That Will Never Work

by Marc Randolph

  In a way, all of these decisions were a kind of microcosm of the problems facing us as innovators in the late nineties. When you’re building a business from the ground up, you start from scratch—from zilch, from nada. And you have to figure out how to make it work. The same was true for a tech startup in 1997, especially one that focused on using the emergent power of the internet to sell a brand-new piece of technology. DVDs were barely in the world, high-speed internet was in its infancy, and there were no premade templates for online sites. If you wanted to do something, you had to build it yourself—from scratch.

  2. Building a Team

  Now that we were an actual company, we needed to fill out our roster a bit. We had a core of seven people—Christina, Te, Eric, Boris, Vita, Jim, and I—but there were a lot of holes. We needed someone who could connect us with DVD users. We needed someone who could connect us with studios and distributors. And we needed back-end coding and tech talent—the shortest resource in Silicon Valley. We would always need that.

  By late fall, I’d somehow convinced Mitch Lowe to join our ragtag bunch. He says, jokingly now, that the reason he finally decided to drive an hour and a half each way to work for us was so that he could finish more of the presidential biographies he was working his way through on tape. He was going chronologically, starting with Washington, and after several years he was only up to John Tyler. (He’s really into presidential history.)

  But I think the real reason Mitch joined us was because he’d gotten a little bored with his stores and was starting to realize that his movie kiosk experiments were still a few too many years ahead of their time. The software company he had been pitching when I met him at VSDA, Nervous Systems, Inc., was still a few years away from viability as well.

  With Mitch we had an invaluable resource: someone who understood the rental business perfectly, had a deep Rolodex of studio execs and distributors, and knew how to reach customers with the movies they’d want. He brought a wealth of experience and knowledge. I knew as soon as I convinced him that he’d be one of the most important hires I ever made.

  His wife, though, still thought it would never work.

  To help us connect further with customers, Te brought in Corey Bridges to work on customer acquisition—or, more specifically, on something we jokingly called Black Ops. A onetime English major at Berkeley, he was a brilliant writer with a gift for creating characters. He’d realized, early on, that the only way to find DVD owners was in the fringe communities of the internet: user groups, bulletin boards, web forums, and all the other digital watering holes where enthusiasts met up. Corey’s plan was to infiltrate these communities. He wouldn’t announce himself as a Netflix employee. Posing as a home theater enthusiast or cinephile, he would join the conversation in communities geared to DVD fanatics and movie buffs, befriend the major players, and slowly, over time, alert the most respected commenters, moderators, and website owners about this great new site called Netflix. We were months from launch, but he was planting seeds that would pay off…big-time.

  As for tech talent? Through Eric’s contacts, we hired a talented engineer from Pure Atria named Suresh Kumar, as well as a brilliant but eccentric German named Kho Braun. Eric, Boris, and Vita all said Kho was a genius. He usually rolled into the office around three or four in the afternoon and stayed till the wee hours of the morning. Sometimes, if I got to work especially early, I’d see him at his desk at six in the morning, surrounded by dried-out tea bags and half-eaten muesli bars. He was the one to wire the office, completing the whole task himself overnight. He was industrious, creative, and mostly silent. For the entire time we worked together, I’m not sure I heard him say more than twenty words.

  3. Building the Basics

  I firmly believe that a healthy startup culture arises from the values and choices made by the startup’s founders. Culture is a reflection of who you are and what you do—it doesn’t come from carefully worded mission statements and committee meetings.

  You can talk until you’re blue in the face about how your employees are your greatest asset, or about how you want to ensure that your office is a great place to work, but eventually you have to start taking the small steps to put your words into practice.

  So once the check had been deposited, I had to make some decisions. How much would we pay people? Would employees get benefits? How about dental?

  Answers:

  Not all that much.

  Absolutely.

  Nope.

  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.

  Still, if I was going to ask everyone to sacrifice on behalf of our future success, I wanted them to participate once that success (hopefully!) arrived. While our salaries at that point were well below what might be available elsewhere, each of those early employees received a large stake in the business in the form of stock options. They wouldn’t be making a lot up front—but we were betting on ourselves that the eventual payoff would be huge.

  4. Building an Inventory

  Our goal was to have the most complete collection of DVDs in the world. It made good marketing copy—and it would separate us from our brick-and-mortar competitors, who were still living in a world where only a handful of their customers owned a DVD player. It barely made sense for them to carry DVDs at all, never mind one copy of every DVD ever released.

  Not only was that our goal, but we planned on having multiple copies of popular titles. That way, when renters wanted to watch something, we would never leave them hanging.

