While starting three businesses, I frequently heard the words, “this will never work”. I took that response as a challenge. It meant I was doing something that had not been done before. And it signaled I could really make a change in the market from my new company.
This Will Never Work
On the Small Business Radio Show this week, I interviewed Marc Randolph. Randolph cofounded of Netflix, his sixth startup. And he served as their founding CEO, executive producer of their web site, and a member of their board of directors until his retirement. He wrote a new book called “That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea”.
Marc talks about how most of the ideas that entrepreneurs come up with are “crazy on the surface and even below the surface.” When he started telling people about Netflix where customers could rent videos by mail, the idea got universally panned. “Why would I want to get a video in the mail when there are 9,000 Blockbuster stores I can go to?” people said. His original idea involved sending VHS movies by mail. But the appearance of DVDs changed that. The new format made the business idea much more cost effective. He recalls “my business partner, Reed Hastings and I bought a music DVD and mailed it to ourselves for a price of a stamp.” For those first few years, Netflix became one of the only places to get DVDs. So they captured a lot of new customers.
One of the company’s innovations involved a subscription that allowed customers could keep a DVD as long as they wanted. And the company also allowed them to rent an unlimited number of movies a month. He recalls how “it turned immediacy on it’s head because they were faster than Blockbuster now since the movie was already in your home”.
An Attempt to Sell to Blockbuster
Ironically, the founders of Netflix asked Blockbuster to buy their company in 2000. The company burned through so much cash offering the first month free to new customers. Marc recounts that “we flew to Blockbuster to pitch for us to run the online and they would run the stores.” The founders asked for $50M and “they didn’t laugh, but they came close”. Marc and Reed traveled home in desperation. But then they realized the “only way out now was through and we had to take on Blockbuster now directly”.
According to Marc, a simple weakness took down Blockbuster as a $6B company and every established large player. This turned out to be “their unwillingness and fear to cannibalize their past to invest in the future”. By the time Blockbuster realized they would have to do what would hurt them in the short term, it was too late.
Netflix was able to reimagine the how content should be released. They created “bingewatching” when they released all the episodes of House of Cards at one time instead of one a week as it usually was done in the past. Now this “all in one release” has become an industry standard for original online content.
Listen to the entire interview with Marc Randolph on the Small Business Radio Show.