Former Netflix CEO: “They're Lying To You About Hard Work!” Building a $278 Billion Company Wasn’t Built On Hard Work!

[0] We were in deep trouble at Netflix.

[1] We had losses of about $50 million.

[2] We have got to sell this sucker fast.

[3] Mark Randolph is an American tech entrepreneur, the co -founder and first CEO of Netflix.

[4] With a career -panning numerous startups and ventures, Mark's expertise in innovation, leadership, and business strategy is unparalleled.

[5] August 1997, Netflix was founded.

[6] Yes.

[7] And the reality is, the idea was ridiculous.

[8] It didn't work.

[9] Nobody would rent DVDs by mail.

[10] But with over 40 years of, of being an entrepreneur.

[11] I've learned every idea is bad.

[12] We just don't know why they're bad yet.

[13] The important thing is how clever can you be to come up with a quick and cheap way to test it.

[14] For example, we thought, let's just have a subscription and no late fees.

[15] It was a ridiculous idea.

[16] But when we tested it, people loved it.

[17] The Netflix DVD service has changed the world.

[18] You explored selling Netflix to Amazon two years after you'd launched for probably $10 to $15 million.

[19] That's not a bad return for $12.

[20] 18 months' work.

[21] But I thought it was much more interesting to take the shot and see what Netflix could become.

[22] But all of a sudden, in a matter of a week or two, in spring of 2000, we were going to go broke being successful.

[23] We tried going to Blockbuster for months, but they weren't going to save us.

[24] They were going to compete with us.

[25] Netflix wouldn't have survived.

[26] But there's a story which has not really been told, which took one of Netflix's biggest impediments and turned it into one of its biggest assets.

[27] So in this season of your life, if you could consolidate your mission and the work that you're doing across the content you produce, the people you speak to, your professional endeavors, if you could consolidate that into a singular focused mission, what exactly would that mission be in this season of your life?

[28] For me, at this point, my life, it's all about mentorship.

[29] You know, I've done seven startups.

[30] I kind of recognized quite a while ago.

[31] I do not have the appetite to do another one.

[32] It's that 7 by 24 focus that I don't want to do anymore.

[33] I have other things that I would love to have spending time on.

[34] But you can't turn it off.

[35] I've also realized that over 40 years of being an entrepreneur, I've learned a few things about how to actually play this game.

[36] And so my mission, now is how do I pay that forward?

[37] How do I help other people?

[38] Either have a shot at it like I did, or if they're already playing the game, how do I try and increase their odds of success?

[39] You wrote this book called That Will Never Work.

[40] Why?

[41] Books are painful and hard to write.

[42] What is it that you want someone who gets to the end of this book to walk away with?

[43] I've come to believe that almost all of the information that people receive from the general media about entrepreneurship is wrong.

[44] It glorifies entrepreneurship in what I think is a damaging way.

[45] You watch these movies that are about entrepreneurship.

[46] And it's all about driving around in the fast cars and having the parties.

[47] And that's not it.

[48] It's a very lonely profession.

[49] So in a simple answer, the reason I wrote the book is I wanted to give people a true story of what it really means to come up with a crazy idea that everyone thinks is never going to work and the struggle to make it real.

[50] And if someone reads that book and gets to the end and goes, this sounds great, then that's exactly the right person who should be an entrepreneur.

[51] If someone goes, this sounds a lot harder than I expected, well, then I've done a service in that way as well, which is I've kept someone from getting into this for all the wrong reasons.

[52] When you look back on your journey to Netflix, I remember hearing Steve Jobspeak about the decisions he made in hindsight that when he reflects on his life resulted in him starting Apple and the decisions he made within Apple.

[53] So obviously things he's famous for saying is that he went to a typography class.

[54] He dropped in and he started learning about design and typography and that shaped him.

[55] What are those early sort of experiences that in hindsight?

[56] insight fed into the creation of Netflix?

[57] Probably the meta thing was the fact that most of these endeavors were entrepreneurial.

[58] So, for example, initially my first foray into direct response marketing was when I asked if I could run the mail order division of this sheet music company that I was working for.

[59] And so what it meant to run the mail order division was every day you got the mail.

[60] And if you found someone's asking for a list of great songbooks, you'd make a copy and you'd mail it out.

[61] And then if an order came in, you'd go to the warehouse and pick, pack, and ship it.

[62] And that spoke to me. And I began experimenting and said, okay, now what happens if I do two pages or do it in color?

[63] What happens if I mail it out?

[64] And I built this mail order division into a real mail order company.

[65] So it was this combination of direct response.

[66] but more importantly, it was building something.

[67] It was creating a company inside a company.

[68] So there are certainly those preparations.

[69] From the direct response side, hugely formative for at least Netflix.

[70] Because if you think about it, what direct response marketing is about is all about testing.

[71] It's all about analytics.

[72] And when the Internet came along, and I saw what the Internet was, What immediately popped in my head was, oh, my gosh, this is the power to do direct marketing, but on steroids.

[73] This is so much more positive.

[74] I'm doing this personalization, but it's very brute force personalization.

[75] I mean, it's, dear Stephen, wouldn't your friends at 17?

[76] Crescent, Sir?

[77] It's like this ridiculous personalization.

[78] What the Internet let me do is personalize every web page for one person.

[79] but one of the direct response endeavors that I did was I was a circulation director for a magazine we launched a magazine and that's subscription and so you go okay well look at this you have someone who's doing direct marketing and there's someone who's doing subscription and then all of a sudden they're trying to figure out how to do video rental better it's not that big of a leap to say okay it was subscription and it was direct response on the internet so yeah these things were pretty formative.

[80] So interesting.

[81] So you, on one hand, you had this business where you were physically sending things in the post, and then you got involved in another business where you were doing subscriptions, and these kind of, I guess, plant these sort of seeds in your brain, two industries that you start to understand.

[82] And it's funny because when people think about creativity, I heard someone say before that creativity is essentially collecting lots of different clouds and then connecting them in new ways, so getting lots of different points of inspiration in life, and then connecting them in new ways which create a new thing.

[83] And that kind of sounds like what you're describing there.

[84] It is.

[85] And the thing is at the time, you don't necessarily know.

[86] You're in the right place at the right time.

[87] Because I certainly wasn't the only person who said, wow, the Internet could be a powerful force for selling things.

[88] Jeff Bezos was one of the first people to recognize the power could have to sell things.

[89] Did Amazon, which at the time was only books.

[90] But there were a lot of different models we could have looked at.

[91] And so in terms of Netflix going into video rental and doing video rental by mail, that was entirely driven by the fact that I had worked for so long in a catalog business where I had mailed things in boxes and I had seen, I knew a lot about all the shippers and I knew a lot about fast shipping.

[92] I mean, I had this huge repository of information and experience and I didn't know how it would be used, but all of a sudden you're looking at a problem.

[93] And you're kind of in your mind going through how could I possibly solve this in different ways.

[94] And one of the things that comes up is something you've experienced in the past.

[95] You launched this company Integrity, QA, between sort of 96 and 7, and that's ultimately acquired by Reed Hastings.

[96] By Peeratrice, yeah, by Reed Hastings company, yes.

[97] And that's where you and Reed Hastings met.

[98] Yes, correct.

[99] Who's the other co -founder of Netflix?

[100] What was that like, that first meeting with Reed Hastings?

[101] meeting read was like this instant junction of two like minds uh we both recognize something in each other one is that we both approach problems very differently i was very emotional about it i don't mean emotional like i'm running crying from the room i mean empathy that i'm a marketing person uh when i put something out there i can almost intuitively sense how someone's going to respond his background is mathematics and computer science, much more logical, much more methodical.

[102] And we kind of realize as we begin solving problems together, how well those two integrated.

[103] But at the same time as having these differences and approaches, we were very similar and that we both shared this commitment to honesty.

[104] Not because we both swore an oath, just was our nature that life was too short to shade the truth, that if you had something to say, you say it.

[105] And you say it in a respectful way, in an empathetic way, and you don't have ulterior motives.

[106] And we both were like that.

[107] And it allowed us to have these really intense, interesting conversations where we were trying to find the truth out of something, but pushing each other and challenging each other.

[108] And it ended up being a very, very powerful way to solve problems.

[109] And we were, We're only at Pure Atria together for seven or eight months, and then Lightning happened as struck again, where Pure Atria was now being acquired.

[110] And this time, both Reed and I were going to lose our jobs.

[111] They already had a CEO.

[112] They already had a senior VP of worldwide marketing.

[113] So we were going to be out of a job.

[114] We had six months, and Reed was going to go back to school, get a higher degree in education.

[115] I was going to start my next company and Reid wanted to keep a finger in the pie here and we came to an agreement that I would start the company he would be my angel investor and he'd be my board chair and all we needed was the business idea and all you needed was a business idea exactly and only that yeah just that small manner of needing something to do and thus began this process, which went on for months of Reed and I kind of searching for a business idea.

[116] And we had a methodology, so don't think this is random.

[117] And Reed and I happened to live in the same town.

[118] We lived in Santa Cruz, California together.

[119] And we had gotten in the habit many months earlier of commuting to work together.

[120] And so once we knew we were selling the company, once we knew we were losing our jobs, we still were commuting to work.

[121] But now the conversation and the car shifted.

[122] And what would happen is Reed would pick me up at my house and we'd barely bat in my driveway and I'd say, okay, Reed, I've got one for you.

[123] Personalized shampoo.

[124] You're going to cut off a lock of your hair.

[125] You're going to mail it to us.

[126] And we're going to have a team of hair scientists who are going to formulate a custom blend and people are going to subscribe to it.

[127] And the same thing would happen no matter what I pitched is there'd be silence.

[128] We need to be staring out the window, just steering the car.

[129] And you'd think he hadn't even heard me, but I knew that kind of behind that stoic face, all the calculations were taking place, like the risk and reward and the costs and the benefits.

[130] And it might take five minutes, ten minutes of silence, but then eventually he would turn to me and go, that will never work.

[131] And he would lay into me with all the reasons, such a bad idea.

[132] but of course I could come prepared and I'd come right back in and with all the research I had done all the reasons I was sure it was a good idea and we would do one of these arguments all the way to the office and if need be all the way home and until we either decided there was promise or no promise and almost all of the time there was very very little promise in these ideas but next day I'd have another one I could get read personalized pet food custom sporting goods vitamins.

[133] I mean, I pitched all those ideas.

[134] I pitched them on video rental by mail.

[135] People are going to come to the website.

[136] They're going to pick out a movie.

[137] We're going to mail them the movie and they'll keep it for a week and then they'll mail it back.

[138] And at the time, though, this was 1996, 97.

[139] Video rental, you may remember, it was on VHS cassettes.

[140] So they were too big and too heavy and too expensive.

[141] And so that idea got trashed exactly the same way that the dog food and the personalized shampoo did and kept on searching.

[142] And then the breakthrough, if there was one, came one morning where Reid picked me up and I'm on my way out the door, out the driveway, I got one for you, and he stops me and goes, I got to tell you about something I read about.

[143] There's this technology that came out.

[144] It's called the DVD.

[145] It's this little disc that holds a movie.

[146] And it's thin and it's light.

[147] And we brainstormed that a little bit and realized this could be the unlock for that old video rental by mail idea we had talked about six or eight weeks ago.

[148] And then we did this quintessentially entrepreneurial thing, which is mid -commute, we turned the car around and drove the car back into Santa Cruz to try and validate this idea.

[149] We did not go to the office and do a business plan.

[150] We did not work on a pitch deck.

[151] We tried to collide the idea with real people.

