A Conversation with Netflix Co-Founder & Founding CEO, Marc Randolph

A Conversation with Netflix Co-Founder & Founding CEO, Marc Randolph

Marc Randolph is a veteran Silicon Valley entrepreneur, advisor, and investor. As co-founder and founding CEO of Netflix, he laid much of the groundwork for a service that’s grown to 210 million subscribers, a market capitalisation of over $240 billion and which fundamentally altered how the world experiences media. He also served on the Netflix board of directors until retiring from the company in 2003.

Marc’s career as an entrepreneur spans four decades. He’s founded or co-founded six other successful start-ups, mentored hundreds of early stage entrepreneurs, and as an investor has helped seed dozens of successful tech ventures (and just as many unsuccessful ones). Most recently, he co-founded analytics software company Looker Data Sciences, where he now serves as director. Outside of the tech and startup world, Marc sits on the boards of Chubbies Shorts, Augment Technologies, the environmental advocacy group 1% For the Planet, and the National Outdoor Leadership School (NOLS), which he’s been involved with for most of his life.

In this interview, I speak to Marc Randolph about success, funding & building multi-billion-dollar businesses with brilliant culture and what it takes to be an entrepreneur.

Q: What does entrepreneurship mean to you?

[Marc Randolph]: I question whether I’d have been able to hold down any other job if that had been required of me; I don’t have the attention span.

I’ve been in entrepreneurship for over 40 years, and when I started there wasn’t this ‘thing’ about entrepreneurship. Certainly, there were entrepreneurs- but people didn’t talk about it the same way. We didn’t have the TV shows and movies… it was just this compulsion that myself and others had to build something. You saw a hole, you had to fill it. You saw a problem, you had to fix it. I’ve been drawn to that for as long as I can remember – and I’m just extremely fortunate that it turned out I could make a living doing that!

Q: How do you know which ideas to pursue?

[Marc Randolph]: I really went down a few false paths where I believed there might be some formula for what makes a good idea; was it economics? Was it the category? Thank goodness I realised it’s fundamentally much simpler. The right idea is one that fascinates you, that you can’t get out of your mind, that’s a puzzle you want to solve.

The path from a raw idea to success is a long one- full of frustration, dead-ends…. If you don’t have something that genuinely fascinates you, you’re going to give-up long before the point you finally stumble on the thing that works. Life is about trying to do things that interest you – and not everything will work – how much better is it to work on something you enjoy though? Even if later, it doesn’t turn out to be an economically viable proposition.

Q: How did you develop that early customer traction with Netflix?

[Marc Randolph]: With a start-up, you have to start long-before it’s obvious there is a there where you’re going. Certainly, with Netflix it was no different. We had this crazy idea of doing DVD rental by mail. At the time we had the idea – DVDs weren’t even out yet, the market was still in ‘test’ mode. When we launched the company in April 1998 there were less than half a million DVD players sold in the United States totally. It was a needle-in-a-haystack trying to find someone with a DVD player who might actually want to buy or rent a DVD from us! Just as we were trying to figure this out, we realised that DVD manufacturers had the same problem. They were saying, ‘How can we sell DVD players when there aren’t any movies to rent?’ – we saw a win-win! Before and after we launched, I spent months camped out in parking-lots of office parks trying to convince DVD player manufacturers to partner with this little 25-person start-up in California that was trying to do this crazy idea… I managed to convince 98% of the DVD manufacturers to work with us, to put a coupon in each of their boxes offering free DVD rentals if you buy the player. This certainly sustained us in the early days – it gave us customer flow to experiment with and took us down the journey of trying to figure how to make the business work.

Q: How did you decide to shift the business model into streaming, and shift the company so fast?

[Marc Randolph]: At Netflix, we shifted our business model numerous times. This happens at every start-up. When you start- the thing that you start with is almost never the thing that becomes successful. My book and podcast are called That Will Never Work because that’s what people told me when I went round pitching this ridiculous idea of DVD rental by mail. Lo-and-behold, in April 1998, when we finally launched this company – they were right, it didn’t work, it was a terrible idea. People had two objections. Firstly, Blockbuster. Why would people rent by mail if there was a rental store in every corner? They also noted that DVD is a digital format – and so it was only a matter of time before everyone started downloading or streaming the content. We knew at the beginning that eventually we’d have to acknowledge the fact that you could just stream or download movies, we just knew it wasn’t then. We also bet that it wasn’t going to be in the too-distant future. We had to build a company that worked now, which was economically viable, yet could shift when the world did without losing everything.

