Former Netflix CEO: “They're Lying To You About Hard Work!” Building a $278 Billion Company Wasn’t Built On Hard Work!

27:10And as soon as that happens, you all fall in behind and no one says I was right, I was wrong. And you don't even remember who was right and who was wrong. It's a big piece. August 29, 1997, Netflix was founded by yourself in Reed Hastings. From that day onwards, did you know at the moment that Netflix was going to ever become what it went on to be? What were you thinking it was going to be? I am completely astounded and amazed at the direction that Netflix has gone. Never in a million years could I have dreamed of the company that exists now, being the same one that we were thinking about in August of 1997.

27:57It's astounding to me what's happened. And it's the nature of entrepreneurship. You can't project where these things are going to go. That wasn't the point though. It wasn't like Reed and I were in the car going, okay, when do we enter the streaming war and how do we deal with the... No, this was a very, very simple straightforward problem. A video rental in the United States is $8 billion a year. It's very unpleasant that the company who has the lion's share of that market is doing things which customers hate. There has to be a blockbuster. There has to be a better way. That's where it starts from.

28:41That's the problem you're trying to solve. And trying to solve the problem is this dual thing which is how do you do something that a customer might want to solve the problem for the customer? But also how do you make a business out of that? And that's all consuming. I remember we had a company meeting early on, maybe you were two or three months in. And I remember getting up in front of the company and laying out what I thought was going to be this big, hairy, audacious goal for us. Someday we're going to be one of the top 10 largest video chains in the United States. Which in retrospect was a ridiculously trivial.

29:27But from where we stood then, it may as well have been saying we're going to write our bicycles up Mount Everest. What a hubris. Because even the 10th largest chain was many, many, many millions of dollars a year bigger than we were at the time. But something to aim for and we actually passed that one way faster than we thought. And then you set your goal, you know, eventually we're going to be as big as blockbuster. In other words, if you were to set your goals to be what Netflix is now, I would be locked up. I would have been this most ridiculous flight of fancy hallucination. You can imagine.

30:09Very well thought you were psychotic or something if you'd ever done a presentation saying Netflix would be as big as it is now. For people that don't know because the world hasn't moved on so much. And there's a generation of people that are listening to this conversation right now that probably don't even know what a like a VCR and a cassette player is. But you should launch the business at a time when blockbuster was the big incumbent and blockbuster was a store where you went to a physical location. You rented a cassette, VCR. What do they call it? A VHS tape. You took it home and then you brought it back the next day.

30:42And your real innovation was that you were going to send these DVDs to people in the post on a rental basis. That was the crux of the business, right? That was the crux of the business. And in fact, when we originally started, there was not a lot of business model innovation there either. There was due dates and there was late fees. The innovation was, it was one centralized store on the internet that served the entire country. So that we could have every single movie that was available on DVD. We had perfect inventory. And unlike a video rental store where you can picture it in like a supermarket with rows of shelves, each movie could be placed in one place.

31:27You could either put it in the mystery aisle or in the Alfred Hitchcock aisle or in the new, you've had a pick where it was. Whereas on the internet, you could have that same movie listed in 30 different places based on finding movies. We thought finding movies would be easier too. We had a bunch of things we thought will allow us to take on this incumbent, this huge, huge, huge company. But yes, it was very, very focused. There was no streaming. If you wanted a movie, we mailed it to you. We mailed it to you on a little plastic disk. It's funny because in hindsight, when I think about a lot of these big breakthrough ideas that ended up changing their industry, you learn in hindsight that there was some big macro factors that caused the timing to be right.

32:12And I think about in the case of your business Netflix, there's a bunch of big macro things that you've already described, things like DVDs, the internet. Is there any other sort of big macro factors that made the timing right for Netflix? Those were the two big ones. Right. Is that the internet was certainly the big one. Was that all of a sudden there was this way to have a single store which served the entire country. Before, for a bricks and mortar, as we call it, business, you want to serve the entire country? You've got to build 9 ,000 different stores. And Blockbuster did just that. They had 9 ,000 different stores.

32:53And then you have to staff those stores. And they had 60 ,000 employees. And we served the entire country with one inventory and with a group of 12 -15 people. So that was certainly one big shift. The DVD was a bet, which was at the time, DVD was just getting started. And if the DVD had not worked, if it had not reached a full household penetration, this whole thing would have worked. How many people were watching DVDs at the time when you launched Netflix? There was fewer than 250 ,000 DVD players sold. That was the total addressable market. It was 250 ,000 DVD players. So was that like 1 % of America or something?

33:40Yeah, there's 130 million households in the United States. And of those 130 million households, 129 .9 of them had the ability to watch a VHS movie. So this was a real bet that they'd eventually be willing to buy this whole new machine to play a whole different type of movie. But it was tiny. It was really, it created all kinds of interesting marketing challenges of how do you launch a company when there's so few eligible customers? In September, 99, you explored selling Netflix to Amazon, which is, which is shy of two years after you'd launched. Was that the first time you met Jeff Bezos? Yes.

34:25And how does that come to be? Because he's, the time I guess was fairly early in the Amazon journey as well. Yeah, he was, and at the time, to show you how early Amazon was in its journey, they were only a bookseller. So they sold nothing else. They were a bookstore. But Jeff had made no secret of the fact that his aspirations went way beyond that. That he was going to be the everything store, that the things they had found about how powerful it was selling books in the internet applied to everything else. And it was pretty clear his next two categories were going to be music and movies. And we got a call from the CFO at Amazon, basically saying, hey, Jeff would love to meet with you.

35:13How about coming on up to Seattle and having a little sit down? And Reed and I didn't need to think too long to understand why they might want to meet with us. It was pretty clear they were going to be entering video. And this was going to be a make versus buy analysis. Would buying Netflix accelerate their entry into video? Because we had done a tremendous amount of work about building out the content and making those things work. So there was some value there not to mention the people. And so we all flew up to Amazon and were ushered into this building, which was pretty hard to imagine that this was the headquarters of this world changing e -commerce company.

35:56Because it was a mess. You know, people were jammed in, understairs and in closets and there was pizza boxes every place and dogs running around. And the desks were all the same. They were all made from doors that had been supported by four wooden posts at each corner that everyone sat at these doors. And in comes Jeff Bezos and we begin to have this conversation about what is Netflix and what's it all about. And went pretty well. And as the CFO is showing us to the door at the end of the meeting, she said, I just want to set your expectations that in the event we decide to do something. Our offer is probably going to be in the low eight figures.

36:48And we guessed that was probably going to be 10 to 15 million dollars. And at the time we had launched an April of 98. And so we were still pretty young. And I remember reading and I kind of looking at each other and going, that's not a bad return for 12 to 18 months work. But at the same time we felt we had already solved the big problems. We had built a functioning e -commerce website. We had managed to source every single DVD that was available. We had figured out how to make movies, go out to customers and bring them back. And we weren't quite ready to let Jeff Bezos take over. And so in some ways it was less about us going up and deciding whether to sell or not.

37:43It really ended up being kind of like a commitment ceremony where reading and I looked at each other in the eyes and said, we can get out if we want. And I think both of us decided, no, let's go for this. Would that money have changed your life at that point? 1999 getting $14 million dollars? That's a hard to say. This is not like I was living in a trailer and deeply in debt. I was in my late 30s. I had been working in Silicon Valley for a while. And I had had a number of startups, you know, I had gone through IPOs before. So I had, I was comfortable. Don't get me wrong, this would have been nice.

38:31But I'm not sure this would have dramatically changed my life in some profound way. I thought it was much more interesting to take the shot and see what Netflix could become than to walk away. What was Jeff like? What do you remember in 1999? Extremely unpolished. If you see him now, I mean, he's really buff and he's really thoughtful and someone has definitely worked on his laugh. It's now very controlled. Back then it was this almost hysterical hyena like bark. And you could hear it from all over the building. I'm not going to try and imitate it. But he was tremendously enthusiastic like this bundle of energy.