[152] That day.

[153] That day, mid -commute, turned the car around, went down into Santa Cruz, tried to buy a DVD, couldn't find one, settled for buying a used music CD, same size, same weight, then went two doors down and bought a little envelope, like you'd put a greeting card in and put this CD in the envelope, addressed it to Reed's house.

[154] bought a stamp and dropped it in the mail and went to work.

[155] And that very next morning, when Reed picked me up, he held up a little pink envelope with an unbroken CD in it that had gotten to his house in less than 24 hours for the price of a stamp.

[156] And that was probably the moment we said, this actually might work.

[157] We can use the post office.

[158] And that shifted everything.

[159] And that's the point we begin saying, this could be the idea that we do together.

[160] So many entrepreneurs and aspiring entrepreneurs are at that exact phase where they want to leave their corporate job, their brain everywhere they go now because they've wired themselves to be looking for an idea is finding lots of random ideas.

[161] Their dog will like throw up and they'll be like, oh, new dog food or whatever.

[162] And they're going through that process.

[163] And I think it's so important to just pause there and try and interrogate what the framework is for knowing if you've got a winner or not.

[164] Like how did you, because presumably you had got yourself passionate about the shampoo idea.

[165] So like, how do you know when to drop an idea and how do you know when to commit to an idea?

[166] What was the framework you're using?

[167] The framework is that every idea is stupid.

[168] There is everyone, you know, listen, you probably haven't had a corporate job yet in your No, thank God.

[169] Yes, thank God is right.

[170] Because there's this thing in corporate, I'll say corporate America.

[171] of a corporate world, and it's the brainstorming session.

[172] And they put everyone in a conference room, and they go, we're going to brainstorm and try to come up with an idea for whatever it is.

[173] And he goes, but first, some ground rules for the brainstorming.

[174] Rule number one, there is no such thing as a bad idea.

[175] And I call bullshit.

[176] There's plenty of bad ideas.

[177] In fact, there's no such thing as a good idea.

[178] Every idea is bad.

[179] just don't know why they're bad yet.

[180] And so the framework I approach, I assume all these ideas are ridiculous.

[181] I assume none of them are going to work.

[182] But here's the difference.

[183] The reason I start from that position is I don't want to commit the single worst thing you can do as an entrepreneur, which is fall in love with your idea.

[184] And you talk about the person who sees the dog throwing up and they go, I've got a great idea.

[185] And then what happens?

[186] Nothing.

[187] They go home.

[188] And they go, this is a great idea.

[189] And they tell their partner.

[190] And their partner goes, oh, that's brilliant.

[191] I'd buy that.

[192] And so they go, okay.

[193] And they begin working on a business plan.

[194] And they write this 10 -page business plan.

[195] And they're dreaming about how amazing it's going to be.

[196] Just think about when we have this line of we can do cats too and then giraffes.

[197] You know, they've built this incredibly or innate business in their head, all based on this feeling that this must be a good idea.

[198] and you've got to nip that in the bud, and the way you nip it in the bud is you try rather than dreaming how amazing this idea is, the first thing you think about, the only thing you think about is how can I quickly, cheaply, and easily collide this idea with a real person and find out is it in fact a good idea or a bad idea?

[199] How can I do some kind of hack that will allow me to quickly find out whether customers actually would want this or not.

[200] And almost always, you build this quick, cheap, down, and dirty.

[201] I don't mean minimal viable product.

[202] I mean unviable.

[203] Something you can quickly do, like, turn the car around, and mail a CD to yourself, just to find out the basic premise of can I actually use the U .S. mail to send movies back and forth.

[204] Because if that had failed, well, great.

[205] on to the next one.

[206] And that's such a critical, critical step.

[207] That's the framework that everyone has to have.

[208] It is not about having a good idea.

[209] Having ideas is easy and trivial.

[210] The important thing is how clever can you be to come up with a quick and cheap and easy way to test it.

[211] Why?

[212] Because I know you and me understand this, but I didn't understand this when I started my career.

[213] So I know that there's a lot of people listening right now, that are probably right in the moment you've described.

[214] They've spent a year building up this thing in their bedroom.

[215] For anyone that can't see, he's got his head in his hands.

[216] They've spent a year in their bedroom building and working on this project.

[217] Why is that a terrible idea?

[218] It's such a waste of time because what happens is two things happen.

[219] One is this idea becomes so large and ornate and complicated in your head that you go, okay, Mark, I didn't need to get started.

[220] I need to raise $5 million because it's going to have to hire all these people, to build this thing.

[221] And they're probably building the absolutely the wrong thing.

[222] You can't just go ahead and based on what you think is going to happen.

[223] You've got to start from a position of real information.

[224] Listen, perhaps the cleanest way since we have a bit of time is to give you an example.

[225] I do a lot of work with university students.

[226] And I was meeting with a young woman at the university and she goes, okay, Mark, I've got this idea.

[227] you.

[228] What I want to do is peer -to -peer clothing sharing.

[229] In other words, I've got all this clothing in my closet that I never wear, or I don't wear very often.

[230] And I know my friends have a lot of clothing in their closet, and other friends have clothes in their closet.

[231] It would be great if we had this website, and we could all post what we have, and we could borrow each other's clothes, and I'm going, okay, that's interesting.

[232] What can I help you with?

[233] She goes, I'm trying to figure out, should I drop out of college to do this?

[234] How do I raise the money to hire a team to build this for me?

[235] And I went, whoa, you know, slow down here.

[236] Okay, interesting idea.

[237] But let's figure out if we can come up with a quick and cheap and easy way to collide this idea with the reality.

[238] And I said, do you have a piece of paper?

[239] She goes, yes, smart ass.

[240] I'm a college student, a piece of paper.

[241] I go, great.

[242] All right, do you have a magic marker?

[243] She goes, have a market you a piece of tape.

[244] She goes, got a piece of tape.

[245] I go, all right, I want you to write on the piece of paper, would you like to borrow my clothes?

[246] Knock.

[247] And I want you to tape that to the outside of your dormitory room.

[248] And we're going to find out in the next 24 hours whether the very, very first principle behind your idea is real.

[249] Is anyone going to knock?

[250] Because if nobody knocks, well, you've learned something very important right there.

[251] This thing you think is so attractive might not be.

[252] But let's be optimistic.

[253] Let's assume a bunch of people knock.

[254] Great.

[255] You've learned something.

[256] But you're also going to learn the next thing, which is, are there problems with fit?

[257] Are there problems with style?

[258] Are the people who knock and look at your clothes actually going to want any of them?

[259] All right, let's be even more optimistic.

[260] Let's say they do find out ones they want to borrow.

[261] Well, you're going to find out the next piece.

[262] How do you feel when your favorite blouse comes back stained or torn?

[263] You're going to find out about the cost of doing dry cleaning.

[264] You're going to find out all of these things, and you're going to find about all of this with a piece of paper, a tape, and a marker.

[265] None of this raising money, dropping at a school, and doing any coding, you're going to do something very simple.

[266] Now, is this scalable?

[267] No. Is this repeatable?

[268] No. But that's fine.

[269] You're going to do it all with three -by -five cards or on a pad.

[270] going to do it manually, and you're going to start losing your mind.

[271] But when you finally get to the point where you are ready to go and maybe raise money or drop out of school, you're going to know what you're dropping out of school for.

[272] You're going to know what you're raising money for.

[273] You're going to be able to tell someone, here's my acquisition cost, here's my lifetime value, here's my KAC, here's my, you're going to know all of these metrics, you're going to know the complexity.

[274] You're going to have tried all these different things.

[275] You're going to know what demographic.

[276] And you found out all of that for nothing except for your time.

[277] That's what I mean by figure out some way to validation hack.

[278] And that is the key to being an entrepreneur.

[279] You have an idea?

[280] Quickly, cheaply and easy test it.

[281] Find out it's ridiculous.

[282] Abandon it.

[283] Go on to the next one.

[284] It's funny because obviously I'm a Dragon on Dragons Den, which is basically a show like Shark Tank where we see 100 pictures a year from entrepreneurs.

[285] And what I observe in some of those pitches, especially when they're a little bit early on and they haven't got product market fit quite yet.

[286] There hasn't been evidence that the market actually cares is a huge amount of delusion.

[287] To the point that you could give someone some feedback, but because they've spent one, two years of their life and maybe mortgaged their house and invested it into this business, they're now in the sunk cost fallacy, which is that sort of cognitive bias where you've invested so much in something that you're basically defending your bad decision at all cost.

[288] and you can't see the light of day.

[289] And that, you know, my first business was the death of my first business.

[290] But for many entrepreneurs that I meet, it's quite clearly the death of them.

[291] Because if they don't have that humility, if they've got romantic, they can't take any feedback, which is a conflict with what they want to believe.

[292] Steve, you're absolutely right.

[293] It is the single biggest reason that either they don't start because they've built this thing up in their head and it's so big and complex that to get started is on almost impossible.

[294] Or they are so far along, they can't stop.

[295] It's tragic in a lot of ways.

[296] That, which is why you have to start from the belief that your idea is a bad one, because that makes it easier to walk away from it.

[297] As soon as you realize you were right.

[298] But what happens, if you can get this discipline of taking your idea and immediately trying it, is it almost always takes you in a new direction.

[299] Yes, your original idea was terrible.

[300] But oh my gosh, do you see how this person did?

[301] Let's try this.

[302] Oh, that doesn't work.

[303] Let's try this.

[304] And that is entrepreneurship.

[305] It is this leaping from the back of one alligator to the next.

[306] And there's alligators just hop long enough to before they sink or before they bite you and you jump to the next one.

[307] I think I found two sort of species of entrepreneur.

[308] And the real distinction between them is how long they've been doing it and one species of entrepreneur that I know they care entirely about being right which is their initial hypothesis being correct and that's typically the young entrepreneur and then the more seasoned entrepreneur cares entirely about being successful regardless of whether it's via their initial hypothesis or not they care entirely about like saving time and being successful not being right and I think it's interesting that tenure as an entrepreneur seems to determine which camp you sit in.

[309] It's also your personality.

[310] Jumping back to our conversation earlier about what attracted Reed and I to each other was that both of us were in that camp that said we don't care whose idea it was.

[311] We just care about getting to the right answer.

[312] And part of this culture that we had with each other and we built with other people was you could argue like cats and dogs and eventually you'll arrive at what you think is the right way to go.

[313] And as soon as that happens, you all fall in behind and no one says, I was right, I was wrong.

[314] And you don't even remember who was right and who was wrong.

[315] It's a big piece.

[316] August 29, 1997, Netflix was founded by yourself in Reed Hastings.

[317] From that day onwards, did you know at the moment that Netflix was going to ever become what it went on to be?

[318] What were you thinking it was going to be?

[319] I am completely astounded and amazed.

[320] at the direction that Netflix has gone.

[321] Never in a million years could I have dreamed of the company that exists now being the same one that we were thinking about in August of 1997.

[322] It's astounding to me what's happened.

[323] And it's the nature of entrepreneurship.

[324] You can't predict where these things are going to go.

[325] That wasn't the point, though.

[326] It wasn't like Reed and I were in the car going, going, okay, when do we enter the streaming war and how do we deal with China?

[327] No, this is a very, very simple, straightforward problem.

[328] A video rental in the United States is $8 billion a year.

[329] It's very unpleasant that the company who has the lion's share of that market is doing things which customers hate.

[330] There has to be a blockbuster.

[331] There has to be a better way.

[332] That's where it starts from.

[333] That's the problem you're trying to solve.

