Marc Randolph is a serial entrepreneur, most famous for co-founding Netflix in 1997 with Reed Hastings. Netflix now has more than 130 million streaming subscribers worldwide.
Randolph left Netflix in 2002 and later moved off the board. Since then, he has devoted himself to helping people start companies and grow them.
Upstate Venture Connect runs the annual conference. Morning sessions are devoted to TED-style talks by founders of fast-growing Upstate companies and to panels explaining how entrepreneurs can find supports. Randolph gives the noon keynote, “Entrepreneur lessons from the edge.”
Tell me about starting Netflix.
The first thing you need to know is that most of the time when companies achieve a level of success they have a founding story. Netflix is no different. The story is somebody had a late fee on a movie, and that boils it down to a nice, tidy, two-sentence package.
The reality is companies’ beginnings are considerably more complicated. There are multiple people involved. The idea you have when you start ends up being completely different once the company achieves some success.
In Netflix’s case, it really had a birth when I was fired from a previous job. A company that I helped start (IntegrityQA) was acquired. I went to work in the new company for about seven or eight months. That company itself was acquired. The wonderful thing about that was I got laid off.
I was laid off in a good way with a severance package, and I kept the stock vesting. They wanted me to come to work for the next six months, but they really had nothing for me to do. That was the point where I thought: It’s time to start another company.
That big company that I was working for, when I was let go, had been founded and was being run by Reed, and Reed also was going to lose his job in this acquisition. Once you’re an entrepreneur, you’re always an entrepreneur, so Reed wanted to keep his hands in the startup game, too.
Reed and I came to an agreement that we would come up with an idea together. All we had to do was come up with the idea. (Laughter)
The genesis comes from many places, but it largely took place over a few months. Reed and I would car-pool from our home in Santa Cruz, California, to our office in Sunnyvale and we would brainstorm ideas. I’d go into my office, where I had nothing to do, and I’d research all these ideas. At the end of the day, we’d get back in the car, drive home, and I’d fill Reed in on what I learned.
We did this with a hundred ideas if not more. Some were good, and some were bad. One of them was doing video rental by mail. Video rental was a big, $8 billion business. We said: There’s an opportunity here.
But, in the summer of 1997, video rental was taking place with videocassettes – big, heavy, and not going to work in a mail-order business.
A few months later, there was this new thing called a DVD.
We both went and bought a used music CD, went a few doors down, bought gift envelopes, and put the disc in the envelopes, and we mailed it to Reed’s house with a first-class stamp. When it arrived there unbroken, that was kind of the point where we said: Aha! This might work.
Reed wrote a check, I got a small office, hired about a dozen people, and we built an e-commerce website. I think our first shipment was April 1998, and away we went.
What lesson would you want us to draw from your story?
Certainly, from that story, it’s: Don’t obsess over the idea. The idea is temporary. Ideas are ephemeral. Frankly, ideas mean almost nothing. A successful company – I can’t think of any exceptions – evolves into something different.
You can’t fall in love with your ideas. What you do have to do, though, is start. If you don’t take that first step, you’re not going to begin informing yourself about the market conditions, about your customer, about the nature of the problem you’re trying to solve. That ultimately will lead you to the idea that does work.
I am a big believer that anyone can do what I did.
Starting a business, or taking an existing business and turning it around, or taking a Fortune 500 company and defending it against all the small companies coming after it is not magic. People don’t need to live in Silicon Valley. They don’t need to have computer science degrees.
Too many people are scared to take the first step and try it.
Since leaving Netflix, I’ve had the chance to sit around the table with young entrepreneurs, being fundamentally and deeply involved with helping them get their companies going. I get to sit with smart people and solve really hard problems, but then I get to go home at night, and they have to stay up all night making it happen.
I loved your stories – good for you.
I’m the luckiest guy in the world.
Were you in leadership roles growing up?
Absolutely, and in two totally different ways.
The first thing, I was always drawn to starting things.
I tell people that I majored in extracurricular in college. And I don’t mean extracurricular like partying. I mean I was always interested in the clubs, I was interested in starting magazines, I was interested in projects where I could figure out how to do something. It gave me this opportunity to lead, to be an entrepreneur, and to do so at a small enough scale that I couldn’t screw up that badly.
