That Will Never Work

Searching for Ideas

Distrust epiphanies. The best ideas rarely come on a mountaintop in a flash of lightning. They don’t even come to you on the side of a mountain, when you’re stuck in traffic behind a sand truck. They make themselves apparent more slowly, gradually, over weeks and months. And in fact, when you finally have one, you might not realize it for a long time.

Netflix was the proof of that. They went through so many terrible ideas in deciding what company to found.

As his tenure as CEO was coming to an end, he was feeling a little burned-out. He wanted to change the world, but he was increasingly convinced that he couldn’t do so as a tech CEO. “If you really want to change the world,” he said, “you don’t need millions of dollars. You need billions.”

As Reed and Marc’s previous company was in the process of being acquired, Reed decides to exit tech and focus on education of all things.

“You want something where the effort it takes to sell a dozen is identical to the effort it takes to sell just one. And while you’re at it, try and find something that’s more than just a onetime sale, so that once you’ve found a customer, you’ll be able to sell to them over and over again.”

This book is filled with a lot of gems. Basically Marc keeps pitching ideas and Reed keeps shooting them down. But along the way he drops a lot of wisdom about why Marc’s idea won’t work. In this case, you want to find ultra low distribution costs.

Reed nodded. “You do have a tendency to get high on your own bullshit.” “It’s not bullshit if you believe it,” I said. That’s true, by the way. For most of my career, I’ve gotten flack before for my boundless faith in whatever it is I’m selling. Even before Netflix, I’d convinced more than a few people to take pay cuts to work for me, to leave steady work to hop aboard a startup with a slim chance of survival. But in every case, I wasn’t just spewing hot air. Whether it was the latest generation of spreadsheets or DVDs by mail, I genuinely believed in what I was selling.

I tend to agree with this actually. It’s okay to believe something when most people think it’s crazy - I usually have the same “flaw”. But I absolutely believe it in my heart, and the trick then is to validate it as soon as possible.

DVDs

Prior to 1997, DVDs were only available in Japan. And even if you found one, there was no way to play it—no DVD players were for sale in the States. It was easier, far easier, to find a laser disc than a DVD.

It’s wild how ahead of the time they were! They only decided on DVDs because it was cheaper (lighter) to ship than VHS tapes, and it was the only way to make the unit economics work.

“Is this how it’s done everywhere?” I asked. The postmaster laughed in my face. “Definitely not,” he said. “This is local mail. All the other mail for out-of-town gets trucked over to San Jose and they sort it there.” “So, what you’re telling me is that if I mailed a naked CD inside an envelope and addressed it to anywhere else, it would have gotten scratched, cracked, or broken?” “Most likely,” he said. Lucky us, I thought. It’s called a false positive—also known as being lucky. If we’d used any other post office—or if Reed had lived in Los Gatos or Saratoga—our CD might have been destroyed. Hell, if we had mailed it to my house in Scotts Valley instead of his place in Santa Cruz, the thing wouldn’t have made it. And I wouldn’t be writing this book. Or maybe I would be, but it would be about shampoo.    Instead, the very next morning, less than twenty-four hours after our pink envelope vanished into the slot, I met Reed in a parking lot in Scotts Valley and he pulled out our envelope. Inside it was an undamaged CD. “It came,” he said. “Thank God,” I said.

They only found this out after they had committed to the idea. So by a stroke of luck, Netflix is born.

So he’s gone from owning 50 percent of the company to 70 percent. We’re now 70/30 partners. This didn’t bother me at all.

It’s clear in fundraising that the only reason investors give any money is because Reed is on this project. Unlike in most partnerships, Marc is actually quite reasonable and fair.

Fundraising

Panhandling is salesmanship at its purest. It’s the totally naked ask: money for nothing. We’re conditioned not to ask for things—and when we do ask for them, we’ve learned that we have to offer something in return. But asking for money and offering nothing back—no service, no product, not even a song—is truly terrifying. It’s like looking into an abyss.

The key was getting over the shame of asking—of showing the most basic, essential need to a stranger. It’s more difficult than it sounds. It made me feel sleazy to ask. It made me feel low when people said no. But by far the most difficult thing to bear was the invisibility. Mustering up all your courage and desperation, then debasing yourself in front of a stranger, only to be totally ignored—that was worst of all. Believe me, after that, asking an investor for $25,000 was nothing.

