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Marc Randolph: ...that I would co-found Netflix

Laura: Welcome to Nobody Told Me! I'm Laura Owens.

Jan: And I'm Jan Black.

Laura: We are so excited to welcome veteran Silicon Valley entrepreneur, Marc Randolph to the show. As you may know, Marc is the co-founder and founding CEO of Netflix. He's mentored hundreds of early-stage entrepreneurs, and helped seed dozens of successful tech ventures, in addition to many unsuccessful ones.

Jan: Marc is the author of the bestselling book, That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea. Marc, we thank you so much for joining us.

Marc: It's exciting to be with you. Thanks for having me.

Jan: We love the book because you have a great way of making the reader feel like they're right alongside you as Netflix goes from an idea to a big business. You left Netflix in 2003 and you say you're glad you waited 16 years to actually write about Netflix, why is that?

Marc: There's a couple of reasons. One reason I wrote the book was, I did want to give people the untold story of Netflix since there's all kinds of myths and false founding stories. And I thought it was an interesting thing for people to really understand how a startup works. But the real thing is, I didn't really understand why we had been successful. It takes perspective to look back and isolate which aspects were luck, which were doing things well, which were mistakes, what was my contribution, what was it of a team? I think I really was able to sort out some of the truths behind, not just the success of Netflix, but some of the things that I felt anybody could use to make an idea become real.

Laura: What I thought was so fascinating was that Netflix was actually your seventh startup. Along the way, you said that you learned a very valuable lesson, and I love this, "Nobody knows everything." How did you learn that along the way and looking back, how did that impact everything?

Marc: Actually, it's even stronger than that. It's not, "Nobody knows everything." It's, "Nobody knows anything." Basically, the real thing is, nobody knows a good idea from a bad idea until they've seen whether it's a good idea or bad idea. Then, of course, they're the expert at it. But it's a tremendously liberating thing once you realize that no one knows in advance a good idea from a bad idea. What that says is that any idea could be a good idea.

I called the book, That Will Never Work, because that is what everybody told me when I went around saying, "I have this idea to do DVD rental by mail." That's what potential investors told me, potential employers, even my own wife told me that. Once you realize that no one really knows, then the only way to figure it out is to try it. That's why it's such a powerful phrase. It suggests if you have an idea, just do it. You're going to learn more in one hour of doing it then you are in a lifetime of thinking about it.

Jan: How do you shut off those voices though, if they're telling you, "That's not going to work. That's a stupid idea." How do you shut them off and say, “Well, you know what? Maybe it just will.”

Marc: Part of it is confidence that comes from doing it and learning little by little, "Wow, the thing that someone said wasn't going to work, I actually got it to work. Maybe that person I thought was an authority, isn't an authority." But that's just a simple way to say it. What you're really doing, the trick, if there's something you want to apply, you have to figure out easy, quick, cheap, simple ways to try your ideas. If, for example, the only way to try an idea is to raise lots of money, well then of course it's never going to happen because everyone says, "It's not going to work," and you just can't get someone to lend you the money. Or if you say, "I can't do this without five years of education." You're not going to bet on something you don't know the answer to. But if you can figure out a way to take your idea and quickly, easily, and simply try it, you'll very quickly find out ways to prove that, in fact, the people who said it wouldn't work were wrong, that it would work.

Laura: How do you do that? You compare testing to climbing?

Marc: Yeah, pretty much I compare everything to climbing. It's a one-size-fits-all analogy. I'll use my favorite analogies from climbing, I do a lot of rock climbing. If anyone has ever gone rock climbing, whether it's in the gym or not, you realize that, first of all, it's much easier to climb up than it is to climb down. There's different levels as you start out as a rock climber. The first one is these holes are so big that you can easily climb up, and if you don't like what you find, then you climb back down again.