39:18And I remember that the two of us were just going back and forth on all this early startup stuff. And one thing I remember we had in common is that at our launch, we had rigged up a bell to ring every time an order came in. And I was telling him that he was going, we too, we had a bell that was ringing. And we shared those things. And then we were also talking about names. And Netflix had started out with a strange name, which was Kibble. Kibble. And he was saying, oh yeah, we originally were called Kadabra, which he meant to sound like Abra Kadabra, like magic. But their lawyer said that Kadabra sounds a little bit too much like Kadabra.

40:02And so therefore, Amazon. But in other words, it was this really interesting us going back and forth. And I don't read was very impatient. You just kind of wanted to get down to business. So finally, I go, okay, read, read. Let's talk to the what we're really talking about here. Enough, enough startup. Is the next big milestone in the Netflix journey, the dot com crash for you?

40:29There's probably a more profound moment for me that happened before that.

40:39And that was this transition, that was this leadership transition at Netflix. And that was, because the dot com crash was in the spring of 2000. And this was probably in late 1999.

40:57And Netflix was still young. And as I mentioned at the beginning, the arrangement that Reed and I had was that he'd be the angel investor. He'd be the chair. I'd be the CEO. I'd start and run the company. And I did that. And Reed had a day job somewhere else. And one afternoon, late that year, read. And he spoke to his head in my office late afternoon and said, Mark, you have to talk. And as you probably can imagine, that never bodes well when someone says we have to talk. And it was right. And he came in and he had a PowerPoint slide show. And he sat across my desk and spun his computer around and began walking me through a slide show about how he felt that I was doing as CEO.

41:58And he was like, well, I'm not going to sit here and let you pitch me on how much I suck. And I think he was taken back by that as well. And so he closed the computer. But then proceeded to lay out that he was concerned that he had seen minor errors in my judgment that he questioned some of the higher as I had made. I mean, he had seen a lot of the other things I had done that were good. But his point was that we have to execute flawlessly. And we're at a point now where things are beginning to accelerate. And if there's smoke at this level, he was worried there was going to be fire later on. And eventually he got to his point, which is that he wanted to come back to the company full time and be CEO.

42:52And for a moment, I thought he was firing me because Reed had more equity than I did since he was the original investor. And but as I understood what he was proposing, it wasn't that he was proposing that he come in as CEO that I stay as COO and that we essentially run the company together. And I remember it as he finally, he left the office and he quietly closed the door. And I was so shocked that even though the sun was going down, I sat there in the dark like the strength to the lights on. And just kind of crushed because all I could think of the time was this is so unfair. This is my company.

43:39You know, I started this was my idea. I hired the people. I got us going and how dare you, you know, all of a sudden take this from me. But as I thought more about it, I kind of realized that there was another dynamic at work here. And like most entrepreneurs, when we started Netflix, I had this dream of being a successful CEO of this big successful company. And I think as I sat there, I began to realize that maybe this wasn't one dream. And even this was two different dreams. And that the dream of the big successful company might be a different dream than the one of me being CEO. And I had a really say to myself, does read coming in full time as CEO increase our chances of that happening?

44:33And it was really hard for me to argue with myself otherwise. And I'm not saying this was an easy decision. I went home at night and sat outside in the porch with my wife and we finished a bottle of wine. And I think by the time I went to bed that night, I kind of concluded that he was right that if we really wanted to give ourselves the best chances of being successful, that I should move over. I should step down as CEO and let read come in as CEO. And we should run the company together.

45:09And looking back now, this was 20 some odd years ago, that decision to kind of put my ego aside for a bit was probably the smartest decision I ever made the entire time I was at Netflix. Because those years after that when we denied it together, that was the renaissance at Netflix. So many of the things that shaped with the company became over the next bunch of years came during those years. And certainly looking at what read has done with the company since then, since I left the company was even more astounding. And it's funny because one of the roles of a CEO is you've got to make sure the best people are in the right seats, which means saying goodbye to a lot of people.

46:01You'll have someone who came at the start of the company and they were your head of marketing and they worked tirelessly. They worked weekends, they worked nights, they did everything you asked. But as you get to a different scale, you recognize that person is not the right person for what we have to do next. But you never think you're going to have to turn that lens onto yourself. And I think a lot of founders need to ask themselves that question all the time. I'm the right person for yesterday. I might even be the right person for today, but I'm either the right person for tomorrow. And the number of founders that I can think of and I'll bet you you will echo this when you think about all the founders you've spoken to, who are great early stage entrepreneurs and great late stage entrepreneurs.

46:54It's a very, very small set. And in my case, I was very, very comfortable recognizing that this was the right thing to do for the company. When you think back to that moment and that conversation with Reed where he comes into office with your hindsight and wisdom now, do you think there's a better way that he could have approached the situation? Of course. Reed, as I mentioned before, what made Reed and I work so well together as we were left brain and right brain. And that's not Reed's strong suit. It's my strong suit. You know, I pitch, I know how to frame things in the right way. I know how to deliver bad news.

47:38I know how to communicate effectively. I can intuitively know what's going to upset someone or not upset someone. That's not what Reed's great at. But what Reed has and what we share is he cares. Reed was doing this not with some ulterior motive. This was not, I want to push mark out and become CEO. This was, he genuinely believed this was the right thing for the company. And because we have this extremely strong relationship based on trust, I heard him that way. And fundamentally, that's way more important than the style on which the message was delivered. What was it that he thought he had that would suit the company in the next phase of the company's journey that he thought you didn't have?

48:29He had already taken a company through an IPO. He had already scaled a company from two employees up to a thousand employees from a local company to a multinational company. He had already shown that he could hire extremely talented people to work for him. He wasn't saying that he didn't think I, it was impossible for me to do this. And who knows what would have happened? This was all about what increases our odds for success. And then perhaps if you want to drill down to something which in the big scheme of things is small, but in the time was large, is we had to raise money. Netflix was a very, very expensive company to get started.

49:22We required large amounts of venture money and read had this reputation of someone who had already made a ton of money for some VCs because of taking his prior company public. And they would bet on him, whereas I was a little bit more of an unknown. One of the things you talk about in your book that he said to you in that conversation is you don't appear tough and candid enough to hold strong people's respect. Yeah, it's, I'm better at that now, as I count. It is the empathy. I, as I said, what makes direct marketing, marketing in general is an interesting discipline because it requires you to send something out.

50:10And you're not going to ever see the person's face as they react to it. You're not going to be there as they're reading this and either getting confused or excited. You have to imagine those things. And as you're writing a direct response letter, you're picturing how is someone going to react when they read these things? How are they going to react when they're watching this direct response television commercial? That's a, it's a gift in some ways. And it's also a gift when it comes to salesmanship and negotiation is before I say something, I know how it's, they're going to react. And I can cater that.

50:49But what it does mean is that when something's going to really hurt somebody, it's really hard for me. It's very painful for me to deliver a very bad news. I've never considered that before, but it does appear to be completely true that people who are great marketers have, therefore, have empathy and therefore struggle more with delivering bad news because they just have a better ability of putting themselves in either person's shoes. You feel it. You feel it. You know, I've, and like I said, I've gotten way better at it. I'd say I'm good at it now. I can be a complete ass. When I wanted to train that muscle.

51:29Is there a way to go, you know, if you think about how you went from where you were with that to where you are now? Is there anything that's helped you stop being, I guess, a bit of a people pleaser or carrying a little bit about people's feelings when there's a bigger...

