But I wasn’t kidding. Hadn’t I seen it before? All of the consumer electronics companies saying “no thanks” to our “3-FREE-DVDs!” coupons. Alexandre Balkanski shaking his head wearily. Over and over in the Netflix story, I’d listened to people tell us no—and then watched as, slowly, they changed their minds. Or were proved wrong.
I knew that our idea was good. It might not happen now, but it would one day.
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.
An example:
My dream coming out of college was to land a job in advertising. Quite a leap for someone who had graduated with a degree in geology, but I’m optimistic. And persistent.
The only job in advertising accessible to an undergraduate with my nonexistent qualifications had been a position as an account manager, the “suit” who was the interface between the client and the advertising agency’s creative team. Although this was predominantly a job that went to MBA graduates, some agencies did extend their recruitment to undergraduates, so I jumped at the chance to interview when a representative of N. W. Ayer came to campus.
To my surprise, I made the first cut and was invited with a dozen other students to come down to New York City to interview. After a full day of meeting with representatives from almost every department, I again got the news that I had made the cut, the only one from my school to do so. I was now one of only five students from throughout the Northeast, all of us competing for a single job.
I didn’t get it.
I bounce back quickly, so my disappointment in not having gotten this dream job quickly turned to confusion. What could I possibly be missing that some other candidate had? Ignorant of all the invisible criteria that were being applied to me (and that I would be especially aware of when it was later my turn to be on the hiring side of the table), I frankly couldn’t conceive of what I was missing.
So I decided to ask.
I wrote a long letter to every single person who had interviewed me, taking the opportunity to recap for them all of my positive traits. I explained that while I had concluded that I must be missing something important, I was hoping they might be able to explain to me exactly what that was. “You see,” I explained, “since there is a one hundred percent certainty that I will be applying for this job next year, I would like to take the time to work on whatever skills I am deficient in.”
I’m cringing thinking about this now.
But it worked. Just four days later, I got a call. One of the senior partners in the agency wanted to meet with me. This was the guy who ran the whole business side of the agency. Several days later, as we sat in a plush corner office forty-two stories above Sixth Avenue, he offered me the job. It turned out that none of the candidates had actually been offered the job the first time around. N. W. Ayer knew that being an account executive was a selling job. A turning-a-no-into-a-yes type of job. So they had said no to all of us.
And I was the only one of the candidates who hadn’t taken no for an answer.
Microsoft didn’t agree to partner with us. But someone would.
In the meantime, I was quietly redefining my role at Netflix. I wasn’t president anymore. Technically, I was an executive producer—even then, we were starting our transformation from geeky software startup to full-fledged entertainment company. (Now, if I could only remember which dry cleaner had my New Media Outfit…)
Reed had the reins. And he deserved them. Raising over $100 million in capital would never have been possible without him. His leadership had taken us through the dot-com bubble’s age of irrational exuberance—and beyond it.
I was in a funny position. I’d founded Netflix. I had seen the coming internet wave and had paddled in at just the right moment. It had been, in the beginning, my company. But slowly, ever since that fateful PowerPoint from Reed, things had shifted. I was fine with that. Reed’s emergence as the face of the company had saved our asses. But it had also left me somewhat marooned between the past and the future. And the future was something I was thinking a lot about in 2002.
I had family I adored: three young children and a beautiful marriage with my best friend. I wanted to make sure that the future was assured, for each of them. And though I’d earned enough at my previous startups to live comfortably, this was going to be a financial event of a totally different magnitude. Put simply: I didn’t want all my assets to be tied up in one company’s stock, no matter how much faith I had in it. I had seen too many people lose everything due to circumstances beyond their control, and I was smart enough to know that I didn’t want that to be me. If we were going to go public in 2002—and after we hit one million subscribers in December, and Barry started making the rounds again with banks and potential investors, that was looking likely—I wanted to be able to sell my stock.
The problem, of course, is that banks and investors don’t usually view a high-ranking executive in the company selling off massive amounts of stock as a good thing. It looks bad—like he knows something they don’t.
That wasn’t the case for me. I had complete confidence that Netflix was going to succeed. I’d never been surer that the company we’d built was destined for long-term success. I just wanted the option to sell.
For that to happen, I needed to be way less visible to banks and investors. I couldn’t be listed as “president” on our S-1. That meant two things needed to happen: First, I needed a title that didn’t make it look like I was in charge. And second, I needed to give up my seat on the Netflix board.
The first was easy. I don’t care about titles, and I never have. “Founder and Executive Producer” was fine with me.
Leaving the board was a little harder, though. I’d fought hard for that seat. And I’d already almost lost it once. Soon after assuming the role of CEO, Reed had asked me to give up my seat so that an investor could take it. I’d refused, adamantly, arguing that I’d give up my title as CEO, I’d even give up some shares—but I wouldn’t give up my seat on the board of directors. That was one step too far. I wanted some control over the direction of the company, and I thought it was important that a founding member of the company was there to counterbalance the interests of the VCs.
