Have you ever wondered what it takes to build a company as successful as Netflix? Join Marc Randolf (Co-founder and first CEO of Netflix, serial entrepreneur, author and speaker) and Eric Partaker as they discuss what it takes to create a billion dollar business, and discover tips and insights about how you can become part of the 2% of people reaching their full potential.
(Netflix &) Chill – You do not need to know where you’re going right away. Stumble around, and gather experiences until you end up in the right place. Don’t simply pick your dream job and fight like crazy to get it. Get your foot in the door and find out what people really do. What’s the vocabulary? How do they organise? Then you’ll have a better idea whether this is the right path for you.
You Can’t Predict The Future – Stop dreaming about what your company is going to become, because you’re almost inevitably wrong. You can’t, it’s impossible. Companies have their own life. There’s too many forks in the road to predict the path they will go. The more time you spend trying to figure it out you are simply stalling the process of actually learning where it wants to go.
Look Backwards – What went well? What didn’t? Any insights? Leanings? What will I do in future directly as a result? Set yourself periodic goals. Review your progress and take that knowledge to perform better in the future.
People Who Start Companies Are Not Superhuman – If you have an idea, if you have a dream, try it. Stop thinking about it. Stop coming up with reasons why you can’t. Cleverness is figuring out a way to quickly, cheaply and easily start, so you can learn whether it’s a good idea or not.
You Are Capable Of More Than You Know – Everything is solvable if you’re willing to start and figure it out. Stop dreaming about it, or bumping into the first roadblock and turning away. Everything is possible if you believe in your ability to figure it out.
Marc Randolf: You shouldn’t be necessarily trying to overly plan your life, but you just need to be open to experiences and recognizing how to apply those experiences. Chill, relax, you do not need to know what you’re going to do right away. Pick two or maybe three things, that if they can get these right, all the rest won’t matter.
Eric Partaker: I am thrilled to have on the show today, Marc Randolph, co-founder and the founding CEO of Netflix, I think a few people know that brand. Marc, welcome to the show.
Marc Randolf: Well, thanks very much, pleasure to be here.
Eric Partaker: And we were just talking about our competing bookshelves. And I said that, well, I’ll have to move some over right? after I do the edits, so that they look a little bit more balanced. To celebrate this show, I actually just binged on Netflix.
Marc Randolf: I’m glad that you made the exception in your normal habits to try and anticipate that.
Eric Partaker: Yeah, exactly. I literally, I actually thought it would be quite funny to do that. So for the hour before this, I went upstairs and watched some old Breaking Bad episodes. Why not, right?
Marc Randolf: Yeah, sure. It’s timeless.
Eric Partaker: Yeah, exactly. Now, you’ve done tons, obviously, aside from Netflix, definitely going to be talking about Netflix. You also have your podcast, which flows from your book, That Will Never Work. You told me a little bit about it. I thought that was amazing what you just told me so please, can you expand upon that? Tell us about this new podcast.
Marc Randolf: Well, I’m one of those people, kind of always likes to be challenged. So I like to plunge into things I know nothing about and figure it out. And I decided that will be a podcast this time. But it sprang from something pretty organic, which is that for years, pretty much ever since I left Netflix, I’ve been spending time working with other early stage entrepreneurs, basically trying to give them the confidence, the nudge, the tough love, whatever it is they need to try and take their business to the next step. And I would do that on the phone. But what I realized is people would be calling me up and asking similar questions. And I said, well, listen, there should be a way to make this a bit more scalable, I’m going to start recording some of these conversations.
And then if someone else calls in, I’ll say, hey, listen to this conversation. And I found out something interesting about it, which is, first of all, that people did find it helpful. A lot of entrepreneurs struggle with the same thing. There are some very, very common stumbling blocks that we all face. The second thing that was great, was that it turns out that people really appreciated finding out that other people were in the same place they were. Entrepreneurship, at its heart, is a lonely thing. You’re trying to solve problems that haven’t been solved before. You’re doing it, for the most part, by yourself. And letting people know there’s a community of people who are all working on the same sort of thing was valuable.
But the other unexpected part was that it turns out, these conversations were entertaining. I mean, these people have really interesting, eclectic businesses from all kinds of strange backgrounds. And it began going into these really interesting places. So the podcast is essentially me mentoring other early stage entrepreneurs.
Eric Partaker: Amazing, amazing.
Marc Randolf: Yeah.
Eric Partaker: So what’s one thing, from the episodes that you’ve done so far, and from all the entrepreneurs that you’ve already mentored and worked with, what’s one thing that you would say that most entrepreneurs do, but that they shouldn’t be doing?
Marc Randolf: Oh, listen, I could make a list, we could go on for hours about that list. But probably one of the common ones is people are not focused. Inherently, when you’re starting a company, there is 100 things that are broken, there’s 100, things that need work. And one of the errors is to believe I have to do all of them. And what you end up doing is having 100 things, all of which are done about 10% well. And what I’ve realized as a common denominator, not just in my own startups, but in the ones that I do see, where people are successful getting passed these early stages, is they have this ability to pick two or maybe three things, that if they can get these right, all the rest won’t matter.
Eric Partaker: Ooh, love that.
Marc Randolf: Yeah, it’s really a form of business triage. And it’s hard, because a lot of the times, the things that are the critical components are not the ones that are obvious. They’re not the ones that are crying out the loudest. They’re not the ones where the fire’s the hottest. They could be sitting quietly on the side, and you’ve got to have this intuition to recognize, that’s the one. And then have the discipline and the courage to focus on them at the expense of all others. And what makes it tricky is they’re different in every business.