  But how did we decide how many DVDs of, say, The Mighty Ducks 2 to order? Eventually, of course, we developed complex algorithms to accurately match supply with anticipated demand. But back then, we were just guessing. Or more accurately Mitch Lowe was guessing, using his decades of consumer knowledge to come up with an ideal lending library. (As it would turn out, he was rarely wrong. He knew a blockbuster when he saw one—and he could smell a turkey like it was in the oven in the next room.)

  He could also help connect us with distributors. In 1997, DVD distributors were a motley bunch, spread across dozens of states. They were small niche companies, and sometimes it took days to get somebody on the phone. It could take weeks to get a shipment—and half the time it wouldn’t have everything you ordered in it. In our quest to build a library of every DVD in existence, we often spent weeks looking for a single copy of a single hard-to-find title. Even though there were only a few hundred movies available on the format, it took us months to build a sizable library.

  And then what? We had to find somewhere to put it.

  This was Jim Cook’s territory. Remember that bank vault? He converted it into a storage facility, and for months experimented with different ways to store, locate, and ship what we hoped would eventually be thousands of discs a day.

  Shelving? Bins organized alphabetically? Jim’s task those early months was daunting. When I walked back to the vault in the early months, it looked like a cinephile hoarder’s basement. But eventually it began to resemble nothing more than a video store—titles organized alphabetically and by genre, with hot new releases segregated into their own section.

  5. Building a Mailer

  One of the biggest problems we had to solve before launch was the mailer. My initial test with Reed had been a simple greeting card envelope, but we couldn’t send thousands of DVDs across the country as naked discs inside flimsy envelopes. We needed a real mailer, one that would protect the disc on an unpredictable journey through the interstate postal system. It also had
to be sturdy enough that it could be used again, when the customer sent the disc back. We had to make it easy to use. Intuitive to figure out. And it had to be small and light enough to qualify as first-class mail. The moment our mailer veered into fourth-class-mail territory, our costs went up and delivery speeds went down. And neither of those outcomes would be sustainable.

  We experimented wildly: cardboard, cardstock, craft paper, Tyvek, plastic. We tried squares and rectangles of all sizes. We inserted tabs. We tried foam pads. Thousands of designs ended up on the cutting-room floor after Christina, Jim, or I deemed them unworkable. There were days I went into the office and couldn’t tell if the table near the back was filled with Netflix mailer materials or the detritus from one of my son’s preschool cut-and-paste projects.

  Getting the mailer perfect was key—it was the first physical point of contact we’d have with our users. If our discs arrived broken, or late, or dinged, or scratched—or if a user couldn’t figure out how to mail discs back to us using our packaging—then we were doomed. It was a massively important project, and one that I was heavily involved with in the early days. I stayed late tinkering with prototypes, sketched out ideas on napkins during meals. Sometimes, at night, I dreamed about mailers.

  6. Building a Website

  This one is probably the hardest to imagine. The advent of the cloud and the proliferation of website-building tools—Squarespace and the like—have made it easy for anyone with a MacBook and an internet connection to buy a domain, upload some photos and text, and throw a website together. But in 1997, at the dawn of the e-commerce age, the idea of a website was still only a few years old. And if you wanted to use the internet to sell something, then you had to build it all yourself.

  You had to buy not only server space but…the servers themselves. You had to do more than buy a template for an online store—you had to write the code for one.

  That meant thousands of hours of design, coding, testing, and fine-tuning. What did we want the website to look like? How did we want a user to navigate it? How would it look when you searched for a film? How would films be organized on the site? What kind of content did we need displayed for each film?

  Once a customer had chosen a movie, what would they see? How would they input their information? What would happen if they made a mistake when entering their state’s abbreviation or their credit card information?

  It is no exaggeration to say that the questions were nearly infinite. And to answer them, we had to coordinate two vastly different camps: the designers (mostly me and Christina) and the engineers who actually had to build the thing. Engineers are, by necessity, literal-minded. They will do exactly what you instruct them to do. So Christina very quickly learned that she could leave nothing to chance. She began drawing the site by hand, painstakingly replicating exactly what we wanted for each and every page, along with dozens of notes in the margins about how each piece would interact with the next. Then she’d hand it over to Eric, and his team would build it. We’d look at what they’d built and make further suggestions, which they’d incorporate.

  Back and forth, back and forth, back and forth.

  We did this for months.

  Getting the picture? We had a lot to do.

  But there was real pleasure in it: in the planning, in the problems, in the puzzles we had to solve. I had so many tasks set in front of me, so many little pieces I had to prep and build, that there wasn’t much time for anxiety about the future. It all disappeared when I was in those offices. I forgot about the half-finished bedrooms in the new house I could barely afford. I forgot about Logan’s private school tuition bills. I forgot about Alexandre Balkanski frowning and telling me, “This is sheet.”

