Book Review: Marc Randolph’s Netflix story offers a dose of can-do spirit to would-be entrepreneurs

‘That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea’by Marc Randolph
Kindle version price Rs 577.50 (price may vary with time)
Endeavour
337 pages (Print length)

A success story is an enticing idea for a book; when told in the voice of the achiever, it can be irresistible. It charms a reader when the achiever vouchsafes his confidences and secrets and insights about how to succeed in his chosen field. Apart from the value of the insights themselves, the writer’s openness convinces the reader that the writer considers him his equal, or at least important enough to be frank with. That is partly why success stories have so much appeal in the non-fiction space. Thus, Marc Randolph has a winning recipe for a book in his hands. Does he execute it well?

Randolph gives us a disclaimer at the beginning of the book. He writes, “This book is a memoir, not a documentary. It’s based on my recollection of events that happened twenty years ago, so most of the conversations in this story have been reconstructed.” He says, however, that his telling of this story contains accurate “rendering” of the personalities of Netflix’s founding team, as well as “the mood of the time”. Randolph seems to have had an audience in mind while writing this book; people like him, people with an entrepreneurial streak; people who like generating ideas, developing them, and expanding them into business plans; people who have the ambition to take the plunge into an uncertain future to realise their aspirations. It is to them that Randolph is opening up. Moreover, the book is also Randolph’s nostalgic memorial to times gone by, replete with affectionate portraits of the people who were there.

Concise, delicious prose

Randolph is perhaps in a unique position to tell this story, being the co-founder of Netflix (with Reed Hastings) and its first chief executive officer (CEO). But Randolph also displays considerable skill as a memoirist; he writes his story in concise, delicious prose, and with such engaging charm that you get the feeling that you’re on his back porch, chilling with a beer in your hand as he recounts a whopper of a true story – the story of Netflix. Were the book written by a corporate historian, it would of course have come out differently in terms of tone as well as scope. Perhaps it would have been more comprehensive, but it would also have been more academic and less of an engaging read, because it wouldn’t have been a personal story. This one is.

The writer begins with the admission that Netflix wasn’t born from a sudden ‘A-ha!’ moment or epiphany. He writes, “There’s a popular story about Netflix that says the idea came to Reed (Netflix co-founder) after he’d rung up a $40 late fee on Apollo 13 at Blockbuster (a VHS tape rental company). He thought, What if there were no late fees? And BOOM! The idea for Netflix was born... But as you’ll see in this book, it’s not the whole story... the idea for Netflix had nothing to do with late fees... More importantly, the idea for Netflix didn’t appear in a moment of divine inspiration – it didn’t come to us in a flash, perfect and useful and obviously right.”

Suffice it to say that there was at the heart of the idea for Netflix only meticulous brainstorming and development of an idea over a period of time. Randolph writes, “Epiphanies are rare. And when they appear in origin stories, they’re often oversimplified or just plain false. We like these tales because they align with a romantic idea about inspiration and genius. We want our Isaac Newtons to be sitting under the apple tree when the apple falls. We want Archimedes in the bathtub. But the truth is usually more complicated than that.” What, then, is the truth? Seriously, though, I mustn’t offer spoilers. But it’s right there in chapter one. And there are plenty of such eye-openers in this massively illuminating book, which, in fact, is dripping with insights about founding and running businesses.

Were this book only about Netflix’s history, it would still have been interesting. But it is made gripping by the inclusion of incidents from Randolph’s life. We are given flashbacks into the experiences that Randolph finds important, such as his father’s passion for building, for years on end, miniature steam trains that actually worked. These experiences are often funny, sometimes sombre, but always memorable. Moreover, these are more than nostalgic recollections written down for their own sake; they shaped Randolph into the man who successfully helped Netflix get into its first brush with the big time. Camping and nature hiking are some of these life experiences that Randolph uses vividly as a metaphor for running a company: being out in nature is replete with challenges to the body and the intellect. Randolph dives into his sackful of memories and repackages them into case studies of how to overcome a particular problem in running a business. In so doing, he displays a sound knowledge of metaphor and simile. Moreover, Randolph is equally articulate when delivering homilies about business and painting incidents in the life of Netflix. It makes for a cinematic reading experience.

'Problem-solution’ formula

For Randolph, Netflix was a mission. Consider these lines: “You didn’t work for us because you wanted a beautiful office. You worked for us because you wanted the chance to do something meaningful.” Inherent here is passion and a sense of purpose that animates Randolph, the mindset to create the new and change the state of his chosen field.