Eric Partaker: Yeah, yeah, yeah, well, absolutely. But as you’re talking there, you just reminded me of, I think the book was called the Four Disciplines of Execution. And I think in that book, they talk about this framing question, which goes something along the lines of, when you’re looking at all the things that you could do. If you were to suppose that everything were to remain the same, just as it is right now, where’s the one area, or what’s the one thing where change would have the most positive impact? And I connect that immediately to what you’re saying, because it’s what you’re talking about. What we’re ultimately talking about is like leverage, where to focus our time to gain leverage.
Marc Randolf: Yeah. Well, it’s funny, because when people sometimes like to feel they came up with some unique truism, just to demonstrate how clever and smart they are. But I actually think the opposite. I think when you come up with something, and someone else goes, oh, this person calls it that, or this person calls it that, that’s when you know you’ve actually stumbled on something which truly does resonate and truly is a positive factor. Uniqueness in many ways is somewhat overrated. So I think the fact that other people have recognized the same thing is actually quite confirming.
Eric Partaker: Yeah, yeah, exactly, a good thing. So that’s interesting. Let’s apply that to Netflix in its beginnings. So there was a myriad of things that you could have been focused on, to get Netflix started, what were, in your mind, the two to three things as a co-founder, founding CEO, how did you narrow your focus?
Marc Randolf: What was clear to us was that the challenge for Netflix was that we were launching a DVD by mail business. So this was not streaming. This was taking movies and literally mailing them to people on a DVD. So it was a pretty ridiculous idea. But it required one thing to work, there actually had to be people who own DVD players, and you had to find a way to reach them. If you did not have customers, this would not obviously work at all. It was not as if we were entering into the VCR/VHS space, where 90 some odd percentage of households owned a player. So the challenge for us, the one thing we had to get right, was figure out some mechanism to actually reach people. So in this case, it was marketing. How do we acquire customers?
And the secondary one was this differentiation, that we knew we were going to be going up against Blockbuster, that every Blockbuster was going to be basically a stone’s throw away from anyone’s house. We had to give them some compelling reason why they would want to wait for us to mail them a movie, when they could drive down the street and get it. And so the second thing we focused very much on was, I won’t call it content, but on fulfilling this promise that we would make it easier to discover great stories for people.
Eric Partaker: Amazing. So on that first one then, going a little bit deeper on that, so customer acquisition and the marketing. If we take that another level down, so the two to three things there that brought the focus to that bucket of activities, what did you do there?
Marc Randolf: What was the challenge here is that we realized that most marketing techniques weren’t going to work. You certainly couldn’t use the general advertising because then 99.99% of your money would be wasted, since so few households owned a DVD player. And so the first strategy was to find people where they congregated, which at the time, this was in 1998, was in user groups. Was in these unique little clusters, communities on the web. And we had someone, and he called himself the director of Black Ops, because what he would do is infiltrate these user groups. And he’d begin posting things like, hey, I just heard about this really cool company which supposedly has every single DVD available, called Netflix, has anyone heard of it? And then he’d engage in the conversation-
Eric Partaker: That’s so awesome.
Marc Randolf: Of course now, that’s a fairly common and frowned upon thing. But at the time, was our way of spreading our word among that community. But the big breakthrough was realizing that we shared a problem with the DVD manufacturers, because they were desperately trying to sell DVD players. And their customers were saying, why would I buy a DVD player when there aren’t any DVDs available? My Blockbuster doesn’t have a single DVD. Most places weren’t stocking DVDs because there’s no DVD players. And we realized that we could solve this chicken and egg problem for them. And I approached these consumer electronics companies with this offer, we would put a coupon in the box, that everybody who buys your DVD player will immediately get 10 free rentals. So that they be able to communicate, if you buy this player, there’s content available.
And I make it sound like, oh, I just went out and did this. But it was brutal, because what you have is Silicon Valley company, grossly negative balance sheet, been in business for weeks, not even months, and wanting to do a deal with some of the most conservative companies in the world. And convincing them to put a sticker on the box or a coupon in the box, require that I travel to the wilds of suburban New Jersey office parks, camped out and traipsing from Toshiba to Sony to Panasonic. Using all the powers of persuasion I had to convince him to do a deal with us. And eventually, though, we eventually had a coupon in virtually every single DVD player sold. And that really, I won’t say it solved the problem, but it allowed us to have a customer flow that allowed us to then turn our attention to, okay, what’s the next big crisis?
Eric Partaker: And that’s a great segue to, because you started offering something different compared to what Blockbuster was doing, in terms of your distribution model, and not having to rely on so much, in terms of bricks and mortar and all that. But then, of course, there’s another industry crisis which emerges, which is the DVD becomes dead, or its death is on the horizon. Can you take us through, because that’s just an incredible transition for the company to have navigated. Could you take us through that?
Marc Randolf: From DVD to streaming, I assume?-
Eric Partaker: Yeah, yeah, yeah.
Marc Randolf: Well, so first of all, this was basically, yes, if streaming is on the horizon, we’re in a rowboat. In other words, that horizon is almost infinitely far away. And so I’ll be quite honest that, there was not this consideration on day one, oh, my gosh, what are we going to do? It’s just imminent. That’s not to saying that that wasn’t a fairly common opinion. And in fact, the reason why my book is called That Will Never Work, and the reason why the podcast is called That Will Never Work, and the reason why the clubhouse room is That Will Never Work, et cetera, was because that is what I have always heard. But I specifically heard all the time, when I was pitching people this idea of doing DVD rental by mail.
