That Will Never Work

by Marc Randolph

  He waited again. Seeing no reaction, he plunged on. “I don’t think I’m overreacting. I think this is a thoughtful solution to an unhappy reality. And I think the CEO/president arrangement would give the company the leadership team it deserves. We could make history we are proud of for the rest of our lives.”

  Finally, mercifully, he stopped, rocked back slightly in the chair, and took a deep breath.

  I sat there not speaking, just slowly nodding. That’s what happens when a piano falls out of the sky on your head.

  I’m sure Reed wondered why I didn’t see the situation with the same clarity and logic as he did. I knew that Reed didn’t—couldn’t—understand what was going through my head. Thank God for that, because the words going through my head weren’t polite.

  I knew that a lot of what he was saying was true. But I also thought that we were talking about my company. It had been my idea. My dream. And now it was my business. While Reed had been off at Stanford and at TechNet, I’d been pouring my entire life into building the company. Was it realistic to expect anyone to get every decision right? Shouldn’t I be allowed to work my way through mistakes?

  He wasn’t wrong about those, either. He had a point about some of our missteps, and our future going forward. But my initial reaction to what Reed was saying that day in the office was that it had more to do with him than me. I kept thinking: He’s realized that he made a life mistake. Hadn’t he been bored at Stanford, and dropped out? Hadn’t he been disappointed by his work in education reform at TechNet? He’d skipped the early days of Netflix because he wanted to change the world, revolutionize education—and most of the teachers and administrators he’d encountered just wanted their pay grade to go up with seniority. And now that he saw that the little crazy idea we’d tested together had real potential, he suddenly found problems with my leadership? Was I not fit to run the company alone, or did he just want back in, without the ego hit of being my employee?

  I was furious and hurt. But also, even in the moment, I knew that Reed had a point.

  What this complex mix of emotions looked like, only Reed knows. But it must have looked pretty remarkable, because even he noticed that he needed to say something nice—to put the top bun on the shit sandwich.

  “Don’t be upset,” he finally blurted out. “I have tremendous respect and affection for you. It pains me to be so harsh. There are a million good things about your character, maturity, and skill that I admire greatly. I would call you partner proudly.”

  Reed paused again. I could tell there was more coming. How could there possibly be more to say? My head was spinning.

  “I need some time to process this, Reed,” I said. “Look, you can’t just come in here and propose taking over the company and expect me to say: Oh, how logical, of course!”

  My voice was getting high again, so I stopped talking.

  “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.”

  When he left my office he shut the door quietly behind him, like someone leaving a hospital room. The sun was setting, but I didn’t get up to turn on the light. I sat in the dark until almost everyone had left—everyone but Kho, who ambled in sometime after nine, whistling and drumming his fingers on a grease-stained pizza box.

  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.

  And the more I thought about it, the more the PowerPoint touched me. Was it clumsy? Yes. Was it totally like Reed to try to frame a delicate, emotionally volatile conversation within the safe confines of a series of animated slides—a presentation of a type that I had taught him to deliver? Also yes.

  But insulting? No. I could see, now that he was out of the room and I was sitting in the dark, that Reed had been so nervous about giving me honest feedback that he’d needed a prompt, a set of written reminders, something to make him feel like he was on solid ground. He’d wanted to make sure that he did it right. He wanted to make sure he said the things that needed to be said.

  They were hard to hear. But it was even harder to admit to myself that Reed was right. I was having problems. Our IVP investment had almost fallen apart because of me—because our new partners knew that without some bold stroke born of dramatic, intuitive, and confident leadership, this company was never going to make it. They had never said it out loud, but it was probably obvious to everyone else in that room that the bold stroke, the dramatic and confident and intuitive leadership, was not going to come from me.

  The more I thought about it, the more I realized that my dream had evolved. It had originally been a single dream: a new company, with me at the helm. But sitting in my office, hearing Reed articulate where I was falling short, and listening to him make the case for why the company needed both of us, together, at the helm, I realized that there were really two dreams, and that I might need to sacrifice one of them to ensure that the other come true.

  The company was one dream. Me at the helm was another. And if the company was going to succeed, I needed to honestly confront my own limitations. I needed to acknowledge that I was a builder, someone creative and freewheeling enough to assemble a team, to create a culture, to launch an idea from the back of an envelope into a company, an office, a product that existed in the world. But we were exiting that initial stage. Now we were going to have to grow, and rapidly, and that took a different skill set entirely.

  I have a pretty good sense of my skill as an entrepreneur. I don’t think I’m tooting my own horn to say that I’m in the 98th percentile. I knew, even then, that I could lead the company as it grew.

  But I also knew, even then, that Reed was in the 99.9th percentile. He’s one of the all-time greats. And he was better at this stage of things than I was. More confident. More focused. Bolder.