For the most part, Randolph structures the book as per the ‘problem-solution’ formula – he describes engagingly and well a particular obstacle in the way of Netflix’s success and how he and his team overcame it. Many of these obstacles were related to material reality: building a website, setting up an office, managing expenses. But Randolph points out the challenges posed by intangible realities as well, such as creation of office culture. Randolph writes, “People want to be treated like adults. They want to have a mission they believe in, a problem to solve, and space to solve it. They want to be surrounded by other adults whose abilities they respect... What they really want is freedom and responsibility. They want to be loosely coupled but tightly aligned.” If this involved Randolph taking new employees out to dinner and explaining the company’s vision to them, so be it.

The book covers the period between the conception of Netflix to its first public issue of shares – from birth to the first big time. So, as you might expect, most of the book deals with setting up and expanding the size of the company. Most of us Indians were exposed to Netflix when it launched here as a streaming service. How many of us know that Netflix launched in 1997 as a DVD selling and renting website, before streaming was a gleam in the industry’s eye? In 1997, DVDs themselves were cutting-edge technology. In a passage that will warn the heart of a Hollywood producer, because it is made for cinema, Randolph tells us about the launch of the website. Before the launch, a Netflix engineer had rigged up a bell to ring when a customer placed an order on the website. Guess what happened to the bell on launch day. Did you guess it rang all day and got on everyone’s nerves? Did you?

Wrong. The traffic on the website was so high, Netflix’s servers crashed in 15 minutes. Netflix engineers had to rush to a hardware store “...where they’d buy eight new desktops with a whopping 64 megs of RAM each”. Such were the days before cloud services. From there, Randolph moves smoothly to the post-launch, initial days of Netflix, when the challenge was to expand the rental business.

Also interesting is Randolph’s account of the time when Amazon offered to buy Netflix, back when Amazon itself was a ‘small’ company with over $150 million in revenues and 600 employees. Rather than selling, Randolph and Hastings decided to pre-emptively exit the DVD sales business (which Amazon was keen to enter) and to focus entirely on DVD rentals. In a very ‘filmable’ scene, the meeting with Amazon is depicted extremely well, complete with descriptions of Amazon’s downmarket office and the eccentric, nerdy founder, Jeff Bezos, who is described in humorous terms: “A short man, Bezos was wearing pressed khaki pants and a crisp blue oxford shirt. He was already on the way to being completely bald, and the combination of the huge forehead, a slightly peaked nose, a shirt that was a little too big for him, and a neck that was a little too small all had the effect of making him look like a turtle that had just popped its head out of its shell.”

An ambitious duo

Randolph and Hastings, we realise, are an ambitious duo. After turning down Amazon’s idea, the Netflix co-founders grappled with the problem of making more people rent DVDs, then making them come back for more rentals. Netflix decided to pull a marketing stunt to pull in customers. The Bill Clinton-Monica Lewinsky scandal was unfolding at the time; Clinton had even testified in front of a grand jury. A Netflix employee, Mitch Lowe, had obtained videotape of the Clinton testimony and then, with Randolph’s blessing, got the tape transferred to DVD in what was at the time an experimental procedure. Almost 5,000 DVDs were shipped out to Netflix customers at the nominal price of 2 cents each. The marketing stunt, worked spectacularly, on the face of it – Randolph writes, “... nearly 5,000 new customers (all of whom owned DVD players) had been obtained at a total cost of less than $5,000. With press exposure in the New York Times, the Wall Street Journal, the Washington Post, and USA Today.” What happened next was hilarious, though surely Randolph must not have found it funny. It turned out that there had been a mix-up at the DVD burning place, and half of the DVDs that had been shipped out to customers had in fact got a pornographic video on them. Netflix had to send out apology letters and offer to send out the right DVD after the wrong one was returned.

Another illuminating part of the book has Randolph describing how he stepped down as Netflix’s CEO, while Reed Hastings took his place. Randolph continued as Netflix’s president, and his job remained the same. In most companies, this reshuffle at the top would have led to bad blood, but Randolph says he took it well and continued to shoulder responsibilities that he was good at bearing, such as “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”. The reason why Randolph stepped down as CEO offers a lesson in humility and flexibility for all would-be and serving CEOs who think of themselves as indispensable to their organisation.

This episode is also used to emphasise how Netflix codified its culture, which flowed from Randolph and Hastings’s relationship: radical honesty, freedom and responsibility. Randolph writes, “A culture of freedom and responsibility, coupled with radical honesty, worked like a charm. Not only did we get great results, but employees loved it. People who have the judgment to make decisions responsibly love having the freedom to do so. They love being trusted. Most companies end up building a system to protect themselves from people who lack judgment. And that only ends up frustrating the people who have it.” Born from the spirit of freedom and responsibility were the then-radical policies of “unlimited vacation days and hassle-free expense reimbursements”, among others. Netflix’s work culture at the time was fun. Randolph recounts a few amusing anecdotes, mostly involving urinals, money, superhero costumes and snacks.