Marc panhandled in his youth, so unlike most people rejection is not a big deal for him. I think this is excellent advice for founders. Yes, it sucks that dozens (hundreds?) of pepole may say no. So what? There are harder things in life, and if you can’t find money from VCs find it elsewhere an pursue your dream.

In Silicon Valley, no one ever really tells you no. After a pitch, you’ll typically hear a sentence that begins with “This is great, but…” You get so used to it that if you hear a sentence starting with “This is great,” you mentally start gathering your papers and feeling for your keys. This is great, but I’d love to see more traction before committing. This is great, but why don’t we talk again when you have ten thousand subscribers? This is great, but that’s not an investment premise we’re focusing on right now. Alexandre didn’t tell us, This is great. He told us, This is shit. And that scared the hell out of us.

This is hilarious. Treasure the people who will be this honest with you.

When he said yes, both of us knew it had nothing to do with the idea. Steve told me later that he said to himself, “Well, that’s $25,000 I’ll never see again.”

Every investor is obviously only putting in money because Reed was there. Still, to say this to Marc’s face is just too funny.

I’m sure my mom asked polite, curious questions. I’m sure I gave polite, enthusiastic answers. The only thing I really remember—and I thought this was the epitome of grace, when she said it—was that she knew that her investment would bear fruit in the long term. “I’m sure in fifteen years I can use this money to buy an apartment in the city,” she said, laughing. She wanted to prove to me that the money she was investing wasn’t just a gift—that it was a real investment, even though she knew and I knew that the reasons she was investing had nothing to do with my pros and cons and my projections, and everything to do with the fact that she was my mother and I was her son. I almost wished she had said no. Because now I had to actually do it.

If you’re reading this, go call your mom today and tell her you love her.

One million nine hundred thousand and 00/100 dollars. You hand it over and there’s nothing. No glimmer of recognition, no hint of surprise on the teller’s face. Business as usual. “You want any cash back?” she asks.

I kind of wish this still happened these days! Now it’s just all wires.

Early Culture

Our office sent a clear message: This isn’t about us, it’s about the customers. The reasons for working there weren’t exotic perks or free food. It was the camaraderie and the challenge, the opportunity to spend your time solving hard, interesting problems with smart people. You didn’t work for us because you wanted a beautiful office. You worked for us because you wanted the chance to do something meaningful.

I’ve talked about this so much in my Core Values talk, but at this point I’m struggling to find a company that had nice offices in the early days.

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—and because we’d need a lot of it to build up our stock of number four on this list. In those days, I kept a jar of silver dollars on my desk, which I got in rolls of forty from the bank, and at every weekly meeting, I’d hand one out as a “bonus” to the employee who’d made that week’s largest contribution to the company’s success. “Don’t spend it all in one place,” I’d say.

The key to any successful company is whether they can recruit people at a pay cut. Amazon did this. Microsoft did this. If you’re going to succeed, you need to be able to do this.

…it wasn’t the product of meetings or careful planning or roundtable discussions. It arose organically, through a shared set of values among a team of people who had 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 dreamed about. It was a chance to do things truly our way. Culture isn’t what you say. It’s what you do.

Netflix’s early culture was a reflection of the type of people Marc hired. Importantly, it’s what they did every day, and not what they said.

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.

This is the heart of the modern Netflix culture.

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

Unfortunately, this is not a universal truth. As we discussed in the Becoming Trader Joe post, there just are a certain caliber of people who want to be coddled. Ruthlessly remove these people from your life.

I have some experience in the recruitment fight, and over time have recognized a key truth: For most engineers, it’s not about the money. That’s a good thing for Netflix, since our pile of chips is quite a bit smaller than the more established companies’. Most engineers can choose where they want to work, and the way they make their decision boils down to two questions:   1) Do I respect the people I’m working for? 2) Will I be given interesting problems to solve?

This is true time and time again - it’s the flip side of how these companies are able to recruit engineers for paycuts. Usually the engineers are joining to solve more interesting problems, with cooler technologies, and working for people they respect more. That’s it.

Launch Day

Our beta name was Kibble. As in dog food. Steve Kahn once advised me that when it came time for us to choose our beta name, I should choose something so bad it wouldn’t be possible to use it for real. “Six months in,” he said, “and you’ll be so fried that you’ll want to just say, ‘Screw it, let’s keep the beta name.’ Your sense of what’s good and what’s bad will be almost entirely depleted. But if you pick something so awful that it’s obviously impossible—WeWantToRipYouOff.com, GiveUsAllYourMoney.net—you’ll be forced to come up with something new.” That’s why, months into our new offices, we were called Kibble.