[334] And trying to solve the problem is this dual thing, which is how do you do something that a customer might want, solve the problem for the customer, but also how do you make a business out of that?

[335] And that's all consuming.

[336] I remember we had a company meeting early on, maybe you were two or three months in, and I remember getting up in front of the company and laying out what I thought, was going to be this big, hairy, audacious goal for us.

[337] Someday, we're going to be one of the top ten largest video chains in the United States, which, in retrospect, was a ridiculously trivial.

[338] But from where we stood then, it may as well have been saying, we're going to ride our bicycles up Mount Everest.

[339] What hubris.

[340] Because even the 10th largest chain was many, many, many millions of dollars.

[341] a year bigger than we wore at the time.

[342] But something to aim for, and we actually passed that one way faster than we thought.

[343] And then you set your goal, you know, eventually we're going to be as big as Blockbuster.

[344] In other words, if you were to set your goals to be what Netflix is now, I would be locked up.

[345] I would have been this most ridiculous, a flight of fancy hallucination, you can imagine.

[346] They would have thought you were on psychotic or something if you had ever done a presentation saying Netflix would be as big as it is now.

[347] For people that don't know, because the world has moved on so much and there's a generation of people that are listening to this conversation right now that probably don't even know what a VCR and a cassette player is.

[348] But you launched the business at a time when Blockbuster was the big incumbent, and Blockbuster was a store where you went to a physical location, you rented a cassette, VCR, what do they call it?

[349] A VCR.

[350] VHS tape.

[351] You took it home and then you brought a physical location.

[352] brought it back the next day.

[353] And your real innovation was that you were going to send these DVDs to people in the post on a rental basis.

[354] That was the crux of the business, right?

[355] That was the crux of the business.

[356] And in fact, when we originally started, there was not a lot of business model innovation there either.

[357] You know, there was due dates and there was late fees.

[358] The innovation was, it was one centralized store on the internet that served the entire country so that we could have every single movie that was available on DVD.

[359] We had perfect inventory.

[360] And unlike a video rental store where you can picture it being like a supermarket with rows of shelves, each movie could be placed in one place.

[361] You could either put it in the mystery aisle or in the Alfred Hitchcock aisle or in the new release.

[362] You've had to pick where it was.

[363] whereas on the internet you could have that same movie listed in 30 different places based on finding movies we thought finding movies would be easier too we had a bunch of things we thought will allow us to take on this incumbent this huge huge huge company but yes it was very very focused it was no streaming if you wanted a movie we mailed it to you we mailed it to you on a little plastic disc it's funny because in hindsight when I think about a lot of these big breakthrough ideas that ended up changing their industry, you learn in hindsight that there was some big macro factors that caused the timing to be right.

[364] And I think about, in the case of your business, Netflix, there's a bunch of big macro things that you've already described, things like DVDs, the Internet.

[365] Is there any other sort of big macro factors that made the timing right for Netflix?

[366] Those were the two big ones.

[367] Right.

[368] Is that the Internet was certainly the big one, was that all of a sudden there was this way to have a single store which served the entire country.

[369] Before, for a bricks and mortar, as we call it, business, you want to serve the entire country?

[370] You've got to build 9 ,000 different stores.

[371] And Blockbuster did just that.

[372] They had 9 ,000 different stores.

[373] And then you have to staff those stores.

[374] And they had 60 ,000 employees.

[375] And we served the entire country with one inventory and with a great, group 12 to 15 people.

[376] So that was certainly one big shift.

[377] The DVD was a bet, which was at the time DVD was just getting started.

[378] And if the DVD had not worked, if it had not reached a full household penetration, this whole thing never would have worked.

[379] How many people were watching DVDs at the time when you launched Netflix?

[380] There was fewer than 250 ,000 DVD players sold.

[381] That was the total addressable market was 250 ,000 DVD players.

[382] So why is that like 1 % of America or something?

[383] Yeah, there's 130 million households in the United States.

[384] So, and of those 130 million households, 129 .9 of them had the ability to watch a VHS movie.

[385] So this was a real bet that they'd eventually be willing to buy this whole new machine to play a whole different type of movie.

[386] but it was tiny.

[387] It was really, it created all kinds of interesting marketing challenges of how do you launch a company when there's so few eligible customers.

[388] In September 99, you explored selling Netflix to Amazon, which is shy of two years after you'd launched.

[389] Was that the first time you met Jeff Bezos?

[390] Yes.

[391] And how does that come to be?

[392] Because he at the time, I guess, was fairly early in the Amazon journey as well.

[393] well.

[394] Yeah, he was, and at the time, to show you how early Amazon was in its journey, they were only a bookseller.

[395] So they sold nothing else.

[396] They were a bookstore.

[397] But Jeff had made no secret of the fact that his aspirations went way beyond that, that he was going to be the everything store, that the things they had found about how powerful it was selling books and the internet applied to everything else.

[398] And it was pretty clear his next two categories were going to be music and movies.

[399] And we got a call from the CFO at Amazon basically saying, hey, Jeff would love to meet with you.

[400] How about coming on up to Seattle and having a little sit down?

[401] And Reed and I didn't need to think too long to understand why they might want to meet with us.

[402] It was pretty clear they were going to be entering video.

[403] And this was going to be a make versus buy analysis.

[404] Would buying Netflix accelerate their entry into video because we had done a tremendous amount of work about building out the content and making those things work.

[405] So there was some value there, not to mention the people.

[406] And so we all flew up to Amazon and were ushered into this building, which it was pretty hard to imagine that this was the headquarters of this world -changing e -commerce company because it was a mess.

[407] You know, people were jam.

[408] in under stairs and in closets and there was pizza boxes every place and dogs running around and the desks were all the same.

[409] They were all made from doors that had been supported by four wooden posts at each corner that everyone sat at these doors.

[410] And in comes Jeff Bezos and we begin to have this conversation about what is Netflix and what's it all about.

[411] And it went went pretty well.

[412] And as the CFO is showing us to the door at the end of the meeting, she said, I just want to set your expectations that in the event we decide to do something, our offer is probably going to be in the low eight figures.

[413] And we guessed that was probably going to be $10 to $15 million.

[414] And at the time, we had launched in April of 98.

[415] And so we were still pretty young.

[416] And I remember Reed and I kind of looking at each other and going, that's not a bad return for 12 to 18 months' work.

[417] But at the same time, we felt we had already solved the big problems.

[418] We had built a functioning e -commerce website.

[419] We had managed to source every single DVD that was available.

[420] We had figured out how to make movies go out to customers.

[421] and bring them back.

[422] And we weren't quite ready to let Jeff Bezos take over.

[423] And so in some ways, it was less about us going up and deciding whether to sell or not.

[424] It really ended up being kind of like a commitment ceremony where Reed and I looked at each other in the eyes and said, we can get out if we want.

[425] And I think both of us decided, no, let's go for this.

[426] Would that money have changed your life at that point?

[427] 1999 getting, you know, $14 ,000 million.

[428] That's a hard to say.

[429] This is not like I was, you know, living in a trailer and deeply in debt.

[430] And, you know, I'd been working, I was in my late 30s.

[431] I'd been working in Silicon Valley for a while.

[432] And I'd had a number of startups, you know, I had gone through IPOs before.

[433] So I had, I was comfortable.

[434] don't be wrong.

[435] This would have been nice, but I'm not sure this would have dramatically changed my life in some profound way.

[436] I thought it was much more interesting to take the shot and see what Netflix could become than to walk away.

[437] What was Jeff like?

[438] What do you remember in 1999?

[439] Extremely unpolished.

[440] If you see him now, I mean, he's really buff and he's really thoughtful and someone has definitely.

[441] worked on his laugh.

[442] It's now very controlled.

[443] Back then, it was this almost hysterical hyena like bark.

[444] And you could hear it from all over the building.

[445] I'm not going to try and imitate it.

[446] But he was tremendously enthusiastic, like this bundle of energy.

[447] And I remember that the two of us were just going back and forth on all this early startup stuff.

[448] And one thing I remember we had in comment is that at our launch, we had rigged up a bell to ring every time an order came in.

[449] And I was telling him that, and he was going, ah, we too, we had a bell that was ringing.

[450] And we had, we shared those things.

[451] And then we were also talking about names.

[452] And Netflix had started out with a strange name, which was Kibble.

[453] Kibble.

[454] And he was saying, oh, yeah, we originally were called Kadabra, which he meant to sound like abracadabra like magic but their lawyers said that cadabra sounds a little bit too much like cadaver and so therefore amazon but in other words it was this really interesting us going back and forth and i know read was very impatient he just kind of wanted to get down to business and so finally i go okay read read let's talk to what we're really talking about here enough enough startup is the next big milestone in the netflix journey the dot com crash for you there's a there's a probably a more profound moment for me that happened before that that was this trend that was this leadership transition at Netflix and that was because the dot -com crash was in the spring of 2000 and this was probably in late 1999 And Netflix was still young.

[455] And as I mentioned at the beginning, the arrangement that Reid and I had was that he'd be the angel investor.

[456] He'd be the chair.

[457] I'd be the CEO.

[458] I'd start and run the company.

[459] And I did that.

[460] And Reed had a day job somewhere else.

[461] And one afternoon, late that year, read, poke his head in my office late afternoon and said, Mark, we have to talk.

[462] And as you probably can imagine, that never bodes well when someone says we have to talk.

[463] And it was right.

[464] And he came in and he had a PowerPoint slideshow.

[465] And he sat across my desk and spun his computer around and began walking me through a slideshow about how he felt that I was doing as CEO.

[466] strengths, but perhaps a little bit disproportionately weaknesses.

[467] And I was a little taken back by this.

[468] And I kind of stopped him and go, read, I am not going to sit here and let you pitch me on how much I suck.

[469] And I think he was taken back by that as well.

[470] And so he closed the computer, but then proceeded to lay out that he was concerned, that he had seen minor errors in my judgment, that he questioned some of the hires I had made.

[471] I mean, he had seen a lot of the other things I had done that were good, but his point was that we have to execute flawlessly.

[472] And we're at a point now where things are beginning to accelerate.

[473] And if there's smoke at this level, he was worried there was going to be fire later on.

[474] And eventually he got to his point, which is that he wanted to come back to the company full time and be CEO.

[475] And for a moment, I thought he was firing me. Because Reed had more equity than I did since he was the original investor.

[476] But as I understood what he was proposing, it wasn't that.

[477] He was proposing that he come in as CEO, that I stay as C -O -O and that we essentially run the company together.

[478] and I remember as he finally he left the office and he quietly closed the door and I was so shocked that even though the sun was going down I sat there in the dark like the strength to the lights on and just kind of crushed and all I could think at the time was this is so unfair this is my company you know I started this was my idea I hired the people I got us going and And how dare you all of a sudden take this from me?

[479] But as I thought more about it, I kind of realized that there was another dynamic at work here.

[480] And like most entrepreneurs, when we started Netflix, I had this dream of being a successful CEO of this big successful company.

[481] And I think as I sat there, I began to realize that maybe this wasn't.

[482] wasn't one dream.

[483] This was two different dreams.

[484] And that the dream of the big successful company might be a different dream than the one of me being CEO.

[485] And I had to really say to myself, does Reed coming in full time as CEO increase our chances of that happening?

[486] And it was really hard for me to argue with myself otherwise.

[487] And I'm not saying this was an easy decision.

[488] And I, you know, I went home that night and sat outside in the porch with my wife and we finished a bottle of wine.

[489] And I think by the time I went to bed that night, I kind of concluded that he was right, that if we really wanted to give ourselves the best chances of being successful, that I should move over.

