4 Steps Netflix Took That You Should Follow
How To Make Daily Decisions For Long-Term Planning…
In the early days of Netflix, founders Marc Randolph and Reed Hastings made a decision that would take the company from ‘run-of-the-mill’ and transform it into the industry titan it is today.
We’re going to take a look at their decision-making process, and how you can apply it to your business. But first up: what was this big, bright, trajectory-changing decision?
They stopped selling DVDs and focused solely on renting them.
Netflix sold and rented DVDs? They sure did.
A little background:
Netflix started as a DVD postal rental company, but they also sold DVDs at a time when DVDs weren’t widely available. Business was booming; the company was drawing revenues of $100,000 a month.
The problem? $98,000 of that was in DVD sales. That type of product-market fit might excite most entrepreneurs, but not Netflix.
They re-evaluated their positioning and doubled-down on the DVD postal rental market, leaving all their DVD sales revenue behind… and backing their $2,000 a month business.
This decision was ultimately the right call, and would be the perfect launch pad to becoming a media production powerhouse.
But how did they get to it?
Let’s take a look at the 4 key decisions Netflix made on their path to mega-success:
- They mitigated the risk of competing with future ‘heavyweight’ competitors.
Netflix was selling DVDs before they were widely available. They gazed into the industries future and predicted that once DVDs gained mainstream popularity, everywhere from grocery stores to gas stations would be selling them.
They acknowledged that selling DVDs would become a race to the bottom, a commodity product where the cheapest seller wins. They also foresaw that Amazon – which was selling only books at the time – wanted to become an ‘everything’ store, and would likely move into DVD sales next.
Are you forecasting future trends of your product and market?
Can you take action now to mitigate future risk?
2. They acknowledged having 2 core products was ultimately confusing for their customer.
Having a website that sells DVDs and rents them left them with an unclear idea of what Netflix actually specialised in.
The company couldn’t describe it well, which meant neither could their customers. Multiple offerings diluted their brand strength.
It was time to choose one and make things clearer for everybody.
What is your core offering?
Is it clear in all your copy and content?
Are you diluting your core brand strength by offering multiple services?
3. They trusted in their company’s purpose.
“Wouldn’t it be incredible if we could figure out a new model using the internet to be a better way to rent movies?”
This was the vision of Marc Randolph and Reed Hastings, and implementing it was Netflix’s purpose.
DVD sales may have been paying salaries – and keeping investors happy – but it didn’t align with the company’s purpose, and this was causing friction internally.
It’s vital everyone within your organisation knows the end-goal, and Netflix wanted to make this clear.
So the team took a step back, re-engaged with their purpose statement and started implementing a strategy based on achieving it.
Do you have a clear company purpose?
Is it influencing you (and your team’s) short and long-term decision making?
Can your team recite your company’s purpose?
4. They focused on long-term planning, accepting short-term pains for long-term gains.
It was challenging to decide whether to chase the postal rental market or keep building their DVD sales. It’s easy to say “we need to follow our purpose” but the reality was the DVD sales market was bringing success to Netflix and accounting for almost all of their revenue.
Turning that tap off was a guaranteed cash drought for Netflix.
However, there was a belief in the camp that the postal rental market could be phenomenal; one Netflix could own due to its complex nature, which created high barriers to entry for competitors.
Everyone within the organisation believed they could weather the storm and come out on top. They were willing to take the risk and roll with the punches until they proved themselves.
And so they did.
Is there a part of your business that pays bills but isn’t driving you towards your ultimate goal?
Are their steps you can take now to help you reduce your reliance on this revenue, even if it causes short-term turbulence for your brand?
Even in the early stages, Netflix created a decision-making process that would lead them to become a world-class brand.
Your company’s future is decided by the decisions you make today.
Be bold and build yourself a better tomorrow.
References:
“That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea”, Marc Randolph (2019)
If you’ve enjoyed reading this, you might like my articles on:
Brand Strategy
Brand Purpose
Core Offerings
