Startup Lessons from Netflix Co-Founder, Marc Randolph



I recently had the pleasure of reading Marc Randolph’s That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea.

The book chronicles the first few years of Netflix — from figuring out how to send VHS through the post, and then figuring out it was a bad idea, to capitalizing on DVD, turning down an acquisition offer from Amazon, being turned down themselves by Blockbuster, and eventually going public.

It’s a fascinating story that sheds further light on what few, except those in the know, truly appreciate when it comes to startup success — there are no overnight sensations, success is never linear, and luck plays a significant role.

Find below my notes from the book — these might prove useful if you find yourself in what Randolph calls the halcyon days of an early-stage startup. Note: whenever the first person is used, assume these are Randolph’s sentiments, not mine.


Lessons from the Birth of Netflix

When you start a company, what you’re really doing is getting other people to latch onto an idea. You have to convince your future employees, investors, business partners, and board members that your idea is worth spending money, reputation, and time on.

Nowadays, you do that by validating your product ahead of time. You build a website or a prototype, you create the product, you measure traffic or early sales — all so that, when you go to potential investors, palm outstretched, you have numbers to prove that what you’re trying to do isn’t just a good idea, but already exists and works.

The truth is that no business plan survives a collision with a real customer. So the trick is to take your idea and set it on a collision course with the reality as soon as possible.

In engineering-driven cultures, everything moves at the speed with which things can be built.

Telling people helped me refine the idea — and it usually made people want to join the party.

Be weary of title inflation — although it’s something that seems like it costs you nothing to give, it’s actually far more expensive than it seems, since it causes a cascading series of over-promotions.

OPM — other people’s money. When entrepreneurs employ you to remember OPM, what they’re saying is — when it comes to financing your dream, use only other people’s money.

Entrepreneurship is risky, and you want to ensure that the only skin you have in the game is, well, your actual skin. You’ll be dedicating your life to your idea. Let others dedicate the contents of their wallets.

I’ve convinced more than a few people to take paycuts to work for me, to leave steady high-paying jobs, to hop aboard a startup with the slim chance of survival.

Asking for money is hard. Really hard.

Bottled water was one of the great triumphs of salesmanship: marketing in it’s purest form. Give me your money, and I’ll give you… water. Something that is almost free, and that is available almost everywhere. Something that covers 75% of the Earth’s surface.

There’s something about speaking from the heart that cuts right through. It gets people’s attention and breaks down the cynicism and defenses.

You don’t work hard because you want a beautiful office. You work hard because you want the chance to do something meaningful.

The anxiety of biting a bullet won’t last. But the enjoyment of making that decision will last forever. Go all in.

I always told my employees to sell when they could. One of my favorite expressions actually comes from my wife’s old boss from her entry level stockbroker days - “Bulls make money. Bears make money. Pigs get slaughtered.”

Culture is a reflection of who you are and what you do - it doesn’t come from carefully worded mission statements and committee meetings.

Everybody in the early days took a pay cut to work for us. That wasn’t because we were cheap. It was because we didn’t know exactly how long we needed to make our money last.

Engineers are, by necessity, literal-minded. They’ll do exactly what you instruct them to do. So you should leave nothing to chance.

Culture arises organically, through a shared set of values among a team of people who have been through their fair share of offices - startups, major corporations, and everywhere in between. Netflix, for all of us, was an opportunity to work at the kind of place we’d always had dreams about. It was a chance to do things truly our way.

Culture isn’t what you say. It’s what you do.

Working at a startup is like going on a backcountry trip where there are no trails. If there are no trails, why are you trying to force everyone to go to the same way?

Your job as a leader is to let them figure out the way. The best way to ensure that everyone arrives at the campsite is to tell them where to go, not how to get there. Give them clear coordinates and let them figure it out.

It’s the same at a startup. Real innovation comes not from top-down pronouncements and narrowly defined tasks. It comes from hiring innovators focused on the big picture who can orient themselves within a problem and solve it without having their hand held the whole time. We call it being loosely-coupled but tightly aligned.

People want to be treated like adults. They want to have a mission they believe in, problem to solve, and space to solve it. They want to be surrounded by other adults whose abilities they respect. What they really want is freedom and responsibility.

Managed dissatisfaction: what Blockbuster did when a customer came into the store looking for a copy of Diehard 2, but all of the copies were checked out, and so they were directed to something else that they might like just as much. On the contrary, Netflix developed a reputation for having every DVD and always being in stock. This was priceless.

I love negotiation and I’m pretty good at it. In large part, this is because it’s easy for me to identify with other people’s needs. Because I can quickly identify what the other side wants, I’m able to strategize more efficiently about how we can come to a mutually beneficial solution.

An early stage startup is a delicate ecosystem, in which competing pressures such as investor expectations, market realities, and plain old plausibility, push in from all sides.

People are more productive when they’re happy, when their lives outside of work aren’t totally subsumed by their job.

Once I instituted Tuesday date night, I was fiercely protective of it. 5:00 was a hard deadline. The moment the second hand hit the 12, I was out of there. Last minute crisis? Too bad. An emergency meeting that could only be held at 4:30? Better make a short. Need to talk to me about something at 4:55? It would have to be on the walk to my car.

The early days are like climbing a long, endless ladder. There’s a problem to deal with that every run, and each time it’s solved, you’re one step closer to your goal.

I didn’t want to be one of those successful entrepreneurs who were on their 2nd or 3rd startup but also on their 2nd or 3rd spouse.