[490] I should step down as CEO and let Reid come in as CEO.

[491] And we should run the company together.

[492] and looking back now this was 20 some odd years ago that decision to kind of put my ego aside for a bit was probably the smartest decision I ever made the entire time I was at Netflix because those years after that when Reid and I did it together that was the renaissance at Netflix so many of the things that shaped what the company became over the next bunch of years came during those years.

[493] And certainly looking at what Reed has done with the company since then, since I left the company was even more astounding.

[494] And it's funny because one of the roles of a CEO is you've got to make sure the best people are in the right seats, which means saying goodbye to a lot of people.

[495] You'll have someone who came when you started the company, and they were your head of marketing.

[496] And they worked tirelessly.

[497] They worked weekends.

[498] They worked nights.

[499] They did everything you asked.

[500] But as you get to a different scale, you recognize that person is not the right person for what you have to do next.

[501] But you never think you're going to have to turn that lens onto yourself.

[502] And I think a lot of founders need to ask themselves that question all the time.

[503] I'm the right person for yesterday.

[504] I might even be the right person for today, but am I the right person for tomorrow?

[505] And the number of founders that I can think of, and I'll bet you will echo this when you think about all the founders you've spoken to, who are great early stage entrepreneurs and great late stage entrepreneurs?

[506] It's a very, very small set.

[507] And in my case, I was very, very comfortable recognizing that this was the right thing to do for the company.

[508] When you think back to that moment and that conversation with Reed where he comes into your office, with your hindsight and wisdom now, do you think there's a better way that he could have approached the situation?

[509] Of course.

[510] Reed, as I mentioned before, what made Reed and I work so well together as we were left brain or right brain.

[511] And that's not Reed's strong suit.

[512] That's my strong suit.

[513] You know, I pitch, I know how to frame things in the right way.

[514] I know how to deliver bad news.

[515] I know how to communicate effectively, and I can intuitively know what's going to upset someone or not upset someone.

[516] That's not what Reed's great at.

[517] But what Reed has and what we share is he cares.

[518] Reed was doing this not with some ulterior motive.

[519] This was not, I want to pushmark out and become CEO.

[520] This was, he genuinely believed this was the right thing for the company.

[521] And because we had this extremely strong relationship based on trust, I heard him that way.

[522] And fundamentally, that's way more important than the style in which the message was delivered.

[523] what was it that he thought he had that would suit the company in the next phase of the company's journey that he felt you didn't have he had already taken a company through an IPO he had already scaled a company from two employees up to a thousand employees from a local company to a multinational company he had he had already shown that he could hire extremely talented people to work for him.

[524] He wasn't saying that he didn't think it was impossible for me to do this.

[525] And who knows it would have happened.

[526] This was all about what increases our odds for success.

[527] And then perhaps if you'd want to drill down to something which in the big scheme of things is small, but in the time was large, is we had to raise money.

[528] Netflix was a very very, very expensive company to get started.

[529] We required large amounts of venture money.

[530] And Reed had this reputation of someone who had already made a ton of money for some VCs because of taking his prior company public.

[531] And they would bet on him, whereas I was a little bit more of an unknown.

[532] One of the things you talk about in your book that he said to you in that conversation is you don't appear tough and candid enough to hold strong people's respect.

[533] Yeah, it's, I'm better at that now, as I count.

[534] It is the empathy.

[535] I, as I said, what makes direct marketing, marketing in general is an interesting discipline because it requires you to send something out, and you're not going to ever see the person's face as they react to it.

[536] You're not going to be there as they're reading this and either getting confused.

[537] or excited, you have to imagine those things.

[538] And as you're writing a direct response letter, you're picturing, how is someone going to react when they read these things?

[539] How are they going to react when they're watching this direct response television commercial?

[540] It's a gift in some ways.

[541] And it's also a gift when it comes to salesmanship and negotiation is before I say something, I know how they're going to react.

[542] And I can cater to that.

[543] but what it does mean is that when something's going to really hurt somebody it's really hard for me it's very painful for me to deliver very bad news i've never considered that before but it does appear to be completely true that people who are great marketeers have therefore have empathy and therefore struggle more with delivering bad news because they just have a better ability of putting themselves in the other person's shoes you feel it you feel it you feel it you feel it you You know, and like I said, I've gotten way better at it.

[544] I'd say I'm good at it now.

[545] I can be a complete ass when I need to.

[546] How does someone train that muscle?

[547] Is there a way to go, you know, if you think about how you went from where you were with that to where you are now, is there anything that's helped you stop being, I guess, a bit of a people pleaser or caring a little bit about people's feelings when there's a bigger.

[548] I've stopped searching for a way to do it that doesn't hurt.

[549] and as with most decisions a lot of times people get caught in this paralysis where they're trying to come up with some solution that's an optimum solution and this is one more example of that is that you go this is going to hurt it's going to hurt me I have to just do it anyway there's no way to avoid this and for example you know jumping way ahead there was time after this dot com layoff which maybe we'll talk about and just I mean dot com crash which we'll talk about maybe in a moment.

[550] We had to lay people off and I cry with every single one of them.

[551] But I bring them in and I've gotten very, very good at telling people it's time to go.

[552] But doesn't mean that I don't hurt.

[553] Hardest thing.

[554] Let's hope that if you're a manager, that's the hardest thing you ever have to do.

[555] Have you forgiven Reed for that moment, that day, the way he delivered what he said.

[556] A hundred percent.

[557] This is going to sound silly, but it came from love.

[558] It didn't come from madness or jealousy or anger.

[559] As much as it was possible for something to hurt read in delivering bad news, that's got to have been one of the toughest things he's had to do is have that conversation with me. And I have so much respect for the fact that he had the courage and discipline to say, I've thought of something, I thought of a way to mail the DVDs more inexpensively.

[560] I've thought of a way to make the, no, he goes, I've thought of a way to make the company more successful, but it's really going to hurt.

[561] What is it about Reed then that makes read successful?

[562] Because I ask you the question about yourself, but now to turn that on Reed, what is it that makes him so unique?

[563] See, you used the analogy.

[564] for creativity earlier on our conversation about having all these clouds of information, these clouds of connections, and seeing that there are these interconnectivities between them.

[565] Reed sees that stuff so well.

[566] I consider myself really good at that.

[567] He's even better than I am.

[568] He will have a very complicated problem with many moving pieces, and he'll jump immediately to, we can do this.

[569] And I won't see that until a little bit later.

[570] And then anyone else sees it.

[571] It's just an amazing ability to see how things might shape out and which one is the right path to take.

[572] Extremely analytical, extremely non -emotionally driven, can make very, very hard decisions.

[573] because less driven by that, by the emotional piece of it.

[574] He's remarkable.

[575] What about hard work?

[576] Does it matter?

[577] Well, since you ask it so simply, I'd say no. Or it certainly is not the most important thing.

[578] In fact, I think hard work leading to success is a myth.

[579] that and let me let me give you two examples okay um the first is to qualify what i mean um i work with a lot of as he spoke earlier before we actually began the session um about how younger people are different places in their life than older people especially with career and how they think about it and um earlier in my life i used to do triathlons You know, the races that combine swimming and then biking and then running.

[580] And back when I used to do them, they don't do it quite the same way anymore.

[581] It would be a mass water start.

[582] You have four or 500 people who are the gun sounds and all 500 of them plow into the water simultaneously, not a phase start.

[583] And as you can imagine, it is a shit show.

[584] You mean, you're getting kicked and your goggles are being knocked off and you're being held underwater, and you quickly realize that if you want to be able to survive in this mass start, you're going to sprint for those first four, five, 600 yards to get yourself far enough in the front of the pack that you have open water.

[585] And in my opinion, work life is kind of like that.

[586] When you're younger, when you don't really know what you're doing, when you have to go down a lot of false ends because you're not sure the productive, you have better work your ass off.

[587] You better sprint.

[588] You better work three times harder than everybody else in the company.

[589] So it's essential.

[590] But ideally, you get yourself far enough ahead that you recognize I can't go at this pace for the entire tea of the triathlon.

[591] I needed to to get myself some breathing room, but now I can back off.

[592] So yeah, at certain points in your career, you need hard work.

[593] At certain points in the trajectory of your business.

[594] You need hard work.

[595] Your fundraising?

[596] You can't say, oh, we're closing the round.

[597] I'm taking vacation for two weeks.

[598] We're doing M &A.

[599] I'm going to be, I'm only going to work a couple hours.

[600] No, you're going to have to grind it.

[601] But that's not the answer.

[602] All right.

[603] One more little story, which is part two to this, which is why I say that it's a myth for hard work.

[604] So during one part of my career, I lived in Europe.

[605] I was, I was, I was doing international marketing for a big software company.

[606] We had an office in Paris, and I lived in Paris.

[607] But I was meeting every week with the marketing people in our other branches.

[608] So probably four days out of five, I was flying.

[609] I'd fly to Copenhagen one day.

[610] Then I'd fly down to Milan, then I might fly to London, then I might fly to Madrid in one week.

[611] so I spent a lot of time at the airport and because I'm sometimes not that organized, I'd be late and you would find me just sprinting down the concourse in my in my blazer and my wool coat trying to desperately make the plane.

[612] And what I found out was that probably 49 % of the time I'd pull up to the gate, and the plane was delayed, and I'd have to wander onto the plane, no problem at all.

[613] I could have made it on crutches, and instead I'd sit there marinating in my sweat for another hour before the plane took off.

[614] Or the other 49 % of the time, I'd come sprinting down the concourse and you'd see the plane halfway out in the runway about to take off.

[615] And what I realized is it didn't make a difference whether you ran for a plane or not, that you're either going to make it or you weren't going to make it, and that running didn't make the difference.

[616] And I vowed then and there I'd never run for a plane again, and I never have.

[617] And I'm telling you that story because it's a metaphor in that so many entrepreneurs spend all this time running for planes.

[618] They are up all night polishing their deck.

[619] They're reviewing the work of people to make sure the spelling is correct.

[620] They're double checking every detail.

[621] they are working so hard.

[622] But I know from experience that it's like running for the plane.

[623] Most of the time doesn't make a difference.

[624] You don't lose the deal at 2 o 'clock that morning because you didn't check the fonts.

[625] You lost that deal four weeks ago when you didn't have some fundamentals right.

[626] Or you just weren't the right company to begin with.

[627] No matter how hard you worked, you weren't going to change the outcome.

[628] And that is the key to having some balance in your life as an entrepreneur, is this recognition that if you're smart about the things that you choose to focus on, you make 99 % of the difference and that all that extra work does not really change the outcome any.

[629] And in that analogy of running for the plane is the key thing to have just better prepared further upstream, i .e., you know, if we stick to the analogy, just have made a better decision to leave the house at a better time.

[630] Yes, it does, absolutely.

[631] I mean, if you want to make the plane, you know, you leave earlier.

[632] And again, it's not, sometimes, listen, you're going to stroll down the concourse.

[633] You're not, you don't need to run.

[634] And if, if the plane left on time, running's not going to make the difference.

[635] If the plane's late, running didn't make the difference.

[636] Either way you made it or didn't make it.

[637] The amount of times that running for it was the gating item between whether you made it or not is like infinitesimal.

[638] So what's the point of running?

[639] And that's the same, and I really fundamentally believe that is that if I can be really smart about my which problems I choose to focus on, I'll make the difference.

[640] I do not need to get everything right because most things don't make a difference.

[641] Some things do.

[642] Some things do.