51:50And as with most decisions, a lot of times people get caught in this paralysis where they're trying to come up with some solution that's an optimum solution. And this is one more example of that is that you go, this is going to hurt. It's going to hurt me. I have to just do it anyway. There's no way to avoid this. And for example, you know, jumping way ahead, there was after this .com layout, which we will talk about in just, I mean, .com crash, which we'll talk about maybe in a moment. We had to lay people off. And I cry with every single one of them. But I bring them in and I've gotten very, very good at telling people it's time to go.

52:30But it doesn't mean that I don't hurt. Hardest thing. Let's hope that if you're a manager, that's the hardest thing you have to do. Have you forgiven read for that moment that day, the way he delivered what he said? 100%. This is going to sound silly, but it came from love. It didn't come from madness or jealousy or anger. It as much as it was possible for something to hurt read in delivering bad news, that's got to have been one of the toughest things he's had to do. And so, is have that conversation with me. And I have so much respect for the fact that he had the courage and discipline to say, I've thought of something.

53:26I thought of way to mail the DVDs more inexpensively. I've got a way to make the, no, he goes, I thought of a way to make the company more successful, but it's really going to hurt. What is it about read then that makes read successful? Because I asked you the question about yourself, but now it's time to turn that on read. What is it that makes him so unique? So you used the analogy for creativity earlier on our conversation about having all these clouds of information, these clouds of connections and seeing that there are these inter -connectivities between them. Read sees that stuff so well.

54:04I consider myself really good at that. He's even better than I am. He will have a very complicated problem with many moving pieces and he'll jump immediately to we can do this. And I won't see that until a little bit later. And then, and then it'll see is it. It's just an amazing ability to see how things might shape out and which one is the right path to take. Extremely analytical. Extremely non -emotionally driven can make very, very hard decisions because less driven by that by the emotional piece of it. He's remarkable. What about hard work? Does it matter?

55:03Well, since you ask it so simply, I'd say no. Or it certainly is not the most important thing. In fact, I think hard work leading to success is a myth that, and let me give you two examples. The first is to qualify what I mean. I work with a lot of, as he spoke earlier before we actually began the session, about how younger people are different places in their life than older people, especially with career and how they think about it. And earlier in my life, I used to do triathlons. The race is the combined swimming and then biking and then running. And back when I used to do them, they don't do it quite the same way anymore.

55:55It would be a mass water start. You have four or five hundred people who are the gun sounds and all five hundred of them plow into the water simultaneously. Not a phase start. And as you can imagine, it is a shit show. You're getting kicked and your goggles are being knocked off and you're being held under water. And you quickly realize that if you want to be able to survive in this mass start, you're going to sprint for those first four or five, six hundred yards to get yourself far enough in the front of the pack that you have open water. And in my opinion, work life is kind of like that. When you're younger, when you don't really know what you're doing, when you have to go down a lot of false ends, because you're not sure the productive, you better work your ass off.

56:45You better sprint. You better work three times harder than everybody else in the company. So it's essential. But ideally, you get yourself far enough ahead that you recognize, I can't go at this pace for the entire tea of the triathlon. I needed to to get myself some breathing room, but now I can back off. So yeah, at certain points in your career, you need hard work. At certain points in the trajectory of your business, you need hard work. You're fundraising. You can't say, we're closing the round. I'm taking vacation for two weeks. We're doing M &A. I'm going to be, I'm only going to work a couple of hours.

57:25No, you're going to have to grind it. But that's not the answer. All right, one more little story, which is part two to this, which is why I say that it's a myth for hard work. So during one part of my career, I lived in Europe. I was doing international marketing for a big software company. We had an office in Paris. I lived in Paris. But I was meeting every week with the marketing people in our other branches. So probably four days out of five, I was flying. I fly to Copenhagen one day, then I'd fly to Milan, then I might fly to London, then I might fly to Madrid in one week. So I spent a lot of time at the airport.

58:12And because I'm sometimes not that organized, I'd be late. And you would find me just sprinting down the concourse in my, in my blazer in my wool coat, trying to desperately make the plane. And what I found out was that probably 49 % of the time, I'd pull up to the gate, and the plane was delayed. And I'd have to wander onto the plane, no problem at all. I could have made it on crutches. And instead, I'd sit there marinating in my sweat for another hour before the plane took off. Or the other 49 % of the time, I'd come sprinting down the concourse and you'd see the plane halfway out in the runway about to take off.

58:57And what I realized is it didn't make a difference whether you ran for a plane or not. That you're either going to make it or you weren't going to make it and that running didn't make the difference. And I vowed, then in there, I'd never run for a plane again, and I never have. And I'm telling you that story because it's a metaphor in that so many entrepreneurs spend all this time running for planes. They are up all night polishing their deck. They're reviewing the work of people to make sure the spelling is correct. They're double checking every detail. They are working so hard. But I know from experience that it's like running for the plane.

59:39Most of the time doesn't make a difference. You don't lose the deal at two o 'clock that morning because you didn't check the fonts. You lost that deal four weeks ago when you didn't have some fundamentals right. Or you just weren't the right company to begin with. No matter how hard you worked, you weren't going to change the outcome. And that is the key to having some balance in your life as an entrepreneur. Is this recognition that if you're smart about the things that you choose to focus on, you make 99 % of the difference. And that all that extra work does not really change the outcome any.

1:00:17And in that analogy running for the plane is the key thing to have just better prepared farther upstream. If we stick to the analogy, just have made a better decision to leave the house at a better time. Yes, it does absolutely. I mean, if you want to make the plane, you leave earlier. Again, this year you're going to stroll down the concourse. You don't need to run. And if the plane left on time running is not going to make the difference. If the plane's late, running didn't make the difference. Either way you made it or didn't make it. The amount of times that running for it was the gating item between with you made it or not.

1:00:52It's like infinitesimal. So what's the point of running? And I really fundamentally believe that is that if I can be really smart about my which problems I choose to focus on, I'll make the difference. I do not need to get everything right because most things don't make a difference. Some things do. Some things do. And some of the small things that made a difference to your business seem to have been discovered through a process of sort of experimentation and failure. When I look back through your story, you try to get sort of Netflix to work and get product market fit. You referenced it a second ago.

1:01:28This idea of no late fees seemed to be quite pivotal. The idea you had to remove the late fees. I find this interesting because there's going to be entrepreneurs that build their idea and then bang their head against the wall. And it doesn't work. And then I hear so often whether it's from Brian Chesky at Airbnb or from someone else, Daniel at Spotify, that there seemed to be this one change that was quite pivotal to their business at some point. So my question becomes like, how do I know? How do I find the thing? So can you explain to me why there's no late fees thing and any of these other small changes that change the game?

1:02:01And how was the system that led you to them? You know, we're talking about really finding product market fit. Product market fit, if I have to give a definition, is when you recognize you finally have something that customers actually do want. And it's recognized because all of a sudden the momentum of your business dramatically shifts. All of a sudden things go into high gear. All of a sudden acquiring customers is so much easier. All of a sudden they're sticking around. It's just this instantaneous, oh my god, we found it. And up until that point, it is this constant struggle of trying one thing after another, trying to increment your way closer and closer and closer.

1:02:48When I mentioned that at the beginning there wasn't a lot of business model innovation with Netflix. You ordered them a disk, we mailed it to you, we charged you a due date. If you missed the due date, we had late fees. And the reality is the idea was ridiculous. It didn't work. Nobody would rent from us. And if you did rent from us once, you didn't rent from us again. And we kind of had this realization that, okay, we got to begin figuring things out. And thus began this year and a half long process of trying to figure out some way to get people to rent DVDs by mail from us. And we tried almost everything you could think of, hundreds of things.

1:03:35And I kind of talk about this a bunch that I had no shortage of ideas. I mean, I had lots of things I wanted to try. And if there was any, if there was a problem that I had, it was that I was a bit of a perfectionist back then. And so all these tests that I'd want to run, I'd want them to be perfect. So we would, you know, lovingly argue over every word of copy. And we would do custom photography and we would check every link and we'd stress test the site. And it might take us three weeks or a month to prepare for this test. And we'd test this new idea and then it would not work. It wouldn't do anything.