Launching a company is like throwing a party, one that you aren’t sure anyone else is going to attend. You don’t want to buy extra kegs if no one is going to come.

Most engineers can choose where they want to work, and the way they make their decision boils down to 2 questions:

1 — do I respect the people I’m working for?

2 — will I be given interesting problems to solve?

It’s not just creative ideation or having the right people around you that’s necessary, but focus. At a startup, it’s hard enough to get a single thing right, much less a whole bunch of things — especially if the things you are trying to do are not only dissimilar but actively impede each other.

I was so focused on the launch, on growing the company, and making it exist at all, that I lost sight of the reason we were doing it in the first place — to create something real that can stand on its own. I missed the forest for the trees.

Ancient Greeks had a term for the times when the winds were calm and Alcyone, a kingfisher, could lay her eggs. They called this halcyon days.

How can you preserve your identity even as you include new members on your team? How do you balance continued expansion with coherent identity? How do you ensure that you continue to take risks, now that you have something to lose? How do you grow gracefully?

During the early days of the start-up, you’re hiring a team, not a set of positions.

You don’t write a book about a company that survives.

When a company is small, trust and efficiency go hand-in-hand. If you’ve got the right people on your team, you don’t need to tell them exactly how you want thing to do things - in fact, you often don’t even need to tell them what you want them to do. You simply need to be clear about what you want to accomplish and why it’s important. If you have the right people — smart, capable, trustworthy — they’ll figure out what needs to be done, and will go ahead and do it. They solve problems on their own before you even know the problem exists. And if you don’t have the right person? It’ll become apparent, really quick.

Raised voices, argumentative meetings, blunt statements about how an idea was stupid or wouldn’t work. Sometimes it was hard for people to understand that Reed Hastings and I really liked each other — we found that we were most productive when we dropped all the bullshit and just said what we meant.

Most companies end up building a system to protect themselves from people who lack judgement. And that only ends up frustrating the people who have it. If you treat people like children, it doesn’t matter how many bean bag chairs and beer parties you throw out them. They will resent you.

What if you could build a process that was meant for people who had great judgement? What if you could free them from all the petty restrictions that drive the top performers crazy? How can we scale up this set of ideals that came so naturally to us, so that a growing company can benefit from them? How do you codify culture?

At Netflix, if you need to take a day off, just take it. I don’t need to know about your root canal, or your kids school schedule. Just get your work done, and cover for yourself when you’re gone.

We designed our website so that the impact of even the slightest change could be measured and quantified.

If people want what you have, people will break down your door, jump over broken links, and beg for more. If they don’t want what you’ve got, changing the color pallet won’t make a damned bit of difference.

When it comes to ideas, it’s more efficient to test 10 bad ideas then spend days trying to come up with something perfect.

Nobody. Knows. Anything. According to William Goldman, those three words are the key to understanding everything about Hollywood. Nobody really knows how well the movie is going to do until after it’s already done it.

I always disagree that there are no bad ideas. There are bad ideas. But you don’t know an idea is bad until you’ve tried it. And sometimes, that ideas have a way of becoming good ones.

Negative option — we would automatically roll free trial customers into their next month of membership and bill their credit card, unless they proactively cancelled.

People love to be asked for their opinion. Everyone’s a critic.

In a place where you’re evaluated solely on the quality of your work, no one really cares about your appearance. Tech is about as close to a true meritocracy as you can get. In many disciplines, being a smooth talker or snappy dresser can grease you’re a sent to the executive suite. But in Silicon Valley, the only thing that really matters is the quality of your work.

We’re okay with upsetting 1,000 if it means we get it right for 10,000.

No matter how passionate an argument, there was a shared expectation at Netflix that, once the self-evidently correct conclusion had been reached, it was time to fall in and implement. Disagreement was collaborative, not ego-driven. It didn’t matter who was right — all that mattered was that we got it right.

Winnowing our staff made us lean and more focused. With superstar players doing all of the work, it was no wonder that our quality of work was very high.

It’s more fun to come to work when you know you’re part of the handpicked elite. Plus it’s much easier to attract other elite talent to your team when you’ve established a reputation for superstar talent.

Success means a slightly different thing to VCs than it does to a company’s founders.

VCs will always say that there aligned with your mission, that they want what’s best for your company. But what they really want is what’s best for their investment in the company. This isn’t always the same thing.

Everyone is aligned when the wind is blowing the right way. It’s when a storm comes up that all decided it becomes apparent that people have different goals and objectives.

If things go bad, who do you want around your table?

Never, ever, present as fact, opinions on things you don’t know.

Don’t be afraid to make decisions when you have the facts on which to make them.

Be open-minded but skeptical.

As you get older, if you’re at all self-aware, you learn two important things about yourself — what you like and what you’re good at. Spend your days doing these things and you are very lucky.

Success isn’t what your company accomplishes. Success is what you accomplish. It’s being in a position to do what you like, to do what you do well, to work on things that are important to you.

The way you treat individual customers should be as important at 150 million subscribers as it is at 150.

Learn to love the problem, not the solution. That’s how you stay engaged when things take longer than you’d expect.

For a story to be interesting, we need a protagonist and an inciting event. There have to be obstacles between the protagonist and what he or she wants.

The most powerful step you can take to turn your dreams into reality is simple — you just need to start. You’ll learn more in one hour of doing something then in a lifetime it’s thinking about it.

Noel Bushnell, the founder of Atari, once said that everyone who is taking a shower has had an idea, but it’s the people who get out of the shower, towel off, and do something about it that make the difference.