“Everyone who’s ever been on a board says that they’re only interested in the success of the company,” I’d told Reed. “But you and I both know that ‘success’ means a slightly different thing to VCs than it does to a company’s founders.”
This is true, by the way. It’s something I tell startup founders all the time now. VCs will always say that they’re aligned with your mission, that they want what’s best for the company. But what they really want is what’s best for their investment in the company. Which isn’t always the same thing.
Everyone is aligned when the wind is blowing the right way. It’s when a storm comes up that all of a sudden it becomes apparent that people have different goals and objectives.
Reed hadn’t quite seen it that way. But Patty, the Reed-whisperer, had agreed with me.
“If things go bad,” she’d asked him, “who do you want around the table? Who do you want there, so that when you need to ask a tough question, you know you’ll get a straight answer?”
Reed later told me that the second Patty asked that question, he knew that keeping me on the board was the right thing to do—not just for me but for the company.
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. It was clear by early in the year that no dot-com bubble was going to stop us this time. We were going to go public. And it was going to be a life-changing event.
Too bad I had no idea what that change was going to look like.
“Dad, what’s a tail numbe
r?”
Logan strained against his seat belt in an attempt to see out over the dashboard. I rolled up my window as the metal gate slowly opened in front of our car. Ahead of us, a plane sat waiting for us on the runway, its wing lights blinking in the predawn sky. I drove out to meet it on the tarmac.
“I asked the same question last time I did this,” I told him.
It was May 22, 2002—the day before our IPO, and about five years after I’d first lobbed the idea of DVDs by mail across the car to Reed. I wasn’t driving a Volvo anymore. Six months earlier, my economic confidence growing, I’d finally taken the plunge and bought a new car, an Audi allroad. It had four-wheel drive for driving through snow, adjustable height suspension for back-road approaches to my favorite surf spots, and, of course, space for two car seats in the back. It wasn’t a luxury car, in most people’s eyes—but it felt like one to me. I covered my embarrassment about such conspicuous consumption by never washing the exterior and always keeping a surfboard, a bicycle, or a wet suit stashed in the back.
The Audi wasn’t the only upgrade in my life since our ill-fated trip to Blockbuster HQ in Dallas. The plane was a step up, too. We weren’t flying in Vanna’s Lear anymore. Instead, Reed had chartered a Gulfstream G450. Where the Learjet was small and delicate, like a toy plane, the Gulfstream was heavy, powerful, and menacing. The stairs leading up into it were solid and substantial, unlike the Lear’s flimsy, dangling steps. Upholstered and plush, with huge leather club chairs, the interior felt like the lounge of a luxury hotel. Forget having to stoop—the ceiling was full height. The walls barely seemed to curve. Without the circular windows, it would be easy to forget that this lounge would soon be heading east at almost 700 miles per hour.
Logan could barely believe his eyes. Pushing past me as he came through the doorway, he excitedly yelled an inventory of all the plane’s luxurious appointments. “Check it out!” he said, running down the aisle. “A couch! On an airplane!”
He launched himself onto it, stood back up, then jumped again to a new position a few cushions down. After a few moments he chose his own money seat, sat back comfortably, crossed his legs, and beamed. “This is my seat,” he announced.
I stashed my backpack under the polished walnut table that sat between four of the club chairs and settled in. Turning to look out the window, I could just see Reed’s gold Avalon pulling up to the plane. Walking briskly across the tarmac, he was clearly in business mode: black linen pants, the gray turtleneck, this one with a Netflix logo on the chest.
I’d made the appropriate gestures toward business attire myself. I was wearing my only clean pair of khakis and a gray blazer, the collar of my black polo haphazardly escaping from beneath it. I’d dug up a pair of black tasseled loafers and polished them the night before, and I’d worn my “dressy” glasses, a pair of tortoiseshell frames that—I thought—made me look like an economist. In a nod to sartorial elegance and techy flair, I’d made sure to clip to my belt my trusty StarTAC phone.
“Big day tomorrow,” Reed said as he settled into the seat across from me. “Merrill is thinking we’ll probably be in the thirteen- to fourteen-dollar range.”
He leaned out into the aisle to wave to my son. “Hi, Logan.” He added, “Lookin’ sharp!”
Logan smiled and waved back. He did look good. Lorraine had spruced him up nicely. When we’d decided that he would accompany me to New York, we had quickly decided that his usual uniform of shorts and T-shirts probably wouldn’t cut it, and Lorraine had made a trip to Mervyn’s, the discount clothing store at the Capitola Mall. She’d returned with a blue blazer (“Special! $39.99!”) and a sharp pair of $18.49 black loafers.
“I don’t care how much money we’re going to have after this,” Lorraine explained to me as she expertly cut the tags off the new jacket. “He’s ten. It just doesn’t make sense to spend a lot of money on something he’s just going to grow out of.”
“Or spill something on,” I added.
