Marc Randolph and Reed Hastings went through several carpool rides and many bad ideas (custom dog food anyone?) before landing on a subscription service that mailed movies to people at home. They tossed it out. In the era of VHS, the two couldn’t imagine how to cheaply and safely get the tapes to customers.
Randolph, the co-founder of Netflix and its first CEO, tells the story of how all ideas start as bad ones, and the work needed to turn a concept into a proven winner — including the work that led to Netflix.
“If you can’t tell a good idea from a bad idea in advance, the one way to figure it out is to do it,” says Randolph.
You can hear more from Randolph and the Netflix origin story as he talks with Dorion Positano on P&G’s podcast, “More Than Soap” from the MP3 below, or read our lightly-edited transcript. Are you a P&G employee? Feel free to also sign up for future episodes of “More Than Soap,” or reach out to Dorion Positano by email at positano.d – at – pg.com.
Transcript:
Dorion Positano
Hi everyone, this is Dorion Positano. Hello, and welcome to the “More Than Soap” podcast. For those who are new to the podcast, we launched More Than Soap as an innovative internal communications platform in 2021 to educate and inspire P&G employees around the globe. The guests that we have on provoke introspection, stimulate creativity, and encourage all functions to embrace possibility and big ideas.
In each episode, I sit down with an external expert guest followed by a post interview with a P&G executive. We also produce a bi weekly scripted series called improbable history with our P&G historian to educate employees about P&G’s most salient successes and failures that can be applied to today’s business challenges. We’ve done over 80 episodes now with VIP guests like Matthew McConaughey, Malcolm Gladwell, Edward Norton, founders, CEOs, neuroscientists, professors, leadership experts, psychologists and even meditation coaches as a commercial leader in P&G Ventures.
In my day job, I explore the development of new brands in new categories where P&G doesn’t play today. But beyond that, the company has given me the space to host this podcast, which has become successful, I think, because people are increasingly interested in getting outside of the dotted lines. So if you’re a P&G employee, go to get more than soap.com. That’s www.getmorethansoap.com to hear all 80 episodes and counting, and also to hear the post interview that we did with Gary Coombe, the CEO of grooming in response to this interview with Mark Randolph.
So today, you’ll be hearing from Mark Randolph, and although he’s best known as the co-founder and first CEO of Netflix, his career as an entrepreneur spans more than four decades, he’s founded or co founded half a dozen other successful startups, including Looker Data Sciences, which he sold to Google in 2019. For a cool $2.6 billion. He mentors a handful of other early stage companies and advises hundreds of other entrepreneurs. He is also an active seed investor in startups all over the world. He’s an author of an internationally best selling memoir, and host of the podcast that will never work, where he dispenses advice, encouragement and tough love to struggling entrepreneurs when he’s not surfing, mountain biking, or backcountry skiing.
Mark is a frequent speaker at industry events, works extensively with young entrepreneur programs, sits on the board of the environmental advocacy group 1% for the Planet, and chairs, the National Outdoor Leadership Schools Board of Trustees. Now this episode is for innovators, leaders, entrepreneurs and those just looking to shake things up. So without further ado, here’s my discussion with Mark Randolph. Hope you enjoy. Mark Randolph, welcome to the More Than Soap podcast.
Marc Rudolph
Well, it’s a pleasure to be with you. Thanks for having me on.
Dorion
So Mark, I know you’ve told the Netflix origin story about a million times now. But I think I’d be fired as host of this podcast if I didn’t ask you to tell it once again, for our audience here. So give us the story of how you met Reed Hastings. And ultimately, what led to your idea of renting DVDs by mail?
Marc
Well, like most companies, this one started driven by external forces, as they say. And in my case, it was the company that I was working for a company which happened to have been found that was being run by another gentleman named Reed Hastings was being acquired. And both Reed and I were going to lose their jobs. But we were losing them in that great Silicon Valley way where basically you have six months while two large companies go through their merger dance, where you have to come to work every day, but you don’t have much to do. I was at this point in my mid to late 30s. And I had already done five startups and so for me it was self evident that I would use this perfect six month window while I was getting paid, but I had nothing to do during the day to start my next company. And Reed, Reed he was sort of in a similar boat but he didn’t want to start another company. He was going to go become an educational philanthropist. He’s going to go back to school. We all get a higher degree of education wanted to keep his hands in. So we kind of came up with this plan, that I’d start a company that he would be my angel investor, he’d be the chair of my board, and off we’d go. But we needed an idea.
