Marc Randolph On Netflix, Mentorship, And The Importance Of Testing Your Ideas

(MSP Success Magazine Article Below)

If there’s one person you’d be surprised to hear say, “There’s no such thing as a good idea,” it’s Marc Randolph. As co-founder and founding CEO of Netflix, Randolph, along with co-founder Reed Hastings, created a company that is regarded as one of the best ideas in Silicon Valley history. In a place that’s in love with grand innovation, it would be easy for Randolph to view his career in tech as the foregone conclusion of coming up with a concept that is now one of the textbook examples of disruption.

But Randolph, never afraid to go against the grain, rejects the conventional narrative of tech startup success. Early in his new book, “That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea” (Sept. 15, Little, Brown and Company), Randolph immediately puts the sword to the Hollywood version of the origin of the streaming giant. “There’s a popular story about Netflix that says the idea came to Reed after he’d rung up a $40 late fee on Apollo 13 at Blockbuster,” he writes. “He thought, ‘What if there were no late fees?’ And BOOM! The idea for Netflix was born. That story is beautiful. It’s useful. It is, as we say in marketing, emotionally true. But as you’ll see in this book, it’s not the whole story.”

If that didn’t make his point clear enough, he later adds, “One of my goals in telling this story is to puncture some of the myths that attach themselves to narratives like ours.”

The Art Of Storytelling

“That Will Never Work” revises the myth and attempts to tell the whole story while also dispensing what Randolph calls “hard-won truths” from his 40-year career in entrepreneurship. “I did not want it to be a ‘you’ book,” he says. “‘You have to do this. You have to do that.’ It’s telling a great story — about the things we overcame, the problems we had, the close calls. People will then pull out of that some of the lessons they can apply to their own lives and their own businesses. It’s absolutely meant to be a great story first.”

On that level, the book is an unmitigated success. It’s the opposite of the dry business tome in which the author pontificates from on high about abstract concepts and actionable takeaways. Encompassing the brief span of time between Netflix’s initial conception (January 1997) and its IPO (May 2002), “That Will Never Work” gives readers an inside look into the halcyon days of Silicon Valley, when, as Randolph puts it, “You couldn’t prove to your investors that your idea would work unless they gave you money to prove that your idea could work.”

The structure of the chapters, split into narrative blocks rather than digestible nuggets of wisdom, echoes the author’s insistence on pulling the universal from the particular and not vice versa. Along with the scenes that teach some of those “hard-won truths,” there are countless vividly detailed moments that would work as well in a novel as in a so-called business book. In one outrageous passage, a screening of “Boogie Nights” at Steve Kahn’s house turns into something worthy of its own inclusion in a Paul Thomas Anderson film, complete with Reed Hastings swimming laps, Mounds bars, and “Dirk Diggler [letting] it all hang out in crystalline, DVD-quality resolution, across an 8-foot screen.”

As rollicking as the narrative itself is, there’s no denying that this book will help business owners think critically and provide them with a fresh perspective. “It’s designed mostly to be inspirational,” Randolph says, “because I want people to feel they can do this. Whether it’s taking their business from where it’s currently at and growing it to the next level, whether it’s overcoming some challenge they see on the horizon, whether it’s straddling some new technological shift: I think all those things these days are doable, possible, and, I won’t say easy, but certainly within everyone’s grasp.”

Perhaps the greatest way “That Will Never Work” achieves this, as its subtitle suggests, is by demonstrating exactly why there’s no such thing as a good idea.

Build A Better Test

“The fundamental problem most people have,” Randolph says, “is that they are obsessed with coming up with this great idea. And I have now become convinced in my wise old age that there’s no such thing as a good idea. Every idea is wrong. They’re bad. Every one. But they’re all starting points. So, the longer you keep that idea in your mind — polishing it, augmenting it — the longer you put off actually figuring out what’s wrong with it, so you can begin fixing it.”

Herein lies the crux of Randolph’s argument. In his eyes, an idea is not anything until it’s testable. Or, as he puts it, “The success of an idea is directly proportional to how many things you can test.” When Netflix was just a talking point, it sat on equal footing with competing ideas like customizable surfboards and personalized baseball hats. Only after Miles and Randolph proved their idea had legs, in the form of safely mailing a CD, did everything else fall by the wayside.

As Netflix grew and Randolph continued to test aspects of the business, he realized there was a quicker and more efficient way to perform testing. “At one point in our saga, we were selling and renting DVDs, and we decided to walk away from selling in order to focus everything we had on rental,” Randolph recalls. “We had lots of great ideas on how we could make rental work. At first, I was testing them in a very comprehensive way. I was doing a perfect test, custom copy, custom photography, stress testing the site. But it would take me three weeks to do that, and the test would fail.”

Eventually, Randolph hit upon what he calls “validation hacking.” “We don’t have to build a real test,” he says. “We can fake it. We can do something that makes no sense in the long-term model but is a great way to find out whether it works or not in a quick and cheap way.” The point wasn’t to give to the idea the best possible chance to thrive. If that happened, it would only allow delusions to fester. Instead, making an idea prove its mettle quickly and in adverse circumstances was an effective way to kill Netflix’s proverbial darlings. “If it was a bad idea, no matter how much polish we put into the test, it wasn’t going to make it a good idea; but if it was a good idea, it immediately sprang out to us. Then we knew what we had to fix.”