Lorraine had also picked up a red necktie for him, but once Logan learned that I wasn’t planning on wearing one, he insisted on leaving his behind, substituting a shark-tooth necklace he hadn’t taken off since his summer on the beach as a Junior Guard.
Just as I got up to show Logan how to fasten his seat belt, Barry stepped onto the plane, briefcase in hand. As usual, he looked better than all of us: banker’s haircut, blue blazer, blindingly white shirt, and—unlike the rest of us—a beautiful silk tie.
“My name’s Barry,” he said, leaning over the top of his seat to shake Logan’s hand. “Glad to see you’ll be helping with the opening.”
It was just like Barry to treat a ten-year-old-boy like he was an executive of the company—or at least like he one day could be. You never knew who might end up being useful to you.
“Jay’s running late,” he said to no one in particular, settling into a chair. He pulled a yellow pad out of his briefcase, then slid his case into the space next to his seat.
Jay was Jay Hoag, one of our VCs. It was no surprise that he’d wanted to come east with us—he was our biggest investor. Jay had co-founded a venture capital firm called TCV, short for Technology Crossover Ventures, with the mission of supporting companies with investments both before and after their IPOs. His support had been critical to our success. TCV had not only led our Series C funding in early 1999 with a $6 million investment, but more importantly, they had convinced LVMH, the French luxury goods conglomerate, to follow their lead. Based almost entirely on Jay’s having vouched for us, the LVMH representative had flown to Silicon Valley, taken a single one-hour meeting with me and Reed, and then, just a few days later, wired over $25 million.
Best of all, on April 4, 2000—just ten days before the dot-com bubble truly burst—TCV had gone all-in, with an additional $40 million. Considering the timing of that investment—and the Silicon Valley carnage that followed—Jay must have been pretty sure that he’d seen the last of his firm’s money. It must have been especially pleasing for him now, two years later, to be flying toward a Netflix IPO—just one more passenger on the last leg of a wild ride.
Somewhere over Nebraska, as we descended for refueling, Barry pulled out his phone.
“Just want to see how the book is building,” he told us, tucking the phone between his ear and his shoulder and opening his pad to a clean page. “Market’s almost closed. They should have a pretty good idea of what’s queued up for tomorrow.”
“Building the book” is the final stage in the run-up to an IPO. The process had reached peak intensity just a few days before, when Reed and Barry had gone on the road to present the Netflix story to potential investors.
On the day you take a company public, only some of the stock is bought by individuals—“retail,” in Wall Street terms. The majority of what gets sold on day one is institutional: large funds managed by sophisticated investors who are taking the long view. Think pension funds, university endowments, retirement funds, mutual funds—not to mention “ultra-high-net-worth individuals,” people with so much money that they hire entire offices of investment professionals to manage it.
Since Merrill Lynch, the lead bank in the consortium that was taking us public, had committed to selling more than $70 million worth of stock on opening day, they weren’t going to leave anything to chance. So in the two weeks leading up to the IPO, they had put together a tightly choreographed “road show” that covered all the major financial markets. Like a Broadway production of Miss Saigon opening in New Haven before hitting the Big Apple, the road show began far from Wall Street and ended in New York. Starting in San Francisco, in front of tech-friendly investors, the chartered jet had made stops in Los Angeles, Denver, Dallas, Chicago, and Boston before finally landing for two days in New York City. At each stop, Barry and Reed had been rushed from office to office, conference room to conference room, breakfast meeting to lunch presentation, cycling through all the reasons Netflix was a compelling investment.
It took them a while to hone their pitc
h—to figure what worked, what was confusing, what they should leave out. At one point, mid-tour, after a tough night with a crying child, I had come to the office at five in the morning to find Joel and Suresh already at their desks.
“You’re here early,” I’d said, feeling as groggy and disoriented as Joel and Suresh looked.
“We’ve been here all night, actually,” Joel replied, explaining that Reed and Barry had been getting a lot of pushback about churn—the rate at which subscribers canceled their subscriptions.
“We’ve been looking at how different segments are behaving. But every time we send Reed the data he’s looking for, he comes back with another question.”
“Doesn’t that man ever sleep?” Suresh asked, rubbing his eyes.
The answer to that question was: barely.
But even Reed gets tired. By the time he and Barry got to New York, the two of them were basically sleepwalking through the presentation. Luckily, they’d honed it to a fine, focused point. By the end of the tour, Barry told me later, they were finishing each other’s sentences, anticipating investors’ questions before the words were even out of their mouths.
Once Barry and Reed finished the tour, the baton was passed to Merrill and its fleet of salespeople, who followed in their footsteps, gathering in whatever demand Barry and Reed had created, and then funneling it to the main desk in New York, where it was tabulated in a detailed electronic register, still called—by tradition—“the book.”
The book wasn’t written in indelible ink, of course. All of the preliminary orders—excuse me, “expressions of interest”—had been made with only a rough idea of price. Some customers wanted Netflix regardless of what it was going to cost, while others had a clearer view of what price it would eventually trade at—and could then set strict upper limits. Below that price, they were in. Above it, and they were out.
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