But then when things get harder, all of a sudden, you realize, "I can go up, but I'm not sure I can come down." That's when the paralysis sets in. You stand at the bottom of the route and you look up. Because you can't climb down, you are unwilling to leave the ground unless you can see a way all the way to the top. Sometimes you can and you go on up. But then comes the case where you can't see all the way to the top, there's an overhang or it's a false summit, then you're on the ground for hours looking, "Can I figure out what's up there? I don't want to start up. I don't know if I can make it all the way."

But what someone who has this, 'No one knows anything' attitude does is, they start. They go up seven or eight holds, and lo and behold, once they're up seven or eight holds, now they can see over the overhang. "Oh, there's the way," and you go up seven or eight more holds, "Oh, there's the way." It's having this confidence that I can't see my way around the corner from here, but if I take a few more steps, maybe I can.

It is what an entrepreneur does every day. We have zero idea of whether our ideas are going to work. They haven't been done before. There's no way to capture enough data. What you do is say, "I'm going to start and start learning. Everyone says that's a bad idea, let's figure out why it's a bad idea. Maybe I get a glimmer of hope of how to try something different next time." We did that with Netflix. I've done that with every one of my other startups. It's what I coach every single person I work with. You just have to start because that is where the learning comes in. When everyone says, "It's a bad idea," they are right. Your job is to figure out why. That is the process of being an entrepreneur.

Jan: And how to make it a good idea.

Marc: Yes, and maybe an idea is totally unrelated. What you really should be doing is, not falling in love with your idea, you should be falling in love with the problem. Then you have to come up with, not just one idea, but hundreds of ideas and try each of them out. Each test, each thing you try, sure it's going to fail, but you get a glimmer of learning from it, a glimmer of little hope that informs the next thing you want to try. Then that informs the next thing you want to try.

Listen, the reality is, every single successful company you can point to, I guarantee the idea that the founder had when they started was a totally different one. They were iterating their way to what was successful. In your own worlds, you say, "Hey, let's do a podcast." I'm sure what you envisioned at the very beginning is not exactly what it is now.

Jan: Exactly.

Marc: You learn things along the way. You learn what worked, what didn't work, what resonated, and you applied those things. That is the process.

Laura: It's so funny that you talk about Netflix not working as the red envelopes were getting mailed as DVDs. I think we must have been one of the first families that did that and oh, my God, I thought it was the coolest thing at the time. I thought it was fantastic and way easier than going to Blockbuster. But clearly, that's not what Netflix ended up being. Why wasn't the DVD rental a sustainable idea at the time? Obviously it's not now, but back then.

Marc: There's two phases. The idea that I was pitching to people, the idea that everybody said, "That'll never work", was DVD rental by mail. The original idea was not very much more than taking a regular movie rental store and putting it online. We launched on, boy, 22 years ago last week, on April 14, 1998, it's what it was; there were due dates, there were late fees. There was not a lot of innovation here and it didn't work. Nobody rented from us. If they did, they didn't rent again. But we kept trying things.

We tried things for a year and a half year. Year and a half of one failed test after another, each one giving us a glimpse of hope. It wasn't until a year and a half later, in the fall of 1999, that, just almost on a fluke, we tested a subscription model. More than a subscription model, a weird subscription model where there were no due dates, no late fees, where you made a list in advance and let us pick something off the list to ship to you. All these crazy ideas that I never could have dreamed would be the things that would transform the business. But it was at that point when we finally stumbled on that bizarre combination of features that it did begin to work. That was the moment that marked the shift from us being a random startup to, in some ways, being a real company.

Jan: When you first came up with the idea for Netflix, were you thinking, "This is going to be a billion-dollar company." What were your dreams at that point?

Marc: Not in a million years. It kind of speaks, in many ways, to what it really means to be an entrepreneur. I think now it's been glorified in this bizarre way, where there's movies about entrepreneurship and TV shows, magazines, and college degrees. It's become conflated with, "This is a way to be rich or famous", or, "We have parties", or, "Be on Shark Tank", or something like that. When I started as an entrepreneur, none of that stuff was real. Back then you did it just because you loved solving problems. You love that process I described before of taking something on that no one had any idea if it would work or not.