An important thing to know about this time is that I wasn’t a video guy. And neither was Reed. This isn’t like the two of us were driving to work together every morning debating who the best French directors were or debating who should get the Academy Award for cinematography. I had three kids under 10. So my video tastes were much more focused on Lion King and all the things I kept my kids entertained all the time. But we needed an idea, and I would spend this time commuting to work because Reed and I used to carpool together, I would pitch ideas for this new business to read. They were all over the place.
A lot of them were packaged goods, ideas, and here you go. I’ll pitch it to you here. Personalized shampoo by mail. Okay. I mean, picture this picture this, you cut off a lock of your hair, you mail it to us, my team of ace hair, scientists formulate a custom blend just for you.
Dorion
That sounds wonderful.
Marc
Yes. Great idea. Unfortunately, Reed didn’t quite see it that way. A couple days later, Reed, how about this one, custom dog food, we formulate a blend just for your pet for its age, its activity level, its gender, climate, whatever. And you subscribe to it. And he didn’t like that either. Okay, so no problem, I got more. Then a few days later, with pitched video rental by mail $8 billion category, entrenched market leader who everyone hates, there’s got to be a way to do this better. The thing that shot that down was that this was back in 1997. This was when video came on VHS, cassette, right. And it didn’t take a lot of research for me to figure out that I couldn’t make this work. It was too expensive. They were too heavy, they were too fragile. So that ended up in a big pile on the side of the road along the dog food and the shampoo. If there was any kind of breakthrough, if there was, as they say, and screenwriter speak, an inciting moment, it was one morning when Reed mentioned they’d heard about this new technology called a DVD that was thin and light and like a music CD, it helped movies. It made us realize that it might be the key to dusting off that old idea we’d abandoned a month or so previously, that we could maybe mail the movies to people using the US mail.
Here’s the key thing that happened and which is I think a key component to any innovation is that rather than taking this insight, and saying quick, let’s get to the office and begin working on a business plan. Rather than okay, we need to do a pitch deck and begin raising money. We immediately said let’s begin, let’s just collide this idea with some type of reality check. And so mid commute, we turn that car around, drove back down to where we lived and tried to buy a DVD, which of course was in test market, there weren’t any. So we settled on a used music CD, what that they went a few doors down and bought a little pink gift envelope like you’d put a greeting card in. We mailed the CD to Reed’s house. The very next morning, when he came to pick me up, he didn’t even need to say anything. He just kind of held up this little pink envelope with an unbroken CD and that had gotten to his house in less than 24 hours for the price of a stamp. And I think that’s kind of when we looked at each other and said, Wow, this actually might work.
Dorion
So DVDs come around, you validate the idea with a music CD, you and Reed, look at each other and see the potential. Something tells me there were still a few skeptics. So tell us, we’re people still insisting that will never work?
Marc
That was just the beginning. Because then of course I come charging back home that evening and lay it out to my wife how excited I am about this great idea for doing video rental by mail. And, her exact words were, “That’ll never work.” Thank you. But listen, I heard that 1000 times and I heard it 1000 times previously and everybody who has a new idea is going to hear that’ll never work. It’s just the nature of ideas.Certainly with Netflix, it was no different. I heard it from investors, I heard it from potential employees. I heard it from partners. It’s the truth. Nobody really knows if it’s a good idea or a bad idea. The fundamental reality is, if you can’t tell a good idea from a bad idea in advance, the only way to figure out if it’s a good idea or not, is actually to do it. And we realized, after a bit of research that the only way to figure out what this crazy idea was going to work was to try it. Reed, bless his heart, wrote a check for $1.9 million, got a small office, hired a dozen people spent six months building a this simple e-commerce website, which you could write put together in an afternoon now. And we actually opened Netflix for business.
Dorion
Wow. So what you just described reminds me of something else you’ve said, which is that, there’s no such thing really, as a good idea. Only bad ideas that turn good. So tell me, how do I explain that to a manager at P&G, who really doesn’t like my ideas?
Marc
The first thing is, I pity you. Thank you. What a challenge that’s going to be, and especially, uh, pardon me, I don’t want to disparage P&G, who we will have tremendous respect for, but I’m going to guess that the count is probably getting close to the millions of the number of times someone has gotten in front of a conference room full of people and said, “No.”
Okay, here are the rules. There’s no such thing as a bad idea. I fact, I think what I’ve learned in my 40-year career as an entrepreneur is that there’s no such thing as a good idea. There is no idea, which is going to work perfectly fully formed out of the box. All ideas have flaws. All ideas are bad ideas. It’s our job to collide those deals with reality one way or another, and begin figuring out why it’s not a good idea, begin finding those glimmers of truth about where we might begin to look for the good idea. It’s such a path, it’s a starting point. But every successful innovation that I’ve seen, almost never is the one that was originally conceived of.