He still owns the domain to this day! Much like how Bezos owns relentless.com even now!

There was no vote, no momentous ballot-casting. We printed out that spreadsheet and stared at it. Everyone went home to sleep on it. The next day, we all agreed: we were NetFlix.com. It wasn’t perfect. It sounded a little porn-y. But it was the best we could do.

The whole section on how they agreed on the name is hilarious.

The site crashed all day. And because we had no way to measure site traffic yet, we didn’t know how many potential customers we were missing. It was a disaster. But at the same time, these were good problems—we had visitors to the site, we had orders coming in.

Insane! And yet, in the early 2000’s, that was the state of tech.

We’d expected 15 or 20 people to use the site to order a DVD. We’d gotten 137—and potentially we’d gotten more than that, since we didn’t know how many people had tried to access the site when it was down.

This is what product market fit looks like.

Did we open the bottle of wine? We didn’t have a corkscrew, so I had to push the cork into the bottle using a ballpoint pen, then decant into an empty liter bottle that used to hold Diet Coke.

Frugality!

Pivoting to Rentals

But it’s a sugar high. Right now, we’re the only game in town. But it won’t be long before Amazon expands into selling DVDs. And after Amazon, there will be Borders. Then Walmart. And then virtually every other store—online or brick-and-mortar—in America. When you get down to it, selling DVDs is a commodities business. [sic] It might not happen next week, next month, or even next year, but it is inevitable. And when it happens, we’ll be toast.

They’re making $100,000 a month on this, and ultimately they see the writing on the wall. They must pivot or they’re going to be dead sooner or later. Amazon is a steamroller business just like Microsoft. This is an incredibly gutsy call.

Reed had gotten the call a few days earlier from Joy Covey, Amazon’s CFO. She wondered if we would be interested in coming up to Seattle to meet with her and Jeff Bezos, Amazon’s founder and CEO. She didn’t say why she wanted to meet, but she didn’t need to. It was obvious. Although it was unlikely that Jeff would be interested (or foolish) enough to rent DVDs, it was clear that he was soon going to start selling them. And once that happened, we’d be out of business. Fast.

I talk about numerous instances of this in my PMF essay. This is the standard Amazon play book. Bring you out to Seattle, wine and dine you, and either extract you for intel or give you an offer you cannot refuse.

I wasn’t quite ready to put it in park and hand over the keys. But when Amazon calls, you pick up the phone. Even if it’s 1998, and Amazon is nowhere near the powerhouse it is today.

Too funny.

As Covey led us back into the warren of cubicles that made up the Amazon offices, it was hard for me to believe that this was the company reinventing e-commerce. The carpeting was stained; the partitions used to separate the cubicles were dirty and torn. Dogs roamed the hallways. There were multiple people per cubicle, desks under the stairs, desks pushed to the edges of hallways. Almost every horizontal surface was covered: by books; by gaping Amazon boxes; by papers, printouts, coffee cups, plates, and pizza boxes. It made the green carpeting and beach chairs of the Netflix offices seem like the executive suite at IBM.

How many times can I say frugality?

“We don’t need to go through all this,” he said, exasperated. “What does this have to do with Netflix and Amazon and possible ways we can work together?” Everyone stopped. It was quiet. “Reed,” I said after a few seconds. “It’s obvious that Amazon is considering using Netflix to jump-start their entry into video. Our people would be a huge part of any possible acquisition, so it’s entirely appropriate for them to want to understand who we are.” I was relieved when Joy jumped in to help. “Reed,” she suggested, “can you help me understand a bit better how you’re thinking about your unit economics?” This was exactly what Reed wanted to hear, and with obvious relief that we were finally on topic, he began running Joy through the numbers.

Classic Reed. Imagine Bezos is being charming for once and you just instantly interrupt him and demand he get to the bloody point. Incredible.