  It was totally obvious to me that when it came to our most pressing and urgent need—money—Reed was better. He’d almost singlehandedly founded a company and had brought it through an IPO as CEO. He was a known quantity. Investors were far more likely to bet on him than me. We’d already seen that to be the case.

  I had to ask myself: How important was it to see my dream come true? And was it even my dream anymore? We now had forty employees, each of whom was as emotionally committed as I was to making Netflix a success. They stayed late, worked weekends, missed commitments to friends and family, all in service to something that had begun as my dream—but which, God bless them, they had adopted as their own. Didn’t I owe it to them to do everything I could to ensure that we survived, even if it meant that my role would no longer be the one I’d imagined for myself?

  What was more important, my title or their jobs?

  I stood up from my desk and walked to the window. I could see the nearly empty parking lot, the flower beds at its perimeter in full bloom, illuminated by the orange light of streetlamps. Tomorrow, by six in the morning, that lot would be filling up wi
th Toyotas, Subarus, and VWs belonging to the people who worked for me. Many of those cars had payments attached to them, and insurance policies. Bills. And in a way, I was responsible for those.

  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.

  And in retrospect, of course, Reed was right. Netflix might have survived with me continuing on as sole CEO. But you don’t write a book about a company that survives. There is no doubt in my mind that without him assuming more of a leadership role, Netflix would not have become the company it is today. Paradoxically, if I hadn’t relinquished the title of CEO to Reed in 1999, I wouldn’t be writing this book.

  The company needed us to run it. Together.

  When I’m feeling down, and need to remember moments of courage from my past, I don’t immediately think back to some faraway mountain peak, a dangerous climb, or a treacherous river crossing. I don’t even think back to those mornings in Reed’s car, or the first meetings in Hobee’s, when I was trying to convince talented (and reluctant) people to quit their jobs for a crazy and illogical venture. I don’t think of the original leap of faith, the running start, the hundreds of failed tests with no indication that any of them would ever work.

  I think of leaving the office that night. I think of driving slowly home through the empty streets of Scotts Valley, ready to tell my wife that I’d decided I should no longer be sole CEO of the company I’d founded. And knowing that I was doing the right thing.

  By now you know that chapters in the Netflix story rarely end neatly, all wrapped up in a tidy red-and-black ribbon. And this chapter is no different. I did make that lonely drive home, and I did sit on the porch with Lorraine for a few hours that night, a bottle of wine between us, as we went through the logic—and emotion—of my decision. And we did ultimately decide that Reed’s proposal was the right thing to do—that I owed it to my employees, my investors, and myself to ensure that the company would continue to be successful, even if it meant stepping down as sole CEO.

  But as I finished turning off the lights, and Lorraine carefully loaded our wineglasses into the dishwasher, I sat down at the kitchen table to do a last check of email. Flashing at the top of the in-box was an email from Reed. Time: 11:20 PM. SUBJ: Honesty.

  The email summarized and reiterated the afternoon’s conversation. I was sure it was essentially a transcription of the PowerPoint slides. There were bullet points dealing with my strategic sense, hiring, financial controls, people management, and ability to raise capital. Now that I’d had time to think about what Reed had said, it was easier to see it in writing. My eyes scanned to the end: “I sincerely wish things were different, Marc, for both of our sakes, but in my heart of hearts I believe everything I said today to be true.”

  Then there was something new.

  But in a similar vein it is my best sense that the right thing to do to reflect the change is to re-split our stock options. IVP invested on the promise that we could execute as Chairman/CEO; it is not right to go back to them and say it didn’t work, that we need another 2m options for me.

  I couldn’t believe what I was reading. In the sentences that followed, Reed was saying that in order to come in as CEO he needed more options. And worse, he was saying that a big slug of those shares should come from me. That I should give up some of my equity in the company, since we would now be splitting the responsibilities.

  “That’s bullshit!” Lorraine shouted, once I had explained to her what Reed was asking for. “You guys started out fifty-fifty even though you were doing all the work, pulling sixty-hour weeks as CEO and he was sitting on his ass as chairman. Now that he actually has to come to the office, suddenly the fifty-fifty isn’t good enough?”

  Lorraine was furious, shaking her head so hard I thought she might hurt her neck. I tried to calm her down, but it was a lost cause. “It’s bullshit,” she kept saying. “Bullshit. That’s all.”

  After she stomped upstairs to the bedroom, I sat quietly at the kitchen table and carefully closed the lid of my laptop. I knew it would take me a while to get to sleep. There were a thousand things going through my mind—how we’d break the news to the rest of the company, what I was going to say to Reed the next day about the options. How my role would change in the coming months, and how I’d deal with the transition.

  The future of the company stretched before me, daunting and open, and although I couldn’t say, that night, that I was at peace with my decision, I knew that I would be, someday soon. I was starting to see how Reed and I could work together to make the company a success. I could practically hear the engine of our collaboration start to hum.

  13.