So what I would tell to the people, these product managers who are set in their ways about rejecting all your great ideas, is that it’s a matter of practice. You can’t take the big bet, as the first bet. You have to become comfortable with the idea that you can try things and see what happens, it goes on. And you want perhaps the best analogy, if I could expand that for two seconds here. I’m gonna borrow from Jeff Bezos, who put it really well, which is that he always said there was kind of two types of tests, two types of decisions. He called them one-way door and two-way door decisions.
One-way door decisions are where you want to try something and you step through the door, and the door swings shut behind you and locks, and you can’t get back. Before you step through that door, you had better think it through, you’d better ask a lot of people, you better do your research, you better have your bases covered.
But there’s also two-way door decisions. Those you step through, and if you don’t like what you see, it’s no big deal. You just turn around and step back. Ehat happens is, over time, as companies begin to calcify, they start getting good at one-way door decisions. Then they begin treating every decision as a one-way door decision. The reality is when you’re trying to do things differently when you’re trying to innovate, when you’re trying to disrupt that almost all are two-way door decisions. Your danger is if you are making every decision the same way. Listen, if you’re a financier, if you’re a healthcare, if you’re a farmer, yes, you’ve got to be careful, but not with every decision. In reality, the great majority of innovations can be done in a way that they’re small, iterative. And if you don’t like what you see, you just turn around and step right back.
Dorion
But tell me, was there a point in time that you made a decision to really commit to something that led to Netflix’s success, which was renting DVDs versus selling. Can you can you talk to us about that and the life and death nature of that decision? Would you would you classify that as a one-way door?
Marc
I hadn’t thought about it that way before but perhaps, but for a different reason. What we’re referring to is right now people know Netflix as a very different beast than it was when we started it 23 years ago. Back then it was DVD rental by mail and we had set this goal we’re going to have a copy of every single DVD available at the time all 970 different movies.
As an afterthought, we said, we spent all this time making sure we could source every single DVD available, let’s begin selling them. So we began selling and renting. And lo and behold, an amazing thing happened we had this $100,000 month in month two, so a million dollar run rate. But the downside is that almost all that revenue is from selling DVDs. Nobody was renting. It was a downside. Because selling is a commodity business. And it’s just a matter of time before Amazon does it, and Walmart does it and P&G does it. And pretty soon, everyone is selling DVDs, and we’re out of business.
So we realized, we’re gonna have to focus because the reality is that doing both at the same time, was making it less likely we get either of them, right? It was confusing to customers, so they rented or they sell, the order process was complicated, inventory management was complicated. And analytics was always being argued about because there was so much arbitrariness to it. So we’ve got to pick one. And if we pick sales, that’s great. It’s 98% of our revenue, but eventually, we’re out of business. Now, rental, potentially could be huge, but there’s really no visible signs of it working at this point. And obviously it’s no mystery what we did. But we decided better to take this long shot at a potentially big success, then take a safe route, which little by little, is going to go under.
In one single day, we pulled the plug, walked away from selling DVDs, dropped our revenue by down to 2% of its previous level, and said all right, now we’re committed.
Dorion
That sounds like a pretty intense decision that you had to make at that point in time. And I know, you’ve said that your relationship with Reed was generally intense, to say the least. And I’ve heard you talk about your passionate shouting matches about various ideas, this may have been one of them. So tell me about your relationship with Reed. I want to know, if you think that we’re missing out on something at P&G, given that that type of working relationship, with shouting out matches and all, are often considered to be inappropriate.
Marc
So I need to set the stage, I don’t want people thinking shouting matches and imagining people storming out red in the face, throwing things at each other. Reed and I, from almost the moment we met each other, realized we shared a really important cultural value, which is honesty. Both of us are people who believe there’s really no time and no value in shading the truth. There’s no time or value in having ulterior motive, that the most best possible thing you could do is tell someone exactly what you’re thinking, including if you think their ideas ridiculous. Then you owe it to them to then begin to make a very logical, informed argument about why you think what they’re doing is wrong and why you think this other approach is right. All I can say to help you understand that as it’s egoless, right?
Because you eventually come to this realization that your fundamental premise was incorrect, in fact that what this other person is saying is absolutely right. Then instantly, it’s forgotten whose idea was who’s, who was taking a position. And now you’re both excited about the fact that you’ve used this process to come up with a right answer. So the shouting matches were just Reed and I basically being passionate about our belief. There’s a behavioral psychologist named Adam Grant, who I think said it, but I’ll get I’ll give him the attribution anyway. He said, basically argue like, you’re right, and listen, like you’re wrong. I think that’s what we were doing. That honesty pervades everything besides just decision making. It pervades the entire culture. They call it radical honesty, because you’re right, it is very rare. And there is a way to be honest with people without it being brutal without it being rude,
Dorion
Or without people, hopefully taking it personally.