Starting Netflix was no different. I never dreamed it was going to be a billion-dollar company. I just went, "This would be kind of cool if we can figure out how to do DVD rental by mail." In fact, my initial aspirations were quite modest. I didn't tell anyone how modest they were. But I said, "Gosh, if we can be the size of a single Blockbuster store, that'd be awesome." That was like $750,000 a year, which we hit within months. Then I said, I did this publicly to my crew, "Let's set the goal. Let's be one of the top 10 video rental chains." That took a bit longer, maybe a couple years. But then you look and go, "Yeah, we did it. We're at $5 million in revenue." But then you lift your eyes up and you see Blockbuster, they're $6 billion dollars. The thought you could take that on is ridiculous. You pass them and you look up, and there's an even bigger target. You never, never dream that you'll be 182 million subscribers. Just this week, the market cap for Netflix is bigger than the Disney Company. You would have had me committed if I had told you that was possible.

Jan: But you decided not to put any money into the Netflix idea at first, why?

Marc: I have a principle that when you're doing something like starting a company, it's best to use other people's money. That's not because you don't believe in the idea. What you're putting into this is something way more valuable than your own money, you're putting in your time. You are fully committed so you want to share the risk a little bit.

But there's a more fundamental reason for how healthy it is to go out and get other people to invest. It forces you to get out of your echo chamber. All of us take our ideas sometimes, and we nurture them in this nice, warm, gentle womb of our brains where, of course, there they can be hugely successful. We can imagine having the million subscribers and we can imagine all the amazing things we'll do once everyone's using this product. But we're never forced to collide it with reality.

There is something very shocking about taking this idea out of your warm womb of a mind and subjecting it to someone else's scrutiny. You can go to your friends and go, "What do you think of my idea?" They go, "Oh, gosh, that sounds great." You go, "Wonderful, will you invest $25,000?" That backpedaling is fast and furious at that point. Getting investors involved is a really good way to make sure you're not crazy.

Laura: I'm guessing that you must be spending some time in quarantine looking at how Netflix seems to be even bigger than ever right now. I'm wondering if you have regrets about leaving the company in 2003 just seeing the giant it's become?

Marc: No, zero. Zero is wrong, three parts per million. On one hand, yes, there's some fascinating things that are probably going on there and I would love to be sitting around that boardroom table with those people solving some of these really complicated, interesting problems. But listen, on the other hand, and the other 1,000 hands, I am the luckiest person you're ever going to meet in that I'm doing the thing that I love doing.

I was really lucky to learn a long time ago, two important things. One, what I'm good at. The other one, what I love doing. The answer to both of those is early-stage companies. That's what I get to spend my time doing. I get to work with early-stage companies, I get to work with young, or not to say young, but early-stage founders. I get a chance to sit around that table with really smart people solving really hard problems. But more importantly, now I get to do that where I get to go home at night and they have to stay up all night working on these things.

I get to pursue the other parts of my life that make me balanced. I get to get outside and do all the outdoor activities that I love. I get to spend amazing amounts of time with my family, which I enjoy. I've got a fantastic life.

I love that company, it's of my own flesh and blood and DNA, but I have no regrets. It is better without me, I am better without it. I'm so delighted to watch it grow up, be on its own, living in its own apartment, and having its own job.

Laura: Looking back then, what's given you more fulfillment than anything is really just the scrappy part of everything, where you had to be gritty and develop the idea along the way. More so than just looking back, seeing the company now, and thinking to yourself, "Man, I really built something that was amazing, that turned into something amazing."

Marc: Oh, sure. You have to figure out where your personal fulfillment each day comes from. I don't get it from looking back and going, "Look at how great I was," or something like that.

Laura: Yeah, yeah.