1:04:15And we'd kind of look at each other and go, we just wasted a month. So, okay, faster. And then we'd do a test in two weeks. And then we'd still fail. Okay, okay, faster. And we'd do it in a week. And faster. We eventually started getting to the point we could do a test every day or multiple tests every day. And it turns out that once you go that fast, things get very, very sloppy. So we would have the wrong image or it would have the watermark on it or the pages we had greaked would still be greaked. You know, not we'd have bad links. We'd crash the site. And then, but that was such an incredibly big insight for us.

1:04:56Because it turns out that it didn't make a difference. That if it was a bad idea, even spending a month crafting this perfect test, it wasn't going to make it a good idea. But if it had even an inkling of being a good idea, no matter how bad the test was, it's shown through. Customers would immediately perk their head up. They'd raise their hand. They would fight to do it. They'd call us. They'd reboot the site. It was this incredibly loud signal that there was something there. And it goes back to what we said before, which is that it's not about having a good idea. It's about building this whole process and this culture and this system to try lots of bad ideas.

1:05:43And we got really, really good at trying lots of bad ideas. One after another, hundreds of them. Each one informing us to some little bit about what to try next. And eventually we got to this point where we had these two big ideas left. And one of them was at that point, Netflix was pretty big. We had probably in our warehouse several hundred thousand DVDs. And I remember one day we were read an eye were in the warehouse and looking at all these DVDs and going, it's such a shame that all these DVDs are here in the warehouse where they're not doing anywhere any good. I wonder if there's a way to store them at our customers' houses.

1:06:26Let them keep them. And then when they're done, they mail it back, well, let's replace it. And rather than having them have to pay each time they replace it, let's just have a monthly fee, a subscription. And they can rent as often as they want. There's no due dates and no late fees. And it was a ridiculous idea. But when we tested it, it was that mythical product market fit. It worked. People loved it. They couldn't get enough of it. They told their friends. They did not cancel their subscriptions. What part of it worked and why didn't it work? God knows. But in retrospect, what it did was it took one of Netflix's biggest impediments and turned it into one of its biggest assets.

1:07:20You know, we referred to my book. It's called That Will Never Work. And there were two reasons it's called That's Will Never Work. It's because that's what every single person told me when I pitched the idea. And they had two reasons why they said it. And one, of course, was streaming. They said, oh, it's a digital medium. It's just a matter of days before everyone's streaming these. Who needs DVDs? And we realized that was not the case. It was inevitable, but it could be years. But the other reason was blockbuster. Why on earth would anybody want to order a movie? Have it mailed to them, get it three days later, and then keep it a week and mail it back.

1:08:04When you can drive to a blockbuster in 20 minutes and have the movie immediate gratification. And what happened when we did the No -Dude -Aids No -Late Fees? Is it shifted? Because before, with an all -acart system, you would order it. Yeah, you'd get it three days later. Or you'd drive to blockbuster in 20 minutes. But now when it was No -Dude -Aids No -Late Fees, you could order your movies. They'd sit on top of your TV. You keep them as long as you want. When you want to watch a movie, this lag time is zero. Compared to 20 minutes to go to blockbuster. Because you could order a couple, I imagine.

1:08:42You'd three. You could order three, OK. And so you always had something to watch. When you were done, you put it in the mail. And instantly, you know, two days later, another one replaces it. So all of a sudden, we weren't two and a half days slower than blockbuster. We were faster than blockbuster. And I think that was the convenience. And the thing is that when we did the analysis at the beginning about blockbusters Achilles heel, it was the late Fees. Everyone hated them. That was the single biggest thing that people would say about blockbuster. I hate the late Fees. And by being able to get rid of that, it was a huge competitive advantage.

1:09:24And it was baked into the blockbuster business model. They couldn't easily get out of it. OK. And so for some of that might not be aware of blockbuster. The late Fees are, if I didn't bring back this tape of this movie, I would get charged per hour, per day or something. Yeah, it was usually $3 or $4 a day. OK, which is a lot of money for a DVD. It's a huge amount of money for that. But it was also this feeling of I was OK paying the initial fee to rent the movie. Because I watched the movie and I just couldn't get it back in time. And now, oh my god, now I got to pay more just to return it. It just felt like this unwarranted, unpleasant punishment for the customer.

1:10:04I was thinking about something that Daniel Conman, the famous sort of psychologist, talked about in his paper when he wrote about loss of version. And the TLDR of it, the too long didn't read part of this, is that Daniel Conman discovered that people have a real disdain for feeling like they've lost something. And in his studies, he shows that if you drop $10 on the floor, you don't need to find $10 to make up for the pain of losing 10. You actually need to find 20 or 30. And so he has this wonderful graph where he talks about that. We just lost to us is so much more painful than a game. So in the case of Blockbuster, a late fee is money I literally lost for nothing.

1:10:44So it's not losing for dollars in the context of it. It's actually losing like $12. It's that painful. Exactly. It was a really, really hated aspect of the video rental experience back then. And also, maybe think about the peak end rule, which is you remember the Uber discovered in their labs where they say that people remember the peak in the end of an experience. And so it's my end of an experience with Blockbuster is getting charged, getting punished. That's really interesting. I've never heard that before, but that fits entirely. It was the perfect enomata. We're having an experience with Blockbuster is to go in and have someone say, thanks for turning your movie.

1:11:20Now you owe us $8 or $12. Just like a horrible end experience. It is. And that's why I think a no -dood -aid snow late fees was so profoundly game -changing for us. And it marked the beginning of that was it. That's what the company became for the next five or six, seven years. And it was more than just no -dood -aid snow late fees, but the transition to a subscription business was huge. And this is, you know, now everything's a subscription business. Every piece of software you buy is a subscription. Everything's subscription. Back then, that was not the case. There was book clubs, which was subscription.

1:12:05There was record and tape clubs, there was subscription, there was magazines. And that's all. And in some ways, when you look back at what some of the huge Netflix innovations were, one of them was demonstrating you could apply subscription to something which is reasonably unintuitive. And it came from this fact, again, this disconnected little piece of my past that I happened have had a year and a half of experience, really understanding subscription economics. When you were looking forward, so I'm so fascinated by this test that you did, which changed Netflix's fortunes. There's a couple of them that you've described.

1:12:44But when you did you know looking forward that it would have that much of an impact? And I'm saying this because that helps me to understand whether I should just conduct a lot more tests or I should do what I think most companies do where we sit in a board room and then we spend hours and hours trying to find the perfect test. Is the game just conduct more tests? If I didn't have to sit by in the microphone, I could get up and hit you upside the head for that comment. God, no, you should not be sitting in the board room debating what to do. You should be running more tests. You should always be running more tests.

1:13:17You don't know, you don't know shit. I mean, you don't. Your customers do, but they even they don't know what they want. And the only way to figure it out is to throw all kinds of things at them and see what directionally they're interested in. But so did I have any idea the subscription was a big thing? Absolutely not. And once it began to work and it worked like crazy, we still had no idea how to optimize it. And we Netflix still 20 plus years later spends on godly amounts of time on testing all kinds of things about subscription dynamics. What does it take to get some of the do it? What does it take to get someone to stay?

1:13:57What influences these? It's unbelievably complex, but it's unbelievably important. But subscriptions, there's a reason why it's eating the world. It's an incredibly compelling business model. And the fact that we stumbled onto it and that it worked so well just was a very, very positive thing. It's interesting on the testing point just to close off there. Embodying the position of most companies or employees or founders listening to this. The reason why they don't want to run tests or don't have a culture of it is because it involves failure. And failure then in most companies results in blame and blame makes people feel bad.