[643] And some of the small things that made a difference to your business seem to have been discovered through a process of sort of experimentation and failure.

[644] When I look back through your story at you trying to get sort of Netflix to work and get product market fit, you referenced it a second ago.

[645] This idea of no late fees seem to be quite pivotal, an idea you had to remove the late fees.

[646] I find this interesting because there's going to be entrepreneurs that build their idea and then bang their head against the wall and it doesn't work.

[647] And then I hear so often, whether it's from Brian Chesky at Airbnb or from someone else, Daniel at Spotify, that there seemed to be this one change that was quite pivotal to their business at some point.

[648] So my question becomes like, how do I know, how do I find the thing?

[649] So can you explain to me why this no late fees thing and any of these other small changes that change the game and how what was the system that led you to them you know we're talking about really finding product market fit product market fit if i have to give a definition is when you recognize you finally have something that customers actually do want and it's recognized because all of a sudden the momentum of your business dramatically shifts all of a sudden things go into high gear all of a sudden acquiring customers is so much easier all all of a sudden, they're sticking around.

[650] It's just this instantaneous, oh, my God, we've found it.

[651] And up until that point, it is this constant struggle of trying one thing after another, trying to increment your way closer and closer and closer.

[652] You know, when I mentioned that, you know, at the beginning, there wasn't a lot of business model innovation with Netflix.

[653] We, if you ordered a disc, we mailed it to you, we charged you a due date.

[654] If you missed the due date, we had late fees.

[655] and the reality is the idea was ridiculous.

[656] It didn't work.

[657] Nobody would rent from us.

[658] And if you did rent from us once, you didn't rent from us again.

[659] And we kind of had this realization that, okay, we've got to begin figuring things out.

[660] And thus began this year and a half long process of trying to figure out some way to get people to rent DVDs by mail from us.

[661] And we just tried almost everything you could think of, hundreds of things.

[662] And I kind of talk about this a bunch that I had no shortage of ideas.

[663] I mean, I had lots of things I wanted to try.

[664] And if there was any, if there was a problem that I had, it was that I was a bit of a perfectionist back then.

[665] And so all these tests that I'd want to run, I'd want them to be perfect.

[666] So we would, you know, we'd lovingly argue over every word of copy, and we would do custom photography, and we would check every link, and we'd stress test the site, and it might take us three weeks or a month to prepare for this test, and we'd test this new idea, and then it would not work, wouldn't do anything, and we'd kind of look at each other and go, we just wasted a month.

[667] So, okay, faster, and then we'd do a test in two weeks, and it would still fail.

[668] Okay, okay, faster, and we'd do in a week, faster, and we eventually started getting to the point we could do a test every day or multiple tests every day.

[669] And it turns out that once you go that fast, things get very, very sloppy.

[670] So we would have the wrong image, or it would have the watermark on it, or the pages we had greeked would still be greeked, you know, not, we'd have bad lengths, we'd crash the site.

[671] And then, but that was such an incredibly big incident.

[672] insight for us because it turns out that it didn't make a difference.

[673] That if it was a bad idea, even spending a month crafting this perfect test, it wasn't going to make it a good idea.

[674] But if it had even an inkling of being a good idea, no matter how bad the test was, it shone through.

[675] Customers would immediately perk their head up.

[676] They'd raise their hand.

[677] They would fight to do it.

[678] They'd call us.

[679] They'd reboot the site.

[680] It was this incredible loud signal that there was something there.

[681] And it goes back to what we said before, which is that it's not about having a good idea.

[682] It's about building this whole process and this culture and this system to try lots of bad ideas.

[683] And we got really, really good at trying lots of bad ideas, one after another, hundreds of them, each one informing us to some little some little bit about what to try next.

[684] And eventually we got to this point where we had these two big ideas left.

[685] And one of them was, at that point, Netflix was pretty big.

[686] We had probably in our warehouse several hundred thousand DVDs.

[687] And I remember one day we were, Reed and I were in the warehouse and looking at all these DVDs and going, it's such a shame that all these DVDs are here in the warehouse, where they're not doing anywhere any good.

[688] I wonder if there's a way to store them at our customer's houses.

[689] Let them keep them.

[690] And then when they're done, they mail it back.

[691] We'll just replace it.

[692] And rather than having them have to pay each time they replace it, let's just have a monthly fee, a subscription, and they can rent as often as they want.

[693] There's no due dates and no late fees.

[694] And it was a ridiculous idea.

[695] But when we tested it, it was that mythical product market fit.

[696] It worked.

[697] People loved it.

[698] They couldn't get enough of it.

[699] They told their friends.

[700] They did not cancel their subscriptions.

[701] What part of it worked?

[702] And why did it work?

[703] God knows.

[704] Yeah.

[705] But in retrospect, what it did was it took one of Netflix's biggest impediments and turned it into one of its biggest assets.

[706] You know, we referred to my book.

[707] It's called That Will Never Work.

[708] And there was two reasons it's called That's Will Never Work.

[709] It's because that's what every single person told me when I pitched the idea.

[710] And they had two reasons why they said it.

[711] And one, of course, was streaming.

[712] They said, oh, it's a digital medium.

[713] It's just a matter of days before everyone's streaming these who needs DVDs.

[714] And we realized that was not the case.

[715] It was inevitable, but it could be years.

[716] But the other reason was Blockbuster.

[717] Why on earth would anybody want to order a movie, have it mailed to them, get it three days later, and then keep it a week and mail it back, when you can drive to a blockbuster in 20 minutes and have the movie immediate gratification?

[718] And what happened when we did the no -do dates, no late fees, is it shifted.

[719] because before with an a la carte system, you'd order it, yeah, you'd get it three days later or you'd drive to Blockbuster in 20 minutes.

[720] But now when it was no due dates, no late fees, you could order your movies, they'd sit on top of your TV, you'd keep them as long as you want.

[721] When you want to watch a movie, this lag time is zero compared to 20 minutes to go to Blockbuster.

[722] Because you could order a couple, I imagine.

[723] Three.

[724] You could order three, okay.

[725] And so you always had something to watch.

[726] When you're done, you put it in the mail, and instantly, you know, two days later, another one replaces it.

[727] So all of a sudden, we weren't two and a half days slower than Blockbuster.

[728] We were faster than Blockbuster.

[729] And I think that was the convenience.

[730] And the thing is that when we did the analysis at the beginning about Blockbuster's Achilles' heel, it was the late fees.

[731] Everyone hated them.

[732] that was the single biggest thing that people would say about blockbuster i hate the late fees and by being able to get rid of that it was a huge competitive advantage and it was baked into the blockbuster business model they couldn't easily get out of it again so for someone that might not be aware of blockbuster the late fees are if i didn't bring back this tape of this movie i would get charged per hour or per day or something yeah it's usually three or four dollars a day okay which is a lot of money for a DVD.

[733] It's a huge amount of money for that.

[734] But it was also this feeling of I was okay paying the initial fee to rent the movie.

[735] But now I've watched the movie and I just couldn't get it back in time and now, oh my God, now I've got to pay more just to return it.

[736] It just felt like this unwarranted, unpleasant punishment for the customer.

[737] I was thinking about something that Daniel Kahnman, the famous sort of psychologist, talked about in his paper when he wrote about loss version.

[738] And the TLDR of it, the too long didn't read part of this, is that Daniel Carlman discovered that people have a real disdain for feeling like they've lost something.

[739] And in his studies, he shows that if you drop $10 on the floor, you don't need to find $10 to make up for the pain of losing 10.

[740] You'd actually need to find 20 or 30.

[741] And so he has this wonderful graph where he talks about that we just lost to us is so much more painful than a gain.

[742] So in the case of Blockbuster, a late fee, is money I literally lost for nothing.

[743] Right.

[744] So it's not losing $4.

[745] In the context of it, it's actually losing like $12.

[746] It's that painful.

[747] Exactly.

[748] It was a really, really hated aspect of the video rental experience back then.

[749] And also it made me think about the peak end rule, which is you remember the, which Uber discovered in their labs, where they say that people remember the peak in the end of an experience.

[750] And so if my end of an experience with Blockbuster is getting charged, getting punished.

[751] That's really interesting.

[752] I've never heard that before, but that fits entirely.

[753] It was the perfect in amount to having an experience with Blockbuster is to go in and have someone say, thanks for returning your movie, now you owe us $8 or $12.

[754] Just like a horrible end experience.

[755] It is.

[756] And that's why I think no due dates, no late fees was so profoundly game -changing for us.

[757] And it marked the beginning of that was it.

[758] That's what the company became for the next five or six.

[759] seven years.

[760] And it was more than just no duty to say late fees, but the transition to a subscription business was huge.

[761] And this is, you know, now everything's a subscription business.

[762] Every piece of software you buy is a subscription.

[763] Everything's subscription.

[764] Back then, that was not the case.

[765] There was book clubs, which were subscription.

[766] There was record and tape clubs of subscription.

[767] There was magazines.

[768] And that's all.

[769] And in, some ways, when you look back at what some of the huge Netflix innovations were, one of them was demonstrating you could apply subscription to something which is reasonably unintuitive.

[770] And it came from this fact, again, this disconnected little piece of my past that I happened to have had a year and a half of experience really understanding subscription economics.

[771] When you were looking forward, so I'm so fascinated by this test that you did, which changed Netflix's fortunes.

[772] There's a couple of them that you've described.

[773] But when you, did you know, looking forward that it would have that much of an impact?

[774] And I'm saying this because that helps me to understand whether I should just conduct a lot more tests or I should do what I think most companies do where we sit in a board room and we spend hours and hours trying to find the perfect test.

[775] Is the game just conduct more tests?

[776] If I didn't have to sit behind the microphone, I'd get up and hit you upside the head for that comment.

[777] God, no, you should not be.

[778] sitting in the boardroom debating what to do.

[779] You should be running more tests.

[780] You should always be running more tests.

[781] You don't know, you don't know shit.

[782] I mean, you don't.

[783] Your customers do, but even they don't know what they want.

[784] And the only way to figure it out is to throw all kinds of things at them and see what directionally they're interested in.

[785] But so did I have any idea that subscription was a big thing?

[786] Absolutely not.

[787] And once it began to work and it worked like crazy, we still had no idea how to optimize it.

[788] And Netflix still, 20 plus years later, spends ungodly amounts of time on testing all kinds of things about subscription dynamics.

[789] What does it take to get someone to do it?

[790] What does it take to get someone to stay?

[791] What influences these?

[792] It's unbelievably complex, but it's unbelievably important.

[793] But subscriptions, there's a reason why it's eating the world.

[794] It's an incredible, compelling business model.

[795] And the fact that we stumbled onto it and that it worked so well just was a very, very positive thing.

[796] It's interesting on the testing point, just to close off there, embodying the position of most companies or employees or founders listening to this, the reason why they don't want to run tests or don't have a culture of it is because it involves failure.

[797] And failure that in most companies results in blame.

[798] And blame makes people feel bad, so it disincentivizes them.

[799] But creating a culture where failing is a positive.

[800] and it's celebrated is quite a challenge, I guess.

[801] Oh, it certainly is.

[802] It's a career for me. I mean, I do a lot of public speaking, keynote speaking, all over the world.

[803] And a lot of them are big companies who are going, our whole world's being turned upside down.

[804] Our whole workforce is risk -averse.

[805] Mark, get in here and help us figure out how to make everyone a bit more risk -tolerant.

[806] But, you know, what do they do?

[807] They'll go, okay, Mark, your theme today is we're trying to get everyone to be bigger risk takers, to take chances.

[808] We want to celebrate risk.