Marc: I'm certainly psyched it did that. In many ways, the success of a company is the result of factors way beyond me. There's lots of luck, lots of being in the right place at the right time. But I love the team I built, I love the DNA, I love the culture we created there. Those are all amazing things. But I love the work I've done with other companies. I love that process, I love solving these problems. Some of the most fun ones don't make it, but you give them a great shot, and that's fun, too.

Jan: What do you say to someone who's lost a job, or maybe fears losing their business during this time of tremendous economic upheaval? What should they be doing? What words of wisdom would you have for them?

Marc: First of all, I have tremendous empathy for what's going on in the world, not just for the people who've lost their jobs and for the businesses which go out of business, but I have a lot of empathy for the people who are managing these companies, that they're having to downsize dramatically. Losing all your customers in one week really has a way of focusing your mind.

I know how personal these issues can become. Back in, I guess it was 2001, Netflix had to layoff a very large percentage of their employees. That is one of the hardest things you ever have to do. It's not just bringing someone in your office and letting them go, this is bringing somebody into your office who has worked alongside you for years, who has done nothing wrong, who has given everything they've had to help you make your dream come true, and now you have to tell them there's not a place for them anymore. That is just wrenching.

But what I'm telling people is that, as hard as this is, you have to be looking at silver linings, you have to be looking at what opportunities this presents. In one hand, lots of companies know they need to restructure themselves. They know that they've pivoted, they've changed direction, and the structure they built for their company has lagged behind the new initiatives they're in. You have to say, "This is a chance that when I do rebuild, I can rebuild in a thoughtful way. How would I build this from scratch?"

A lot of people are thinking that, we're thinking that six months ago and going, "But that's not really an option I have." Now, in some ways, it is an option you have. Part of what I'm coaching people is, there's so much uncertainty here that all you can do is put your company, put your business, put whatever it is you're managing into this defensive posture that you can maintain for a long time.

Prepare yourself not to spring out of it instantaneously because things are not going to change overnight. But to say, "Put yourself in a position that when I see things improving in a way that I think I can take advantage of, then I know how to rebuild. I've thought about the process I'll use. I think what the steps that I'll take." Most importantly, realize you're not in this by yourself, that everyone is going through this, and that this is tremendously uncertain and turbulent waters, that you cannot know what's going to happen. All you can do is recognize, "I don't know. I'm going to do the best I can."

Laura: Like you said, you mentor entrepreneurs who have had good ideas and bad ideas. I would imagine that if somebody is working on their company with you, they would think it must be a success, it's going to be successful at some point. At what point do you tell them, "You know what, maybe you need to go back to the drawing board and pick something else to do." That would be so hard.

Marc: That's a really interesting question. As soon as you were saying that, I was going back, "Have I done that?" Sometimes. But the thing is, you somewhat misstate it. Again, perhaps you're thinking a bit too much about the idea. What I am coaching somebody is not how to make their idea real, I'm coaching them through the process of finding their way to solving a problem. This is not an exaggeration, every idea is a bad idea. Every idea you hear, I take them with a grain of salt. I don't know if it's a good idea or bad idea. They sound good to me, but they're probably bad. They sound bad to me, they're probably good. I've trained myself to go, "I can't tell."

I'm looking for something very different in deciding who to work with. I'm looking for the person who I know will have the creativity to figure out quick, easy, and cheap ways to test these things. I'm looking for someone who has the persistence to keep on trying things when each of the things they try don't work and they have to look for that glimmer of hope that'll inform the next step. I'm looking for someone that I really would enjoy spending time with during this whole process. Surprise, surprise, when you have those three things, it's a joy helping someone navigate this. Occasionally you go multiple years and you finally go, "Okay, this is not a problem that we're going to crack. Maybe it's time to throw it in." But that happens very, very rarely. Usually, something does come of it. The coaching is mostly this, ‘how do you navigate ‘rather than ‘I love that idea, let's do it.’

Jan: Do you think it's tougher now, or easier than it was in the 1990's and early 2000's to get a startup off the ground?