And to your point, there was two things that everyone brought up when they said, why won’t this work? And one of them was Blockbuster, of course, there’s one in every corner. But the other one was DVD, that’s a digital media. Just a matter of time before everyone is downloading movies or streaming movies, who’s going to want DVDs then? And here’s the thing, is they were right, just like you’re right, that it’s inevitable that eventually the DVD is going to go away, and it’s going to transition to streaming. But I was not so sure it was going to be as imminent as people thought. There was a lot of reasons why this horizon was pretty far off in the distance.
Eric Partaker: And when you say far off in the distance, what was the differential between how far you thought it was, versus how far everyone else thought it was?
Marc Randolf: I mean, I think a lot of people said, this is a pretty simple matter, it’s digital, so you just download it. And you know, it’s not so simple. I mean, first of all, there’s digital rights management issues, because the industry is still reeling from being Napstered. If I can use that as a verb. In addition, their bandwidth to the home is terrible. And so it’s not going to be easy to do right now. And number three, if you do have bandwidth to the home, it’s terminating at your office, your home office. It’s not terminating in your living room or on your television. But the biggest one is Hollywood is almost as conservative as the consumer electronics industry. And they were saying, why on earth would we want to give away movies digitally and risk the rest of this? So for what, I can make $1 million or $2 a year and risk $8 billion a year? There was a lot of reasons people were cynical.
I mean, some people that were saying, no, it’s a matter of months. I was pretty sure it was a matter of years. But that was the challenge of how do you manage a transition, which you know is coming, but you have no idea when it’s coming? And for us, it meant how do you position the company correctly? Because we could have come out and said, Netflix the world’s fastest shipper of plastic, or whatever the positioning was around DVDs, which would have been a great positioning for a time when DVDs were almost impossible to find. But to your point, eventually that’s going to go away. But it also would have been equally flawed to say, Netflix is the streaming solution, because it would have been a solution which was dripping one drop at a time for years.
So instead, one of the cleverest things I think we did was positioned ourselves as delivery agnostic, which is, we’re going to position ourselves as the place to discover great stories. Because that works for DVD perfectly. But it also works when you’re in streaming. And it will also work in 10 or 15 years when we can beam it, I don’t know, telepathically into your fillings or something like that. It means that the way you thought about Netflix, every piece of brand equity that we built in day one, week one, month one, year one, was equity that carried over. We were learning what customers liked, but we had to make it real, which was why we made the investment from day one, having every single DVD that was available. Which is why we began to do all the work we did on doing the taste algorithm software. It’s why we spent all this time on content.
So that by the time that horizon arrived, nine years later, that we were in a position where we already had tens of millions of very, very happy subscribers, who didn’t need to think about Netflix differently. It was, we’re the same Netflix, you still come to us for what to watch. We’re just giving you a different option of how to get it to you.
Eric Partaker: Yeah, and because you’re still uploading, what was the vision or the purpose statement again?
Marc Randolf: To help you discover great stories.
Eric Partaker: Yeah, yeah, exactly. So since you’re still true to that, the manifestation of it didn’t matter, as it changed over time.
Marc Randolf: And with this current jumping to the present, where now you have dozens of companies who are all competing in the streaming business, Netflix’s lead doesn’t just come from the amount of dollars they spend on content. It comes from the fact that since 2007, so for 13, 14 years, we’ve had that experience of establishing a direct relationship with all of these consumers who think of us a certain way. Whereas all the companies entering streaming for the first time have to begin figuring those things out, starting now. So the head start is pretty significant in the fact that we’ve really had a chance to understand customers and build relationships with them.
Eric Partaker: Fantastic. And I just noticed this maybe, it was a couple of weeks ago or so on Netflix. It’s probably been there for ages and I only just noticed it now. But there is a little prompt next to the rating, and it just simply said, the more you rate, I think the better your recommendations are. And I just thought that was clever, because, because I read that, like I had never rated and I’ve been watching Netflix for years. I had never rated until I saw that prompt. And then the moment I saw that, I thought, oh yeah, maybe I should start pressing thumbs up or thumbs down. And to get exactly what you’re saying, so content that’s a little bit more tailored to me. When we were building Skype, our tagline was, the whole world can talk for free. And it worked. And it was relatively true, until we started to charge people for connecting. But it was relatively true. And it was something that inspired us.
And then another example from my own life would be, after that, I built a chain of Mexican restaurants. And the tagline there was, we weren’t selling burritos, that’s what all the competition was doing. We were making the world a more vibrant place. And of course, we did that through adding flavor to people’s lives. And various other things. But I’m just a huge fan of coming up with those… it’s almost like internal branding, as well as external. Where-
Marc Randolf: Oh, it’s largely internal-
Eric Partaker: … your workforce is so motivated-
Marc Randolf: … I think it’s more important to be branded internally. Because especially once the company begins to achieve some success and has lots of people, because what you’re looking for is people to be able to make independent judgments about what’s appropriate and what’s not appropriate. And they need to have this filter, they can say, I have a choice. I’m literally sitting here composing something, and I can pick two words. I don’t want to have to go ask my supervisor. I want to have an internal compass that tells me which is the more appropriate choice. And so having everyone understand what the real reason for being for an organization is, I think is a critical one.
Eric Partaker: Yeah, yeah.
Marc Randolf: And those are good. I mean, it’s the classic marketing challenge of saying, we’re not in the trucking business, we’re in the transportation business. We’re not in the oil business, we’re in the energy business. Because it allows you to be somewhat, I won’t say future proof, but it certainly allows you to recognize change as it’s happening, and be prepared to adapt to it. And recognize that, you still stand for the same thing, you just have different ways of providing it.