[809] But before you go on, we're going to celebrate the sales leaders and bring them up and reward them from the trips to Hawaii.

[810] It's like you said, you have to let people know that failing is not only okay.

[811] It's expected, and it's a good thing.

[812] And we've found, we learn from it.

[813] And I don't even consider it failures.

[814] They're not failures.

[815] They're tests that didn't necessarily work, but they worked in the sense that you learned something from them.

[816] And you just keep doing those over and over again.

[817] And again, if you go back to this, my first principle is how do you learn how to do tests, which are quick, cheap, and easy, you can do tons of them.

[818] Talking about giving speeches there just a week before the dot -com bubble burst, you gave a speech in New York City.

[819] And your dad was there.

[820] Yeah.

[821] My dad was the anti -entrepreneur.

[822] He was extremely risk -averse.

[823] He was an investment advisor.

[824] He worked for managing money for people in a company whose whole principle was fundamental, long -term value.

[825] He had no clue whatsoever about why I was doing what I was doing and this whole venture world.

[826] It was just completely made no sense to him.

[827] But that speech in New York City was actually fairly interesting because what I was doing was speaking to the DVD Manufacturers Association, I think it was, about what we learned about more effective ways to expand their business.

[828] And on one hand, I think my dad was extremely proud to see that all the stuff that I'd been saying, which he thought was all a bunch of hooey, was actually important.

[829] and interesting to people.

[830] But unfortunately, he happened to be in New York that time to get treatment for a brain tumor, which he had just realized he had.

[831] And so it kind of was this beginning of this, my dad, understanding for the first time what I was good at, and at the same time, the end of, not of our relationship, but it marked the beginning of this saying goodbye to him.

[832] So it was kind of this very, very bittersweet, bittersweet time.

[833] In 2004, at 42 years old, when you were 42 years old, just one week before the dot -com crash, your father passes away.

[834] Right.

[835] I mean, the timing is extremely unfortunate, but also just the impact that must have on one's perspective to lose their father in that season.

[836] of life.

[837] Yeah, I guess it's part of you go, well, what else can go wrong?

[838] And you find out plenty.

[839] But the tragic, this is going to sound trite, I suppose, but one of the tragic things about my father dying before the dot -com collapse is he missed seeing that he was right.

[840] He missed seeing that, in fact, this was a lot of hooey, that this appears.

[841] That this appears.

[842] defying of gravity by all of those .com companies commanding these ridiculous valuations with no revenues and even less profit, which he thought he could not understand how this could possibly be real.

[843] Well, as we all found out a week later, it wasn't real.

[844] And I think he would have really loved seeing that, in fact, he was right.

[845] But it was kind of this double hit for me, you know, reeling, in fact, from the death of my dad, and then all of a sudden having to worry now about the death of my company.

[846] Did it change your perspective, losing your father, on what matters in life?

[847] I'm going to say no, because what was great about my father was that he was very true to himself.

[848] he was very comfortable being an iconoclast about holding different opinions even as we just mentioned with the dot -com bubble when everyone else was saying this was the next big thing and he's going this makes no sense whatsoever and he held to it and he lived his whole life that way and so in some ways when he died there was this sense that it is possible to be true to yourself and be fulfilled that you do not need to chase the trends was reminding me that that can happen when I started my first job when I was like and I was probably 22 my first real job where I actually had to go sit in office.

[849] My dad called me into the den and tore a page off of a yellow pad.

[850] And on the page he had written in pencil, the Randolph Rules of Success.

[851] And he goes, this is the things that I have learned over my career as a business person.

[852] And I think I want you to see these as you start your career as a business person.

[853] And I wasn't quite sure what to expect as I was looking at them.

[854] And what was interesting was that these were not business rules.

[855] This wasn't like, you know, buy low and sell high or happiness is positive cash flow or anything like that.

[856] These were basically rules that said it's possible to be a decent person and still be successful.

[857] I mean, it was simple things like, you know, do 10 % more than you're asked.

[858] It was, be prompt.

[859] It was don't knock, don't complain, stick to constructive, serious criticism.

[860] It was don't express opinions about things that you don't have the facts for.

[861] I mean, that's who my dad was, that he felt that those were the important things to communicate to me, which is, Mark, be a mensch.

[862] Then the dot -com bubble happens.

[863] Most of us can't remember.

[864] I think I was, how old was I?

[865] must have been seven or seven or so seven years old so i can't really remember what happened yeah but i know it was bad well it's especially bad for us i we were talking a moment ago about subscriptions and how subscription economics are amazing and what makes them amazing is that you acquire your customer and then that customer gives you money for months afterwards ideally for years afterwards but because a subscription customer is willing to give you money for years afterwards, you can invest more in acquiring that customer.

[866] You can spend $100 to bring that customer on board with the confidence they're going to give you $10 a month, month after month after month after month.

[867] But it means in month one, you spent 100 and you made 10.

[868] So when you have a subscription in business which is booming, which is going crazy when customers are flooding in the door, well, money is flooding out the door.

[869] The cash required to service those, bring those customers in for their first month.

[870] Huge.

[871] The revenue from them, not so much.

[872] Not to mention we had a first month free policy.

[873] And that wasn't a problem in March of 2000.

[874] That was the era of irrational exuberance.

[875] That was where you had, these companies where had no revenue, no real business model worth hundreds of millions of dollars where I could go out on the highway with a green flag and wave it and a dump truck of money would pull off and back up to my driveway.

[876] And I just need to come out with the wheelbarrows and bring the money in.

[877] It was ridiculous until the dot -com crash and all of a sudden in a matter of a week or two completely dried up.

[878] And all of a sudden, having a dot com on your name was no longer the Road to Riches, it was the scarlet letter.

[879] And we were in deep trouble.

[880] We were basically going to go broke being successful.

[881] And when that happens, as you've seen with other entrepreneurs, you do something called Pursue Strategic Alternatives, which is code for we have got to sell this sucker fast.

[882] And we had an obvious strategic alternative, which was Blockbuster.

[883] Were you losing money at that point?

[884] Oh, my God, yes.

[885] How much?

[886] Roughly.

[887] At that point, we had accumulated losses of about $50 million.

[888] And what were your revenues?

[889] $5 million.

[890] And you accumulated losses.

[891] What was your sort of annual yearly burn rate?

[892] How much money were you burning every year?

[893] Well, we were only in business for, we'd only been in business for two and a half years.

[894] So most of that 50 had been in the previous 12 months.

[895] I mean, that's, I mean, on paper, that's not a good business.

[896] Not just on, yeah, it's a terrible business.

[897] You know, they say that one of the goals of any startup is to receive a repeatable, scalable business model.

[898] That is not what we mean by repeatable, scalable business model.

[899] It's disastrous.

[900] And you have lots of businesses which go, we're going to make it up in volume, or once we just get the eyeballs, then we'll monetize it later.

[901] So it's, when all of a sudden, the opportunity for all those things goes away.

[902] It's disastrous.

[903] We're just completely upside down our economics.

[904] Did you go to Blockbuster or did they come to you?

[905] No, we tried going to Blockbuster.

[906] For months, we tried reaching out to them.

[907] But this was this ultimate, I mean, listen, we were doing $5 million a year.

[908] They were doing $6 billion a year.

[909] Okay, so you weren't.

[910] We had 150 employees.

[911] They had 60 ,000.

[912] We were like a gnat, you know, to them, to an elephant.

[913] They had, you know, buzzing, no interest in us whatsoever.

[914] It took months, and finally, we got the call, and as luck would have it, we got the call when we were at a corporate retreat at a place called the Alasol Ranch.

[915] There's a city called Santa Barbara on the coast of California, pretty rural.

[916] Alisal Ranch is way back in the mountains.

[917] It's a dude ranch, you know, horses.

[918] So we're on retreat, and you also know that in Silicon Valley that were pretty casual and when you're on retreat you have to work at it to be even more casual so all I had with me was shorts t -shirts thong sandals you know that's all I had with me and that's when Blockbuster calls goes we'll like to see you tomorrow in Dallas and I remember turning to read and going there's no way we can't fly nonstop out of Santa Barbara the time zones are different we can't possibly get to Dallas by tomorrow.

[919] And so we did the prudent thing you do when you're $50 million in the hole and we chartered a corporate jet, a rounding error, I think they call that.

[920] We fly to Dallas, go up in the 27th, 28th floor of this massive glass and steel skyscraper into this huge cavernous conference room.

[921] It was a big hardwood table made of, I'm sure, out of some endangered Amazonian hardwood or something.

[922] It was horrendous, the whole thing.

[923] And I'm there in shorts and a t -shirt.

[924] And your thumb sandals.

[925] And the sandals.

[926] And Reed, I was jealous.

[927] He had a Hawaiian shirt.

[928] He had buttons.

[929] Anyway, in come the Blockbuster guys, and we make our pitch.

[930] We go, we'll combine forces.

[931] You'll run the stores.

[932] We'll run the online business.

[933] We'll build a blended model, which our research is shown is a game changer, and everything I'll work out.

[934] And it was going good.

[935] You know, they were asking good questions.

[936] They're leaning in.

[937] And we're going, okay, this is rolling.

[938] And then they asked the big question, you know, how much.

[939] And of course, we'd rehearsed on the plane.

[940] And we figured we're $50 million in the hole, so $50 million.

[941] And there's this silence in the room.

[942] And I'm looking at blockbuster execs, trying to piece together what the reaction is, and it finally dawns on me, they're trying to suppress laughter.

[943] They're trying to keep a straight face at the hubris that this little company, $50 million in debt at the trough of the meltdown could possibly be worth $50 million.

[944] So as you can imagine, meeting goes downhill pretty quickly after that, long quiet ride in the cab back to the airport even quiet a ride on the jet back to Santa Barbara and I I so profoundly remember sitting there on the plane just my head down like not talking just thinking ah I was so confident that if we just got the meeting that this blended model was so self -evidently great that they'd save us But now they weren't going to save us.

[945] They were going to compete with us.

[946] And we were in trouble.

[947] Did they make you an offer?

[948] No. They just rejected the $50 million offer.

[949] And, you know, my dad, one of the things he sometimes would say to me is like, you know, when I was struggling with some particularly nasty problem and came to him for the solution, he'd go, you know, sometimes the only way out is through that you got to take these problems and just go right at them.

[950] There's no way around.

[951] And this was such a classic case of that.

[952] There was no easy way out of this.

[953] The only way we were going to survive was to be to compete with them.

[954] And we had to put ourselves in a position we could do that.

[955] When we laid people off, we dropped entire lines of adjunct little businesses, completely focused it in and survived.

[956] And eventually, you know, as eventually passed Blockbuster and eventually Blockbuster, went into bankruptcy.

[957] I don't know how Blockbuster couldn't have just looked over and seen your business succeeding at some point and gone, okay, we've got six billion revenue a year.

[958] We'll just destroy them.

[959] We'll just, you know, overpower them with advertising or something.

[960] It's a big piece of innovator's dilemma.

[961] In their case, a couple things going on.

[962] Number one, imagine you are the CEO of Blockbuster.

[963] I call John, wasn't it?

[964] John Antiocho.

[965] So you've got $6 billion coming in through your standard business model, which is serving these bricks and mortar stores all over the world.

[966] Six billion dollars.

[967] And someone comes to you and goes, we need to build an online component.

[968] And John goes, well, what do you think that could do in revenue the first year?

[969] And you go, $2 million?

[970] So would you say, okay, take our very best engineers, let's put them on this project.

