift occurred. This change allowed us to escape a critical threat and find safety.
- Blockbuster’s downfall wasn’t solely due to Netflix but was also a result of its rigid business model and lack of courage and persistence to adapt and make necessary changes.
Leaving Netflix
- On the day of the IPO in New York City, I was in a taxi with my son, reflecting on how my life had changed. I realized I now had the option to stop working if I chose to, but part of me knew I still enjoyed what I do.
- Leaving Netflix gave me the opportunity to focus on what I truly loved. I’ve been incredibly fortunate to pursue those passions.
- Having spent most of my career in Silicon Valley, I’ve encountered many people who could afford to stop working if they chose. But it became clear that we, as entrepreneurs, continue not just for financial gain but for the joy of solving problems and building something new with smart, driven people.
- Success, in my view, is the ability to spend your time doing what you truly want to do.
- The essence of this journey isn’t about the IPO, success, or money. It’s about the thrill of creating something new and making it work. I feel blessed to have experienced this.
Netflix Culture
- Culture isn’t aspirational; it’s observational. It’s not something you dream up or aspire to; culture is defined by how you, as founders and senior executives, actually behave. People watch you and model their behavior accordingly.
- If you don’t embody certain values, your culture can’t reflect those values. The radical honesty at Netflix wasn’t a goal—it emerged from how Reed and I treated each other and our employees. Culture must be a genuine reflection of who you are.
- Your actions need to match your words, and you must be accountable because culture spreads beyond you. The culture of the first 10 employees is modeled after the first 2 of you, the next 90 after the first 10, the next 900 after the first 100, and so on.
- Just like kids, employees don’t model what you say; they model what you do.
- The concept of “freedom and responsibility” isn’t new—every early-stage company faces this. With 10 people doing the work of 100, there’s no time for micromanagement. You say, “Here’s what I need, finish it in 2 weeks,” and then you give them the freedom to figure it out. That’s the responsibility part, but with complete freedom in how they achieve it.
- At Netflix, we treat employees like adults. Instead of setting up guardrails to prevent errors in judgment, we build a culture without guardrails and hire people with good judgment.
- There aren’t any rigid policies; they’re summed up as “Use your best judgment.” This only works if people have the judgment to be treated that way. People want to work where they’re treated like adults, given clear responsibilities, and the freedom to achieve them.
- It’s not about when or where you work; it’s about getting the job done. If you can meet your responsibilities, then all the power to you.
Advice on Relationships
- In my late 20s, I was deeply immersed in my work, dedicating all my time to what I loved. However, I realized that my relationship with the woman who is now my wife wasn’t as fulfilling for her as it was for me.
- I understood that to sustain a long-term relationship, I needed to find better balance in my life. I adopted a policy of leaving work at 5 p.m. every Tuesday to spend the evening with my wife and kids. This weekly date night became a non-negotiable commitment.
- By sticking to this routine, I demonstrated that it’s possible to run a company and maintain a healthy relationship. Although challenging, especially in a startup environment, I often returned to work after our date nights or dinner with my family.
- I also had a passion for outdoor activities like skiing, climbing, and mountaineering. I structured my life to ensure I had meaningful time for all these aspects.
- I made a conscious decision that relationships were as important as work. Prioritizing effectively allowed me to balance work, family, and personal interests.
- I’m proud of my entrepreneurial achievements, including three IPOs and leading two multi-billion-dollar companies. However, I am even prouder that I managed to do all that while maintaining a strong marriage, raising my kids, and continuing to enjoy outdoor adventures.
What is Your Regret and What Did You Learn from It
- One of my major regrets is that, despite my extensive experience with magazine subscriptions and understanding the subscription model, it took nearly two years to realize that we could apply this concept to Netflix. Reflecting on the time and money wasted, I wish I could go back and implement this idea sooner.
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