Marc
Correct. What you find is that being honest with someone is the highest form of respect you can show them. So that’s what was going on here. So if people each contributing something, some piece of background, some insights, some observation, some piece of data, that all went into helping us determine, “What should we try? How should we measure what was successful? What should we do with the data that we’ve captured from this experiment?”
Dorion
Has that radical honesty approach to life ever backfired on you?
Marc
(Laughs) I guess you can tell from my long silence that. I don’t want to say no, because that’s a little too, categorically. But I can’t think of a time when it backfired. And I’m not saying it’s not hard. Yeah. And it’s not not painful. I’ve certainly cried at times when I’ve had to be honest with someone. Startup is so intense. You’re with a handful of people, and you are working incredible hours, and you’re missing out on other aspects of your life, and you’re in the trenches with people fighting against almost insurmountable odds. If you’re successful, you all of a sudden begin to need different things.Sometimes it requires you to sit someone down and explain to them that you have been an amazing contributor to this, we could not be here without you. And I know you’ve given everything, but unfortunately, you’re not the right person for the next phase of our journey. If you think that kind of honesty isn’t hard. Or someone’s not working out. And there is this thing, called a performance improvement plan, called PIPS or something. Oh my god, that that’s like the Spanish Inquisition. It’s really hard to imagine anything more we’re cruel and unusual, then this Kabuki theater of, “I know that I’m going to fire you, and you actually know that I’m going to fire you. But instead, we’re going to go through this three-month charade, where I lay all out. So now I can document all the reasons I’m going to fire you.” That’s not respect. Respect is going, “Listen, it’s obvious that you’re not doing well here, you can tell it, I can tell. The rest of the team can tell it’s not you. This is not a good match. Let me help you find a great place someplace else, either in the organization or elsewhere, where your talents will fit with what’s required here.” And I’m not saying people walk out and go “Gee, that’s great. Mark.” Yeah, that hurts. But it’s honest. Yeah. And fundamentally afterwards, people go, “Thank you.” Sometimes.
But listen, what really happens here, when you when you shade the truth is two extremely damaging things happen. They’re both equally bad. One is, someone’s not doing a good job. And you’re going to going through this charade, of letting things go while you work. And this person’s working with are coming to one of two conclusions. They’re going, Oh, my gosh, Mark doesn’t see what’s going on here. He’s stupid. Or they go, Mark sees what’s going on here. But he won’t do anything about it. He’s weak. And neither of those are good.
Dorion
What else do you see when you look at Fortune 500 companies that have been around for 150 to 200 years like P&G, and think to yourself, “Geez, I can’t believe they did that. It just so bizarre to me to see.”
Marc
So first of all, and I’m completely sincere, I have tremendous respect for P&G, that would have been my dream job when I was coming out of college. In fact, I was desperate to be a brand manager, I thought that would be the coolest job in the world. Of course, if you’re going to be a brand manager, that’s the place. But anyway, what companies do, and I don’t think P&G is a big exception, if you take a look at what the fortune 500 looks like today, and then go back and look at what it looked like 20-30 years ago, I think you’d be shocked at how different those lists are. And what happens is there is this, I’m gonna have to call it a spade a spade, it’s a lack of courage. Companies are filled with bright people who see which way the future is going, but are locked into an existing business model, and don’t have the courage to walk away from it to do what’s needed to do for the future. That is what I see over and over and over again.
I do a lot of work with large companies. And it’s the same problem. They’re looking for some magic bullet that allows one to have their cake and eat it too. I’ll just give you one quick example here. I’ll try and disguise the companies, but I’ll give some hints. So they were a multi-level, they had their manufacturing company and they used multi-level distribution. So they sold to the distributors, the distributors sold to the retailers and retailers sold to the customer. It was a great product, making money hand over fist, everyone’s happy Then lo and behold, someone else comes out with a similar product, but their business model is direct to consumer. And there’s some inherent advantages there. The big one being it’s not being stepped on a bunch of times. Also the information flows a lot faster, because they’re talking directly to their end user. Little by little, they’re starting to eat into market share, the big manufacturer, and the CEO of the company is not dumb. He sees this happening and his ideas is, “Great. I’m set up a division that will begin selling direct, and we’ll use our product prowess and our marketing power, and we’ll nip this in the bud. That was great idea, until of course, your salesperson comes in and goes, “I can’t believe you’re gonna make my job harder. You’re gonna start competing with your big distributors, I’m out of here.” And these three distributors are going too, and retailers are going, “What you’re going to start competing with us?” And so all of a sudden, that plan is scotched, and we’ll just wait it out there. And little by little, this little direct to consumer gets more and more and more and more strength, until finally it’s too late.