‘This Is Not For The Long Term’

While Netflix may have taken validation hacking to never-before-seen heights, it was actually an idea Randolph first learned from a mentor during his days running a mail-order company called MacWarehouse. “One of the pieces we needed was a huge computer because back in those days, if you wanted to take orders for a mail-order company, you had to buy a half-million-dollar IBM mini mainframe to do it,” Randolph says.

Randolph went to his mentor, who was also the largest stockholder in the company, and asked for the money to buy the computer.

 “That’s crazy,” the mentor replied. “Why don’t we just do contract fulfillment? Let’s do everything through a third party.”

“That’s a good idea,” Randolph answered, “but that’s going to cost us $25–$30 an order, and our margin is probably $15 an order, which means we lose $15 per order.”

“Of course,” his mentor responded. “But this is not for the long term. It’s not something repeatable or scalable, but this will allow you to learn if your idea is good for $15 an order. You can do that 1,000 times, and it will only cost you $15,000 if you’ve made a bad decision.”

Would you rather spend $15,000 to test your idea or $500,000? The answer to that question is self-evident, and it certainly helped instill in Randolph a willingness to experiment with every facet of Netflix rather than simply being enchanted with the emotion of the core idea.

The Last DVD Rental

Just as Randolph is willing to tease apart an idea to find its shortcomings, he’s also unafraid to take a hard look at himself. In 1999, he famously stepped down from the CEO role at Netflix and turned the chair over to Hastings, who remains in place to this day. The move was one that required Randolph to do some self-reflection in a hurry.

In “That Will Never Work,” he recounts in excruciating detail the conversation when he realized he would no longer be the CEO of the company he helped to start. “I knew that a lot of what he was saying was true,” Randolph writes of his conversation with Hastings. “But I also thought that we were talking about my company. It had been my idea. My dream. And now it was my business. While Reed had been off at Stanford and TechNet, I’d been pouring my entire life into building the company. Was it realistic to expect anyone to get every decision right? Shouldn’t I be allowed to work my way through mistakes?”

In the moment, his sense of indignity is easy to empathize with. Who wouldn’t feel as though the rug they had woven was being yanked out from under them? Over time and through introspection, however, he realized the decision was best for everyone involved. “I love Netflix, and it’s my baby,” he says. “Of course I want to be there forever, but there are people who are way better at it than me. Just like a child, at some point, it has to stand on its own without you. The best thing you can do sometimes is get out of the way. It really comes down to parsing two different dreams that are melded together: I want to build and grow a company. Which is more important? That it’s you doing the building and growing, or that the company gets built and grows? If you’re really honest with yourself, do they have to be joined?”

From Mentee To Mentor

His emotional wisdom may be easily replicable, but Randolph credits mentors throughout his career with helping to cultivate his business savvy. “I’ve always been somebody who glommed onto anyone who knew what they were talking about,” Randolph reveals. “It’s part of this insatiable curiosity I have.” Having never attended business school, he had to learn by doing. “I was fortunate in that I bumped into two or three phenomenally good entrepreneurs who I enlisted as mentors. From each of them, I learned some really interesting lessons. Not by them sitting down and watching them lay it all out on a whiteboard, but just by watching how they did things, how they prioritized things, how they chose what and what not to work on.”

Now, long after the events of “That Will Never Work,” Randolph finds himself on the other side of the mentorship coin. It probably won’t surprise you to learn that he isn’t interested in going through the motions in that arena, either. “When I first left Netflix,” he says. “I got lots of invitations to be an advisor, quote-unquote. You go, and you have lunch with someone; you go sit at the meeting. They tell you about their business, and then you give them this pattern recognition answer. It sounds smart, but you’re really doing a one-size-fits-all answer.” Randolph had no interest in doing that.

In an age when mentorship and coaching have become commodified industries in their own right, Randolph urges people to find mentors who are truly willing to do the grunt work with you. “It’s all about listening,” he states. “When you’re talking to your mentor, do you really get the sense that they understand what your problem is?”

Once you have an established relationship with a mentor, you have to be willing to be both adaptive and steadfast, depending on the situation. “The critical thing to being mentored is to walk a very careful balance,” Randolph advises. “On the one hand, the reason that you are successful in your business is that you’ve been listening to people tell you that will never work, and you have enough self-confidence to persist. On the other, you have to be the kind of person who can listen to the advice and truly consider it before you accept or reject it. When I’m selecting a mentee, I’m looking for somebody who can demonstrate that they’re open to other ways of thinking about a problem, whether they take my advice or not.”

Today, Randolph contributes to the entrepreneurship programs at both Middlebury College and High Point University, where he mentors the next generation of America’s business leaders. After 40 years spent creating and growing a business, Randolph still maintains an enthusiasm for the future. “I’ve been doing this since before people called it entrepreneurship,” he says with a laugh. “Back when I was a lad in 1641, when you wanted to start a company, you had to do everything yourself. Now, of course, everything’s there; everything’s in the cloud. The overhead flow of trying something different is remarkably low. That frees people up to try things.” In “That Will Never Work,” Randolph encourages readers to do just that.


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MSP Success Magazine

MSP Success Magazine is a print and digital publication dedicated to helping the CEOs and owners of managed IT services businesses build strong, profitable, growth-oriented businesses. Written and published by Robin Robins, founder of Technology Marketing Toolkit, this magazine is uniquely focused on the topics of marketing, client-acquisition, sales, profitability, leadership and personal development.
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