  Over the Hill

  (spring 1999: one year after launch)

  WE MOVED THE COMPANY to Los Gatos in March of 1999. The new office was just over the hill on 17, as close to Santa Cruz as you could get and still be in the Valley. It was fourteen minutes from my house. A far cry from the five-minute drive I’d grown accustomed to, that first year. But long enough to get three, or sometimes four, run-throughs of Sweet Adeline, or Down Our Way, or whatever barbershop quartet song I was working on at the time.

  Let me explain. A few years before Netflix, in the mid-nineties, Lorraine was worried that I was burning myself out. She suggested I get a hobby that had nothing to do with work. “You always sing in the car,” she said. “Why don’t you join a choir?”

  I not only joined a choir, I joined the Society for the Preservation and Encouragement of Barber Shop Quartet Singing in America. SPEBSQSA, for short. No women allowed. (They had their own group: the Sweet Adelines.)

  The society had chapters all over the world, and the closest one was in Santa Cruz. Every Tuesday night, there was a group sing in the community room of the Felton Bible Church. Anyone who was a member of SPEBSQSA could drop in, and because of the standard repertoire, there wasn’t any confusion, once you knew the songs and your part in them. Every sing started with “The Old Songs,” the official theme of SPEBSQSA. After that, the director would call out different songs, sometimes relying on member requests. And after two hours or so, sometimes we’d go out for a beer.

  There are four voice ranges in barbershop singing. Tenor is the highest, followed by lead, baritone, and bass. Since there are only men singing, there are no alto or soprano parts, and the ranges are much closer together. That leads to really tight harmonies—singers used to the wider ranges of mixed choirs often have a difficult time adjusting to the tricky parts that barbershop demands. Singing in a big mixed choir feels like being in an orchestra, with the timpani and double basses in the back and the flutes and violins in the front. But barbershop feels more like a guitar, one person playing chords made up of strings tuned pretty close together, in timbre and pitch.

  I loved singing barbershop. I loved feeling like part of an instrument, feeling a chord come into being. I rarely sang the lead melody—instead, I was often tasked with intricate close harmony, just off the main line. I was a supporting voice, completely necessary but not the first thing you heard. Barbershop’s like that—it’s a truly collaborative form. Take out any of the parts, and the song doesn’t sound right.

  I never performed in public with SPEBSQSA. That wasn’t the point. The point was those Tuesday nights. I attended them religiously. They were like AA meetings for me, except instead of sad stories and burnt coffee, there was joyful, old-timey music. Those nights kept me sane.

  They almost drove my family nuts, though. To practice, I sang along to barbershop tapes in the car—special tapes that isolated my part. On the A-side would be just your part, and the B-side would be all the others, with your part dropp
ed out. The idea was, you could play the A-side ten times in a row to really nail down your harmony part, and then flip the tape to practice singing it with the rest of the ensemble. This is a useful technology, but it’s exceedingly annoying for any passenger not enamored of barbershop quartets. Like my son.

  “Stop singing!” Logan used to yell, strapped into his car seat, with his hands over his ears. “No more singing!”

  I’d stop. But when I was alone, driving to and from work, I really let it rip.

  It strikes me now that those morning singing sessions were useful preparation for the work I was doing in the office in late 1998 and early 1999. Every day, I was redefining my role. I wasn’t always the lead voice anymore. I wasn’t always in front of the ensemble. But I was part of a group, and we were making a big, beautiful noise together. I was learning how to sing a tight, close harmony with Reed.

  Officially that spring, my title was “president.” Day-to-day, little about my job had changed. I was still in charge of the aspects of Netflix that I loved (and was good at): customer relations, marketing, PR, web design, all the movie content, and our ongoing relationships with DVD player manufacturers. Reed took over the back end: finances, operations, and engineering. As far as I was concerned, the job titles were irrelevant. But titles mattered to VCs, and I wasn’t stupid: I knew that when it came to raising money for a rapidly growing (and still not profitable) startup, having Reed as CEO was one of our best assets. Reed’s presence calmed the board and reassured potential investors. That spring, I was more than happy to take a backseat pitching our company. I did what I did best: helping Reed soften his edges with both investors and employees.

  Another person tasked with smoothing things over where Reed was involved was Patty McCord. Reed had brought her into the fold to run HR soon after we announced that we’d be running the company together. She’d been director of HR at Pure Atria, and she’d long been Reed’s right-hand point person. She was a sort of Reed-whisperer. She understood him like few people did and, more importantly, knew how to nudge him into social niceties. Reed can be…blunt. Patty can be, too. But she’s blunt in a charming, Texan way—she understands social graces. Patty knew that Reed didn’t always notice when he’d ruffled someone’s feathers, and that he was often oblivious to other people’s hurt feelings—especially people who didn’t know him well, like I did. If there was a contentious meeting, Patty knew how and when to take Reed aside and gently suggest that maybe he should apologize for calling somebody’s idea “totally unsupported by reason.”