The lesson is that if you can’t figure out how to disrupt yourself, you just leave your business wide open for someone else to disrupt it for you. It’s not like it’s going to be easy. It’s not like we’re just going to have, let’s have our annual meeting theme be innovation and voila. No, it’s going to mean making extremely hard decisions, it’s going to mean doing the equivalent of walking away from 90% of your revenue, to make sure you put all of your resources on the thing, which is the future. Not many companies are willing, or have the courage, or the strength or the discipline. To do that.
Dorion
You’ve said many times that William Goldman talked about how nobody knows anything. And when it comes to this idea of stepping outside the status quo. And perhaps we’re in the midst of an evolution of the CPG industry that may require us to take that hit that you’re talking about in order to future proof our business, I don’t know. But tell me how to explain to my team or management that I don’t have a fully fleshed out plan here. And I can’t produce that before diving in and trying to disrupt our business in that way.
Marc
Yes, correct. But listen, you’ve got to focus on your core business, you got to maintain your core business, and you do a great job at that. The question is, if you don’t think there’s seven or 8000 startups coming after each and every one of your products, you’re crazy. There are. And some of them are doing so in a patently inferior way. But I guarantee you’ve got essentially the 100,000 monkeys on 100,000 typewriters. Someone’s going to figure out a way to do what you do better than you do. One of your categories or multiple your categories, eventually in all your categories, and you want that to be you, not somebody else. The only way that is you is if you’re content with 99,000 of the manuscripts being garbage.
That’s what happens. The criteria for trying something new is so high, that success criteria is so high that you don’t try anything unless you’re pretty sure it’s going to work. Believe me, all those startups out there do not have that criteria. The VCs backing those companies do not have that criteria. They are totally content with very low hit rates. If you’re not willing to put in place a way for yourself to try different approaches, that is similarly innovative, someone else is going to beat you to it. And then that case, maybe you can put in place some way to say we’re going to be a fast follower. But I don’t like that as being a corporate strategy. I’d rather say I have the best marketing people in the world working for us. I have incredible brand power. And I’ve got huge resources. Why can’t I figure out a way that I’m the first person to come up with these innovations, and I’m the one who disrupts my own business.
Dorion
So Marc, let’s revert back to the Netflix story for a little bit since I think there are some important lessons there that I want to make sure we get to tell us about when you learned that the easiest way around is through.
Marc
Well the story of my life is, the book that won’t ever work, the podcast is, that will never work, my life is, that will never work and Netflix was, that will never work, right. And what a surprise, it didn’t work. So it was a terrible idea until it worked. But it took us a year and a half of flailing, to try and figure out what worked. We tried hundreds of hundreds of things. I explained earlier about this methodology of good, and eventually getting really fast at testing. But eventually we stumbled on something that worked. And it was a ridiculous idea. Totally out of the box. And it was basically no due dates, no late fees. It was make a list. So we can automatically send you movies. You’re not sure what order they’re going to come in. And even more dramatic, it’s a subscription, you can rent as much as you want for one low monthly price, was my marketing talk coming in.
Because it was so weird and counterintuitive, I had toa talk Reed into doing the first month free. So here we have the subscription program with the first month free, which is phenomenally successful. I mean, orders are flooding in, people are loving it. And that’s great, because recurring revenue programs are incredibly great business models, because once you found the customer, they keep paying you little by little, month after month for hopefully many, many, many years. The downside is you have to pay all of your acquisition costs up front. And that acquisition cost is especially expensive when it’s a first month free. So the irony here is that the more successful you are, the more expensive it is, the more cash it takes. And that wasn’t necessarily a problem, when we finally launched this program, which was the fall of 1999. Because that was just about the peak of the.com frothiness, where getting money was as easy as waving a flag at your window and the money truck just dumped in the driveway.
Unfortunately, about six months later, we had the.com bubble burst. And now all of a sudden, there was no money, and it was especially bad if you had a.com on your name. And so here we were with this phenomenally successful program, which was hemorrhaging cash, because it was so successful, and our success was going to bankrupt us. And we could see no way out other than selling the company. But we had a specific target, which was Blockbuster, they were the obvious candidate. We knew that a blended model would be the Netflix killer. In other words, a program where you could either go to a store to pick up your movie or have it mailed to you, when you’re done, you could drop it off at a store or drop it back in the mailbox. We were terrified that Blockbuster would do this. So we knew that when we went and pitched it to them, it would be immediately compelling.
