Podcast No. 58: Marc Randolph, Co-Founder of Netflix

My guest today is Marc Randolph, the Co-Founder and first CEO of Netflix.

Marc is the author of a new book called That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea. That incredible idea has literally changed the way the world consumes entertainment. In addition, Marc is also an avid WHOOP user. We discuss how he and Reed Hastings came up with the concept of Netflix (and some of the business models they almost tried instead), as well as the struggles the company had in its early days that led to it eventually becoming the massive success it is today. Marc and I also talk about his philosophy on building a positive company culture, plus how he balances work with personal life and how WHOOP helps him tie it all together.

Marc Randolph Podcast Show Notes:

3:43 - Where Did Netflix Come From? Marc discusses meeting co-founder Reed Hastings. “We came to an arrangement that I would start it and run it and he would be the angel investor and the chairman of the board. We would both get what we wanted. We just needed an idea.” 5:57 - Diving into E-Commerce. “The internet was new. It was probably 4 or 5 years old and e-commerce was just starting. … Back then Amazon was just selling books and people were looking at this and going ‘Wow, you can actually sell things over the internet.’ Having spent so much time in my career selling things through the mail, I immediately saw the internet as an incredibly powerful tool.” 6:46 - Ideas Before Netflix. Personalized mail-order shampoo, baseball bats, custom dog food. “A lot of stupid ideas.” 7:26 - “Maybe We Can do Video.” How Marc and Reed landed on getting into the video rental business. “We were looking at rental, which was an $8-billion category at the time, and said ‘Maybe we can, in some ridiculous way, do this by mail.’” 8:02 - The Lucky Break, the creation of the DVD. “We realized that this was the missing piece that would make that old idea, video rental by mail, work. … The fact that it was small and thin and cheap, boom, it unlocked this idea.” 9:49 - Challenges of Getting Investors. “It does require going to someone with the recognition that you’re making a very, very unreasonable ask. You’re saying ‘trust me.’ … People hated it. I called the book ‘That Will Never Work’ because that was the universal reaction.” 11:23 - Ideas Evolve. “I am not a believer in ideas. I think ideas are ridiculous. They’re all bad. I’ve realized there’s no such thing as a good idea anymore. Everyone who has an idea, it’s beautiful in your mind … but once you put them out in the real world, who the hell knows what’s going to happen? I’ve almost never met a company that found its success on the thing that was its original idea. You may have to try 5 or 10 or 100 or 500 ideas before you find the one that actually gives you some traction and gets going.” 12:34 - Early Failures. “The initial idea that everyone said would never work did never work. We had to keep trying and trying and trying different things until a year and a half later we finally stumbled on the idea that actually allowed us to have a repeatable, scalable business model.” Subscriptions. 13:09 - Industry Disruption & Learning on the Fly. “There was an element of hubris that I was launching a video rental company with zero, I mean zero, experience in the video industry, I had no idea how the business worked.” 16:32 - The Perfect Mailer. “The trick was we had to do it for the price of a first-class stamp, so we had to design something which was small and light enough that it would qualify as first-class mail, less than an ounce, and it had to serve as a return envelope. It had to be rigid enough that it wouldn’t break the DVD but not so rigid that it wouldn’t be able to go through the automated equipment at the post office … it was ridiculous the criteria. We’d go down to the post office with a big tray of our newest design and they’d all come back with broken discs. That little mailer easily went through 150 to 200 revisions.” 17:40 - Early Designs of WHOOP. “There’s something powerful about going into a super creative process that has an enormous number of constraints,” Will says. “Then you, as a team, you get locked in this box and you’re trying to figure out ways to navigate within it and in some ways I think it inspires even better creativity.” 19:35 - Culture at Netflix. “Culture, in many cases, stems from how the founders behave and then they pass that on to their employees.” 20:36 - Avoiding Micromanagement. It becomes very difficult as companies grow. “Getting to this place that used to take 3 weeks takes 6 weeks. … People hate it.” 24:18 -Playing in the Pros. “Netflix considers itself a team, but it’s not a Little League team where everybody plays and it’s not a Little League team where everyone gets a trophy, it’s a professional baseball team where if you’re not playing well at your position you go down to the minors, or we trade you. My responsibility to my shortstop is to have the very, very best second baseman I can have.” 25:45 - Leadership. “You have to trust that the way you’ve behaved has imprinted the values that you want. Culture is the only way to steer, unless you’re a dictator.” Will adds “Culture is what people do when you’re not there.” 26:11 - Amazon’s Attempt to Buy Netflix. “It was pretty obvious eventually [Amazon’s Jeff Bezos] was going to go into selling things other than just books. It was pretty clear it was going to be music and videos as the next two categories. … Everyone said this will never work and here is the guy who was the pioneer of e-commerce saying ‘They might have something.’ So hugely validating.” 31:14 - The Breakthrough. “We finally had this idea which was no due dates and no late fees and subscription, which is this incredibly complicated model, but it worked.” Marc relates to how it’s similar to WHOOP. “The irony with that kind of a business is the more successful you are the more money you burn.” 32:19 - The Dot Com Bust. “We were screwed. … The obvious get out was Blockbuster.” 33:15 - Trying to Sell to Blockbuster. “We pitched Blockbuster that they should buy us, that we should combine forces, they’ll do the stores and we’ll do the online, we’ll find a blended model. … In fact, it turns out that was the model that Blockbuster eventually did which almost took us down.” Blockbuster rejected a $50-million proposal. “It was depressing because on one hand we thought this was going to be the thing that saved us … instead the flight back was ‘Wow, now the only way out is through.’” 35:51 - Laying Off 40% of Staff. “It is the worst, the worst feeling. … It’s agonizing, it’s terrible. You cry, they cry, it’s so emotionally draining, it’s the worst thing.” Marc and Will discuss how it can help in the long run. “It was this gift in a way.” 40:05 - Discovering WHOOP. “I’m a data geek. I don’t think it’s been off my wrist for more than an hour in two years. … For me, the danger is overtraining. What I’ve really realized is that what WHOOP is phenomenal at is I trust it more than I trust myself to know when I can push and when I can’t push.” 43:31 - Steps to Better Recoveries. “Consistent sleep time is a big one. It’s amazing. Trying to get to bed at the same time every night.” Marc notes how much alcohol affects his recovery. “Remarkable, it’s pretty dramatic. ... I know what the cost is going to be a lot better than I did before [using WHOOP].” 45:15 - Activity to Destress. “I’d get out in the middle of the day and go for a long run.” 46:02 - Let Work Go. “It’s really important to not work when you’re not working. That’s a really hard thing to do. … Work is not everything, and neither is fitness. There’s other people and those interactions are, in my opinion, the real richness of life.” 50:28 - Biggest Accomplishment. “The thing that I’m proudest of is that I was able to do all those start ups while staying married to the same person, and having my kids know me and like me. That’s hard, and I’m really glad I pulled that one off.” 51:07 - Find Marc Online on Twitter @mbrandolph and at marcrandolph.com. Check out his book That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea.