[piano intro] - Hello, I'm Nido Qubein, and welcome to "Side By Side."

My guest today changed the way we watch television.

But before his company transformed media consumption, he was told many times, "That will never work."

We're talking entrepreneurial leadership, determination and tenacity, risk and reward, with Netflix co-founder, Marc Randolph.

- [Narrator 1] Funding for "Side By Side" with Nido Qubein is made possible by: - [Narrator 2] Here's to those that rise and shine, to friendly faces doing more than their part, and to those who still enjoy the little things.

You make it feel like home.

Ashley Homestore: This is home.

- [Narrator 3] For over 60 years the every day leaders at the Budd Group have been committed to providing smart, customized facility solutions to our clients and caring for the communities we serve.

[gentle music] - [Narrator 4] Coca-Cola Consolidated is honored to make and serve 300 brands and flavors locally, thanks to our teams.

We are Coca-Cola Consolidated, your local bottler.

[upbeat music] ♪ - Marc, I'm so glad you've joined me today on "Side By Side."

I've gotta ask you, you have a very popular podcast, and the title is "That Would Never Work," where did that come from?

- Well, it's actually, I think a phrase that every single person who's doing something that hasn't been done before has heard.

We've all had that experience where you come rushing in with some great idea, and what do you hear?

"That will never work."

And more specifically, it's what I heard when I was pitching this crazy idea for Netflix.

I heard it from investors, heard it from employees, and I've even heard it from my wife.

- They told you it'll never work.

What was the idea?

What was the real idea for Netflix?

- It's funny because a lot of people don't realize that Netflix has not always been this international streaming behemoth, the original idea for Netflix was much simpler, it was DVD rental by mail.

If you wanted a movie, we didn't stream it, we mailed it to you on a DVD in a little red envelope.

It was a crazy idea that everyone said would never work, and surprise, surprise, it didn't work very well, at least at first.

- So what did you do?

- I think once you get over the shock, this thing you've been dreaming about for months, is not gonna be the runaway success right away, you get down to what every entrepreneur does, which is, "We've got to figure this out."

And for us, it was trying things.

And we had plenty of ideas to try, we would try doing punch cards, we tried rent one, get one free, everything we could think of.

And the challenge is that at first, I was this perfectionist.

So all of these little tests would be works of art, they would take weeks to put together, and they'd fail.

And I think I began saying, "We're never gonna get anywhere unless we go faster."

And we'd cut some corners, and cut more and more corners, and pretty soon we were testing something almost every day, and there was this really interesting insight that informed almost everything that came after, which is that no matter how bad these tests were, it didn't make a difference, that- - It didn't make a difference in response and buying?

- It didn't make a difference whether it was a good execution of the test, or a bad execution, because it was a bad idea.

- I see.

- No matter how perfectly crafted this test was, it didn't change it, but if it was a good idea, even a poorly executed test, customers immediately raised their hands, they put a spotlight on it, they'd knock on the door, and then we knew what to fix.

And this insight that carried over for years was that it wasn't about having good ideas, it was about building the system and this culture, and this process of trying as many bad ideas as we could.

- Wow, I've heard you say that 99% of the ideas you had didn't work, but when that 1% worked, it really worked.

How does one keep from getting discouraged?

Why didn't you give up?

- For me, the ideas have never been these precious, cherished items that I have to protect and be careful about.

For me, an idea is nothing, the thing that I fall in love with is not the idea, I fall in love with the problem because the problem never goes away.

The problem becomes richer, and more nuanced.

So each time I come in and try something, and it doesn't work, always you get some glimmer about what the next thing is you're going to try.

You can't wait to come in in the morning, and try some new approach.

And I think people envision persistence as being some drudge work, but it's not, it's the sense of, "I know there's a solution here someplace, and I'm gonna keep plugging away until I figure it out.

And lo and behold, you stumble on the thing that actually works," and Netflix's case, that took a year and a half.

And everyone says "Whoa, that was a good idea," and they don't quite see the other 900 ideas that didn't work quite so well.

- So you started with the notion, you're gonna take DVDs, promote it, I wanna rent it from you, you mail me the DVD, and that didn't work, and you replaced it with what?

- Well, one day we were in the warehouse, and at that time, our warehouse probably had 100,000 DVDs in it.

And we looked around and said, "It's crazy that we're storing them here, where they do no one any good, I wonder if there's a way to store them at the customers' houses.

Let them keep the disks as long as they want.

And when they're done, they can mail it back, and we'll replace it."

And then, the crazy idea, "Let's make it a subscription, let's make it all-you-can-eat."

And we tried that with the same expectation that we had for every one of our tests, that this is never gonna work.

And it was amazing.

Instantly, it took off, people told their friends, they didn't cancel their subscriptions, and if there was a point that marked the transition from Netflix being a startup to being a real company, it was that moment.

- You had a little dialogue with Blockbuster at one point, what was it?

Did they try to buy the company?

Did you try to sell the company?

- Not long after we had the breakthrough with the subscriptions, the business was going phenomenally well, subscriptions were pouring in.

The challenge with a subscription business is, is that people pay you little bit month over month, but all of the costs for acquiring that subscriber are up front.

So although we were doing great, the cash was flying out.

We were going broke being successful.

And to add insult to injury, this was all taking place in the summer of the year 2000.

Which as you and some of the viewers may remember, was the point where the Dot Com market collapsed.

- Yes, Y2k.

- That's exactly.

- We were all scared of Y2k.

- Well, it definitely came and it kicked me in the butt.

But what happened was we needed money desperately, we couldn't raise money, we were deep in the hole, and being prudent entrepreneurs, we decided to pursue strategic alternatives, which you know is code for, "We have got to sell this company and fast."

And the obvious strategic alternative was Blockbuster, so we flew to Dallas, we went up to the 17th floor of this glass and steel skyscraper, into this cavernous conference room.

Blockbuster folks filed in, and we made our pitch that we would combine forces, they'd run the stores, we'd do the online, we'd find those mythical synergies that everyone's always talking about, and everyone wins.

It was going great, they were asking good questions, they were leaning in, and then the big question- - [Nido] How much?

- How much?

And we of course knew that was coming, and so my co-founder, Reed Hastings, leaned forward and confidently said, "$50 million."

And you know what they did?

They laughed at us.

- They laughed at you?

- Maybe not out loud, but that gently sustained, restrained chuckling at the hubris that this little startup could possibly be worth $50 million.

And I have to say, if there was a point where I was perhaps the most discouraged as an entrepreneur, it was that flight home, because I thought this was self-evidently a good idea, this was what was going to save us, but now not only was it not gonna save us-- - You were convinced they were gonna buy it?

- Oh, absolutely, I go, this is self-evidently a great idea, but now they weren't going to help us or save us, they were gonna compete with us.

And we realized that this was one of those problems that there was no way around, there was no secret door, there was no cavalry to the rescue.

My dad sometimes used to tell me, he goes "Marc, sometimes the only way out is through."

That we would have to confront this head on, and get ourselves out of this problem.

And it totally steeled us for doing everything we would have to do to allow Netflix to survive, and then eventually recover and thrive.

And I can't help but wanna point out that the company that they could have bought for $50 million now has a market cap in the many, many billions of dollars.

- 170 as of this morning, $170 billion market cap.

- And unfortunately, the company, which at the time was doing $6 billion in revenue, is now down to a single store.

- What does that tell us?

Blockbuster didn't see the opportunity.

They're out of business, basically, and Netflix is $170 billion in market cap.

What might one extract from that?

- That if you're not willing to disrupt yourself, that someone is very very happy to disrupt your business for you.

And the challenges though for a business to disrupt themself are profound, it takes tremendous courage.

Because what Blockbuster would have had to say is not just the $50 million, they would have had to say, "We're gonna take our very very best engineers, and our very very best executives, and we're gonna put them on this business, that if it does well, could do $20 million a year.

And take them off the part of the business which is doing $6 billion a year."

That's courage, but if you're not willing to do what the customers want in the future, because you're trying to protect the past, someone else is happy to give the customers what they want.

And so in many ways, we were fortunate that they didn't respond the way they did.

It gave us a chance to really take off.

- Figure it out.

- Yes.

So in your book you talk about failures and experiments, that failures are really experiments, what do you mean by that?

- I've come to the conclusion that there's no such thing as a good idea, despite all the well meaning, "Let's get together and brainstorm," and "There's no such thing as a bad idea," well, there's plenty of bad ideas.

In fact, they all are, because ideas are just starting points.

They're always flawed.

And our job as entrepreneurs, our job as people, is to figure out why.

And that requires doing things that fail.

And you do that over and over and over again, and that's how you make progress towards figuring out what ultimately is going to work.

- That's the life and work of Thomas Edison.

- It's the life and work of every person who's trying to do something that hasn't been done before.

But this is not just something which is adviced for entrepreneurs, people starting businesses, I've fundamentally come to believe that it's great advice for anyone who has something they wanna try to accomplish, whether it's trying to get a better job, whether it's trying to change where they live, whether it's trying to change a relationship, if you sit back and try to brainstorm what the right answer is, and you think and think and think and plan, it's not gonna happen.

You have to say, "I have an idea, let's try it."

And that's the way you make progress towards things.

- So what are you talking about?

Are you talking about risk management?

Are you talking about tenacious determination?

Are you talking about a sense of grit and persistence?

- Well, there's certainly elements of persistence, you don't keep trying things one time after another and have them not work without some degree of persistence.

What this is is realizing that failure is not bad, and that's an easy thing to say, but all of us are conditioned to not wanna fail.

We don't wanna open our mouths and say something that could be wrong.

We don't wanna try something that won't work.

And the only way you learn that that's not the case is by doing it.

I was fortunate, and I began making mistakes quite young, and I'm now at the point where I don't even think twice about doing something which isn't going to work.

- You went on to invest in other companies, and some of them have done exceptionally well, your entrepreneurial spirit is born within your soul.

You talk a lot about mentors in one's life.

Who are some of your mentors?

- I'm pretty fortunate in that I've had a chance to work with some remarkable entrepreneurs, fortunate in that I've actually had three people in my life, and the reason it's so important is two fold.

One is watching somebody, it's why I tell young people who are starting out, "Don't worry about titles, don't worry about how much you're paid, find the smartest person you know who will take you seriously and do anything they ask.

You just wanna be in the room."

And I was fortunate to be in the room and see how this particular entrepreneur made decisions, how they treated their employees, how they treated their partners, and realize that there was in fact, an art to this.

And that was hugely valuable.

The second thing a good mentor does is moved me into positions of responsibility in a safe way, always said, "Marc, take this on," but somehow recognized what would stress me, but what wouldn't break me.

And so much of- - What would stress me, but- - [Marc] Not break me.

- But not break me.

- I've said before that I'm used to making mistakes, but I've never been put in a position where I've made a mistake which was catastrophic.

And now that's by design, I think Jeff Bezos calls that "Building a regret minimization framework."

It says that yes, you take lots of risks, but you're thinking in advance, how can I take these risks so that if they don't work, I'm not in a terrible situation?

And a mentor can help someone who's young and starting out in their career to do that.

To put them in places where they grow, where they learn, but where they don't have their spirit broken.

- Yeah, so we all know people who built a great company, sold it for a lot of money, attempted to do it again and could not.

We also know some who could.

But those who could not replicate it, why not?

- Many times, it's because you don't recognize what you did right and what you did wrong.

Anyone who thinks that building a company is all talent is uninformed.

- Building a company is not all talent.

- It's huge aspects of luck, things have to break your way.

- What does luck mean?

- Things happen that happened to be good breaks rather than bad breaks.

- But doesn't that come as a result of working harder, working smarter, hanging around the right mentors?

- There's two things, some things are beyond your control, yes, for example, Blockbuster could have responded differently.

For example, the DVD which we had bet the company at the beginning could have gone the way of the LaserDisc.

Some things had to break our way.

But you're correct that what a good entrepreneur does is think through in advance what might happen.

Good and bad.

So if something bad happens, you're not surprised by it, you've already prepared yourself, and you've built mechanisms to respond to it, you prepared yourself for it, and by the same token, if something good happens, you're in a great position to take advantage of it.

- [Nido] Multiply it.

- So it's a combination of these two things.

Stuff happens, and you cannot predict that, all you can do is be prepared to react intelligently to it.

- So examples with the external happenings, right?

Like a pandemic, or like a great recession, or those kinds of things you cannot control internally, you have to be in a position to deal with it.

I've always been fascinated by entrepreneurs because entrepreneurs are really the ones who create the economy in my mind, they're the ones who have an idea, or a problem they're trying to solve, to put it in terms you've expressed, and they take some risks, and some of them work, some of them don't work, but they somehow don't give up.

What is that quality that an entrepreneur has that is different than, say, just a business leader.

Someone who is the president of a company, or a chief operating officer of a company?

- What I've noticed, having never been in a position of responsibility in a very large company like that, is that as companies achieve their, as they say in startup land, the repeatable and scalable business model, your thoughts turn to other things.

You're thinking about how do I repeat?

How do I scale?

There's some element of predictability.

You can now see your revenue six, eight quarters out.

And the things that are important then, shorten supply chains, shave points off the margin, and those are different skills.

What an entrepreneur is good at is recognizing "I can't predict the future, I'm not going to try to predict the future, what I'm gonna do is put myself in a position where I can react and respond to whatever the future brings me."

- That's a very interesting distinction.

- It's really been interesting in the last two years, because before, you had startups, who were in this unpredictable world, and you had larger companies who could see their quarterly revenues pretty predictably out, all of a sudden now, we're all in a fog, for companies who's businesses have been decimated, when's it going to recover?

For ones who are getting a COVID boost, it's what's gonna happen when the world goes back to normal.

Everyone is a startup now.

Everyone has to learn that it's not about predicting what happens, it's putting myself in a position that I can handle whatever it throws at me.

- Yes, to handle it.

When you talk to young entrepreneurs or students, what do you say are the two or three most important tenets, characteristics, ingredients, a person should have within their personhood so that they can succeed in a meaningful way?

- Probably the most important thing I've seen is having a predisposition to action.

Meaning you think a little bit less and you act a little bit more.

You do not study the problem.

You do not form a task force.

You do not overthink it.

Your mind immediately spins to "What can I do now that will help me learn about whether this idea is a good idea or a bad idea?"

And that never goes away, you're constantly acting rather than studying.

- It's what my friend Daniel Lubetzky, who founded the KIND snacks company, which is now billions and billions in revenue, says he's not an optimist, he's an actionist.

[Marc laughing] Right?

Just what you're talking about.

He'll take the risk, he'll never take a risk that breaks the company, but he'll take enough risks to move him forward.

So that's the first one, be an actionist.

What's the second?

- Second is just ability to focus.

By its very nature, in a start up, there is 100 things that are broken and all crying out for attention, but you have the resources to only deal with a small fraction of them.

And the trick is figuring out which are the two or three things, that if you get them right, all the rest aren't gonna matter.

And as an additional challenge, those two or three may not be the ones that are crying out for attention or burning the hottest.

And then once you've identified what these things are, it's, can I put the blinders on, can I focus, can I bring the resources of the company to bear on this singular problem?

We have this thing at Netflix, we used to call the "Canada Principle."

- [Nido] Canada?

- The Canada Principle.

It was because early on, people would always say, "Marc, you guys should expand into Canada."

Goes instant 10% bump, because that's about the respective market sizes.

It's easy.

But of course, low hanging fruit rarely is.

Different currency, different language in certain provinces, different rights, and you realize that the effort it would take to get that 10%, if put back on my core business, reaps well more than 10%.

It's focus.

- Yes, and so, focus is more important than intelligence.

But to that point, diversification is important.

Hedging is important.

How do you weight the two?

- Oh, I beg to differ.

I don't hedge very often.

I'll put it a different way.

In fact, once more my buddy Jeff Bezos, he describes there's two types of decisions.

There's a one way door decision, and a two way door decision.

And the one way door decisions are ones where you step through, and you hear the door slam shut and lock behind you.

That is one you've better be careful about.

You better have options, you better have studied that problem before you do it.

But most decisions are two way door decisions, you step through, you don't like what you see, you step back.

And most of the decisions I make are two way door decisions.

I've learned how to frame things that if I don't like what I see, I can step back.

So I don't have plan B's, plan C's, and plan D's, until after I've stepped through.

Because if I don't like what I see, I'll step back, and then I'll figure out where I go from there.

- Yes, so, you tell young people be an actionist, focus, what's another one?

- Last one, and this is one that probably a lot of young entrepreneurs especially suffer from is someone's gonna steal my idea.

And because of that, they don't wanna share their idea.

But as I've explained already, ideas don't count.

Ideas are universally flawed, and also, ideas are very rarely original.

Execution is 99% of success.

And it's ironic, that if people wanna protect that 1% that doesn't count, they're forgoing the opportunity to do the 99%.

And what entrepreneurs do who are successful, share their idea, they shout it from the rooftops.

They tell anyone who will listen their idea, because they get amazing feedback.

Hey, this person has already gone and tried that, and here's why it didn't work.

Oh, this person is working on something similar, and you should grab forces.

Oh, this VC has a fund doing exactly that.

You learn so much from sharing your idea, way more than the 1% you lose from protecting it.

- Marc, I gotta tell you something.

You're not just smart, you're articulate.

You have figured out what works and what doesn't work.

It's absolutely fascinating talking with you, I wish we had hours to discuss these points, but we can always read your book, or listen to your seminars, and your podcast, "That Will Never Work."

Thank you for being with me on "Side By Side," and please come back again.

- I'll be happy to join you, Nido, thank you.

[upbeat music] ♪ - [Narrator 1] Funding for "Side By Side" with Nido Qubein is made possible by: - [Narrator 2] Here's to those that rise and shine, to friendly faces doing more than their part, and to those who still enjoy the little things.

You make it feel like home.

Ashley Homestore: This is home.

- [Narrator 3] For over 60 years the everyday leaders at the Budd Group have been committed to providing smart, customized facility solutions to our clients and caring for the communities we serve.

[gentle music] - [Narrator 4] Coca-Cola Consolidated is honored to make and serve 300 brands and flavors locally, thanks to our teams.

We are Coca-Cola Consolidated, your local bottler.