We finally got this meeting and went to Dallas and up to the 27th floor of this huge skyscraper into this football field-sized conference room and pitched and they were nodding and going great until it got to the how much part of it, how much were they going to pay for us. We were about $50 million in capital raised at that point. So we thought it’d be nice and neat to sell it for $50 million. Because that would pay back our invested equity. And off we go. Unfortunately, Blockbuster didn’t see it quite so clearly, and laughed at us and sent us on our way.
As you were mentioning, it was a really sobering moment. Because I thought, once we got this meeting, that this blended model was so compelling that our problems are over, or at least they were someone else’s problems. And when they said no, and they sent us packing, it was in one way depressing but another way terrifying because now not only were they not going to save us, they were going to compete with us. We realized that there was no way out. No magic way out no end run. No trick. That the only way that we were going to make this happen was by turning around and facing them head on. My father used to always say sometimes when things appeared intractable. That sometimes the only way out is through. You just have to have to do it.
Dorion
I absolutely love that story. And it begs a few questions for me. I mean, obviously, in retrospect, Blockbuster buying Netflix for $50 million would have been somewhat of a steal. What didn’t they see that they ought to have seen, that caused them to laugh you out of the room, as you say,
Marc
They didn’t buy into the ability of the Internet to transform their business. They were bricks and mortar. To them, this was just a would have been a sideline, it would have been a content website. They never saw it as a way to transform the way they actually did business. To some degree, they saw it, just like the manufacturer I referenced earlier saw it, that their franchisees will be up in arms. If Blockbuster began doing a direct business, they had a double whammy. I mean, usually, executives see it coming and they just go on, boxed in here. They didn’t even see it coming. And worse for their sake, great for our sake, once they did begin to realize that this was actually an existential threat to them, they didn’t even respond it and even worse way, they didn’t put their a team on it. They said, Great, let’s put some people on this e-commerce website direct thing. But I’m not going to put my best people on it. My best people are on my $8 billion, my $6 billion core business. Right? I’m not going to put my best people on this little $5 million side hustle.” And every time we saw that happen, we just smiled and thanked our stars.
Dorion
Speaking of companies with significant market caps, I’ve got to ask you, Marc, just because it’s clear, the ins and outs of Netflix, you built the company from the ground up, and you stepped down as CEO in I think it was 1999. You left the company four years after its IPO. I’m curious, what was going through your mind at that time? Why did you decide to step down and eventually leave just as the business was really starting to take off?
Marc
There are two different things really. The first, the stepping down as CEO, was driven by an interesting realization pointed out to me, of course, by Reed, which is that maybe I didn’t have the skills to lead the company into the next stage. We spoke earlier in our conversation about radical honesty at Netflix, and especially about radical honesty between Reed and I. And when he poked his head in one day and said, We got to talk, and began laying out some of the concerns he had about my leadership at the time. I knew this was not some ulterior motive, this was him genuinely concerned. And I needed to think this through. Quite frankly, reflecting back at it at the time I was really startled, I was a little concerned I was getting fired or something he had more stock than I did. But what Reed was actually pitching was something different, which was that he said, I should join the company full time, because he was not. He was a student at the time. And that we should run the company together, he should be CEO, I should be president, and do it together. It required me kind of taking this dream I had of being CEO of a big successful company, and recognizing it was actually two different dreams. That there was the dream of being the CEO. And there was also the dream of the big successful company. And that more importantly, that dream of the big successful company was no longer just mine, that it was now being shared by the employees, by the investors, by the customers in some degree. I kind of realized that if I really wanted this to be a big successful company, I would have to separate those two things and say, “What could I do that enhances the likelihood?” And it was hard to argue that having Reed full-time in the company, as opposed to not, wouldn’t be stronger?
I’m not saying that was an easy call for me. But I eventually took a few late evenings on the porch with some bottles of wine, and my wife, to come to the realization that Reed was right that it would be a stronger company. And I did come in full time. And we did run the company together and in many ways that next few years were the renaissance at Netflix. So many of these amazing innovations that transformed the company took place then. The second piece though, was different. Netflix was my sixth startup and I’ve long had this definition for success, which is perhaps different than what most people think and entrepreneurs definite success as, and it’s not going to be rich or famous or any of that ridiculous things. It was am I doing what I’m good at? Am I spending my time doing what I enjoy? And I was lucky enough early on to realize that the answer to both of those two questions is the same thing. It’s early stage companies, I love doing that. And I’m quite modestly pretty good at it.
In 2000, to 2003, Netflix was crushing it. We had gotten through the IPO, we had hired amazing people, we had the financial resources. And even though of course, I love the company, I began to realize I didn’t necessarily love what I was doing. And that, if I really was going to be successful, it was this opportunity to do the things that I enjoyed, and was good at, which was getting back to doing real estate stuff. And over a period of time, I gradually worked myself out, in completely a great manner. I’m still a big friend of the company, Reed and I are still very good friends. Reed os still running the company, having the time of his life, I am still getting a chance to work with early stage entrepreneurs. I mentor them. I wrote the book, I do the podcast for early stage entrepreneurs. We’re both getting exactly what we want. And I’m the luckiest guy you’re gonna meet.