I could try small-scale things, see the consequences, adjust them, and go on without lives being at stake, without losing money.
Probably the instrumental thing in developing my leadership skill came from time I spent in the mountains. My personal passion is outdoor stuff – climbing, mountaineering, backcountry skiing, kayaking, etc. Just being out in the wild.
When I was 14 years old, I was fortunate to be sent to an organization called the National Outdoor Leadership School. Their motto is to teach leadership using the wilderness as a classroom.
They go out on these 30-day trips all over the world. The ones I went on were in the American West. Each day, you would form small groups and designate the leader of the day. That person was responsible for making all the decisions for that group. What time you started in the morning, when you took your breaks, what your route was, whether you made the decision to go the shorter route over the pass or the longer trail following a river.
You had a chance to make decisions – decisions with real consequences – and communicate them clearly and forcefully to your group. And then, this is the key part, in a matter of hours learn the consequences of that decision. You do that day after day after day.
You’re subconsciously learning what works in leadership. How do you communicate clearly where you are going? How do you make decisions that take into account the strengths of your group? How do you take into account changing conditions?
I did this when I was 14 years old. And I came back again when I was 15 and 16. When I was 17, I took the course to become an instructor. I was an instructor from when I was 18 to when I was 23, each time, taking increasing responsibility. At the end, I wasn’t just leading a group of four or five for a day, I was in charge of an entire expedition for 30 days.
By the time it came time to start a company, I’d been leading people for years in real circumstances with real consequences with people coaching me and I was working with gradually increasing responsibility.
I’m sorry to ramble on about that, but I feel that that was the single biggest contributor to my success as a businessperson.
At Hamilton College, I took a year off in the middle and graduated in 1981. I was a geology major, but fundamentally I was a liberal arts major. I took geology because – you won’t be surprised – they did a lot of field trips. Every weekend and for all my projects I got to be outside traipsing around spectacular scenery in Upstate New York, one of the most geologically diverse areas in the world.
The liberal arts preparation was the more powerful thing, learning how to write, learning how to speak, learning how to form an opinion and how to defend it, and how to recognize b.s. or how to spin it yourself when required.
Were there people along the way that influenced your leadership path?
Certainly. Life’s a series of extremely lucky events.
One of the several lucky things that happened to me was that one of my very early jobs was working for a successful, experienced, serial entrepreneur (Peter Godfrey).
It gave me a front-row seat to see how somebody made decisions starting a business.
He brought me in to help start a magazine, called MacUser magazine.
Then we sold MacUser to Ziff-Davis Publishing.
We used the proceeds to start a mail-order company. There were two branches called MacWarehouse and Micro Warehouse.
For MacUser, he brought me in and I was doing the circulation work, which for a magazine is essentially the sales and marketing. Once we sold it, I was the person who started up MacWarehouse.
Decisions, that decision-making process, could be very different, depending on the pieces of information you receive and how you weight them, and when you take risks, how you avoid risks, and how you decide which of the two it is. How quickly you change and how unwedded you are to a particular path. I was fortunate to watch this happen at two different companies he was building.
I was lucky again several jobs later in California. I ended up working with and for another brilliant entrepreneur. They were totally different type people. But you see how someone thinks and it’s so dramatically different and it shapes you in ways you didn’t really understand then but you recognize looking back.
What advice would you give to be an effective leader?
That’s a different question than what would I do to develop my leadership skill.
And so I’m going to take the prerogative and first answer the question that I think should be asked.
You learn leadership by doing it.
It is not a skill that you learn from a book. It’s not a skill you learn in the classroom. Take all the leadership classes you want and read as many columns in the newspaper about leadership as you want. What makes you a leader is practicing. You have to find the circumstances that allow you to do it.
For someone young, those opportunities are endless. Someone who runs a lemonade stand is getting practical hands-on experience in what it takes to run a small business and what it takes to convince someone to help and what it takes to do all of those things.
In college, start something or volunteer to run something. Run a blood drive. Run a program for a nonprofit. They’re dying for people to do things. Find ones that let you make decisions and enlist other people to help you.
If you have an idea for a company, start it and scale the size of the company down to one that you can actually afford to do in time or money or expertise. Most people put these huge impediments in their way by setting their sights way beyond their capabilities in the beginning and then just making themselves feel better by saying: If only I had money. If only I had the time. If I’d only had the MBA. If only I’d and it’s a long, long, long list of excuses.
The best way to figure any of these things out, whether it’s leadership or entrepreneurship, is to figure out ways to do them. Then the opportunities come.
Now, in Part 2, I’ll tell you some of the things that I think are critical to being a leader.
One, of course, is you have to be an extremely good listener. You have to be extremely empathetic.
The reality is there are lots of different leadership styles. Some people can lead from the front and be totally militaristic about it, and that’ll work in certain circumstances. In terms of a life-or-death panic, things have to be decided that are effective.
In the other extreme, if you’re working for a non-profit, no one’s being paid, they’re all there volunteering their time, you had better become extremely empathetic, about what you can expect to ask people, what their motivations are, how to tie their strengths and their weaknesses and their interests into what you have them doing, how you develop a sense of wholeness, of why they’re doing it. The reality is all that comes from empathy, from listening, from catering your particular leadership style at that moment to what the circumstances and your team and the environment and the problem demand.
I’m not a believer in saying: Here are the two things you can do that’ll make you a good leader.
I’ve done too much of it to recognize there’s not one-size fits all, one scenario.
You’re right, but I’ll keep doing my column.
Right. (Laughs) You should keep doing it.
I get up and I’ll talk, like the event that I’m doing in Syracuse, to several hundred people – I’ve been in front of a thousand people or ten thousand people. You have 40 minutes to an hour. You’re not going to turn someone’s life around by giving them the full instruction set in 40 minutes to an hour.
What we both can do is inspire someone to move that next step forward. Take the person who didn’t believe it was possible and give an inkling that maybe it is. Or you take the person who’s on the edge and your nudge is all it takes to give them a start.
How can a leader provide that nudge and inspire someone to move out of their comfort zone?
It requires a deep understanding of what someone’s capabilities are. And making sure you match up the thing you’re nudging them into with what you believe they’re capable of.
Fortunately, most people are very poor at estimating what their true abilities are.
Most people fear failure so much that they don’t want to take a chance that something they do may not work.
A big part of convincing someone to take that step is making them comfortable, making them believe they can do this in a way that if they fail at it, that’s part of the learning right there. That it’s not going to be a consequential thing.
Again, that’s scaling the step to the circumstance. You don’t take someone who’s never run a business before and say you should mortgage your house to try this. That’s setting them up for a terrible experience.
This ties back to your experience in Hamilton where you joined clubs and emphasized the extracurricular to get experience.
Absolutely. That’s my point.
For example, I joined the Outing Club right away as a freshman, and I began leading trips. Now, leading trips is not just getting out in front of the people, but it’s figuring out where to go, and it’s figuring out what trips might attract people, and it’s figuring out how to promote the fact that the trips are occurring, and then it’s finding other people to help you.
You could do that as a college freshman.
Eventually, I ended up running the Outing Club. Again, you’re working with a lot of people, convincing other people to lead trips, helping them promote it. Each time I did something, some of them worked, some of them didn’t work.
Once you put together a big enough string of them, you begin to get some pattern recognition. You recognize: Oh, in these circumstances, these things work and these things don’t. But in this circumstance, it’s different.
What are attributes of a poor leader, of poor leadership?
I think it’s one-size fits all. Poor leaders have a certain style and that’s the only style they have.
Circumstances change. The person who leads by encouraging people and uses collaborative decision-making, that’s fantastic. But you have to recognize that its positives also have negatives. It’s slower. Collaborative decision-making is very poor in crises. That person who can only be collaborative, might be a very poor crisis manager. On the other hand, the person who’s a phenomenal crisis manager, who can quickly see what’s going on and bark out orders, ends up being a terrible leader in a lot of other circumstances.
So that’s a long explanation to the quick answer which is: What makes a poor leader is someone who applies the same methodology to every single circumstance.
Tell me about a tough challenge and how you met it.
I gave you the very quick founding story of Netflix. I kind of left it that it was doing DVD by mail.
What I didn’t mention is that my original idea was basically doing a video store online. There were due dates and there were late fees, but we not only rented DVDs, we sold DVDs, too.
We got to a point, not too many months in, where on one hand we were doing great. We were doing about $100,000 a month. On the other hand, we were doing terrible, because almost every single penny of that $100,000 was coming from selling DVDs, not renting them. That was terrible because we recognized that it was just a matter of time before everyone else in the world would start selling DVDs and then the margins would go away and we’d be out of business. The rental thing was potentially big, but we couldn’t get enough people to rent from us and if they did it once they wouldn’t do it again.
The problem is: What do you do about that?
Doing both at the same time was really hard because it was confusing – some of the movies you could rent, some you could buy, some you could do both. It was hard to do the website, it was hard to do the fulfillment, hard to do the operations, really hard to do everything.
So, here’s the hard decision: You gotta pick which one to focus on. And you either can pick sales, which is paying everyone’s salary, but which is going to go away. Or, you can pick rental, which is not working, but if you can get it to work you’ll have a success.
That is a brutal decision. If you choose rental, you’d be walking away from your revenue and basically pissing off your customers. You’d take all these people whose jobs were on the sales side and say: Your job isn’t important any more.
There was lots and lots and lots of momentum behind staying the course.
One of the harder things I’ve ever done in a business is make that decision that we’re going to get out of selling DVDs. We’re going to bet everything on rental. We’re going to optimize everything on rental. We’ll think of nothing but rental.
When you do that, when overnight you walk away from 99 percent of your revenue, it’s a tremendously scary thing to do.
But it worked out.
(Laughter) It sure did.
But that was just one of a hundred times – that’s a very clear black-and-white story. Those decisions get made constantly. That’s a leadership thing.
It’s not like that is the one thing we did and, voila, the rest is easy. You’re constantly coming to forks in the road. Perhaps none of them are 99-1, but all of them are weighted one way or the other.
Most legacy companies get crushed – they get Blockbustered – because they are too afraid to walk away from the status quo, to embrace what the future is.
What was the scariest thing that happened when you were leading teenagers on outdoor voyages?
(Laughter) Is there a particular story you’ve heard that you’re asking me to tell?
No, but I suspect something happened that could have turned out really bad, but it didn’t, and you probably thought: Thank God!
Being in the outdoors, there is an accumulation of risk. Risk taking in business is one thing. Risk taking in your personal safety is a different thing.
For every 10 times you have a scary moment, one of them is a close call. And for every 10 close calls, one of them is going to be a real crisis. For every 10 crises, a person dies. I don’t think my ratios are right, but you get the idea – eventually it adds up.
But yes, I can tell you about one.
One time I was leading a group of teenagers. They were 16 and 17. I was 20. The course was advanced mountaineering and rock climbing. We were doing a multi-day climb.
The first day was going up this long, long, long ridge. We summited, and we began our way down, and it gets dark, which was planned. So, we bivouacked, which means you sleep out. We caught this spectacular sunrise the next day and began working our way down. And then I made an error in judgment. I decided to take a shorter route, down a steeper face. Partway down, one of the students dropped one of the ropes. We ended up spending an unplanned second night out, because we were forced to rappel down with one less rope. This time it was sitting on a ledge, feet dangling over.
The students were looking at me and going: This is awesome! This is exactly what I expected.
I’m thinking: I really need to make sure I get everyone off this mountain alive.
So, there were very different expectations about what the experience was.
I was projecting some confidence that it was all going to be great. Internally, I was thinking every thing possible that could go wrong to make sure that I could account for it.
After several other hair-raising moments, including a whiteout on the snowfield in the last piece, eventually we did stumble back into camp, just as the other party in our larger group was gearing up to head out and look for us.
Those things do tend to cement some leadership lessons.
The weekly “CNY Conversation” features Q&A interviews about leadership, success, and innovation. The conversations are condensed and edited. To suggest a leader for a Conversation, contact Stan Linhorst at StanLinhorst[email protected]. Last week featured David Dussault, who aims to “revitalize American manufacturing through entrepreneurship.”
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