Eric Partaker: Yeah, yeah, wonderful, wonderful. I want to connect back to your podcast, I want to connect back to That Will Never Work and the work that you’re doing with entrepreneurs. And I think there’s something particularly inspirational about you, which I can relate to as well, because I’ve just done a lot of quite random things. Well, as I said, Skype, and then chain of Mexican restaurants, very random. And the sky is really the limit, with people’s potential. But a lot of people don’t truly appreciate that. And a lot of people think you have to have a set of prerequisites in order to do something else. And to go back to you on this, I think a lot of people would be surprised to find out that your educational background, it wasn’t based in business at all, right?
Marc Randolf: Geology major.
Eric Partaker: Yeah, exactly. So geology, and you went to, was it Hamilton College?
Marc Randolf: Hamilton, Liberal Arts School.
Eric Partaker: Liberal Arts School, I went to University of Illinois, Urbana Champaign, it’s a good school, it’s not like an Ivy League school. And your first job, wasn’t it at a sheet music company, Cherry Lane Music?
Marc Randolf: Yeah, exactly.
Eric Partaker: Yeah. And you were in charge of a mail order operation, is that right?
Marc Randolf: Yeah, which is a glorified way of saying, I basically took self addressed stamped envelopes and stuck sewing lists in them, mailed them out. Yes, I was in charge of their mail order division.
Eric Partaker: Yeah, exactly. I mean, one of my first jobs, I literally, I stood at the door of a bar and kept unruly people from coming in, and throwing the same people out. So humble beginnings, certainly, not at all, related to top media empire company, a tech company as well. So how did you go from those beginnings to founding Netflix?
Marc Randolf: It’s funny, I actually wrote a blog post for my blog, I don’t know, maybe a month or two ago, which was basically kind of advice to young graduates, which was chill, relax, you do not need to know what you’re going to do right away. I mean, if you do, you’re lucky. I do have some of my kids’ friends, they’re six years old, and they go, I want to be a veterinarian. And then holy crap, 20 years later, they’re a veterinarian. But that is so unbelievably rare. For the most of us, we stumbled around, gathering experiences until you end up in the right place.
And listen, my background was no different. The job prior to me running the direct marketing division of the sheet music company was, I was basically a gofer for the CEO. I mean, now, it has this glorified term, which it’s called the chief of staff. But no, it’s a gopher. You walk around behind somebody with a pad, and every time they say, Bill, give me those numbers on Wednesday, you write, make sure Bill gets him the numbers on Wednesday. Or when the CEO goes to them, I’ll get back to you on Thursday, make sure he gets back to them… That was my job. So this is not earth shattering stuff. This is not something you brag about. But wow, is it educational! I mean, the best possible thing you can do, is if you want to be in some career or in some business, is not to pick the dream job and fight like crazy to get it. It’s to get your foot in the door any way you can, just so you can see what goes on.
What do people really do? What’s the vocabulary? How do they organize? How do they accomplish things? And following a CEO around all day, I got to learn a lot about how someone like that thinks. But the break was, it was a music publishing company that had lots of divisions. And they had this one division, which was a mail order division, which basically was in the back of… And by the way, this is sheet music. This is little books that are like Beatles for autoharp, or like Led Zeppelin for French horn. And in the back of every song book was a little tagline that said, for a list of more great Cherry Land song books, send a self addressed stamped envelope to P.O Box so and so.
Eric Partaker: That’s awesome-
Marc Randolf: And then, this job that I was dying to get, that I even asked a CEO if I could have, was basically when these stamped envelopes came in, I would Xerox the list of the more great journaling song books and mail it to them. And if an order came back, I’d pick, pack and ship it myself in the warehouse.
Eric Partaker: Awesome-
Marc Randolf: But the thing is, you stumble onto stuff. And when I began doing that, I was transfixed and began experimenting. What happens if we do a color Xerox? How about two pages? What if I do a catalog? A mail ad? And basically taught myself direct response marketing. And realized that at heart, that deeply resonated with me. That the art and science combined, of direct marketing, spoke to me. And then I spent the next 10 years as a direct marketing guy. I started my first three startups, were as mail order companies and magazines. Mail order companies, of course, is direct response, you’re sending out catalogs, you’re doing direct response ordering-
Eric Partaker: Marc, just to help our listeners, can you just give a simple definition of direct response marketing, and what that actually means?
Marc Randolf: Certainly. So marketing basically is trying to communicate with customers to incent them to do something. But largely when you have marketing, like on the side of a bus, or on a billboard, or a space advertisement, you’re just trying to plant an impression in someone’s head, and eventually, they’ll get around to doing it. In direct response, you want them to respond right then and there, directly back to you. And so what it does is make it measurable. So you can actually do tremendously sophisticated experimentation. And when I eventually was doing direct marketing for a big software company, I would just melt people’s minds. Because I would say, no, listen, we’ve done this test, and this blue envelope responds better than the red envelope. And the software engineers would say, that makes no sense. Why would it make a difference in making a decision of what software to buy, whether the mailing piece came in a blue envelope or red envelope? This is ridiculous.
And I go, well, let’s look at the data. And that would then cause this creative, this huge cognitive dissonance in their head about, it can’t be true, but the data, but… and heads exploded.
Eric Partaker: Yeah, it’s like they can’t suspend their disbelief.
