“You feel it when a great story is about to begin.”
Even when your wife’s scolding is about to begin.
In some cases the fear of preaching is so strong that to avoid it one is willing to create one of the most famous brands in history.
Or at least the history of Netflix tells us this.
The history of Netflix, like that of every great brand, is very particular and linked to its “founder”: Reed Hastings .
Yes, he also studied at Stanford, but compared to the classic Silicon Valley storytelling he has some important differences. Firstly when he decides to found the company destined to hypnotize us with his successful series he is not a penniless dreamer student but a multi-millionaire. So to understand his story we have to start a little earlier than usual.
Young Reed chooses to begin training in the Marine Corps. For a time his training camp is the base of Quantico . Yes, just like the name of the series. He does not complete the training course but instead chooses to volunteer in Africa for the Peace Corps , the United States program to assist developing countries through education, health and entrepreneurship. In particular, Hastings teaches Mathematics.
“Once you’ve hitchhiked across Africa with just $10 in your pocket, being an entrepreneur isn’t that difficult at all.”
Upon returning from his volunteering experience, Reed completed his studies at Stanford, where he graduated in Computer Science.
He then starts working in a software house where he creates a tool for debugging software. The CEO of the company he works for, Audrey MacLean, is a fundamental figure for the approach to entrepreneurship that will characterize him: “I learned that it is better to make one product well than two mediocre products.”
In 1991 he left his job and founded “ Pure Software ”. The company specializes in finding bugs in software developed by others. In the golden age of Silicon Valley, this service was in such high demand that the company doubled its turnover every year and, after just 5 years, was listed on the stock exchange.
Reed, however, struggles to manage it and realizes that he has problems in particular with employee management due to a lack of managerial ability. This awareness will lead him over time to develop one of the fundamentals of the Netlfix Brand but first of all it stimulates him to sell.
When he does it he gets $750 million .
In 1997 Reed Hastings is 37 years old and a multimillionaire. He will spend the next two years thinking about how his next venture can avoid the managerial problems he experienced at Pure Software. “As we grew, we became more bureaucratic,” he says, and he wants to understand how to create a work environment where employees and managers can perform at their best without a CEO controlling them according to patterns, rules and procedures.
In the meantime he rents films.
These were the years of the dominance of Blockbuster , the VHS rental chain which essentially had a monopoly on the market. The offer provides that anyone who rents a film can keep it for 3 days. You can return it in a “box” available 24/7 and for each day of delay you have to pay a penalty. Payable upon next movie rental.
Did you bring back the videotape?
When asked by his wife, Reed becomes anxious. The movie is Apollo 13 . He didn’t report it.
He has 750 million dollars, he could bring her back after a year without suffering major economic problems but he doesn’t want to hear his wife’s lecture.
“Am I at risk of compromising my marriage due to a penalty?” he thinks she.
In the following days, while training in the gym, he realizes that “trainers have a better business model”. With a monthly subscription people can train as often as they want. The wheels start turning.
Then think about how to apply that model to the world of movie rental and the idea comes immediately. Why not develop a system where people can keep videotapes as long as they want with the only constraint that they return the rented movie before getting a new one? And how nice would it be to rent a film with just one email and have it delivered to your home?
No effort, no problems with his wife, no preaching. The classic ” win-win ” operation.
There’s a problem though: VHS videocassettes are bulky and shipping costs could compromise your business model.
What if we tried DVDs?
This is the question that will change Reed’s story during a confrontation with Marc Randolph . Time to do some shipping tests and the two founded a company with the aim of renting DVDs with just one email.
You need a name and that comes quickly too. Net , because we are on the Internet and Flicks , a way of saying “movies” in the States. Netflix is officially born. The initial catalog is 950 films.
The cost of building the site is $2 million .
The beginning, however, is not a bed of roses. The problem is that DVDs are still not widespread and many, too many people don’t have a player.
Reed and Marc think of various solutions, among many an agreement with the manufacturers of DVD players: With every purchase there is a free Netflix subscription. However, things continue to not work out and the two consider giving up .
In 2000 they proposed themselves to Blockbuster as an “online service” offering the giant 49% of Netflix shares. The offer is rejected.
The giant is not interested in something so small and so “useless”. She will regret it.
2001 is the year of Netflix’s greatest crisis. The company is forced to fire a third of its employees but things change only the following year.
In 2002 the DVD player was the best-selling Christmas gift. The company has its first revenue and is listed on the stock exchange.
It’s time to leave for Marc Randolf: he finds the life of a successful company too boring.
In 2007, Netflix began offering its streaming service . At the beginning it is free because there are few films but very soon he strikes an agreement which guarantees him the Disney and Sony catalogues. The rest is history.
Blockbuster will go bankrupt 5 years later.
Netflix is not only the brand that has become part of our lives, it has changed our habits and the film production model.
It is also a beautiful case study for understanding one of the first rules of Branding .
The Brand is, first and foremost, internal communication.
Reed, given his experience at Pure Software, spent much of his time ensuring that the Brand was deeply rooted in every employee and every manager.
“Netflix is the workplace equivalent of Ocean’s 11. ”
There is a very high demand on results but extreme flexibility within a substantial absence of rules. Employees decide for themselves when to work and when not to work and also their compensation. It is truly instructive to see how Bloomberg wrote about this topic in 2007 ( article here
): “Hastings pays his people generously, gives them unlimited vacation and allows them to structure their own compensation packages. In return, he expects very high performance.”
His model is called “ Freedom and Responsibility ”.
Finally, Netflix is also a wonderful case for understanding the strength of the Brand’s evocatives .
A sound is enough to bring us back to that mood, that emotional state, that brand.
The dedicated campaign is memorable.