1:14:32So it distance entivises them. But creating a culture where failing is a positive and it celebrates it is quite a challenge, I guess. It certainly is. It's a career for me. I mean, I do a lot of public speaking, keynote speaking all over the world. And a lot of them are big companies who are going, our whole world is being turned upside down. Our whole workforce is risk averse. Mark, get in here and help us figure out how to make everyone a bit more risk tolerant. But what do they do? They'll go, okay, Mark, your theme today is we're trying to get everyone to be bigger risk takers, to take chances.

1:15:14We want to celebrate risk. So, but before you go on, we're going to celebrate the sales leaders and bring them up and reward them with trips to Hawaii. It's like you said, you have to let people know that failing is not only okay, it's expected. And it's a good thing. And we found we learned from it. And I don't even consider failures. They're not failures. They're tests that didn't necessarily work, but they worked in the sense that you learn something from them. And you just keep doing those over and over again. And as again, if you go back to this, my first principle is how do you learn how to do tests which are quick, cheap and easy?

1:15:55You can do as tons of them. Talking about giving speeches that just a week before the dot com bubble burst, you gave a speech in New York City. And your dad was that. Yeah. My dad was the anti entrepreneur. He was extremely risk averse. He was an investment advisor. He worked for a managing money for people in a company whose whole principle was fundamentals long term value. He had no clue whatsoever about why I was doing what I was doing in this whole venture world. It was just completely made no sense to him. With that speech in New York City was actually fairly interesting because what I was doing was speaking to the DVD manufacturers association, I think it was about what we learned about more effective ways to expand their business.

1:16:55And on one hand, I think my dad was extremely proud to see that all this stuff that I'd been saying which he thought was all a bunch of who he was actually important and interesting to people. But unfortunately, it was also he happened to be in New York that time to get treatment for a brain tumor which he had just realized he had. And so it kind of was this beginning of this my dad understanding for the first time what I was good at at the same time the end of. Not of our relationship, but it marked the beginning of this saying goodbye to him. So it was kind of this very, very bittersweet bittersweet time.

1:17:45In 2042 years old when you were 42 years old, just one week before the dot com crash your father passes away. I mean, the timing is extremely unfortunate, but also just the impact that must have on one's perspective till he's there father at that that's in that season of life. Yeah, I guess it's part of you go, what else can go wrong? And you find out plenty. But the tragic, this is going to sound so try disposed, but one of the tragic things about my father dying before the dot com collapse is he missed seeing that he was right. He missed seeing that in fact this was a lot of who he that this apparent defying of gravity by all of those dot com companies commanding these ridiculous valuations with no revenues and even less profit.

1:18:49Which he thought he could not understand how this could possibly be real well as we all found out a week later it wasn't real. And I think he would have really loved seeing that in fact he was right.

1:19:05But it was kind of this double hit for me, you know, a reeling in fact from the death of my dad and then all of a sudden having to worry now what the death of my company. Did it change your perspective, losing your father on what matters in life?

1:19:29I'm going to say no because what was great about my father was that he was very true to himself. He was very comfortable being an iconoclast about holding different opinions. Even as we just mentioned with the dot com bubble when everyone else was saying this was the next big thing and he's going this makes no sense whatsoever and he held to it. And he lived his whole life that way. And so in some ways when he died there was this sense that it is possible to be true to yourself and be fulfilled that you do not need to chase the trends. And so I was reminded that that can happen when I started my first job when I was like and I was probably 22.

1:20:33I first real job where I actually had to go sit in an office. My dad called me into the den and tore a page of a yellow pad. And on the page he had written in pencil the Randolph rules of success. And he goes this is this is the things that I have learned over my career as a business person. And I think I want you to see these as you start your career as a business person. And I wasn't quite sure what to expect as I was looking at them. And what was interesting was that these were not business rules. This wasn't like you know by low and sell high or happiness is positive cash flow or anything like that.

1:21:16These were basically rules that said it's possible to be a decent person and still be successful. I mean it was simple things like you know do 10 % more than you're asked. It was be prompt. It was don't knock don't complain stick to constructive serious criticism. It was don't express opinions about things that you don't have the facts for. I mean that's who my dad was that he felt that those were the important things to communicate to me which is Mark. Be a match. Then the dot com bubble happens. Most of us can't remember I think I was how old was I must have been seven or seven or so seven years old.

1:22:07So I can't really remember what happened. Yeah. But I know it was bad. Well it was especially bad for us. I we were talking a moment ago about subscriptions and how subscription economics are amazing. And what makes them amazing is that you acquire your customer and then that customer gives you money for months afterwards. Ideally for years afterwards. But because a subscription customer is willing to give you money for years afterwards you can invest more in acquiring that customer. You can spend $100 to bring that customer on board with the confidence they're going to give you $10 a month. Month after month after month after month but it means in month one.

1:22:52You spent $100 and you made $10. So when you have a subscription in business which is booming which is going crazy when customers are flooding in the door. Well money is flooding out the door. The cash required to service those bring those customers in for their first month. Huge the revenue from them. Not so much. Not to mention we had a first month free policy. And that wasn't a problem in March of 2000. That was the era of irrational exuberance. That was where you had these companies where had no revenue, no real business model worth hundreds of millions of dollars. Where I could go out on the highway with a green flag and wave it and a dump truck of money would pull off and back up to my driveway.

1:23:42And I just need to come out with the wheelbarrow and bring the money in. It was ridiculous until the dot com crash. And all of a sudden in a matter of a week or two completely dried up. And all of a sudden having a dot com on your name was no longer road riches. It was the scarlet letter. And we were in deep trouble. We were basically going to go broke being successful. And when that happens, as you've seen with other entrepreneurs, you do something called pursue strategic alternatives, which is code for we have got to sell this sucker fast. And we had an obvious strategic alternative, which was blockbuster.

1:24:27When you losing money at that point. Oh my god, yes. How much? Roughly. At that point, we had accumulated losses of about 50 million dollars. And what were your revenues? Five million dollars. And you accumulated losses. What was your annual yearly burn rate? How much money were you burning every year? Well, we were only in business for, we'd only been a business for two and a half years. So most of that 50 had been in the previous 12 months. I mean, that's. I mean, on paper, that's not a good business. Well, not just on, yeah, it's a terrible is this. You know, they say that one of the goals of any startup is to see a repeatable scalable business model.

1:25:09That is not what we mean by repeatable scalable business model. It's disastrous. And you have lots of businesses which go, we're going to make it up in volume. Or once we just get the, get the eyeballs, then we'll monetize it later. So it's, it went all of a sudden, the opportunity for all those things goes away. It's disastrous. We're just completely upside down our economics. Did you go to Blockbuster? Did they come to you? No, we tried going to Blockbuster for months. We tried reaching out to them. But this was at this ultimate, we listened to you were doing five million a year. They were doing six billion dollars a year.

1:25:45Okay, so you and we had 150 employees. They had 60 ,000. And we were like a net, you know, to them, to an elephant that, you know, the tail flipped around. What's this thing buzzing? No interest in us whatsoever. It took months and finally we got the call. And as liquid habit, we got the call. We were at a corporate retreat at a place called the Allisol Ranch. There's a city called Santa Barbara on the coast of California. Pretty rural. Allisol Ranch is way back in the mountains. It's a dude ranch, you know, horses. So we're on retreat. And you also know that in Silicon Valley that we're pretty casual.

1:26:27And when you're on retreat, you have to work at it to be even more casual. So all I had with me was shorts, t -shirts, thongs, sandals. You know, that's all I had with me. And that's when Blockbuster calls, goes, we'll like to see you tomorrow in Dallas. And I remember turning to read and going, there's no way. We can't fly nonstop out of Santa Barbara. The time zones are different. We can't possibly get to Dallas by tomorrow. And so we did the prudent thing you do when you're $50 million in the hole. And we chartered a corporate jet. A rounding error, I think they call that. We fly to Dallas.