And then, for some reason, I chose that moment to tell Reed that we should abandon the only profitable part of our business. I think it was the afternoon with Bezos—seeing Amazon in the flesh, dingy office and all, just reinforced for me that we could never compete in the DVD retail sales market. Better to focus on what made us different and unique. “We just have to figure out some way to get out of selling DVDs,” I said to him. “Doing rental and sales is confusing for our customers and unnecessarily complex for ops. And if we don’t sell, Amazon will destroy us when they enter the field. I think we get out now. Focus on rental.” Reed arched his eyebrows. “Kinda puts all our eggs in one basket,” he said. “That’s the only way to make sure you don’t break any,” I replied. That’s true, by the way. One of the key lessons I learned at Netflix was the necessity not only of creative ideation, or of having the right people around you, but of 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. Focus is imperative. Even when the thing you’re focusing on seems impossible. Especially then.

Very very very prescient call. Imagine how dingy that office must truly have been for a competitor to take one look at your office and decide not to compete with you. So they go all in on DVD rentals!

More importantly, he had a track record of solving seemingly unsolvable problems. Investors and VCs knew this even then. They definitely know it now. That’s why the second he walks into a room, people whip out their checkbooks. They know that what he does isn’t teachable, isn’t reproducible—hell, it’s barely even explicable. He’s just got it. That’s what great entrepreneurs do, in the end: the impossible. Jeff Bezos, Steve Jobs, Reed Hastings—they’re all geniuses who did something that no one thought was possible. And if you do that once, your odds of doing it again are exponentially higher.

This is absolutely true. Solving unsolved problems is the only edge you have as a startup.

Making Rentals Work

Things might sound dire to you at this point. But that’s the thing about startups—you’re almost always on the razor’s edge between total success and total failure. You learn to live there.

I love this philosophy. Learn to live on that knife’s edge, or you won’t make it in the startup world.

[S]uccess in Silicon Valley often has quite a long tail. We got a lot of press on launch day, but it was really for work that we’d done a month, three months, six months, a year prior. The life span of a startup is often so short that by the time people notice what you’re doing, you’re hanging on by a thread. That’s true of most things, really. When you’re busy making your dream into reality, no one praises you until the work is done—and by that time, you’ve long since moved on to other problems.

It’s always a multi-year overnight success. It’s why persistence is so important.

It was a big swing. And a big miss. But if you’re trying to make a dream into reality, you have to be willing to swing at a lot of pitches. The next day we did the only thing we could. Like Bill, we came clean. We sent out a letter to every one of the nearly 5,000 people who had put in their two cents. We explained what had happened, and we apologized for the confusion and any possible offense. And if they had received the porn version, we asked that they return it to us, at our expense, after which we would gladly send them out the proper DVD. But you know? Funny thing. Not a single person did.

They accidentally sent porn to every single user. Incredible.

Sometimes chasing a dream is like that: a singular pursuit of something nearly impossible. In the startup world, where the money is perilous and the timeline is unbelievably compressed, the day-to-day pursuit of your dream can appear frenzied—even manic—to outsiders. To your friends and family you’ll sometimes look more like Yosemite Sam than, say, Marc Randolph, successful CEO of a young e-commerce company. You’ll lose sleep, you’ll mutter to yourself while driving. When you try to explain your dream to other people, they won’t understand that it isn’t just about raising funds or customer conversion or daily monitors. It’s a surreal chase, a pursuit that gives your life meaning. [sic] But that’s not the point. The point is the pursuit of the impossible.

I wish I had read this quotation before I gave this talk, but this is exactly right. Pursuing the impossible - not the difficult - but the impossible, is what makes startups hard. That is the whole point. Those are the people who move humanity forward.

CEO Transition

“Marc,” Reed said, “we’re headed for trouble, and I want you to recognize as a shareholder that there is enough smoke at this small business size that fire at a larger size is likely. Ours is an execution play. We have to move fast and almost flawlessly. The competition will be direct and strong. Yahoo! went from a grad school project to a six-billion-dollar company on awesome execution. We have to do the same thing. I’m not sure we can if you’re the only one in charge.” He paused, then looked down, as if trying to gain the strength to do something difficult. He looked up again, right at me. I remember thinking: He’s looking me in the eye. “So I think the best possible outcome would be if I joined the company full-time and we ran it together. Me as CEO, you as president.”

This is a tough conversation but I really appreciate how Reed handled this. There’s no easy way to say it. Some companies are just execution plays.

“I’m not proposing that I take over the company,” he said. “I’m proposing that we run it together. As a team.” There was a pause, a long one. “Look, I’m your friend no matter how this works out,” Reed finally said, standing up. “But if this is something that you are dead set against, I’m not going to force it down your throat, even though in my position as a shareholder I could. I respect you too much to do that. If you don’t believe that this is in the best interest of the company, and don’t want to go forward this way, I’m fine with that. We’ll just sell the company, pay back the investors, split the money, and go home.”