  I felt like my father, working on one of his trains. I found satisfaction in lining up all the tasks, investigating all the problems, and then working to solve them. I was in the basement, building something, knowing that someday in the near future I’d have to invite everyone else in to have a look.

  7.

  We Were Almost CinemaCenter

  (six months until launch)

  ONE OF THE THINGS I’m asked about most often is the Netflix culture. How did we establish it? What kind of presentations did we make to new employees? How did we figure out the way we wanted to work together, interact with one another, speak to each other?

  Now, of course, Netflix’s culture is famous. There’s a much-downloaded PowerPoint presentation given to all new employees.

  But the truth is, 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.

  I’d recruited almost everybody in that office. I knew how they worked. I knew that Christina loved to impose order on chaos—and that she’d thrive if given a lot of chaos to handle. I knew that Te’s creativity would flourish if she was given free rein to try out her most out-there ideas. I knew that Jim Cook would solve almost any problem put in front of him—but you had to give him room to work.

  I knew that I, and everyone else on that initial team, would thrive if given a lot of work to do and a lot of space to do it. That was really all our culture amounted to. Handpick a dozen brilliant, creative people, give them a set of delicious problems to solve, then give them space to solve them.

  Netflix would eventually codify this as Freedom and Responsibility. But that was years later. At the time, it was just how we did things. We didn’t have set hours for work. You could come in when you wanted, leave when you wanted. You were being judged by what you could accomplish. As long as you were solving problems and getting things done, I didn’t care where you were, how hard you worked, or how long you stayed.

  My philosophy was informed by years of wilderness expeditions with NOLS. I’ve been taking backpacking trips in the mountains since I was fourteen. It keeps me sane. I love the smell of the mountain air, the stillness of the outdoors, the sense of peace that comes from reducing life to its barest essentials.

  But more than anything, what I love about backpacking trips are the people I take with me. When you’re out in the woods, you’re separate from the rest of human society. And as a result, you have the opportunity to form a new culture, with its own rules and laws and traditions. You really get to know people when you’re sleeping on the ground, eating simple food you prepare yourself, and smelling like you haven’t showered in a week (since usually you haven’t). Some of my greatest friendships have been forged in the wilderness. And the bonds with my family have been strengthened immeasurably by our time together on a river, climbing a peak, or surfing a remote reef break.

  What happens on a backpacking trip also turns out to be a perfect model for what happens in a startup. Startups are small, they’re often lean, and they’ve separated themselves from the dominant mode of thinking within their space. They’re made up of like-minded people who are on a journey, who share a common goal.

  And they often end up totally lost in the woods.

  What I learned, in those early months at pre-launch Netflix, was that working at a startup is like going on a backcountry trip where there are no trails. Say you were on such a trip, and knew that your next campsite was eight miles ahead, on the other side of a steep ridge. Say you had a specialized team—a couple of people carrying pack rafts, a couple more people with all the food and equipment, as well as some incredibly quick trail runners with light packs who could act as scouts.

  One possible route goes straight up and over the ridge to the campsite; one is less arduous but longer, and involves several water crossings; and one is a measured, stately hike up a series of gradual switchbacks. Which do you choose for the group?

  The answer is none of
them.

  If there’s no one trail, why are you trying to force everyone to go the same way?

  The scouts with no packs should take the steep route, get there quickly, and scope out the best place to camp, with good access to water, flat spots for the tents, and good protection from the elements. The guys with the pack rafts should use the water along the route to float to camp, arriving a little later but more rested. The pack mules should take the slower but least taxing route.

  Your job as a leader is to let them figure that out. You’ve presumably chosen this group for such an arduous off-trail trip because you trust their judgment, and because they understand their job. So as a leader, the best way to ensure that everyone arrives at the campsite is to tell them where to go, not how to get there. Give them clear coordinates and let them figure it out.

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

  From the beginning, I resolved to treat everyone who worked at Netflix as an adult. At Borland, I’d seen what happened when companies decided not to do that.

  When I worked at Borland, the company was at its decadent eighties height. Set on a dozen beautifully landscaped acres, the campus boasted a koi pond in the lobby, a redwood grove, walking paths, a theater, a full restaurant, a health club with racquetball courts, weight rooms, fitness studios, and an Olympic-size pool. And of course, as befits a company where nothing was too good for its employees, there was a hot tub.

  But even a Jacuzzi wasn’t enough to ensure that everyone was happy. Not long after moving onto the new campus, I was returning from lunch with Patty McCord, at the time one of Borland’s human resources managers, when we noticed a group of engineers soaking in the company hot tub. Stopping to say hello, we couldn’t help but overhear that they were bitching about the company. That’s right: sitting in the company hot tub, complaining about their situation. What’s wrong with this picture?