1:27:08Go up to in the 27th, 28th floor of this massive glass and steel skyscraper into this huge cavernous conference room. It was a big hardwood table made of, I'm sure at a some endangered Amazonian hardwood or something. It was horrendous, the whole thing. And I'm there in shorts and a t -shirt. And your thongs, handles. And the sandals. And read, I was jealous. He had a Hawaiian shirt. He had buttons. Anyway, income the blockbuster guys and we make our pitch. We go, we'll combine forces. You'll run the stores. We'll run the online business. We'll build a blended model. Which our research has shown is a game changer.

1:27:53And everything will work out. And it was going good. You know, they were asking good questions. They're leaning in. They're going, okay, this is rolling. And then they asked the big question. You know, how much? And of course, we rehearsed on the plane. And we figured we're $50 million in the hole. So $50 million. And there's this silence in the room. And I'm looking at blockbuster execs, trying to piece together what the reaction is. And it finally dawns on me. They're trying to suppress laughter. They're trying to keep a straight face at the hubris that this little company, $50 million in debt, at the trough of the meltdown, could possibly be worth $50 million.

1:28:41So as you can imagine, meeting goes downhill pretty quickly after that. Long, quiet ride in the cab back to the airport. Even quieter ride on the jet back to Santa Barbara. And I so profoundly remember sitting there on the plane, just my head down, like not talking, just thinking, I was so confident that if we just got the meeting that this blended model was so self -evidently great that they'd save us. But now they weren't going to save us. They were going to compete with us. And we were in trouble. Did they make you an offer? No. They just rejected the $50 million offer. And you know, my dad, one of the things he sometimes would say to me, is like, you know, when I was struggling with some particularly nasty problem and came to him for the solution, he'd go, you know, sometimes the only way out is through that you got to take these problems and just go right at them.

1:29:48There's no way around. And this was such a classic case of that. There was no easy way out of this. The only way we were going to survive was to be to compete with them. And we had to put ourselves in a position we could do that. When we laid people off, we dropped entire lines of adjunct little businesses, completely focused it in and survived. And eventually, you know, as eventually passed blockbuster and eventually blockbuster went into bankruptcy. I don't know how blockbuster couldn't have just looked over and seen your business succeeding at some point and gone, okay, we've got six billion revenue a year.

1:30:27We'll just destroy them. We'll just, you know, overpower them with advertising or something. It's a big piece of innovators dilemma. In their case, a couple of things going on. Number one, imagine you were the CEO of blockbuster. John Antiochal. So you've got six billion dollars coming in through your standard business model, which is serving these bricks and mortar stores all over the world. Six billion dollars. And someone comes to you and goes, we need to build an online component. And John goes, well, what do you think that could do in revenue of the first year? And you go two million dollars.

1:31:09So would you say, okay, take our very best engineers. Let's put them on this project. No. You go, okay, figure it out. And you put the B team is on it. And of course, it doesn't. Netflix wasn't a movie company. It was a software company. I mean, we had Silicon Valley. We had people who had spent their whole life building software. You can't compete with that. Even with their A team, it would have been challenging. They put the B and the C team on it. And they did that a second time. And then a third time. And finally, each time we're stronger and stronger and stronger. And eventually they go, we've got to fix this.

1:31:49And they pick a team. They resource it adequately. They say, get out of the building. Go across town. Set up. Here's the money. Come after these guys. And it's one of the, it's a story which has not really been told very well. But they came really, really close to taking down Netflix. They were in a, they, that blended model, which we knew was a killer. Which, and blended model means you can rent from blockbuster. And you can either return it in the mail or you can return it at the store. Or you can go pick it up at the store or you can have it mailed to you. And we couldn't compete with that.

1:32:29We didn't know the stores. And it really, really came close to taking Netflix down. Until all of a sudden they had all kinds of unrelated corporate shenanigans that made them decide, change CEOs, we're going to de -resource this online business and walked away from it. What was, I saw you talk about this on your Instagram recently. When John quit the business, so John was the CEO of blockbuster. And him quitting the business for variety of reasons is much of the reason that you think Netflix actually ended up not getting killed by blockbuster. Correct. Can you explain that? So, and I'm not going to get this entirely right.

1:33:10But there basically were people who were corporate raiders who would buy large amounts of a company stock and take seats on the board, take multiple seats on the board and begin to try and dictate things to make a company more short -term profitable. That happened to blockbuster. And one of the acts they did was deny John Antioch's bonus. He was the CEO of blockbuster. Yep. And he said, you can't do that. And they go, well, we need to, we're going to, no, we're not going to pay you the bonus that you were promised in your previous agreement. And so he goes, well, in that case, I quit. And then they went to find a replacement and they brought in a person who had all of their experience at retail stores, at convenience stores.

1:34:03And his vision was we have 9 ,000 stores in almost every community in the country, in the world. Why aren't we selling gum and clothing? And what are we wasting money on this digital stuff? And there's a, this is super movie geeky. So I've pard me for the segue. Steven Spielberg, who I'm sure you're familiar with, his film school project was a movie about a robot. And the robot operates kind of on a cost benefit analysis. And there's the penultimate scene in the movie where the robot is chasing somebody. And he's getting closer and closer and closer. And he's just about the robots that reach up and grab the person's ankle.

1:34:56And you see the sunk cost of the robot's time get to break even. And he stops and walks away. And instant before he grabs the person, that's what blockbuster did. They were within seconds of grabbing us by the ankle and yanking us off the ladder. When something happened unrelated to that and they just turned and walked away and we us, gambored to safety. They lost focus. Yeah. So that's, there's a lot of reasons. Netflix, blockbuster didn't go down because of Netflix only. But blockbuster went down because they had a business model, which was very, very different. It was very difficult to change.

1:35:35And they didn't have the courage and the persistence to be willing to do the things that would have made it change. Q1 is often when businesses start implementing new systems and processes in hopes of creating efficiencies for the year ahead. And over the course of my career, I've learnt just how crucial having the right systems in places, one which has helped me across many of my investments is NetSuite. They're also a sponsor of this podcast. NetSuite is the number one cloud financial system through their streamlined platform. You'll find all of your accounting financial management inventory and HR in one place.

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1:36:44The IPO happens, the company is valued at a big number. I guess your life has changed indefinitely from that point because it's a lot of money for someone to have. You go on, leave the company for the reasons you expressed earlier. You go on and do other things. I think at that point, really the streaming war has been now won by Netflix. Now many others, as we sit here in 2024, but at that point was really when blockbuster are effectively dead. They went bankrupt for eight years after the IPO. Yes. Those wars rage for a while. You go public in 2002. They continue pursuing you. Ultimately, they run out of steam eight years later and go bankrupt in 2010.

1:37:29You leave Netflix. You leave Netflix. You're a wealthy man. You've achieved success. Almost every bit on planet Earth will never see in terms of business. At that point, what matters? What matters in life? The day of the IPO, I remember we left the trading floor where we had gone public, New York City. My son, who actually with me today, in the back was with me. He was a much younger man. I remember the two of us sitting in the taxi going downtown in New York. We were going to get pizza because I figured he's a California kid. He had better experience in New York, pizza. I was sitting there going, my life has changed.

1:38:17I do have the option if I want to or not have to work again. In the cabs, seeing all these people who are going about their lives and going, am I different or not? Part of it, you then realize, I like what I do. I'll take the day. I'll take the day or two, but I'm going to be going back to work. I still have problems to solve. We still have to make this company successful. I did. I went back to work. It wasn't as profound that my life changed. IPO is held up as this B all end all, but it's just one more milestone along the way. Netflix still had a lot to do, and it still has a lot to do. The more profound thing was actually leaving and realizing that I could, as I mentioned before, could now begin spending my days doing the things that I really loved doing.