Really powerful words honestly.

Radical honesty is great, until it’s aimed at you. I’m not going to lie to you, or to myself. What Reed said to me that day in mid-September hurt. It really hurt. Not because Reed was being unkind—he wasn’t—but because he was being honest. Brutally, astringently, rip-the-bandage-off honest. This was radical honesty, the same type that we’d practiced from the beginning, back in my Volvo on Highway 17. Reed didn’t have an ax to grind, or any ulterior motive. He was driven by what was best for the business, and he respected me too much to do anything else but tell the complete, unvarnished truth. He was just doing what we’d always done with each other.

This is the type of friendship that is life changing, for the better.

When your dream becomes a reality, it doesn’t just belong to you. It belongs to the people who helped you—your family, your friends, your co-workers. It belongs to the world. Looking at those cars in the parking lot, I really knew that Reed was right. That the CEO/president arrangement would give the company the leadership it deserved. Would greatly increase our odds of success. Would create a company that we could be proud of for the rest of our lives.

Marc is incredibly wise, and ultra low-ego (even though he would disagree with that latter description)!

Our early culture at Netflix was born completely out of how Reed and I treated each other. We didn’t give each other a list of tasks we expected the other to be doing and then “check in” frequently to make sure everything got done. We just made sure that each of us understood the company’s objectives, and which aspects each of us were responsible for. It was up to us to figure out what needed to be done to accomplish those objectives. And it was up to us to be honest with each other—radically honest.

The best type of working relationship.

It was not unusual for Reed and I to look up after a particularly loud session to see the quiet, stunned faces of our colleagues around the table, with expressions that seemed to ask, “Why are Mommy and Daddy fighting?” But they got used to it. Radical honesty. Freedom and Responsibility. These are phenomenal ideals, but for our first couple of years, they weren’t really written down. We approached things on an ad hoc basis.

Completely agree with this - treat employees as adults. Arguments happen. Get over it.

Lessons Learned

“Nobody Knows Anything” isn’t an indictment. It’s a reminder. An encouragement. Because if Nobody Knows Anything—if it’s truly impossible to know in advance which ideas are the good ones and which aren’t, if it’s impossible to know who is going to succeed and who isn’t—then any idea could be the one to succeed. If Nobody Knows Anything, then you have to trust yourself. You have to test yourself. And you have to be willing to fail. Silicon Valley brainstorming sessions often begin with someone saying, “There are no bad ideas.” I’ve always disagreed. There are bad ideas. But you don’t know an idea is bad until you’ve tried it. And, as Netflix shows, sometimes bad ideas have a way of becoming good ones.

Marc really believes the no bad ideas philosophy. I’m a little less willing to believe that. It’s absolutely true that they pivoted their way into a good idea though.

Focus. It’s an entrepreneur’s secret weapon. Again and again in the Netflix story—dropping DVD sales, dropping à la carte rentals, and eventually dropping many members of the original Netflix team—we had to be willing to abandon parts of the past in service of the future. Sometimes, focus this intense looks like ruthlessness—and it is, a little bit. But it’s more than that. It’s something akin to courage.

This part I do agree with. It’s hard to say no to a massive existing business, but if you know it’s a dead end then there’s no choice.

More Pivots

The longer we ran the test, the more apparent it was that next-day delivery was a real game changer—just not in the ways we thought. It didn’t affect retention—it affected sign-ups. Next-day delivery inspired real dedication, the kind that makes you tell all your friends about this new service you’re using. Over time, we noticed that our penetration into the Sacramento market was approaching Silicon Valley levels. Silicon Valley! Where all the early adopters of DVD technology lived!

Eventually they’re starting to make the rental model work - starting with next-day delivery. Pre high speed internet, this really was the closest thing you could get to a limitless, on-demand selection of movies.

If it sounds like two of the most innovative and influential developments in the history of Netflix happened quickly, hot on the heels of Reed and I deciding to run the company together—well, if it sounds that way, that’s because it’s true. Reed and I came to our CEO/president agreement in September of 1998. Within a year, the subscription plan was live. Within a year and a half, it was the only way to rent from Netflix—and a redesigned site was connecting with customers using an innovative algorithm that gave them exactly what we knew they’d want…and what we wanted them to have. Those two key innovations would be enough to prove to almost anyone that we’d made the right choice when it came to running the company. We were really singing together.