Marc Randolf: Correct. But that’s why it was fascinating. And it’s interesting talking about these 10 years in direct marketing, because you go, what, what’s the point of that? Well, the point of it was twofold. Number one is, I loved it. I was following this passion. It gave me this outlet for this deep analytical thinking which I like, coupled with the creativity that goes into direct marketing. But when, wow, what happened, all of a sudden, the internet comes along.
Eric Partaker: I know, perfect for this-
Marc Randolf: [crosstalk 00:27:34] for the last 10 years, doing direct response marketing, realizing what it’s capable of, what it’s incapable of, and seize this new medium, where you can sell things and get direct responses back. And do personalization to a level we had only dreamed of in the direct marketing industry. And I said, that’s where I’m going.
Eric Partaker: That’s a beautiful segue, because it fits so perfectly with Netflix’s approach, and what about marketing. And also too, when you think about direct response and what you’re saying, when you think about that from an internet perspective, it’s kind of like, yeah, duh, of course, you need to A/B test and to change colors and graphics and statements, and all that stuff. But what’s beautiful about this is that few people probably realize that that was going on in the physical world, in direct response marketing, well before the internet was even thought of.
Marc Randolf: That’s why I love the fact that you brought up the fact, what were you doing beforehand? Because this whole message about chill, relax, is you never know what your life is preparing you for. And the skill is not predicting 10 years in advance what skill I want, let’s go to school for that skill. It’s recognizing an opportunity that may match your skill set. And that’s what happened. And having this ability to really understand testing, to really understand A/B, to really understand what makes people respond. And that allowed me to take advantage of this new medium for it. But here’s the other thing, just to show you that I’m not necessarily 2%, I’m probably maybe 13 or 14%. Which is that I mentioned, offhand, that I launched magazines. And magazines have a big component for selling magazines called subscription. And so I really understood subscription marketing as well.
Eric Partaker: Ah, this is so good. Yeah, go ahead.
Marc Randolf: And well, of course, you’ve jumped ahead to where the story is going. But the reason I say I kicked myself is that, when we launched Netflix, it never occurred to me that I could do subscriptions as well. That took a year and a half for me to finally test it-
Eric Partaker: Oh, really?
Marc Randolf: Yeah. When you look back and go, what’s the biggest contributions, I shouldn’t say that, what are some of the real breakthroughs that Netflix pioneered? And certainly, streaming is a big one. But I think that almost a bigger one is that we were one of the first companies to demonstrate you could apply a subscription model to something other than magazines or record and tape clubs. That you could actually sell things which were completely non-intuitive to sell via subscription. And if you look what’s happening now, certainly in the software industry, and even in the consumer packaged goods industry, we’re seeing subscription models being applied almost universally. Very, very few software companies launch now that aren’t SAS businesses. So yes, these things, you go, magazine circulation? Some things end up being useful that you never anticipated.
Eric Partaker: Yeah, it’s so awesome. And I love what you’re talking about too, when it comes to, hey, chill, you don’t need to… I don’t know if that was intended, Netflix and chill.
Marc Randolf: No, that wasn’t actually. But that’s funny.
Eric Partaker: But I thought that was pretty clever, if it was, but it wasn’t. Fine, cool. But when you were talking about, I lost my train of thought, yeah, when you were talking about chilling, not needing to figure it out. And I think too, for those listening, you don’t even need to figure it out in the first instance. You don’t need to have it all figured out for the whole way through. Because you just need to just keep, case in point, I graduated with a degree in finance. I worked at a bar after that. Then I ended up working as a consultant with McKinsey and Company. Didn’t think that was going to happen, suddenly that happened. Then helped build Skype, then built a chain of Mexican restaurants. And now I invest and advise in various entrepreneurs and companies.
And the other day, somebody asked me, how did you plan that all out? And I laughed so hard, I was like, plan that all out? There was no planning, it just kind of happened and you respond to the opportunities. You respond to, oh, this interests me, I want to really learn about this and acquire the knowledge, acquire whatever is needed to get going within that area. And then you try it out. And you see what works. It’s almost like you’re taking a direct response marketing approach to your own life; you just A/B test and you see, where’s the blue envelope?
Marc Randolf: You just made a connection that I’ve never really made before, for me, which is, I’m a big believer that as a young person on earth, who cares, at any age, you shouldn’t be necessarily trying to overly plan your life, that you just need to be open to experiences and recognizing how to apply those experiences. But it’s the exact same advice that I give using different words to entrepreneurs, which is that, you do not need to know where this business is going. And in fact, the more time you try and figure out in advance where it’s going, all you’re doing is stalling the process of actually learning where it wants to go on its own.
Eric Partaker: Yeah, yeah, exactly.
Marc Randolf: And I’ve never really made that connection before. But it’s exactly the same thing. Stop dreaming about what your company is going to become, because you’re almost inevitably wrong. You can’t, it’s impossible. They have their own life. There’s too many forks in the road to predict them. You’ve got to just start and see where it goes.
Eric Partaker: It’s almost like, as we’re talking about it right now, it’s almost like it echoes just Darwin’s natural selection. You know what I mean, right?
Marc Randolf: Yeah, absolutely.
Eric Partaker: Where at a unit level, there’s no intelligent decision making as to which choice is being made in the natural selection maze, but the intelligence is kind of in the collection of choices and in the system. And it kind of all works out.