1:39:13I have been incredibly lucky to do that. Since leaving Netflix, I do get to spend every day working with other early stage companies. I did start another company after Netflix, which did really, really well. I have a great life, and I still get a chance to spend time with my family, and I still get a chance to get out and do all the outdoors things that make me whole. Was there grief associated with leaving? Is there a grieving process because you're... Surprisingly, no. There's uncertainty. I spent most of my professional career in Silicon Valley. As most people there do, I know dozens, if not hundreds of people who have economic outcomes there, that would allow them to not work another day in their life if they wanted to.

1:40:05But if you do a simple survey of the friends of yours who have been put in that position, the vast majority of them go back to work. They start another company. And you realize that we are entrepreneurs not because we have to do it to earn a living. We do it because we love that process of solving problems. We love that process of making and building a company. We love that process as I described earlier, sitting around the table with really smart people solving really interesting problems. And if success is nothing else, it's the ability to be able to do the kind of things you want to spend your time doing.

1:40:48And doing another company is the most thrilling thing in the world. And if I get a chance to do that, why wouldn't I want to do that? So in that period after leaving, I didn't say I'm retiring. I didn't say I'm starting a new company. I said, I'm going to take some time and think about it. And in my case, I decided I didn't think I had any of you to start another company. I was going to spend my time helping other people do it. It turns out that I was wrong. I got sucked in to start another company. That's a whole nother podcast. But this whole thing is not about the IPO. It's not about success.

1:41:24It's not about money. The thing that makes this the best job in the world is how cool it is to take something which hasn't been done before and figure out how to do it. And I just feel blessed that I imagine you do too. And the people you speak to are all blessed that we are allowed to spend our days doing that. One of the things that always inspired me and that I've mulled over for many years is the culture that was created in Netflix because it was so pioneering. And it's so sort of spat in the face of the way that we were told things were supposed to be done. Because when I started my first business, it was all about family and all of this stuff.

1:42:01And then I remember that day that I read Netflix's sort of culture handbook, which is quite famous and viral now called Freedom and Responsibility. And it was everything that I was the opposite of everything that I thought a business was supposed to be. You know, it was this radical freedom that people were given. But then there was a really high bar. And I've always been curious, like, A, where did that come from? B, is that for every company? Is that the right way of company culture? And I guess see what is the unknown part? Because we all saw the deck, but we don't get to see the actual information.

1:42:38So I'll take your middle part first, which exists for everybody. And the answer is no. Culture, as I often say, is not aspirational. Culture is observational. Culture is not something that you dream up what you want it to be. That you aspire to it to be. It's not brainstorming what our culture should be. And now let's print up 40 posters and put them in the break room. That is not what culture is. Culture is how you as the founders behave. It's how you as a senior executive's behave. People are watching you and they're modeling off of you. That is what culture is. That's where culture comes from.

1:43:22So if you aren't a certain way, you can't have your culture be that way. And it's perfectly okay to say that we're a family. If that's really the way you behave and want to build your company, it's entirely appropriate. That's not the way I wanted to behave or build my company. So I never said that, but I'll get to that in just a minute. But it comes from this. So this whole radical honesty thing at Netflix, that just came from the way Reed and I always treated each other. And the way we treated our employees, and the way we wanted to help them accountable to treat their employees. So it has to come from how you genuinely are.

1:44:06You can police that. You can hold each other accountable. You can say we want to hear from everybody. And then have your HR person pull you aside after the meeting and go, Mark, Reed, you are always saying, you really want to hear from everyone in those meetings, what percentage of the words do you think came out of your mouths? And then both of you write, Patty. We'll do better next time. You want your actions to match your words. So that's the core thing of culture. It can't be something alien. It means you have to be accountable to it because it spreads beyond you that the culture of the first 10 people is modeled off the first two of you.

1:44:51The next 90 is off the first 10. The next 900 is off that first 100 and so on. So if you let it slip, if you say, one of our principles is no assholes. Unless they are our best salesperson or the replaceable see -off. Well, then it's different. No, you've got to be consistent because everyone sees that. Anyone with kids knows, kids don't model what you say, they model what you do. The other piece, this whole freedom and responsibility thing, is not novel. It's almost every early stage company has this. Because there's just aren't the resources to do otherwise. You have, let's say, 10 people, but you have the work of 100.

1:45:34There is not time to say, okay, Stephen, here's what you have to do and here's what you have to do. And check, you can't do that. You just go, all right, here's what I need. You see that mountain over there? I'll meet you there in two weeks and I need you to have this finished. Here's what you need, two weeks, meet you there. And then I'm not going to talk to you for two weeks. And you're going to have to struggle and figure things out and overcome obstacles based on what you have to accomplish. There'll be different things and this person has to accomplish. But I trust that you're going to get to that mountaintop with the stuff done in two weeks.

1:46:11That's the responsibility part. But I'm giving you the complete freedom how to get there. So that's an easy thing when you have 10 people. It's a little harder when you have 100. It's really hard when you have 1 ,000. And the reason is that there's an innocent thing that happens. So get to a point and you're at the mountain and someone shows up like three or four days late. And you go, oh, this isn't good. I can't have this. Okay, from now on, I need everyone to give me a daily status report. So I know in advance of this problem, every person goes, oh, status reports. Okay. And now everyone shows up on time, but then someone shows up and they spent too much money.

1:46:53And you go, oh, I can't have this. Okay, everyone, I need to pre -approve all expenses over $5 ,000. And all these people who you're counting on to be responsible, you're treating them like an infant. You're going, I'm giving you this, you have a $10 million quarterly sales nut. But I don't trust you to make a decision about what Kiva hotel you can stay in. Or what money you can spend to achieve. Come on. Treat me like an adult. That's freedom and responsibility. I'm going to treat you like an adult. But what most companies do is they put these guardrails in place to keep people from making errors of judgment.

1:47:35And the Netflix experiment is simply as, rather than building guardrails to protect ourselves from people with bad judgment, let's build us culture where there aren't no guardrails and only hire people with good judgment. And that's it in a nutshell. And I'm sure you've seen the deck, but you know what the travel policy is. There isn't one. You know what the expense policy is? There isn't one. You know what the vacation policy is? You know, there isn't, there aren't any policies. The policies are all summed up as use your best judgment. That's freedom and responsibility. Now, that only works if someone has the judgment to be treated that way.

1:48:21So you have to be diligent about saying if you don't have the judgment to be able to make decisions effectively, you shouldn't be here. But it turns out there's a magic to this. I worked for a big multinational software company back when I was doing direct response marketing. And we had a big competitor with like Microsoft. And we had a big corporate campus. And it was beautiful. Had tennis courts, had squash courts. It had a big health club. Really wonderful cafe. And Olympic swimming pool. And a hot tub. And one day, myself and Patty McCord, who was the HR person at Netflix, we were walking back from lunch.

1:49:06And we saw some of the engineers in the hot tub. And we swung by to say hello. And as we got close to the hot tub, we could tell they were all bitching about the company. And we thought it was pretty funny that here they are sitting in this magnificent hot tub at the company complaining about it. But it triggered this conversation of which is if it's not the amenities that make people want to work someplace, what is it? And the answer is it's not the fireman pool and the nap pods and the kombucha on tap or any of the other ridiculous thing that people throw out. But it's they want to be treated like adults.

1:49:47They want to have agency and their life and their jobs. They don't want to be told what they can and can't do. They want to be given a clear responsibility and given the freedom to achieve it. And that is such a huge unlock for Netflix. It's more important than how much you pay someone. It's more important than almost anything. I have been through this. So my first business started with the same set of policies and rules, especially as it released like holiday. So we've always had unlimited holiday. Even in the company that you're in your part of now, the 40 people that work for the Diary of a CEO now, we have unlimited holiday.