[971] no you go okay figure here's a hand figure it out and you can put the the B team is on it and of course it doesn't Netflix wasn't a movie company it was a software company I mean we had Silicon Valley we had people who had their whole life building software you can't compete with that even with their A team it would have been challenging they put the B and the C team on it and they did that a second time and then a third time and finally each time we're stronger and stronger and stronger and stronger.

[972] And eventually they go, we got to fix this.

[973] And they pick a team.

[974] They resource it adequately.

[975] They say, get out of the building, go across town, set up.

[976] Here's the money come after these guys.

[977] And it's a story which has not really been told very well, but they came really, really close to taking down Netflix.

[978] They were in a, they, that blended model, which we knew was a killer, which a blended model means you can rent from Blockbuster and you can either return it in the mail or you can return it at the store or you can go pick it up at the store or you can have it mailed to you.

[979] And we couldn't compete with that.

[980] We didn't have the stores.

[981] And it really, really came close to taking Netflix down until all of a sudden they had all kinds of unrelated corporate shenanigans that made them decide, change CEOs, we're going to de -resource this online business and walked away from it.

[982] I saw you talk about this on your Instagram recently when John quit the business.

[983] So John was the CEO of Blockbuster, and him quitting the business for a variety of reasons is much of the reason that you think Netflix actually ended up not getting killed by Blockbuster.

[984] Correct.

[985] Can you explain that?

[986] So, and I'm not going to get this entirely right, But there basically were people who were corporate raiders who would buy large amounts of a company's stock and take seats on the board, take multiple seats on the board, and begin to try and dictate things to make a company more short -term profitable.

[987] That happened to Blockbuster.

[988] And one of the acts they did was deny John Antioch's bonus.

[989] He was the CEO of Blockbuster.

[990] Yep.

[991] And he said, you can't do that.

[992] And they go, well, we need to, we're going to, no, we're not going to pay you the bonus that you were promised in your previous agreement.

[993] And so he goes, well, in that case, I quit.

[994] And then they went to find a replacement, and they brought in a person who had all of their experience at retail stores, at convenience stores.

[995] And his vision was, we have 9 ,000 stores in almost every community.

[996] in the country, in the world.

[997] Why aren't we selling gum and clothing?

[998] And what are we wasting money on this digital stuff?

[999] And there's a, this is super movie geeky.

[1000] So I, pardon me for the segue.

[1001] Steven Spielberg, who I'm sure you're familiar with, his film school project was a movie about a robot.

[1002] and the robot operates kind of on a cost benefit analysis and there's the penultimate scene in the movie where the robot is chasing somebody and he's getting closer and closer and he's just about the robot's to reach up and grab the person's ankle and you see the sunk cost of the robot's time get to break even and he stops and walks away an instant before he grabs the person that's what Blockbuster did they were within seconds of grabbing us by the ankle and yanking us off the ladder when something happened unrelated to that and they just turned and walked away and we scampered to safety they lost focus yep so that's there's a lot of reasons Netflix blockbuster didn't go down because of Netflix only but Blockbuster went down because they had a business model which was very very difficult to change and they didn't have the courage and the persistence to be willing to do the things that would have made it change.

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[1013] Don't tell anybody about this.

[1014] And you can only get this online for a limited time.

[1015] So make sure you don't miss out.

[1016] You left the day after the IPO in May 2002.

[1017] The IPO happens.

[1018] The company is valued at a big number.

[1019] I guess your life has changed indefinitely from that point because it's a lot of money for someone to have.

[1020] And you go on, you know, leave the company for the reasons you expressed earlier.

[1021] And you go on and do other things And I think at that point, really, the streaming war has been now won by Netflix.

[1022] And now many others, as we sit here in 2024.

[1023] But at that point was really when, you know, Blockbuster are effectively dead.

[1024] I think they went, oh, no, they went bankrupt four, eight years after the IPA, didn't they?

[1025] Those wars raged for a while.

[1026] Okay, so you go public in 2002.

[1027] Right.

[1028] They continue pursuing you.

[1029] Yep.

[1030] But ultimately, they run out of steam eight years later and go bankrupt in 2010.

[1031] You leave Netflix.

[1032] You leave Netflix, you're a wealthy man, you've achieved success that almost everybody on planet Earth will never see in terms of business.

[1033] At that point, what matters?

[1034] What matters in life?

[1035] The day of the IPO, I remember he left the trading floor where we had gone public in New York City.

[1036] My son, who's actually with me today.

[1037] Oh, yeah.

[1038] In the back was with me. He was a much younger man. And I remember the two of us sitting in the taxi going downtown in New York.

[1039] We were going to get pizza because I figured he's a California kid.

[1040] He'd better experience New York pizza.

[1041] And I was sitting there going, my life has changed.

[1042] You know, I do have the option if I want to to not have to work again.

[1043] And I'd be in the cab seeing all these people who were going about their lives and am I different or not.

[1044] And part of it, you then you realize, I like what I do.

[1045] I'll take the day, take a day or two, but I'm going to be going back to work.

[1046] I still have problems to solve.

[1047] We still have to make this company successful.

[1048] And I did.

[1049] I went back to work and it was not, it wasn't as profound that my life changed.

[1050] Like the IPO is held up as this be all end all, but it's just one more milestone along the way.

[1051] You know, Netflix still had a lot to do.

[1052] and it still has a lot to do.

[1053] The more profound thing was actually leaving and realizing that I could begin, as I mentioned before, could now begin spending my days doing the things that I really loved doing.

[1054] And I have been incredibly lucky to do that.

[1055] You know, since leaving Netflix, I do get to spend every day working with other early stage companies.

[1056] I did start another company after Netflix, which did really, really well.

[1057] I have a great life and I still get a chance to spend time with my family and I still get a chance to get out and do all the outdoors things that make me whole.

[1058] Was there grief associated with leaving and that's sort of the months after you leave?

[1059] Is there a grieving process because you're...

[1060] Surprisingly, no. There's uncertainty.

[1061] You know, I've spent most of my professional career in Silicon Valley.

[1062] And as most people there do, I know dozens, if not hundreds of people who have economic outcomes there that would allow them to not work another day in their life if they wanted to.

[1063] But if you do a simple survey of the friends of yours who've been put in that position, the vast majority of them go back to work.

[1064] They start another company.

[1065] And you realize that we are entrepreneurs not because we have to do it to earn a living.

[1066] We do it because we love that process of solving problems.

[1067] We love that process of making and building a company.

[1068] We love that process, as I described earlier, of sitting around the table with really smart people solving really interesting problems.

[1069] And if success is nothing else, it's the ability to be able to do the kind of things you want to spend your time doing.

[1070] And doing another company is the most thrilling thing in the world.

[1071] And if I get a chance to do that, why wouldn't I want to do that?

[1072] So in that period after leaving, I didn't say I'm retiring.

[1073] I didn't say I'm starting another company.

[1074] I said, I'm going to take some time and think about it.

[1075] And in my case, I decided I didn't think I had any of me to start another company.

[1076] I was going to spend my time helping other people do it.

[1077] It turns out that I was wrong.

[1078] I got sucked into starting another company.

[1079] That's a whole other podcast.

[1080] But this whole thing is not about the IPO.

[1081] It's not about success.

[1082] it's not about money the thing that makes this the best job in the world is how cool it is to take something which hasn't been done before and figure out how to do it and i just feel blessed and i imagine you do too and the people you speak to we're all blessed that we are allowed to spend our days doing that one of the things that always inspired me and that i've mulled over for many years is the culture that was created at netflix because it was so pioneering and it's so sort of in the face of the way that we were told things were supposed to be done.

[1083] You know, because when I started my first business, it was all about family and all of this stuff.

[1084] And then I remember that day that I read Netflix's sort of culture handbook, which is quite famous and viral now called Freedom and Responsibility.

[1085] And it was everything that I, it was the opposite of everything that I thought a business was supposed to be.

[1086] You know, it was this radical freedom that people were given, but then there was a really high bar.

[1087] And I've always been curious, like, A, where did that come from?

[1088] B, is that for every company?

[1089] Is that the right way of company culture?

[1090] And I guess C, what is the unknown part?

[1091] Because we all saw the deck, but we don't get to see the actual implementation.

[1092] So I'll take your middle part first, which is this for everybody.

[1093] And the answer is no. Culture, as I often say, is not aspirational.

[1094] Culture is observational.

[1095] culture is not something that you dream up what you want it to be that you aspire to it to be it's not brainstorming what our culture should be and now let's print up 40 posters and put them in the break room that is not what culture is culture is how you as the founders behave it's how you as a senior executives behave people are watching you and they're modeling off of you that is what culture is That's where culture comes from.

[1096] So if you aren't a certain way, you can't have your culture be that way.

[1097] And it's perfectly okay to say that we're a family.

[1098] If that's really the way you behave and want to build your company, it's entirely appropriate.

[1099] That's not the way I wanted to behave or build my company.

[1100] So I never said that.

[1101] But I'll get to that in just a minute.

[1102] But it comes from this.

[1103] So this whole radical honesty thing at Netflix, that just came from the way Reed and I always treated each other and the way we treated our employees, and the way we wanted, held them accountable to treat their employees.

[1104] So it has to come from how you genuinely are.

[1105] You can police that.

[1106] You can hold each other accountable.

[1107] You can say, we want to hear from everybody and then have your HR person pull you aside after the meeting and go, Mark, Reed, you are always saying, you really want to hear from everyone in those meetings, what percentage of the words do you think came out of your mouths?

[1108] And then, goes, you're right, Patty, we'll do better next time.

[1109] You want your actions to match your words.

[1110] So that's the core thing of culture, is it can't be something alien.

[1111] It means you have to be accountable to it because it spreads beyond you, that the culture of the first 10 people is modeled off the first two of you.

[1112] The next 90 is off the first 10.

[1113] The next 900 is off that first 100 and so on.

[1114] So if you let it slip, if you say one of our principles is no assholes, unless they're our best salesperson or the irreplaceable CFO.

[1115] Well, then it's different.

[1116] No, you've got to be consistent because everyone sees that.

[1117] anyone with kids knows kids don't model what you say they model on what you do the other piece this whole freedom and responsibility thing is not novel it's almost every early stage company has this because there's just aren't the resources to do otherwise you have let's say 10 people but you have the work of a hundred there is not time to say okay stephen here's what you have to do and here's it here's what you have to do and check you can't do that you just go all right here's what I I need.

[1118] You see that mountain over there?

[1119] I'll meet you there in two weeks, and I need you to have this finished.

[1120] Here's what you need.

[1121] Two weeks, meet you there.

[1122] And then I'm not going to talk to you for two weeks, and you're going to have to struggle and figure things out and overcome obstacles based on what you have to accomplish.

[1123] There'll be different things than this person has to accomplish.

[1124] But I trust that you're going to get to that mountaintop with the stuff done in two weeks.

[1125] That's the responsibility part.

[1126] But I'm giving you the complete freedom how to get there.

[1127] So that's an easy thing when you have 10 people.

[1128] It's a little harder when you have 100.

[1129] It's really hard when you have 1 ,000.

[1130] And the reason is that there's an innocent thing that happens.

[1131] So get to a point and you're at the mountain and someone shows up like three or four days late.

[1132] And you go, oh, this isn't good.

[1133] I can't have this.

[1134] Okay, from now on, I need everyone to give me a daily status.

[1135] report so I know in advance if there's problems that every person goes oh status reports okay and now everyone shows up on time but then someone shows up and they spent too much money and you go oh I can't have this okay everyone I need to pre -approve all expenses over $5 ,000 and all these people who you're counting on to be responsible you're treating them like an infant you're going I'm giving you this you have a $10 million quarterly sales nut But I don't trust you to make a decision about what type of hotel you can stay in or what money you can spend to achieve.

