“Netflix was playing to win, versus playing to not lose.”
How do we all lose faster, so that we can win overall?
Our business book club enjoyed Netflixed: The Epic Battle for America’s Eyeballs by Gina Keating.
The book includes anecdotes and depth about the very early days of Netflix. We get to ride along as Marc Randolph and Reed Hastings created an online DVD store, basically before DVDs were even for sale.
My friend Ramit Sethi noted that Netflix was successful in the early days for three main reasons:
- Execution and Iteration
I was impressed by these elements of the Netflix creation:
- Riding a Wave: How they got ahead of the DVD revolution and capitalized on the interest in new technology to usurp Blockbuster and the existing movie rental industry
- Cash burn: During the early years, Netflix was losing tens of millions of dollars. This is far removed from my own business experience, which is extremely cash-conservative and almost always profitable (if much, much, much smaller). It would not have been possible to reach the critical market saturation Netflix needed without losing money. It makes me wonder what I, or anyone else for that matter, could do if we weren’t concerned with short-term profitability and maintaining zero debt.
- Direct marketing: Holy cow, Netflix was good at this. Results-based direct mail and performance marketing overall.
- Niche start: How some of their earliest customers were fans of Bollywood movies, which they couldn’t get locally.
- Affiliate deals: Some people look down on affiliate marketing. And yet it was a hugely successful driver for the early days of Netflix and Amazon.
My Favorite Highlights
- “If there was an ‘aha moment’ in the story of Netflix, that was it.” — Talking about the moment that they got a DVD (or CD?) in the mail, via USPS, and it wasn’t damaged or broken or scratched.
- Randolph loved nothing more than to be argued into or out of an idea or point of view. — I like this, like “Strong ideas loosely held.”
- Randolph would start the ride in his Volvo, or in the backseat of Hastings’s Toyota Avalon (chauffeured by a student who acted as Hastings’s regular driver). — REED HASTINGS HAD A STUDENT PRIVATE DRIVER back in 2002! I love it.
- By 1988, annual video rental revenue had surpassed box office receipts for the first time—$5.15 billion to $4.46 billion.
- Cook generally made the last post office run, stuffing mailbags into his Merkur Scorpio and dropping them at the freight bays before the 9:00 P.M. cutoff. — Reminds me of my time at Flight Display Systems, trying to catch the last FedEx and UPS dropoff times of the day.
- “I’ll only work fifty hours a week—sixty at the most,” he warned them.
- DVD player owners were the ideal test market; they were among the most discriminating early technology adopters, already talking about their newest toy online.
- Many of the service’s early customers were Indian students and immigrant technologists whose selection of Bollywood films was limited to what they could find at local Indian markets. At Lowe’s request, the Web site began surveying customers, and it found a deep interest in Hindi films.
- Smith initiated an affiliates program after the launch, copied from Amazon, to pay newsgroup tastemakers who sent followers to Netflix.
- Randolph and Lowe counted the promotion a big success until a few days later, when they learned that, due to a mix-up at the dub house, a few hundred customers received DVDs containing hard-core Chinese pornography instead of the Clinton testimony. — OMG
- It was a sobering lesson for Netflix, which closed out its 1999 fiscal year with a $29.8 million loss. — OMG
- More than one of her employees sought counseling for job-induced stress. — OMG
- “We believe Walmart’s decision to exit the business and entrust it to Netflix reflects operational excellence at Netflix and high barriers to successful execution and profitability in the space,” Thomas Weisel Partners analyst Gordon Hodge wrote in a note upgrading Netflix’s stock to “outperform.”
Carl Icahn Highlights
- Icahn maintained an office in the General Motors Building in Midtown Manhattan, overlooking Central Park and the Plaza Hotel. The decor, with its rich, bold colors and original artwork depicting famous battles, conveyed a sense of power and state. The conference room, where Icahn had hung framed news clippings detailing the companies he had raided and the CEOs he had fired, drove the point home. He ran a $2.7 billion fund that boasted a stratospheric 30-plus percent annual return on investment most years.
- In a stunning upset, Icahn and his two dissident directors captured 77 percent of the vote from Blockbuster’s shareholders at the May 11 meeting, with a coalition of Icahn and his hedge fund cohort tipping the balance.
Book Club Logistical Notes
Derek Halpern did a great job of hosting us and leading the discussion.
He asked us to review:
Observations: Everyone go around the circle, to start the meeting, and share our general observations of the book.
What will you take away from this book and implement in your business? Great question. It spurred some lively discussion, including lengthy talk about our own blind spots within our businesses. Also how we would operate our businesses if we had $100m of free cash in the bank.
Look at Blockbuster’s demise: What happened? Why didn’t they see it?
Someone in our book club said, “Netflix was playing to win, versus playing to not lose.” How do we all lose faster, so that we can win overall? Iterate etc.
This was a great book that showed how Netflix was constantly innovating on both their product and their marketing. I recommend this book if you’re interested in business, entrepreneurship, and startups.
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