The First Few: Netflix

Hey, Justin here, and welcome to Just Go Grind, a newsletter sharing the lessons, tactics, and stories of world-class founders! Premium subscribers get full access to this newsletter, exclusive events, event discounts, and more.

Good morning. I’m headed to Austin, Texas next week Wednesday for the Newsletter Marketing Summit - if you’ll be around let me know!

This edition of The First Few was written by one of Just Go Grind’s new writers, Erika, and I’m so excited to have her on board.

You’ll notice I also added a “Quick Hits” section, shouting out some founders as well as sharing a little about what I’ve found on the internet the last couple of days. I’ll be experimenting with other sections as well moving forward, including some available only for premium subscribers at the end of the newsletter.

My intention is to make Just Go Grind the home of ambition and this is a step towards that.

Let’s dive in.

• PMF or Die launched this week. Amazing concept created by The Technology Brothers and not surprising given all the drops Jordi and his team did at Party Round a few years back.

• I finished reading the Condé Nast biography last week and if you want to create an empire of your own I highly suggest it. I’m going down the rabbit hole of media moguls now, will share insights with you soon, but I can already feel my ambition growing.

• I sent out a Tweet and LinkedIn post last week asking “What are you building?” so I could feature a few of you in the newsletter to support other builders. A few of those responses are below.

• Luis is building Better Than Points, helping people learn how to travel with their credit card points.

• Keith is building a recruiting and executive search firm focused on B2B Marketing and Product Management (plus a newsletter)

• Zach is building Win The War, a coaching and consulting company pairing founders with military active and vets who can coach, teach leadership, and be accountability partners.

• Georges is building Albatroz, an AI sales agent for real estate

• Sandeep is building BloomOS, an AI-powered productivity platform for deep-focused work

Marc Randolph, co-founder and first CEO of Netflix, has made it very clear in his memoir That Will Never Work that he does not believe in big epiphanies as origin stories of successful companies. 

Ironically enough, there does seem to be a precise moment to pinpoint the very beginning of what we now know as the most popular streaming service in the world.

Netflix’s story of utter success starts on a night just like any of yours or mine- staying up a little bit too late watching a movie, that is.

It might have been the greatness of Disney’s Aladdin or the lack of sleep afterwards that gave Marc the idea of videotapes as the selected product for his someday-to-be company to rent out. 

And it was Reed Hastings’, Marc’s business partner and co-founder of Netflix, frustration towards rental stores’ late fees that set the ball rolling. 

Because of course, that was just the beginning. 

TIMELINE

• 1998: Netflix’s first year reached $1.34 million in total revenue.

• 1999: $5 million in revenue.

• 2000: $35 million in revenue. 

• 2005: $682 million in revenue. 

• 2007: Netflix reached $1 billion for the first time and got up to $1.2 billion in annual revenue.

• 2010: $2 billion in revenue.

• 2014: Netflix achieved its first $5 billion annual revenue milestone.

• 2018: $15 billion in revenue. 

• 2020: the year of the pandemic nearly got Netflix $25 billion dollars in annual revenue. 

• 2023: $33 billion in revenue.

• 2024: $39 billion in revenue.

FROM TWO GUYS WITH AN IDEA TO A MULTI-BILLION DOLLAR COMPANY

They figured VHS was not a practical nor profitable enough format, so the concept went from videotapes to DVDs by-mail, even though these were barely a thing back in the late nineties. 

But to help get the someday-to-be company off the ground, they needed money. Quite a bit.

The very first investor was no other than Reed, who trusted Marc’s ideas and enthusiasm. But to actually stand a chance, the rest had to be strictly ‘Other People’s Money’, referred to as OPM in the startup slang manual.

The ‘other people’ in question turned out to be much closer to home than imagined, including Marc’s own mother. But an investor is an investor, and once the initial funding was in place, there was no coming back. 

After setting up the team, the office and the website, they set the official launch date for March 10th 1998, which later became April 14th. 

And in spite of facing a considerable amount of complications throughout that day, they managed to introduce Netflix to their very first 137 customers. 

Now, how exactly did that happen?

HOW NETFLIX ACQUIRED THE FIRST FEW CUSTOMERS

• Innovation, But Focused On The Customer: Renting movies on a website and getting them by mail was a new, convenient concept. It took customers’ minds off the logistics of it all, and it made for a much easier, more relaxing experience of watching a movie at home, while still keeping it affordable.

•  The Right Promotion Strategy: Back when the DVD industry was still in its early days, the Netflix-Toshiba deal was a stroke of genius. By buying a Toshiba DVD player, customers would get a promotional flyer worth 3 free rentals on Netflix.com. This helped Toshiba convince reluctant buyers of the purchase, since, let’s be real, free stuff is always a no-brainer. And it also helped welcome the right people to Netflix, increasing traffic and making the site known within its target audience. It was a true win-win situation, so you might want to start looking for one of those.

• Taking Risks: Taking a chance on DVDs was not their first but certainly their best idea. Instead of the overwhelming volume of existing VHS tapes, Netflix could stay on top of the DVD industry’s growth, anticipate all new releases, and become the first in the race of acquisition. This added a sort of exclusiveness and prestige to the overall Netflix experience.

• Knowing Your Audience: This means understanding what your target audience wants, but also how exactly to reach them. Before algorithms were advanced enough to achieve the first part, there was Mitch Lowe and his decades of consumer knowledge from his very own video store. One blockbuster after another, he came up with the perfect lending library for Netflix. As for connecting with customers, the strategy carried Corey Bridges’ name. He figured that if they meant to attract movie enthusiasts from around the country towards Netflix, he would have to go straight to the source and get his hands all in.

• Data-Driven Decisions: in the weeks that followed launch day, they gathered an insane amount of data for such a short amount of time-every order and how long it took to make it. Every customer and both the movies they got and the ones they looked at but never ended up getting. They quickly learned to take full advantage of this information for inventory adjustments, for example, based on customer preference analysis. This allowed for informed decision-making from the very start and overall better results.

• Freedom And Responsibility: You must have heard about it by now. Freedom and Responsibility, or F&R as they call it, is Netflix’s motto and essentially their key strategy to build a talented, innovative work team. They believed keeping their employees ‘loosely coupled but tightly aligned’ would get them through the unavoidable problems down the road, and that it did.

THE KEY TAKEAWAY

As scary as it sounds, making mistakes is a part of the process, a crucial one, in fact. 

Marc emphasizes that the idea of Netflix, as originally conceived, would never have worked. Yes, like the name of the book. Yes, it’s funny. But he is also convinced that you should try your idea anyway and embrace the trial and error of it all.

In the past nearly two years, I’ve written dozens of deep dives on world-class founders, sharing how they built their companies. These typically take 20-30 hours to research and write. The most recent ones are below:

Best,
Justin

Founder of Just Go Grind

P.S. Hiring? Check out the team at Athyna