Marc: It's remarkably easier, remarkably easier, and it's a fantastic thing. Back in 1997, of course, when we came up with this idea, if you wanted to build an e-commerce website and run an e-commerce business, you had to do everything yourself. You could not go to the cloud and dial up an instance of Shopify and have a commerce website. If you wanted a payment portal with the bank, you could just use PayPal, or Stripe. If you wanted analytics, just get Optimizely. Everything you did, you had to write the software yourself, you had to configure the hardware yourself.

Because of that, to go from the idea to finding out whether it was a good idea, took us six months, it took us a million dollars. The distance from the idea to the validation of the idea was six months. But now, at least in a technical side, the stack is so much better. You can get all these things that are available on the cloud. All these things exist so that now, what's happened is the distance from the idea to the validation can be an hour, it can be no money at all. Which means those barriers between taking your idea and quickly, cheaply, and easily figuring out if it's a good idea is really short. It's mendaciously liberating.

I was 38 years old, I was on my sixth company. It was relatively easy for me to raise the money to take this on. But now you don't need that, which means anyone can do it. You can be 12 years old, you can be living in Kazakhstan. Your idea, you want it, you like that idea? Then there's no excuse for you not being able to quickly find out, in fact, whether it's a good idea or a bad idea.

Laura: What are the steps? If you have the idea, how do you go and try and find potential investors? What are the big mistakes that you see wannabe entrepreneurs making right now?

Marc: The biggest mistake is thinking you need to find investors. The biggest mistake is thinking you need to get your MBA first. The biggest mistake is thinking I need to get a co-founder. This list can go on. We can go on for those 30 hours, or we were talking about. That's the big mistake is, "There's always some reason why I can't do this." Well, bullshit. Again, the cleverness is, "How do I do it quickly, cheaply, and easily?"

Rather than me just pontificating, I'll give you an example. This is from a few years ago. A young woman, she was still in college and she had an idea. The idea was, 'I like the idea of being able to do a peer-to-peer clothing rental.' It's a fancy way of saying, "I want to be able to rent my clothes to other people, and I want to be able to rent other people's clothes." Not a tremendously creative or original idea, but who cares? Again, nobody knows anything.

She was saying, "How do I raise the money to hire someone to build my app?" Blah, blah, blah, blah. I go, "Let's brainstorm this a little bit. Let's figure out how we can quickly and easily figure out whether this is a good idea or bad idea. You got a piece of paper? You have a sharpie? You have a roll of tape?" I go, "Let's just write on a piece of paper. 'Want to borrow my clothes? Knock.' Let's tape it to your dorm room door and let's start figuring out tomorrow, or now, if it's a good idea.

The first thing, let's see if anyone knocks. Wow, they do. There's a demand. So now they've knocked, now let's begin learning what some of the issues are. They're looking at your clothes and they don't like them. Or they do like them. There's problems with fit. There's problems with style. Now you're learning people do want to rent your clothes.

Now let's find out, 'How does it feel when that blouse comes back stained?' or 'Do you have to launder everything?' or 'What happens when there's wear and tear?' You've begun learning right away for a sharpie and a piece of paper. Now, is it repeatable and scalable? No. But you've begun collecting the evidence of whether it's a good idea or a bad idea.

Six months from now, when you do go, "This is a good idea. I do understand the nuance, the subtlety, what it will take, and how much I have to charge. Now when you say, "I need to raise money", that's a different discussion. Now when someone says, "How do you know this is going to work?" Rather than going, "Imagine if you will," you go, "For the last six months, I've been running this out of my dorm room. I've had 2,000 customers, and I've learned that I have to” blah, blah, blah, blah. That's compelling. Now when you say to someone, "I'd love you to help me as my technical co-founder." And they say, "Why should I do this?" Rather than spinning a dream for them, you can show them and get them excited because they see the reality of it. That's what I mean by 'you don't need to raise money.' If you have an idea, there's nothing stopping you from, right now, making those first steps.