Their teamwork really was that good!

But now that Reed had named a number, I saw something new, something I didn’t recognize. A different expression in his body, a slight tension in his face. His earnest expression slightly unbalanced by a turning up at the corner of his mouth. It was tiny, involuntary, and vanished almost immediately. But as soon as I saw it, I knew what was happening. John Antioco was struggling not to laugh.

Despite the success of next-day delivery, they’re still thinking of selling the company. They’re bleeding cash by shipping every DVD at a loss, and they simply don’t have the coffers to make it work. The only reason Netflix survives is because Blockbuster laughs them out of the room.

“Blockbuster doesn’t want us,” I said. “So it’s obvious what we have to do now.” I smiled. Couldn’t help it. “It looks like now we’re going to have to kick their ass.”

Rejection is good - properly channeled, it’s the ultimate motivation.

“He’s definitely not next in line to go when you use seniority. But his attitude…” Joel left the thought hanging. I knew exactly what he meant. In one of the analytics meetings that we periodically held, where we brought together people from different disciplines in the company to wrestle with particularly challenging analytical problems, Kyle was consistently proving himself to be…how shall I put this…difficult. At Netflix, there was nothing wrong with disagreement. In fact, disagreement was a critical component of our culture of radical honesty. We expected disagreement, because we encouraged vigorous debate. In Netflix meetings, there was no seniority, and no one’s opinion was more valuable because of their title, age, or salary. Everyone was expected to fight for their point of view until a consensus had been reached. Still, no matter how passionate the 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 it. Disagreement was collaborative, not ego-driven. It didn’t matter who was right—all that mattered was that we got it right. And that was where Kyle was falling short. He just couldn’t get over it when things didn’t go his way, and his bad attitude was infecting everyone.

It’s interesting to see that even at the famously No Rules Rules Netflix, there are limits to how disagreeable one can be. I wish I stuck to my guns more at Motion, where we definitely held onto someone who was too disagreeable for too long. There are limits to disagree and commit.

When I looked up, I saw someone I had hired myself, many years ago: a hard worker, a skilled coder, a nice guy. He just hadn’t made the cut. “Sorry, Marc,” he started. “I don’t want to interrupt you, but I wanted to come back and make sure you were okay. This must have been really tough on you.” I held the soccer ball and cocked my head. I didn’t know how to answer. It didn’t make sense. He’d just been laid off, and he was wondering if I was okay? “Well, anyway,” he awkwardly continued after a few seconds. “Thanks for everything.” He turned and started to walk away. But then, just before he passed the end of the row of cubes, he stopped, as if he had suddenly remembered something. “Hey,” he shouted back, a smile on his face. “Crush Blockbuster, okay?” And with that he was gone.

Laying off people is never fun, but imagine how much harder it must be when the people you lay off come to check in on you. That’s a sign of a really really good culture. At this point, they’re still bleeding money on every DVD rental and layoffs are the only way to avoid going bankrupt.

Winnowing our staff made us leaner and more focused. We no longer had time to waste, so we didn’t waste it. And while we certainly had to lay off some very talented individuals, we’d been left only with superstar players. With superstar players doing all of the work, it was no wonder that our quality of work was very high. You see this often in successful startups. The business gets off the ground because of the focus, dedication, and creativity of a small group of dedicated people. It hires, grows bigger—and then contracts itself. It rededicates itself to its mission—and often, accomplishes it through the renewed focus and energy of its most valuable members. Hiring and keeping star players is about much more than just quality of work, however. It’s a culture thing. When you retain only star players, you create a culture of competitive excellence. 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.

As usual, the obstacle is the way. They cut out everything besides the core hypothesis they’re testing and focus every brain cell in the company to making DVD rentals work - profitably.

Here’s what I’ve learned: when it comes to making your dream a reality, one of the most powerful weapons at your disposal is dogged, bullheaded insistence. It pays to be the person who won’t take no for an answer, since in business, no doesn’t always mean no.

Relentlessness over everything. Every single time.

Conclusion

So giving up my seat in 2002, after I’d fought so hard to keep it, was a somewhat bitter pill to swallow. But it was a decision I had to make if I wanted the financial security of liquidating any material amount of my stock.

In the end he, rightfully, gets a rather material exit and secures his financial future for his family.

