“The idea means nothing because in almost every case the eventual successful business ends up bearing little resemblance to the original idea.”

by Marc Randolph, Co-Founder of Netflix

You have to disrupt yourself, before someone disrupts you

Innoboard: What was the biggest challenge when you transformed your business model from an ‘ordinary’ service to the “game changing” streaming service we use today?

Marc Randolph: When we started Netflix as a DVD by mail service, everyone agreed that eventually movies would be delivered digitally, rather than on physical media. But what no one could agree on was when that was going to happen. Although some people thought it was right around the corner, Reed Hastings and I were pretty sure that it would take much longer than everyone thought. So the big challenge was how do you build a brand when it was just a matter of time before your entire world shifted.

Although we could easily have positioned the early Netflix as “the fastest way to rent DVDs”, or the “easiest way to rent DVDs”, that would mean nothing once things went digital. So our biggest challenge was building a company that was relevant in a DVD universe, but stayed just as relevant in a digital one. Our solution was to position Netflix as delivery agnostic. We said we didn’t care how people chose to receive their movies – we would just concern ourselves with helping them find great things to watch. That worked with DVD. It works for streaming. And it will work with whatever new distribution techniques may arrive in the future.

Why, do you think, has Blockbuster not recognized the new technology curve? What can other companies learn from Netflix’s success story?

Blockbuster was clearly slow to recognize the threat that Netflix was to their business, and by the time they sufficiently responded it was too late. One problem for them was that they thought of themselves as an entertainment company, whereas we thought of ourselves as a software company. And from the outside, it was very difficult for people to discern just how sophisticated our systems were – leading people to underestimate us.

On one hand, the fact that a small startup like Netflix could bring down a huge multi-billion dollar company like Blockbuster is tremendously inspiring, in that there is no limit to what a small startup can achieve. But that story is going to feel completely differently if you are a huge multi-billion dollar company worrying about who is about to do it to you. The internet has allowed people all over the world to innovate rapidly and bring new solutions to old problems at an absolutely remarkable speed. Companies that can’t adapt to this rate of innovation are doomed. You have to disrupt yourself, before someone disrupts you.

What is, in your position as an investor, your most important hard and soft factor for evaluating an innovative idea or business model?

By far the most important thing to me is the entrepreneur. The idea means nothing because in almost every case the eventual successful business ends up bearing little resemblance to the original idea. So in many ways it is the talent, perseverance, and creativity of the entrepreneur who guides that search process as a company twists, turns, and evolves from their first idea to their ultimately successful one.

With that in mind, there are a number of things I look for in an entrepreneur. An entrepreneur needs to be persistent; every startup faces dozens of setbacks and you need to have the strength to get back up and charge back in every time you’re knocked down. An entrepreneur needs to be confident; when your friends and colleagues tell you “that will never work” you have to have the strength of vision to always believe that it will, and then have the strength to make those seemingly impossible things actually happen; and finally, an entrepreneur needs to have an un-erring intuition as to which two or three things – of the hundreds of things that are broken in a young business – actually are the few things that will ultimately make a difference if you get them right. And then have the strength to focus on them, despite so many other distractions calling out for attention. I bet the jockey – I never bet the horse.

 

Marc Randolph is a veteran Silicon Valley entrepreneur, advisor and investor.  Marc was co-founder of the online movie and television streaming service Netflix, serving as their founding CEO, as the executive producer of their web site, and as a member of their board of directors until his retirement from Netflix in 2004. 

Although best known for starting Netflix, Marc’s career as an entrepreneur spans more than four decades.  He’s been a founder of more than half a dozen other successful start-ups, a mentor to scores of early stage entrepreneurs, and an investor in numerous successful tech ventures (and an even larger number of unsuccessful ones). 

Most recently, Marc co-founded analytics software company Looker Data Sciences,  and currently serves as an advisor to five other startups, serving variously as a mentor, CEO coach, and/or board member.

He is a frequent speaker at industry events, works extensively with young entrepreneur programs, and is a trustee of the non-profit National Outdoor Leadership School.

 

ILI CONSULTING AG thanks Marc Randolph for this interview.

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