Marc Randolf: When I when I mentioned earlier that what I loved about direct marketing and direct response was the combination of art and science. It’s the exact same thing that I love about the entrepreneurship, because when you’re testing something, you know explicitly or empirically, whatever the word is, that the blue envelope is 0.003% better than the green envelope. But what you don’t know is why should I have tested envelope color? Should I have tested envelope size? Should I have tested the wording? In other words, I have 16,000 colors I could have chosen, why those two? So there is this element of saying, let’s try the noose with a blue skin on it. In other words, you don’t know which of these genetic mutations are going to be the ones which do give the creature a leg up in the world.
But you can narrow down to make some educated guesses. And I think that’s what makes it a skill, is that an entrepreneur has this sense of, what should I try? I don’t know what’s going to work. In fact, I know I’m probably going to be wrong. But I can narrow my choices and hopefully get close.
Eric Partaker: Oh, man, okay, now my brain is… because when you said the word elements, I literally thought of the periodic table. This is going to get a little bit far out there. But I thought for a second, I was like, well-
Marc Randolf: We’re building a unified principle of something-
Eric Partaker: Yeah, well, there’s something here, listen to this, okay, there’s something here. So my mind just exploded, because I just thought matter is neither created nor destroyed. We have a set of elements. And then I thought of music for some reason. And I thought, if you can have a collection of instruments, or a collection of elements, and I can make totally different music from the same set, I can have all the world’s instruments in the same place, I can make a totally different set of music from the set of instruments. But what are the two variables that change in terms of how the music sounds? It will be which elements that I choose, and the sequencing of them? And then I think, from a business point of view, in its simplest form, it’s, well, what are the different elements or the factors that you’re going to put into your business? And what’s the sequencing of them? And at an elemental level, if I may, it comes down to that. It’s sequencing and choices.
Marc Randolf: And it’s more sophisticated than that, too. Because there are these incremental tests, if I could, experiments you run, which are largely limited to the choices you have, and you’re trying to rearrange them and change the order and change the timing, and all those pieces. But then there’s occasionally breakthrough thinking, where someone says, why do I have to have 11 notes in a scale? Or whatever it is, 12 notes in a scale. Or even in music, why does it always have to be 4/4, 3/4 time? And-
Eric Partaker: Yes, yes-
Marc Randolf: … [crosstalk 00:37:29] stuff. It’s like… Or Philip Glass, at an extension. And so you end up having this combination of breakthrough thinking combined with iterative process of refinement.
Eric Partaker: Yeah. Provided-
Marc Randolf: It’s a fast… Yeah?
Eric Partaker: I was going to say, provided that the market will accept it. So I just thought, I’m going to start a new football league next year, and instead of 100 yards, it’s going to be 120 yards for the field. But I don’t know if breaking that model work.
Marc Randolf: That’s interesting, isn’t it? It goes down to why that? Is that because 100 yards is the ideal. Was that a random luck? I don’t know the history of football. But for example, did they iterate to that? Because believe me, there’s some weird fucking sports out there, and you play them and you go, God, it actually works pretty well. How did they…
Eric Partaker: Yeah, exactly, yeah.
Marc Randolf: Is that luck? Anyway, it’s fascinating.
Eric Partaker: Well, let’s trust that the sports world has their individual dimensions and rules and all that figured out. Now, you mentioned earlier, you talked about you anecdotally talked about your kids. I have a 16 year old and a seven year old boy, two boys. You have three kids, right?
Marc Randolf: I have three kids, I have two boys and a girl.
Eric Partaker: Okay. Be real here, what was the work/life balance like in the beginning days of Netflix? And how did that change, or did that change as the company evolved?
Marc Randolf: So just to answer your question, you got to understand something, which is that Netflix wasn’t my first startup. Netflix was my fifth startup. I was 38. So there was some water under the bridge. So I made all my life balance mistakes before I had kids. I made all my life balance mistakes, largely before I was married. And so I was able to correct them all when it was important. And listen, when I use the words, correct them all, it’s personal; everyone’s sense of what balance is. But for me, I recognized probably in my late 20s, early 30s, that I didn’t like the way I was going. Because I was working all the time. And that was fine when I was by myself. But all of a sudden, I had a girlfriend, the woman who’s now my wife. And it kind of dawned on me that it is not really the basis of a good relationship here, if she’s getting the time that’s left over, after I pour everything I’ve got into my work.
The other thing about me is that I was lucky enough to recognize really early on, that being outdoors is a huge part of what makes me whole and what fulfills me. I don’t mean just going for a walk in the park, I mean, alpine climbing or whitewater kayaking-
Eric Partaker: Doing something active-
Marc Randolf: … surfing or mountain biking. Yeah, basically, outdoors, chance of a visit to the hospital, I’m in.
Eric Partaker: Very nice.
Marc Randolf: But that kind of stuff is not what you do, I only got 10 minutes for my next call, I think I’ll head up to paddle the Noatak River, it doesn’t work like that. If you want to be able to get out, especially when you have a startup which is demanding all of your time, especially when you have little kids who are demanding all your time, you’ve got to be good at it. But the work life balance for me was something that I recognized I needed to put a lot of effort into, it was not just going to happen. And so I really tried very, very hard to make sure I was present for my wife. I tried very hard to make sure I was present for my kids. And had to modify, how do you run a startup and make time for that and be able to get out and do the outdoor stuff that I wanted to do? And I think a lot of the cultural things that have since been kind of popularized at Netflix, came not from grand design, but from necessity.
Eric Partaker: Yeah. I have, still to this day, I have several alarms and I put little phrases in them on my phone. But I have one that goes off at 6:30 PM every day. And it says, world’s best husband and father. And it’s just to prompt the question, how would the world’s best husband and father walk through that door right now? I’m not the world’s best husband and father. But it’s just to prompt that question.
