That Will Never Work

Netflix Book Review

This is a truly great read and I thoroughly recommend it as both a source of information and entertainment wrapped up in a true easy to read story. Once I started reading it, I couldn’t put it down.

It’s written by Marc Randolph, the co-founder and first CEO of NETFLIX. It’s a great story that he tells based on his recollections and conversations with various colleagues, his wife and his children, taking you on the NETFLIX journey from initial concept, through IPO and Marc eventually leaving the company.

I recommend that you read this book if you are thinking of embarking on a startup adventure of your own. The clear message is: Just do it. Once you start you’ll have to iron out the wrinkles along the way. In reality and as the book states - nobody knows anything. You’re just going to have to find out. You can write your business plan and make all the forecasts that you like, however: you won’t know until you try.

If your idea is based around technology, you’ll need to launch your minimum viable product (MVP) as quickly as possible so that you can start the process of gaining real user information and a deep understanding of your market.

Armed with this information you’ll be able to make changes and adapt your product to meet your customers demands and seek investment.

From reading the book I got a sense of, with no disrespect intended, how ordinary Marc and his co-founder Reed Hastings are. I’m not saying that they’re not brilliant at what they do. I am saying the process of ideation that they went through while car pooling to work sounds very similar to the kind of idea generation that we all get involved in. What if we did this? What if we did that? It’s a process that colleagues strike up at work over lunch. It lasts about 30 minutes, then it’s gone.

Marc used to fire ideas at Reed who’d think about them without saying anything before rejecting them. Then one day they come up with a hit. An idea that they both think has legs. Reed is unhappy because he’s been charged late fees of $40 at Blockbuster. Marc immediately fires back with: what if you could order a film online and receive it next day with no late fees? Bingo! The seed of an idea conceived on the way to work grows into a company with a market cap of $150 billion today.

The story as told by Marc details the twists and turns the company makes to grow and move forward. ‘That will never work’ is what his wife said when he first explained the idea to her. The story starts back in 1997 just as the age of DVD is dawning. DVD players cost around $1,200 to purchase and there’s around 900 DVDs in circulation. Blockbuster dominates the video rental scene with thousands of titles to choose from.

If you’ve discovered a niche which you believe you can exploit you may well identify with Marc and Reed’s predicament. They have a plan to dominate DVD rentals in a new market where there are hardly any customers with DVD machines and hardly any DVDs to watch. Their aim is to provide a facility that they can’t be sure users want, that utilises the postal service to deliver DVDs. Will the DVDs arrive undamaged? With they arrive on time? Will their customers post them back? Will anybody choose a DVD to watch tomorrow or would they prefer to go to Blockbuster and watch the film today?

We know the answer today, but back in 1997 Marc and Reed could only guess at the answer to these questions. To find out they create an MVP to handle the online ordering and post a Patsy Cline CD (they hadn’t seen a DVD at the time) to test the postal service. The CD arrives unscathed.

The NETFLIX story is inspiring because of the way they found solutions and tested situations quickly and efficiently. Although the company soon got to the stage where it was turning over $90,000 a month, only 3% of that was from rentals. Amazon was a well funded and a serious threat to NETFLIX if they couldn’t get rentals working. Initially NETFLIX sold DVDs as well as renting them. Marc and Reed made the difficult decision to focus solely on rentals when sales was the strongest part of their business, because they knew Amazon would beat them on the sales front. In a nutshell - it’s wasn’t all beer and skittles.

Marc and Reed were wealthy successful entrepreneurs before they embarked on this project. They knew what they were doing and they provide insights that you will find useful. For example: They valued their company at $3 million back in 1997 when it was just a concept. Reed lead the initial funding with $1.9 million of his own money. Marc provided his time an effort. They initially allocated shares 50/50. They each had 3 million $0.5 shares. When Reed’s money went in they allocated a further 4 million $0.5 shares with $1.9 million worth going to Reed giving him around 70% of the company.

They went though several investment rounds which enabled them to higher superstar employees who helped them to become what they are today. Superstar employees replaced the generalists who had helped the company to lift off. The generalists are the essential workers who turn their hand to anything to get the business started. They wear many hats and without their drive and enthusiasm and ability to side step obstacles, the company wouldn’t be where it is today.

Superstar employees have specific talents and contacts. They take over and improve what went before using their superior skills, experience and knowledge. This is how businesses grow. The formula is:

  • Bootstrap - get your business up and running with your MVP so that you can conduct real research and adapt to what you customers want.
  • Seed Funding - Get as much money as you can for the smallest possible amount of equity that will enable you to achieve your next milestones and funding.
  • Series A,B,C, etc - The same as seed funding. Use the money to employ superstar specialists who will take your company public, providing great jobs for many people.
  • IPO - Go public

If you like the sound of this book, follow the link to buy it here.

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