Our not-so-simple trick was to build a company that wasn’t about DVD’s or streaming. We didn’t want to be the best shipper of plastic, nor the best streaming technology, we positioned ourselves as a great place to find stories. We could make that true in the DVD world and the digital world through things like our taste-engine meaning that whether the product came in the post or through a wire, customers saw it as the same.

Q: Did your choice of market, or pivot, influence your company culture?

[Marc Randolph]: The Netflix culture would have worked even if we were selling cat litter. The culture had nothing to do with streaming, DVDs, or pivots. Culture is not aspirational, it’s observational. It’s not something you and your co-founders sit down, dream-up, put into PowerPoint, and create some posters from, for the break-out room. Culture, simply, is how you behave and how you treat your co-founders, employees, and customers. People see that – and it becomes culture. The dramatic things you see about Netflix’ culture today sprang from how Reed and I were, and how we treated each-other and our employees. One of the things that drew Reed and I to each other early on was the fact that we had this thing about being honest. I don’t mean in counterpart to being dishonest- but in the sense that life’s too short to shade the truth… life’s too short to spare someone’s feelings… life’s too short to not say it like it is. That’s how the Netflix culture of radical honesty began. Other aspects of Netflix culture sprang from being an early-stage company where you had 10 people doing things that could keep 100 people busy! We didn’t have the time for command and control – we had to give people objectives, and dates, and trust things would get done. This was combined with giving people the freedom to solve problems any way they wanted. That combination of freedom and responsibility isn’t alien in the start-up world, but what’s unusual about Netflix is that we preserved it as we grew. Freedom and responsibility are incredibly powerful tools- not just to get things done- but to attract and retain amazing people.

Q: How did you scale the culture of freedom and responsibility when other similarly sized companies haven’t been able to?

[Marc Randolph]: The layers of compliance that appear in companies are basically what the company does to protect itself against bad judgement. They build guardrails. At Netflix, we decided to flip that around – rather than building systems to protect ourselves from bad decisions, we built systems of judgement, systems that are optimised for the people who have good judgement. That means you have to be more disciplined about who you have in the company – you cannot surround yourself with people who have bad judgement when the guardrails are off.

There’s also the predictability problem. In a start-up there’s no predictability ­– in general, you’re struggling to find a repeatable, scalable business model until lo-and-behold you get there, you get that repeatable, scalable model that allows you to start competing and scaling. Suddenly, you can see your quarterly numbers going up pretty-regularly, you can see 8-12 quarters out into the future, and you begin optimising. You start shortening supply chains… shaving some points off your margin here and there… getting your costs down… but then the world changes dramatically and the people who were good at the repeatable things every quarter aren’t so good at change. At Netflix we wanted to make sure we kept people who are continually able to respond to any change – where a shift in direction wouldn’t be frustrating but would be exciting. If companies can’t figure out how to do that – they’re like ocean-liners in the fog, hoping they don’t’ smack-into something they can’t see.

Q: How has fundraising, and the relationship of money to start-ups changed?

[Marc Randolph]: It was almost 20 years ago when I raised my first funding round… so let’s just say I’ve got a lot better at it. I’ve become a lot more comfortable raising larger sums of money, but the world has changed too and the valuations we see for early-stage companies now are unimaginable. When Netflix went public, we had a market cap of around $300million. That’s like a Series B now. It’s wonderful and ridiculous.

The fundamental premise of fundraising hasn’t changed much. In my opinion, investors don’t make entirely logical and arithmetic decisions – how can they! There’s too much uncertainty… that’s the nature of the start-up world. The reason that returns can be extraordinary is precisely because of the risk. When presenting a company, you have to show you have your hands on the wheel of course – you need to know what drives the business, what metrics need tracking and what you need to get right, but fundamentally people are looking at you, as a person, to see whether you are going to be able to steer the company where it needs to be taken. The investor wants to know you have the courage to recognise when something isn’t working… that you would be willing to walk away from the present to address the future… so rather than going in armed to the teeth with numbers, you need to demonstrate that yes you are comfortable with the numbers, but more importantly, that you know who you are, what you’re capable of, and that you can be trusted to deliver.