[1136] Come on.

[1137] Treat me like an adult.

[1138] That's freedom and responsibility is I'm going to treat you like an adult.

[1139] What most companies do is they put these guardrails in place to keep people from making errors of judgment.

[1140] And the Netflix experiment is simply as rather than building guardrails to protect ourselves, from people with bad judgment, let's build this culture where there are no guardrails and only hire people with good judgment.

[1141] And that's it in a nutshell.

[1142] And I'm sure you've seen the deck, but you know what the travel policy is.

[1143] There isn't one.

[1144] You know what the expense policy is?

[1145] There isn't one.

[1146] You know what the vacation policy is?

[1147] You know, there isn't There aren't any in policies.

[1148] The policies are all summed up as use your best judgment.

[1149] That's freedom and responsibility.

[1150] Now, that only works if someone has the judgment to be treated that way.

[1151] So you have to be diligent about saying if you don't have the judgment to be able to make decisions effectively, you shouldn't be here.

[1152] But it turns out there's a magic to this.

[1153] I worked for a big multinational software company back when I was doing direct response marketing.

[1154] And we had a big competitor with like Microsoft, and we had a big corporate campus.

[1155] And it was beautiful.

[1156] Had tennis courts, had squash courts, it had a big health club, really wonderful cafe, an Olympic swimming pool, and a hot tub.

[1157] and one day myself and patty mccord who was the HR person at netflix we were walking back from lunch and we saw some of the engineers in the hot tub and we swung by to say hello and as we got close to the hot tub we could tell they were all bitching about the company and we thought it's pretty funny that here they are sitting in this magnificent hot tub at the company complaining about it.

[1158] But it triggered this conversation, which is if it's not the amenities that make people want to work someplace, what is it?

[1159] And the answer is it's not the fireman pole and the nap pods and the kombucha on tap or any of the other ridiculous thing that people throw at.

[1160] It's they want to be treated like adults.

[1161] They want to have agency in their life and in their jobs.

[1162] They don't want to be told what they can and can't do.

[1163] They want to be given a clear responsibility and given the freedom to achieve it.

[1164] And that is such a huge unlock for Netflix.

[1165] It's more important than how much you pay someone.

[1166] It's more important than almost anything.

[1167] I have been through this.

[1168] So my first business started with the same set of policies and rules, especially as it relates to like holiday.

[1169] So we've always had unlimited holiday, even in the company that you're in you know, you're part of now, the 40 people that work for the diary of a CEO now, we have unlimited holiday.

[1170] What I came to learn interestingly over time is that the reason you end up changing these rules is because 5 % of people.

[1171] It's really like just a few people that don't exercise the judgment you're talking about.

[1172] So what you end up doing is going, okay, well, I have to change a rule for everybody because of this small group, maybe three or four people, that can't seem to execute really great judgment.

[1173] And it's funny because I found myself at one point, several times over my career going, right, okay, we have to get rid of the unlimited holiday because Tom and Dave and Nigel, of 200 people in an office, can't make fair and responsible judgment.

[1174] And it's kind of just dawned on me as you were speaking.

[1175] What I actually need to do is just address the three people.

[1176] You need to fire those people.

[1177] You're going to go the opposite way.

[1178] You're going to start looking at all the other policies you have and go, I'm going to take, get rid of those two.

[1179] I'm going to get rid of it.

[1180] And little by little, But again, it's only if that's you.

[1181] It has to match how you want the company to feel.

[1182] It can't be artificial.

[1183] No, it is.

[1184] It's always been because I've, the reason why I'm an entrepreneur is because I'm impossible to employ because I hate jobs.

[1185] So I tried to create a company where I would want to work in, which means that if you show up late, good, because I'm probably going to be late too.

[1186] But maybe the reason I was late is because I was working late on something.

[1187] And that actually doesn't matter.

[1188] So what time you arrive doesn't matter.

[1189] it's you know because responsible people someone like jack you haven't got to tell jack when to work jack is so focused on the mission jack will figure out when he needs to get how and when he needs to get his job done um and you don't end up making the rules for people like jack you have a job at netflix for you yeah yeah but he's one of those people because he's like a founder here he like founded this thing with me so we have that kind of mentality but yeah you're right you end up making it's so interesting it is it's it's all about taking down the guardrails and and what happens is taking the guardrails down, great, means those three people can't work here, but it makes the other 97 really want to work there.

[1190] It makes other people, because most places don't do that.

[1191] It's like, I don't care when you work.

[1192] I don't care what hours you work.

[1193] I don't care whether you're home or in the office.

[1194] I do care that once we've agreed what responsibilities you have, that you achieve, get those things done.

[1195] And if you can do it in six hours a week, because you're so smart and talented, all power to you.

[1196] The last thing I wanted to talk to you about was actually something that I read on LinkedIn, which went viral, which was you talking about your relationship with your wife and your commitment to date night on Tuesdays.

[1197] The post went viral because I think it struck a chord with a lot of people who have really burnt themselves out because of their job.

[1198] What is that principle you have with your wife and how long have you kept it for?

[1199] So right when I was, you know, in my late 20s, I was working like a dog.

[1200] I was working all the time, nights, weekends, and not because I had a slave -dropper boss because I loved what I was doing.

[1201] I just was totally into it.

[1202] And I was in a relationship at the time with the woman who's now my wife.

[1203] And it kind of slowly dawned on me, perhaps with a little bit of help from her, that this wasn't as satisfactory for her as it was for me. And it kind of made me realize that if I really wanted to have a sustainable long -term relationship, I had to figure something out and that I realized that I had to have more balance in my life and we began this policy of saying I'm going to prioritize my relationship with my girlfriend and who's now my wife and that has taken a lot of forms but the one that I referred to was I had this policy at Netflix, before Netflix, after Netflix, that every Tuesday I'd leave work at five o 'clock sharp.

[1204] My wife would get a sitter or before we had kids.

[1205] We'd just go out and we'd spend the evening together.

[1206] I had a date night.

[1207] And this was sacrosanct that I don't care what's going on.

[1208] I'm leaving at five.

[1209] If there's a crisis, we're going to wrap it up by five.

[1210] If you have to talk to me, well, we're going to talk in the way to the car, but I'm leaving at five.

[1211] And it was kind of of remarkable because after a while, crises stopped happening after 5 o 'clock on Tuesday.

[1212] And all of a sudden, people were able to solve their own problems after 5 o 'clock on Tuesday.

[1213] But there was a secondary benefit, which is that I did talk a lot about the importance of balance, that I didn't want this to be all encompassing, that there were other aspects to what was important to everyone's lives.

[1214] And by modeling this, I was walking the walk.

[1215] I was showing that, in fact, you could run a company and have a relationship.

[1216] It wasn't easy.

[1217] This is a startup.

[1218] So a lot of times, you know, I'd have a date night.

[1219] We get back late and I'd have to go back and into the office at 10 o 'clock.

[1220] Or a lot of times I'd come home, have dinner with my kids, go back and work for a couple hours.

[1221] But I carved out the time to be present and do those things.

[1222] and in my life, it's maybe even a bit more challenging.

[1223] A, startups are hard, and I have a family, but I also have this passion for outdoor stuff.

[1224] You know, I love backcountry skiing and climbing and kayaking and mountaineering, all this stuff that's really hard to do between your 5 o 'clock call and your 7 o 'clock meeting.

[1225] So I had to really structure my life in a way that I could have meaningful time in all three of these areas of my life.

[1226] And it's been really, really hard.

[1227] Was there a risk of losing the relationship at some point?

[1228] Yeah, probably when I was in the right, at that point when I was 29, 30, where I was becoming clear, she was going, I'm not going to put up with this.

[1229] You know, if you're not going to be here for me, what's the point?

[1230] How did you take that at first?

[1231] Very sobering.

[1232] I mean, it really makes you think how important is to me. And I know some people might say it's not that important.

[1233] My work is the most important thing.

[1234] It's the only thing that's important to me. I decided otherwise that having a relationship was important to me. And more importantly, that I thought it was probably possible that I could do both.

[1235] Again, it's part of not running for planes.

[1236] It's saying I don't need to be there all the time.

[1237] I can prioritize well.

[1238] I can distribute work to other people.

[1239] I can make this work.

[1240] And not only that, not only can I do the work and have the relationship with my wife and my family, I can get out and do outdoorsy stuff, which is what I need to make myself whole.

[1241] And this is a great way for me to wrap this in a way.

[1242] But, you know, I've had an amazing entrepreneurial career.

[1243] As I've had six, seven companies, depending upon how you count it.

[1244] I've had three IPOs, you know, two multi -billion dollar companies.

[1245] So proud of that.

[1246] But I'm way more proud of the fact that I managed to do all that while staying married to the same woman, while having my kids grow up knowing me and as best I can tell liking me, and still getting out to backcountry ski, mountain bike, and all the things that I need to make me whole.

[1247] And that I'm proud of.

[1248] In the grand scheme of your happiness, you've got your business endeavors, you've got your fantastic relationships with your wife and your family.

[1249] What does matter more?

[1250] Oh, it's a trick question.

[1251] I mean, I guess I'll answer it in the counterintuitive way.

[1252] You need all three.

[1253] You know, I think had I said, had my wife said some ultimatum, like I need to quit and, you know, you were going to move to Montana and you're going to be a mailman and we'll have a great, I would have been unhappy.

[1254] And, I mean, I had a great relationship, but she knows that.

[1255] She knows I can't turn this off.

[1256] I can't turn it off.

[1257] There's something about seeing problems wanting to fix them.

[1258] And having to pick one and say, that's all I'm going to do, that's no life either.

[1259] That's why, I think, you know, again, before we started, you said, what's your big focus?

[1260] And I said, balance.

[1261] I think about it every day.

[1262] I think about it every week.

[1263] they're all important and I do what I have to do to make that happen.

[1264] Mark, we have a closing tradition on the podcast where the last guest leaves a question for the next guest not knowing who they're leaving it for.

[1265] And the question that was left for you is, what in your life were you most wrong about and what did you learn from it?

[1266] So one of my big regrets is I mentioned before that I had all this magazine subscription experience.

[1267] I knew circulation.

[1268] I knew the subscription business and it took me more than almost two years to figure out that maybe we could use this stupid thing for Netflix.

[1269] And I think of all the time and all the money that we wasted because I never even occurred to me to try that.

[1270] God, I wish I could kick myself and go back and say, for God's sake, try this sooner.

[1271] Try this sooner.

[1272] Hindsight's a wonderful thing.

[1273] It is, isn't it?

[1274] And it fills you with wonderful lessons and wisdom and all of that wisdom has been in in this wonderful book that will never work in various ways as you go through the journey of founding Netflix, but also the life that's lived in amongst those pages.

[1275] It's one of the most interesting, fascinating, timeless books I've read, because it's about true principles, the true principles from your father, from your journey, and from everything you've learned along the way.

[1276] So thank you so much for writing such an incredible bookmark.

[1277] I'll link it down below.

[1278] It's called That Will Never Work, the Birth of Netflix and the Amazing Life of an Idea.

[1279] And thank you so much for the work you do for entrepreneurs across all of your social channels across your work and your mentorship because it really is looking back down the ladder and helping pull other people up with your wisdom.

[1280] And that's an incredibly, incredibly generous thing for you to do.

[1281] So thank you so much, Mark.

[1282] Thanks, Stephen.