Marc Randolf: Yeah, that’s great, love that.
Eric Partaker: Because when you take intentionality into that segment of the day, and you’re just way more deliberate with your actions. And I’ve found, you’re way more measured in your response. Because look, we all know when you have a family, there’s things that happen at home that will set you off potentially. And your response is super important.
Marc Randolf: Do you look backwards too? You know what I mean? Do you periodically say, okay, it’s January 1st, for the last year, how did it go, for being the world’s best husband and father?
Eric Partaker: Yeah, yeah, I get to the end of the year. And I say, what went well? What didn’t? Any insights? Learnings? It’s a four-part thing I do. What went well? What didn’t? Insights? Learnings? Okay, what will I do next year differently as a result? So yeah, you do the same, or similar?
Marc Randolf: Oh, absolutely. I do it on a very frequent schedule. I mean, I do it lightly once a week, once a month, once a quarter. But it’s not necessarily about, not about the best husband and father thing. But I have periodic goals that I set for myself usually around balance. Usually when I recognize something’s going askew, and being productive, am I working on the things I want to work on? Am I getting the right things done? And looking back and saying, how did I do with that?
Eric Partaker: Or do you just have the fundamentals right? It’s like two days ago, I was in a bit of a bad mood. I wasn’t in a good mood. And my wife says, Gisele says to me, she’s like, “Ugh,” she’s like, “Eric,” she’s like, “all you need is a good night’s sleep.” And there’s a great book, Why We Sleep, Matthew Walker wrote it. And he has a great quote in the book. He says that, often the bridge between hope and despair is eight hours of sleep. So there you go.
Marc Randolf: Yeah, I think one of those valuable things is to be able to train yourself to go, the things that I’m worrying about at 2:00 in the morning are not as bad as they seem.
Eric Partaker: Yeah, exactly.
Marc Randolf: And that only comes from waking up in the morning and looking back at the thing you’re worrying about and go, gosh, I was way out of proportion.
Eric Partaker: Awesome, awesome. Okay, so we got our final stretch here and I just want to change the questions a little bit. We’re talking about generally, strategy and ways to think about things and it’s kind of quite upbeat, I got to say. But life isn’t always upbeat. Life’s a roller coaster, we got ups and downs. And one of my favorite proverbs, Japanese proverb, fall down seven times, stand up eight. Can you take us through some of your big down moments, even if it’s just one, down moments that Netflix or anything else. It doesn’t need to be Netflix. A low moment and what was going on in your head? And more specifically, what did you do to climb out of the trough?
Marc Randolf: I’ll use a Netflix moment. I mentioned earlier that we eventually morphed to a subscription model. And after a year and a half of flailing, we finally had this repeatable, scalable model and Netflix took off. And I won’t go into it here in this time, but subscription models have tremendous positive benefits in that they end up generating revenue month, after month, after month, after month. The downside is, because of that predictability, you become comfortable spending acquisition costs way out of proportion to what you might get back that first month. In other words, they’re extremely cash intensive businesses. And so ours was taking off, and it was sucking down cash like crazy. And then we had the dot-com meltdown. And money, which up until that point had been trivially easy to obtain, now became impossible. Dot-com were scarlet letters.
And we were pretty much about to go out of business and decided to do the thing you do when you’re just about out of business, as a euphemism, as you probably know it, is, we’re going to pursue strategic alternatives, which basically means we got to sell this sucker. And our strategic alternative was Blockbuster. And it’s a longer story, which is covered in quite humorous detail in the book, little plug right there. But it ended up with us finally getting this meeting with Blockbuster, flying to Blockbuster, ending up in this cavernous conference room on the 27th floor of this Dallas skyscraper.
And for reasons, I’ve explained in the book, I’m there in shorts and a T-shirt and flip flops. And the Blockbuster guys are in their fancy suits and expensive shoes. But we pitched to sell the company to them. And it’s going great, asking really good questions, leaning in. And then they say how much. And Reid says $50 million, Reed Hastings, my co-founder, $50 million. And I couldn’t quite read what was going on, what the reaction was, and I realized, they were trying not to laugh at this ridiculousness. And the meeting went downhill quickly after that. And the point you’re curious about was on the plane home, where it slowly begins to sink in, that this meeting, which we had fought for months to get, which when we got it, we were sure was going to be the meeting that saved us, it was so self evidently the right thing to join these two companies together.
But now, not only was Blockbuster not going to save us, they were going to compete with us. And we were hemorrhaging cash. And there was this sense of, oh, my God, everything we worked on for the last two and a half years, three years is done. There’s no way out of this. And there is this reserve that comes from being an entrepreneur for so long, which teaches you to view every experiment that doesn’t work as a learning about what doesn’t work. And it just means, I’ve now got to find something else that is going to work. And it was deep, that hole. But what I kept thinking about was, this is one of those problems, and I teach my kids this concept, there is no simple answer. There is no obvious answer, that it’s a circular problem. If you do this, well then this is wrong. If you do this, then that’s wrong. If you do this, well, that’s wrong, and it keeps going around.
And once you realize that there’s no right answer, there’s no easy out, there’s no simple solution, then all that’s left is to turn and face it. And my father’s advice used to be, sometimes Marc, the only way out is through. And I think recognizing, that’s where we stood, gave us this resolve to go back and realize, we’re not going to be saved by Blockbuster. We’re not going to be saved by the VCs. We’re not going to be saved by the consumer electronics companies. We have to save ourselves.
Eric Partaker: That’s awesome.