1:50:25What I came to learn interestingly over time is that the reason you end up changing these rules is because five percent of people. It's really like just a few people that don't exercise the judgment you're talking about. So what you end up doing is going, okay, well, I have to change a rule for everybody. Because there's small groups, maybe three or four people that can't seem to execute really great judgment. And that's funny because I found myself at one point several times over my career going, right? We have to get rid of the unlimited holiday because Tom and Dave and Nigel of 200 people in an office can't make fair and responsible judgment.

1:51:02And it's kind of just don't on me as you're speaking. What I actually need to do is just address the three people. You have to, you have to fire those people. You're going to, you're going to go the opposite way. You're going to start looking at all the other policies you have and go, I'm going to take get rid of those two. I'm going to get rid of it. And little by little, but again, it's only if that's you. It has to match how you want the company to feel. I can't be artificial. No, it is. It's always been because I even, the reason why I'm an entrepreneur is because I'm impossible to employ.

1:51:34Because I hate jobs. So I tried to create a company where I would want to work in, which means that if you shut up late, good because I'm probably going to be late too. But maybe the reason I was late is because I was working late on something and that actually doesn't matter. So what time your arrive doesn't matter. It's, you know, because responsible people, someone like Jack, you haven't got to tell Jack when to work. Jack is so focused on the mission. Jack will figure out when he needs to get, how he, and when he needs to get his job done. And you don't end up making the rules for people like Jack, you have it Netflix for you.

1:52:06Yeah, but he's the one of those people because he's like a founder here. He like founded this thing with me. So we have that kind of mentality. But yeah, you're right. You end up making it so interesting. It is. It's all about taking down the guardrails and what happens is taking the guardrails down. Great. Means those three people can't work here, but it makes the other 97 really want to work there. It makes other people because most places don't do that. It's like, doesn't make it, I don't care when you work. I don't care what hours you work. I don't care whether you're home or in the office.

1:52:40I do care that once we've agreed what responsibilities you have that you achieve, get those things done. And if you can do it in six hours a week because you're so smart and talented, all power to you. The last thing I wanted to talk to you about was actually something that I read on LinkedIn, which went viral, which was you talking about your relationship with your wife and your commitment to date night on Tuesdays. Right. The post went viral because I think it struck a chord with a lot of people who have really burnt themselves out because of their job. What is that principle you have with your wife and how long have you kept it for?

1:53:12So, right when I was in my late 20s, I was working on a good dog. I was working all the time, nights, weekends, and not because I had a slave -dropper boss because I love what I was doing. I just was totally into it. And I was in a relationship with the woman who's now my wife. And it kind of slowly dawned on me, perhaps a little bit of help from her, that this wasn't as satisfactory for her as it was for me. And it kind of made me realize that if I really wanted to have a sustainable long -term relationship, I had to figure something out. And that I realized that I had to have more balance in my life.

1:53:58And we began this policy of saying, I'm going to prioritize my relationship with my girlfriend and who's now my wife. And that has taken a lot of forms, but the one that I referred to was I had this policy at Netflix before Netflix, after Netflix that every Tuesday, I'd leave work at five o 'clock sharp. My wife would get a sitter or before we had kids, we'd just go out and we'd spend the evening together at a date night. And this was sacrosanct that I don't care what's going on. I'm leaving at five. If there's a crisis, we're going to wrap it up by five. If you have to talk to me, well, we're going to talk in the way to the car, but I'm leaving at five.

1:54:45And it was kind of remarkable because after a while, crises stopped happening after five o 'clock on Tuesday. And all of a sudden, people were able to solve their own problems after five o 'clock on Tuesday. But there was a secondary benefit, which is that I did talk a lot about the importance of balance that I didn't want this to be all in encompassing that there are other aspects to what was important to everyone's lives. And by modeling this, I was walking the walk. I was showing that in fact, you could run a company and have the relationship. It wasn't easy. This is a startup. So a lot of times, you know, I have date night, we get back late night, I have to go back into the office at 10 o 'clock.

1:55:31Or a lot of times I'd come home, have dinner with my kids, go back and work for a couple hours. But I carved out the time to be present and do those things. And in my life, it's maybe even a bit more challenging. A, startups are hard. And I have a family. But I also have this passion for outdoor stuff. You know, I love backcountry skiing and climbing and kayaking and mountaineering. All this stuff that's really hard to do between your five o 'clock call and your seven o 'clock meeting. So I had a really structure in my life in a way that I could have meaningful time in all three of these areas in my life.

1:56:15And it's been really, really hard. Was there a risk of losing the relationship at some point? Yeah, probably when I was in the right, right? At that point when I was 29, 30, where am I, I was coming clear she was going, I'm not going to put up with this. You know, if you're not going to be here for me, what's the point? How did you take that? At first. Very sobering. I mean, it really makes you think how important is this to me? And I know some people might say it's not that important. What my work is the most important thing. It's the only thing that's important to me. I decided otherwise that having a relationship was important to me.

1:56:57And more importantly that I thought it was probably possible that I could do both. Again, it's part of the running, not running for plans. It's saying I don't need to be there all the time. I can prioritize well. I can distribute work to other people. I can make this work. And not only that, not only can I do the work and have the relationship with my wife and my family, I can get out and do outdoorsy stuff, which is what I need to make myself whole. And this is a great way for me to wrap this in a way. But I've had an amazing entrepreneurial career. I've had six, seven companies depending on how you count it.

1:57:37I've had three IPOs, two multi -billion dollar companies. So proud of that. But I'm way more proud of the fact that I managed to do all that while staying married to the same woman. While having my kids grow up knowing me and it's best I can tell liking me. And still getting out to backcountry ski, mountain bike, and all the things that I need to make me whole. And that I'm proud of. In the grand scheme of your happiness, you've got your business endeavors, you've got your fantastic relationships with your wife and your family. What does matter more? Oh, it's a trick question. I guess I'll answer it in the counter intuitive way.

1:58:23You need all three. I think had my wife said some ultimatum, like I need to quit and you're going to move to Montana and you're going to be a mailman. And we'll have a grip. I would have been unhappy. And I mean, I've had a great relationship. But she knows that. She knows I can't turn this off. I can't turn it off. There's something about seeing problems wanting to fix them. And having to pick one and say that's all I'm going to do, that's no life either. That's why I think, you know, again, before we started, you said, what's your big focus? And I said, balance. I think about it every day. I think about it every week.

1:59:06They're all important and I do what I have to do to make that happen. Mark, we have a closing tradition on the podcast where the last guest leaves a question for the next guest not knowing who they're leaving it for. And the question that was left for you is, what in your life were you most wrong about and what did you learn from it? So one of my big regrets is I mentioned before that I had all this magazine subscription experience. I knew circulation. I knew the subscription business and it took me more than almost two years to figure out that maybe we could use this stupid thing for Netflix.

1:59:43And I think of all the time and all the money that we wasted because I never even occurred to me to try that. And God, I wish I could kick myself and go back and say, for God's sake, try this sooner. Try this sooner. Hindsight's a wonderful thing. And it fills you with wonderful lessons and wisdom and all of that wisdom has been encapsulated in this wonderful book that will never work in various ways as you go through the journey of founding Netflix, but also the life that's lived in amongst those pages is one of the most interesting, fascinating timeless books I've read because it's about true principles, the true principles from your father from your journey and from everything you've learned along the way.

2:00:20So thank you so much for writing such an incredible bookmark. I'll link it down below. It's called that will never work the birth of Netflix and the amazing life of an idea and thank you so much for the work you do for entrepreneurs across all of your social channels across your work and your mentorship because it really is looking back down the ladder in helping pull other people up with your wisdom. And that's an incredibly incredibly generous thing for you to do. So thank you so much, Mark. Thanks David.

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