Dorion
Seems like it and I commend you. And obviously, you’ve had significant economic success, but you don’t strike me as someone whose core motivator has been money. As you said, and I’ve even heard you talk about how you’ve encouraged your son who’s into music to really follow his passions. And I want to ask, what’s your advice to people who maybe are older than your son and may have more responsibilities, mortgage, family, car payments, who sometimes feel like they have to put their passions on hold?
Marc
I’m not saying there’s some panacea, go start a company. I recognize that’s not. It’s just something not feasible. But I guess I’m a believer in something that is going to sound all new agey, so I’m really sorry for it. But if you, if you don’t have a clear idea where you’re trying to go, the odds you get there pretty slim. You’re right, I’ve never been motivated by the economic success. It’s not with what drove me, I was fortunate enough to start doing this before that was a thing. Now entrepreneurships are glorified. I was just into it for solving problems.
I’ll give you a different analogy, which I think is the one that people could take away, who do have mortgages and car payments and kids in private school, and that they can’t just dream about stuff. So many people growing up that I knew they wanted to be actors or actresses. When you begin to talk about it, you kind of realize they want to be an actor or an actress, because they want to be rich and famous. I hate to break it to you, extremely unlikely. One in a million, not going to happen, you’re leading yourself up for life a disappointment. But if the reason that you want to be an actor and actress is because you enjoy creating characters you enjoy building emotion, the people who are watching, all those reasons, then you are doing it for exactly the right reason. But then you don’t need to go to Hollywood, you can do it in your community theater, you can do it after work. And entrepreneurship and innovation is the same thing. You don’t need to start companies, you can take this idea you have in your department in your job, and you’re sitting there driving home going, God, why can’t we just try this. The advice I give is the exact same advice that I give to people who were doing entrepreneurial businesses, which is just do it. It’s a two-way door. Figure out some way that you can test something or try something or build something or make something. And the emotional satisfaction that comes from doing something that hasn’t been done before is so strong. I that’s something that’s attractive to you, that you feel it resonate with you, there is absolutely no reason why you can’t be doing it in your exact same circumstances now. If you are developing lab tests, maybe you gotta be more careful. But 99% of us don’t have jobs like that. There’s always things we can experiment with. And you’ve got to start small.
You don’t convince management to take on a new $100 million dollar initiative. You say, let’s try a new way of communicating with these 10 customers and see what happens. And there’s a thrill there. And you begin to gain all the skills the innovators get, which is this confidence that no one knows anything, which is the thing that you can do things that are reversible, that there are ways to conceive of ways to test things and try things that are low impact that allow you to do lots of them. That if you have this desire to be an innovator to be creative to be an entrepreneur, that the only thing stopping you is you. I have heard every single excuse in the book, and the ones I hear, I need to graduate, I need to raise money. I need a technical co founder, I need to quit my job. Give me a break. Yeah, just start. And that’s where that’s where it begins. And that’s how you eventually make things happen.
Dorion
I love that. I will say one objection you hear around the walls of P&G often is, well, I need a budget. I’ll tell you, I’ve been working for P&G for, like 10 years now. And I will say frankly, by and large, I can’t spend a penny without getting approval from at least one person. I’m curious to hear how that differs from Netflix now, and when you were at Netflix, and what we can learn about finding sort of the balance between avoiding chaos, or I guess, in some cases, fraud, and allowing for the dispersion of decision-making authority.
Marc
Yeah, that this is something that would take a long, long time to cover. We’ll have to love to have you back on to talk about the cultural aspects of innovation this way. And the other answer is, I don’t work at Netflix anymore. So I just don’t know how they manage that piece of it. But I do know, they push tremendous budget responsibility very, very deep in the organization. They greenlight 100 million dollar productions all day long, and they’re not greenlit by Reed Hastings or not by Ted Sarandos, who’s runs the content for them, not not even by their lieutenants. It’s pushed down with tremendous decision making authority down to people very low in the organization who are closest to the customer. So if the organization is locked into we don’t allow any experimentation, and one way we lock it down is by saying we’re not going to free up a penny. Well, that’s gonna be a tough one. Don’t give up. I say the true sign of an innovator is not how good their ideas are, but how well they’re able to come up with ways to test their ideas that are quick, cheap, and easy.
Dorion
I only have a few more questions for you. And I know we’re running low on time here. I’m curious before I dive into mine, is there anything we’ve missed in our conversation that you think might be relevant are worthwhile to discuss for the P&G audience?