Marc Randolf: When you look back, and I tell a lot of the entrepreneurs that I mentor, this, I go, when you look back at your trajectory, the times you’re going to remember the most, are when it was the darkest. When you all rallied. When you had this incredible sense of purpose. It’s the same thing I love about rock climbing or back country skiing or mountain biking or surfing, it’s, you have no choice but to be completely in the moment, I’ve got to solve the problem in front of me. And there’s something about what that does to you. And this was absolutely one of those moments.
Eric Partaker: Marc that is awesome. And I’ve read, and people have said, some of the stupidest business decisions ever and talked about how Blockbuster could have bought Netflix for 50 million. That right there, though, creates an alternative universe. And I don’t even believe in that, because had they bought it for 50 million, I believe they would have just screwed the whole thing up. My point is, that was not a missed opportunity for them. And that certainly wasn’t a missed opportunity for you. It was nothing more than a happening and both sides took learning from it. And I just think it’s a beautiful story. And yeah, awesome, awesome. Last question for you, Marc, in the spirit of… By the way, people watching and listening, if you have not read That Will Never Work yet, stop this insanity. Get the book. It’s amazing.
And if you’ve just heard Marc speak, he’s an absolute cauldron of wisdom. So get the book, check out the podcast, his podcast as well, That Will Never Work. But Mark, what would you say you believe that few others do? Or what do you believe that other people don’t, generally?
Marc Randolf: Probably the thing that I get the most pushback on is that I… Well, I’ll jump to the punch line, I really believe that what I’ve done with companies is not special. I believe that people who start companies are not superhuman with these abilities far beyond those of mortal men. There are big elements of luck in it. But the skill set is something that fundamentally almost everybody has. Which is why my entire message can be boiled down to, if you have an idea, you have a dream, try it. Stop thinking about it. Stop coming up with the reasons why you can’t. The cleverness is not dreaming of what’s going to be, the cleverness is, how can I figure out a way to quickly, cheaply and easily start, so I can learn whether it’s a good idea or a bad idea. And I spend so much time pushing people to do that.
And when I say, who doesn’t believe in that? The big category, who doesn’t believe in it, are all these people who have these dreams, but then say, well, I need to quit school, or I need to raise money, or I need a technical co-founder, or I’ve got to learn to code or blah, blah, blah, blah, I’ve heard every single possible excuse. And so all I can do is keep trying to sit down with one person after another and say, let’s talk about how you can take this idea. And let’s figure out a way by tomorrow that you can actually begin the process of learning whether in fact, your idea actually has validity or not. And I actually had one person I spoke to, who I respected a lot, and he said, “I think Marc, you’re doing a tremendous disservice to people by encouraging people to do things that are going to fail.”
Eric Partaker: Really?
Marc Randolf: And he goes, “I think most businesses fail. I think these are people…” It’s like, the argument that says we shouldn’t be encouraging everyone to go to college, because college is not for everyone. And there’s some validity to that, too. So those are the two categories of pushback I get. And what I think is a very simple message, which is that, if you really have something you want to do, it doesn’t mean start a company, it could just be, I want to get a better job or I want to try and live in the city, rather living out in the suburbs, or I want my own apartment not by sharing it. All those things are solvable if you’re willing to start and try to figure it out, rather than dreaming about it or bumping into the first roadblock and turning away.
Eric Partaker: Yes, I love what you just said at the end there, especially. All of it’s possible if you believe in your ability to figure it out. Like I often say to myself that it’s dangerous to believe that you know the way, because if you know the way in your mind, and you try that particular way and if it doesn’t work, you catastrophically come apart like. Well, I can’t do it then, because that way didn’t work. That job, that endeavor. But instead, if you just believe in your ability, that I will find a way, rather than the way, and I believe my ability to figure it out, I totally agree with that. That’s amazing, awesome.
Marc Randolf: Everyone stands at the beginning of the trail, going like this, trying to see around the corner. And they’re there for years. I don’t want to start, because I can’t see where it goes. Well, Jesus walk 50 feet, and then you’ll see down the trail. And you’ll walk another 50 feet. Just start.
Eric Partaker: There’s been so many gems, diamonds in the rough honestly, in this conversation. I echo so many of the things that you shared today, Marc. I literally, it’s almost cliche, I literally could talk to you for hours, because I could go business, philosophy, work, life, everything. Such a treat to speak to you. And I think the listeners are going to love it. And yeah, if somebody wants to find out more about your podcast, where do they go?
Marc Randolf: Yeah, I mean, a lot of the stuff we’ve touched on today are things that I do try and expound on at length in actual coaching sessions on the podcast, that’s probably where I’d start. And of course it’s everywhere, everywhere you get your podcasts from. But the other place is that, if the half an hour is too much for you and you want it carved up into blog posts or into tweets or an Insta, whatever. Marcrandolph.com, Marc with a C, Randolph with a P-H. That’s ground zero for the media company. The content network. I don’t know what the hell you call it.
Eric Partaker: Awesome, awesome. Marc, genuine highlight of the week-
Marc Randolf: Well, good-
Eric Partaker: … of the month, to speak to you. Thank you so much.
Marc Randolf: My pleasure, Eric, and good luck with all your challenges as well. But that’s the fun. If it was easy, it wouldn’t be as fun anymore.
Eric Partaker: Awesome. Thanks a lot, Marc. See you later.
Marc Randolf: Cheers.
Eric Partaker: I know you’re going to absolutely love my next interview with Philip Stutz You can find it right here. Just check it out. Click there. This is a man who helped win three presidential elections. You’re going to want to check out that discussion. I’ll see you there. Click the link.