Q: What were some of the hard lessons you learned from building a scale-up?  

[Marc Randolph]: The people who were there at the beginning may not be the people who are scalable… The skill set that goes into starting a company is very different to the skill set of scaling a company. One of the reasons a lot of companies fail to scale is because they don’t recognise that. As a founder, one of the hardest things you ever may need to do is take someone into your office who was there from the beginning… from day one… from day -180… who worked tirelessly… who did everything you asked… who worked nights and weekends… but who you now recognise doesn’t have the skills for the next chapter of the business’ journey. Maybe you need to bring someone in above them or even replace them. It’s brutal and painful, but you have to do it. You need the courage to make that call, even when it’s you… you need to look in the mirror and ask whether you have the skills and experience needed to bring the company to the next level… is it your obligation remain at the helm as the company grows… You have to recognise when to stop… when your skill set has been exceeded.

Q: What does success mean to you?

[Marc Randolph]: I’ve been extremely lucky in a whole bunch of ways. I grew-up in a fairly wealthy town, in a fairly affluent family, but recognised early on that there wasn’t a direct link between money and happiness. I saw plenty of people who were captains of industry, yet who were divorced and who had kids who weren’t speaking to them.  That observation stuck with me. I also remember when I turned 30. I’d been living with my girlfriend (who is now my wife!) for a number of years. I was knee-deep in becoming an entrepreneur, working all the time, nights, and weekends. It dawned on me that my girlfriend was getting the leftovers of my time – it wasn’t the basis for a sustainable relationship. To make things more complicated – the thing I enjoy most as a personal passion is the outdoors. I love mountain biking… backcountry skiing… kayaking… these are things you can’t squeeze-in between calls. You have to block out enough time to take two bush-planes to Northern Alaska, and then to float on a river for two weeks! In my late 20s and early 30s I had to cancel my subscription to Outside magazine as it was just too painful to see people doing things I couldn’t do. Success to me means balance – something I now have after being a part of building six start-ups (two of which became multi-billion-dollar companies).

More than my business success – I’m proud of the fact that whilst doing all of that, I’ve been able to stay married to the same woman, to have my kids growing up knowing me and (as far as I can tell) liking me. I’m proud that through that whole period, I was able to have balance and do the things in life I enjoy.

Q: What does legacy mean to you?

[Marc Randolph]: Not too long ago, I had this revelation about having a platform. I was speaking at events where I’d have 10,000 people show-up and I’d have an hour of the time. I realised I had to do something positive with that platform. I also realised that all things I learned over 40 years of entrepreneurship were broadly applicable. It wasn’t just broad start-up advice, it was how to make and take any dream someone had and try and take steps toward making it happen. I realised that my legacy was not going to be Netflix or Looker or one of my other start-ups, though they’re all kinda’ nice… but the fact that I could take an idea and make it real. I want to share with people the tips, tricks and secrets of what it’s really like in a start-up, that’s why I do my podcast where- instead of interviewing celebrity entrepreneurs- I live-mentor people struggling with real problems in their business. I don’t need to do this for a million people – if I can do it for one here, one there, five here, 20 there… I’m happy with that.

Thought Economics

About the Author

Vikas Shah MBE DL is an entrepreneur, investor & philanthropist. He is CEO of Swiscot Group alongside being a venture-investor in a number of businesses internationally. He is a Non-Executive Board Member of the UK Government’s Department for Business, Energy & Industrial Strategy and a Non-Executive Director of the Solicitors Regulation Authority. Vikas was awarded an MBE for Services to Business and the Economy in Her Majesty the Queen’s 2018 New Year’s Honours List and in 2021 became a Deputy Lieutenant of the Greater Manchester Lieutenancy. He is an Honorary Professor of Business at The Alliance Business School, University of Manchester and Visiting Professors at the MIT Sloan Lisbon MBA.