Marc
The only thing is I will do and I apologize for this verges on shameless self promotion. But it’s so easy when you’re doing a discussion like this to say things like, just figure out a quick, cheap and easy way to, and then someone goes, Oh, I like how that sounds. But I have no idea how to put that in practice. I’ll just point out that on the “That Will Never Work” podcast, what I’m doing is actually trying to take these concepts which make good sound bites, but letting people listen in as I actively coach people through how do you take that idea which you thought required an expensive app or expensive training and say, how do we figure out how to quickly and easily test this? And I think it’s interesting. It’s the auxiliary material, the supplemental material, to today’s course, if you will.
Dorion
I’ve listened to your podcast, I think it’s fantastic. Everyone should go listen to that one as well after they listened to mine. One thing you said is, if an idea is obvious, there’s something you’re missing. It seems to me, though, that the most obvious and simple ideas seem to be the ones that work. So I was wondering if you could explain a bit more about what you meant by that.
Marc
I’m not saying don’t do them. But the problem is someone comes to me with an idea, which is fairly obvious. The first question I have to ask is I go, do you think you’re the first person who ever thought about this? And they go, Well, maybe not. And I go, do you think the first person has actually tried it? Well, maybe not. And I said, Well, let’s ask ourselves a couple of questions. Why doesn’t it exist now? And if you don’t know the answer to that question, you’re in trouble. Because you need to understand what has been tried before to solve that problem. That didn’t work. You have to understand why it didn’t work. You have to make sure you don’t fall into the holes that entrepreneurs have dug before you. So I love the idea of taking on obvious problems, even with obvious solutions. But everything is execution. If you don’t understand the efforts that have taken place before you and what what’s worked and what hasn’t worked, you’re just destined to repeat them.
Dorion
So Marc, I know you mentioned that culture would probably take another two or three hour discussion if we wanted to dive into what drives organizational culture. But maybe I’ll just take one piece of that. Before we conclude here. How did you manage work life balance as you were building Netflix? And what role did that play in sort of driving the culture as the company was building,
Marc
It played the same role in driving culture that everything does. And driving culture, which is observational culture is not what you say, as anyone who has children knows, it is not what you say, it’s what you do. Culture springs forth from the behavior of the founders, from the behavior of the executives, it is modeled. And it doesn’t make a difference what you put in your culture deck, or what you post in the break room, or what you put in your HR materials, or what you carve in the corner from your building. It’s entirely what you do. For years, I’ve recognized that my big objective in life was always balance. I certainly love being an entrepreneur, and I love business, I love starting businesses. But I love my wife too. And I would like to keep her. I have three kids, and I’d like to know them and have them know me. I vowed early on that those two things, we’re not going to be mutually exclusive. And in fact, I’ll complicate it.
There was a third piece that I was going to weave in, which is that I know that what makes me whole as a person, is the time I get to spend outside, the skiing, the surfing, the backcountry, hiking and climbing. And if I had to build a life, which could do all three of those things at once. And just to pick one, which was my relationship with my wife. From early on, I had this rule that every Tuesday at 5pm, I left and we did a date night. And you can imagine what that’s like for an entrepreneur starting a company. It’s really hard. There’s all kinds of crises. But I would say we’re gonna wrap this up by five. And if you absolutely have to talk to me, we’re going to talk on the way to the car. But here’s the interesting part that ties into culture, as you mentioned, which is, again culture is what you do, not what you say, and you can preach how important work life balances. But what does that mean if they see the CEO and the founder working all the time. And so, by me leaving every Tuesday at five o’clock, I was sending a very, very clear signal that it was okay. And even though I’d have to fight for the first few months, that I was serious about this, eventually, lo and behold, crises stopped happening at five o’clock on Tuesday, his people stopped calling meetings after five o’clock on Tuesdays, and then even better. other people began taking date nights with their significant others. It ended up I think, having a very, very positive outcome, certainly on my own life, but I think also on the company’s.
Dorion
Well, I’ve just made a note of that Tuesday night, date night. So we’ll be putting that in my calendar and anyone who disagrees will be sent to you.
Marc
Your partner will thank you and thank me.
Dorion
We’ll leave it on that one. Marc Randolph. Thanks for joining the “More Than Soap” podcast. It’s been a pleasure talking to you.
Marc
It’s been a pleasure as well and listen, good luck to everybody. Great company. I’m a customer.
Dorion
Awesome. Thanks, Marc.
Well, that’s it for this week’s episode with Marc Randolph. Remember, P&G employees can visit www.getmorethansoap.com to hear the rest of the Gary Kume interview. Thanks for tuning in. And then until next time, stay curious.