Jan: Where do you go when you're looking for insight? Where do you find that creativity? You mentioned rock climbing. Do you find it when you're rock climbing or when you're in a corporate boardroom? Where?

Marc: I see it every day. I've been running these workshops for a long time on where do ideas come from. The method I would teach you, which is the simplest one, is to basically train yourself to be negative, to basically say, “What's wrong?” to train yourself to look for pain, and to see the world as an imperfect place. Once you see a problem, the ideas for solving it begin popping into your head immediately. So many of the best ideas that I've seen, I use ‘the best ideas’ loosely, come from starting from problems.

I don't mean solving global problems. This is not about, “I'm going to cure malaria”, or “Wow, a cure for COVID-19”, whatever it is. I mean things you see every day, things you see in your job, things you see in your hobbies, things you see in your life; bumping into those issues and going “Why is this so hard?” or “Why is it still like this? Why isn't there? Why can't I? Why don't they?” That is, by far, the best way to generate ideas. Once you've trained yourself to see the world as an imperfect place, you have the opposite problem; you're overwhelmed with the possible things to try, and that's a wonderful problem to have.

Laura: Yeah, absolutely. Marc, our show is called Nobody Told Me! We always ask our guests, “What is your nobody told me lesson?” I'm sure you have a million, but what do you wish someone had told you about dealing with success, disappointment, starting a company, life in general, wherever you want to take it, before you started this grind that's led to so many different companies that maybe you wish they'd told you before because it would have saved you from some very tough times.

Marc: That's a good question. This is going to sound foolish. I've made so many millions of mistakes. All these things that I've tried, these ideas that I've tried that didn't work, I don't view them as things I wish I hadn't done them. Almost everything I've done that's turned out badly has been good. It ends up going in some great direction.

I wish someone had told me earlier, much earlier, about the “Nobody knows anything” thing that I had to learn more slowly on my own. I'm not sure I would have listened to them. It's almost ironic to say, “I wish I had listened to them” when the lesson that they're telling me is, “Don't listen to me.” But that would have been a helpful thing. That was a trial and error, especially early on. It’s so easy to get discouraged when someone says, “That will never work.” Early on, it would have been great to have known that.

A moment ago, I told you that story about how it took a year and a half of trial and error to figure out what the model for Netflix would be to make it repeatable and scalable. One of the components was subscriptions. I had been a magazine circulation director, I was a direct marketing guy, I knew everything about subscription. But for some crazy reason, it never occurred to me to try that a year and a half earlier. And wow, that would have saved a ton of time and money. If I had somehow listened to my own little voice saying, “This. Maybe you should try this. You know a lot about this.” I got it two-thirds right. I got the e-commerce right, I got the personalization right, missed the damn subscription.

Jan: Marc, how can people connect with you on social media and the internet?

Marc: First of all, the best place to really absorb a lot of these lessons is through reading, That Will Never Work. I really tried to reveal all the tips, tricks, and secrets that I've learned over a 40-year career as an entrepreneur. For my more short form, if your attention span doesn't lend itself to 100-200 pages or so, I have a website which is marcrandolph.com. There you can get a link to my blog and all that. I'm on Twitter @mbrandolph and on Instagram @thatwillneverwork. LinkedIn, if you can't figure out if I'm on LinkedIn, well, then you got a different issue.

Jan: Marc, thank you. It has just been such a joy to talk with you. This was like a Masters class in business, entrepreneurship, and life.

Laura: It really was. Talking to you was the bucket list thing for us. The book is so fabulous, we can't recommend it highly enough for anyone who's even considering starting their own company and wants some encouragement. I love the vibe that you have there, really great tone.

Marc: Jan and Laura, I am a believer. I'm so glad you gave me the chance to share this with you and with your listeners too.

Jan: We really appreciate it. Our thanks to Marc Randolph. Again, his book is called, That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea. His website is marcrandolph.com. I'm Jan Black.

Laura: And I'm Laura Owens.

Jan: You're listening to Nobody Told Me! Thank you so much for joining us.

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