Moving forward, Randolph tells us how he and his team finally got people to rent DVDs from Netflix: by offering monthly subscriptions, removing late fees and “serialized delivery with a queue”. This last feature was a nifty innovation that allowed customers to make a list or ‘queue’ of their desired movies on the website. When they returned a DVD, the next movie on the list would be mailed to them. And so on. The experiment was so successful that Netflix dropped “a la carte rentals and switched entirely to the subscription service”. Randolph writes, “Focus. It’s the entrepreneur’s secret weapon... we had to be willing to abandon parts of the past in service of the future. Sometimes, focus this intense looks like ruthlessness – and it is, a little bit. But it’s more than that. It’s something akin to courage.” It sounds like great advice.

It came as a surprise to me to learn that Netflix offered itself for purchase to Blockbuster, the DVD and VHS tape rental behemoth that operated thousands of brick-and-mortar stores across America. As usual, Randolph is in form while describing the meeting between the top brass at the two companies, and detailing how it didn’t go well. Randolph describes the meeting as one between David and Goliath – in the year 2000, Netflix was “on track to do $5 million in revenue... Blockbuster was aiming for $6 billion. [Netflix had] 350 employees – they had 60,000. [Netflix] had a two-storey HQ in an office park... they had 9,000 stores.” The meeting petered out after Netflix quoted a price of $50 million, and Blockbuster declined to bite. As a result, we get to read one of the most dramatic moments in the book; the Netflix top brass are headed back home in a private jet chartered specifically to make it in time to the Blockbuster meeting; Randolph turns to his colleagues, and says... it’s better to let him say it in his own words: “‘Blockbuster doesn’t want us,’ I said. ‘So it’s obvious what we have to do now.’ I smiled. Couldn’t help it. ‘It looks like now we’re going to have to kick their ass.’” This bit provides a super setup to the final one-fifth of the book – the year is 2000, the time of the great dotcom bust, when Netflix was struggling to get additional funding. Although Netflix hadn’t shuttered in the dotcom bust, and its subscription model was pulling in new customers, it was “hemorrhaging” money.

A committed capitalist

Randolph at this point describes how Netflix began to streamline its operations by removing features that were a “drag” on operations. Since it wasn’t enough, Netflix laid off employees – 40 percent of them. It was a bloodbath by all accounts, and Randolph describes it with sensitivity and subtlety. In  a moving scene, he writes, “My last layoff had been Jennifer Morgan, one of our newer analysts. When I approached her cube, she sat with her back to me, engrossed in her screen, even then able to concentrate on the problem in front of her. I touched her shoulder, and as she slowly turned to me, I saw that there were tears in her eyes. ‘I knew it,’ was all she said, as she gathered up her purse and prepared to follow me to the conference room. ‘I just knew it.’” Randolph, ever the committed capitalist, says the layoffs made Netflix more efficient. He writes, “... more efficient. More creative. More decisive... we’d been only left with superstar players. With superstar players doing all of the work, it was no wonder that our quality of work was very high.”

Among the innovations pioneered by Netflix in 2001 was “next-day shipping” of DVDs to customers all over America. As a result, Netflix hit its target of 1 million subscribers by Christmas 2001. Next-day shipping was the result of an innovative storage system developed by Netflix’s Tom Dillon. It’s fascinating to read the ins-and-outs of this innovation; logistics managers, especially, will enjoy this bit. A sample: “All we needed were a few dozen cheap storefronts, a couple of hundred remote employees, and a bunch of shoeboxes, and – bingo: next-day delivery to almost every mailbox in America.”

Streamlining Netflix and bringing in innovations primed the company to launch its initial public offering (IPO). Much before that, Randolph had quit his seat on the board of directors at Netflix, so he could sell his shares in due time and move away from the company he had founded. In an engrossing passage, he describes how the IPO opened and got a good price. He writes, “In the time it took for a ticker symbol to scroll across a screen, an entirely new path had opened up. For the first time in my adult life, I didn’t need to work. And I never would have to again.” Randolph goes into detail about the reasons why he left Netflix, and they make for illuminating reading. They concern deep questions about what made work worthwhile for Randolph, and thus offer us a glimpse into his mental makeup.

The story of Hastings and Randolph, Netflix co-founders, is waiting to be made into a movie. Meanwhile, we have this book on Netflix, which is the only memoir on the subject by its co-founder (Reed Hastings has co-written a book on Netflix’s management principles). Randolph’s book is an entertaining, informative read for the general viewer. But it offers more: it has enough insights for would-be and current entrepreneurs and CEOs to make a beeline for it, and to make students read it avidly. Most importantly, it offers a dose of the can-do spirit to would-be entrepreneurs.

Suhit Kelkar is a freelance Journalist. He is the author of the poetry chapbook named The Centaur Chronicles.