Netflix Co-Founder Reveals Netflix Success & Clubhous Failure Secrets — Thought for Your Penny

There’s no shortage of business advice on Clubhouse. Every day I log on to see countless business networking, information, and pitch rooms. Wading through them isn’t easy, because many of them are filled with faux-professional millionaires coaching other millionaire coaches on how to coach others to become millionaires.

But if you’re willing to look, there are some great entrepreneurs and executives with amazing experiences under their belt. One such person is Marc Randolph.

Netflix’s co-founder and first CEO took the stage with the Creators club Tuesday to explain what led to the creation of Netflix. The mail-order DVD service disrupted the traditional video rental store with a DVD-by-mail startup that ended up destroying then-juggernaut Blockbuster Video.

It’s easier said then done, and his insights into the process are invaluable. Here’s how it went down.

Birth of a Streaming Icon

Randolph and co-founder Reed Hastings had several startup ideas before landing on Netflix. But it was the DVD-by-mail subscription model that ultimately landed. It was all happenstance and forced everyone in a position to run to keep up with the market’s rush for their service.

Everyone told them a video rental by mail service would never work. At the time, video rental stores had deep penetration and were a part of the culture. And it didn’t work initially — the founding team spent nearly two years testing new things every day to grow their subscriber base.

They would commission custom photography, hired a copy editor, and stress tested the entire site. It was a weeks-long process that didn’t work out, so they shortened the iterative sprints to hit releases every day.

While quantity is great, it lowered the output quality. This filled the initial site with typos and other rookie mistakes, but it did give Randolph insights into how Netflix should grow. It’s not about having good ideas — that’s a waste of time.

Great companies outpace bad ones by becoming good at trying bad ideas. It’s the same story in every industry, and entrepreneurs need to be clever enough to quickly and cheaply test ideas to figure out why they’re bad and refine them.

Anyone can have an idea, but Randolph knew that continuing to push would ultimately lead to wins.

Navigating an Unstable Market

When Netflix started, it was shipping all its DVDs from one warehouse in California. While great for the company’s expenses, it lengthened lead times for people to receive their DVDs. A three-day wait time was expected to turn away customers, but they found from market research that nobody truly cared.

This didn’t make sense, and the company ran a test by simulating next-day delivery in Sacramento to find out why. Retention didn’t change with this faster service, but the idea spread via word-of-mouth and boosted the company’s acquisition.

It’s these types of surprising results that dictated how Netflix would grow, and it built a large network of smaller distributed warehouses over a large distribution network. This helped it remain nimble and provide an even level of service to its customers across the country.

Mod Jon Youshaei points out that perfectionism is a form of procrastination. No product is ever perfect, and it’s the ability to provide a solution for your customers that ultimately drives success. We see this in Clubhouse, which has a clunky UI but still draws millions of monthly users to join the conversation.

Building a company is never easy, and Randolph started Netflix (originally named Kibble) in a different era. There are so many restraints on even the name of a company that it’s difficult to navigate. You need to ensure you can secure the web domain, social media handles, and so much more on top of the analog trademarks.

When it started, Kibble was a dog food delivery service. The actual product was inconsequential, as the mail-order distribution model was ultimately the money-making idea. As he continued searching to secure everything, he found constant issues. By the time it shifted into movie rentals, it needed a more appropriate name.

Netflix could’ve been named “Rewind,” but the domain name cost $40,000. The service offered “Netflix,” which was a name nobody liked. In the late 1990s, people called adult movies “skin flicks,” and the name seemed too close to a porn name. The x in the name made things even worse, and this kept the domain name cheap.

It’s an interesting story behind one of the most recognizable brand names online. Of course, it wasn’t a straight line to success — the company still had to battle a large force in the industry.

Beating the Competition

Randolph got lucky that Blockbuster had a lot of weaknesses in its business model. It was a brick-and-mortar store with due dates and late fees. Everyone hated paying those extra fees, and it was an inefficient business model because a movie can only be in one place at one time.

He understood that the store’s setup favors the New Release wall while leaving everything else largely untouched. And the company was still serving VHS tapes while Netflix wedged itself into the DVD market.

By the time Blockbuster started stocking DVDs, Netflix was already established. It found the early mover advantage in a new media, and it created a win for the company. It wasn’t long before the company got a call from Amazon CEO Jeff Bezos.

Just the call alone was enough to inject fresh energy into the company. They knew he was looking to buy the company, and his seeing something in the company was all they needed to feel confident in what they’re building.

Besides Netflix, Randolph also got to see Amazon in its earlier days. He was invited to the company’s headquarters and described it much like a frat house with boxes everywhere and people scambling to keep up with the wave of customers.

They were offered around $15 million for the company after only being in business for a year. But the leadership was already happy with what they accomplished. They forged partnerships with studios, built a distribution network, and created something they wanted to continue building on.

Instead of selling, Randolph and Hastings reaffirmed their commitment to the company. They went on to grow it into a streaming juggernaut.

Finding the Next Big Thing

Because he has a history of successes, Randolph points out that it’s easier to do today than it was back then. The technical stack available these days can get anybody on the road running with out-the-box solutions for any of their biggest obstacles.

He encourages entrepreneurs to do whatever they can to track and implement their ideas. If there’s something there, you’ll eventually find it. But you have to continue pushing through the ideas and trying them out.

The faster and cheaper you can test an idea, the better off you are. You never know what will work and finally catch on. But as long as you’re willing to continue trying and failing, you’re going to eventually find something that works.

But don’t quit your job over an idea. Figure out if it works and can gain traction first. You’re not going to be very profitable at the start, and you need income to keep you going.

Youshaei also brought creators from around Clubhouse on the stage to ask questions to relate his successes to their own careers. YouTube creator Alex Costa kicked off the audience portion by prodding Randolph to explain things that don’t work. What he learned is that having a result is more important than worrying about whether it’s good or bad.

He also points out that Netflix as we know it wasn’t a grand scheme. It was a wild swing that happened to work, and there was just as good a chance they would build it and nobody would come.

It’s the natural evolution of business though. Disruptive creators are always coming up in lanes the traditional companies miss out on while busying themselves with supply chain optimization and other internal processes. This locks them into a lane, and it’s those locked-in attitudes he recommends everyone keep an eye on to succeed.

Hammering at those weak spots can bring you success, so long as you persevere. Besides Netflix, he points out how Burger King found a lane against McDonald’s by broiling burgers instead of frying them. This key change differentiated the company in its own lane.

While he’s not an expert in content creators, he does understand that we’re the key to growing the platform.

And if you want more of the conversation, here’s a drawing of the entire thing made by Bejamin Felis.

Continue the Conversation

As always, the conversation never stops on Clubhouse. Although I found a lot of value in the Netflix conversation, you may feel different. Perhaps you miss Blockbuster and don’t want to drive all the way to Bend, Oregon to rent a video. Maybe you still use Redbox and wish streaming services would stop raising prices.

You could even be one of the two million people who still rent DVDs by mail from Netflix. That’s right — although you think it’s a dead business, the Netflix DVD-by-mail business is still more profitable each month than most businesses. At $8-$10 per month, it’s raking in eight-digit monthly revenues from a business model you didn’t even know still exists.

It’s a fascinating lesson to keep in mind. Whatever your stance, start a Twitter Space or join Reddit Talk to add your voice to the Clubhouse conversation.

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Originally published at http://thoughtforyourpenny.com on May 30, 2021.