RANDOLPH’S RULES FOR SUCCESS Do at least 10% more than you are asked. Never, ever, to anybody present as fact opinions on things you don’t know. Takes great care and discipline. Be courteous and considerate always — up and down. Don’t knock, don’t complain — stick to constructive, serious criticism. Don’t be afraid to make decisions when you have the facts on which to make them. Quantify where possible. Be open-minded but skeptical. Be prompt.

These are incredible rules for success.

My father died just days before the collapse of the internet bubble. As a value investor, he’d never understood the hype, never understood the frenzy. He would have been unspeakably delighted to have seen that he was right all along.

Value investors raise a candle.

Nolan Bushnell, the co-founder of Atari, once said something that has always resonated with me. “Everyone who has taken a shower has had an idea,” he said. “But it’s the people who get out of the shower, towel off, and do something about it that make the difference.”

Yup. Get off your ass and do something.

The worst thing you can do is get so caught up in planning the perfect idea that you never get around to actually, well, doing it. I call this building castles in your mind. Instead of actually building something, you just keep perfecting the design. In your head, you put down the ground floor, then the mezzanine. You figure out the wallpaper. And the landscaping. And before you know it, you’ve put on turrets, flying buttresses, and gargoyles. And that’s when you think: Well, I need millions of dollars to build this. Maybe I should get my MBA first. There’s no way I can do this without a hundred other people to help me. The truth is your idea probably isn’t as good as you think it is. In fact, it probably sucks. Most ideas do. You won’t know for sure until you take that initial idea and put it into the world. That’s why, when it comes to making a dream a reality, the key isn’t to plan everything perfectly. Iteration, not ideation, is the most important part of early-stage entrepreneurship.

I love how consistent he is in the messaging. It’s the same message said in a hundred different ways, but he’s a good enough writer to make it seem fresh every time.

It’s a maxim of startup life: You’re going to get things wrong. You just don’t want to get the same things wrong twice.

A great maxim to end on.

Giggles

Freud was in fact my father’s great-uncle, making him my great-grand-uncle.

This is wild!

Reed’s eyes bored into me. It was eight o’clock on a Monday morning, and not only had he probably already been awake since four, he’d also already had a double shot of espresso. Now he was halfway down a cup of regular coffee. He’d already reminded me several times that neither of us had ever actually seen a DVD. Me? I was excited as a bird. I’d been up early as well, surfing at the Lane as the sun came up. But even hours later, sipping coffee on dry land, I could see this latest idea ahead of me, just starting to differentiate itself from the horizon, rising in the distance as an indistinct swell. It was still too early to see if it was going to be rideable or not—but regardless, it was best to maneuver into position anyway. Reed sensed that I was fidgety. “Alright, alright,” he said. “Finish your scone.”

The writing in this book is just flat out amazing. This one scene probably tells you everything you need to know about their respective personalities.

There was Philippe Kahn, my old boss at Borland International, who showed up to my job interview shirtless, wearing a pair of Umbro running shorts.

Wild! After having read Source Code and Idea Man it’s crazy to see him make a reappearance here.

One of my favorite expressions actually came from Lorraine’s old boss from her entry-level stockbroker days: “Bulls make money. Bears make money. Pigs get slaughtered.” (That boss was later indicted for insider trading. He might have done better to have actually followed his own advice.)

Definitely stealing this.

That’s when I finally looked around me. All around, buff, suspiciously tan men walked arm-in-arm with peroxide blondes wearing a lot of makeup and not much else. A huge sign over the check-in desk read, in seductive cursive letters the color of lipstick: AVN. AVN stood for Adult Video News, the trade publication for the porn industry. We were at the Adult Entertainment Expo—held, every year, the same week as CES.

He goes to CES, only to realize he had not been at CES. The ‘business cards’ he’d gotten and all of the interest from people who were totally all-in on DVD’s as the future were - yup - all from AVN.

Over the next four hours, as I nervously stammered out my name and made copious eye contact—all the while brainstorming ways to explain the whole thing to Lorraine…

Legendary. It was for work, honey, honest! I didn’t know she was a pornstar.

Mitch, for his part, used the tests from our three months in Vegas to start another little company. You might have heard of it. It’s called Redbox.

Glad to see that something came of the whole AVN fiasco.

---

This book was a great read. I had read No Rules Rules, but it always felt a little too much of talking the book, whereas Marc’s account is the true founding story of Netflix. It’s ugly, it’s desparate, and it’s more than a little lucky. But it’s real.