I am a longtime Netflix subscriber and one of the few people who still gets DVDs in addition to the streaming package. It is a company I admire, and one of the very few that has pulled off a successful pivot not just once, but twice.
Pivot #1: Shifting from DVDs delivered by mail to a streaming service
Pivot #2: Shifting from a reliance on third-party content to becoming one of the largest producers of original programming
Because so many companies fail to pivot at all, I think it is worth looking at what Netflix saw before each pivot and how it was able to execute so well both times. This is easy to do thanks to a great interview of Netflix CEO and co-founder Reed Hastings, by Marc Andreessen of Andreessen Horowitz. Hastings takes the listener through their thought process at each inflection point, and I highly recommend listening to the interview.
Here are my takeaways and thoughts on how to incorporate Netflix’s learnings into your business:
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Focus on long term while executing short term
As early as 1997, Netflix knew that DVDs were a (relatively) quick fix while the bandwidth needed for streaming and/or digital downloads became available. This is why the company was called Netflix rather than DVDbymail.com or something like that. Clearly it is important to try to connect the dots on where technology is heading, even if you can’t see an exact timeline.
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Test, learn — then bet big when you see a winner
Netflix started its streaming service in 2007 (after YouTube proved that streaming video was ready for prime time). It offered streaming as an add-on to the DVD business because there wasn’t enough inventory available to sell on its own. By 2010, however, the company was able to launch a stand-alone streaming business in Canada that scaled much faster than expected. From then on it bet big on streaming while ignoring cannibalization concerns. Amazingly, Hastings even kicked the DVD executives out of the main management meeting: While they were responsible for all the revenue and profit of the company, they were not adding value to the conversation about where the company had to go.
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Obsess about customers, not competition
Hastings makes a point of saying that they didn’t spend much time worrying about their much larger competitors (Blockbuster, Walmart, Amazon, etc.). You can’t control what they do; you can only control what you do. They also viewed their real competition as share of a consumer’s free time, not just what big companies offer in their space.
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Don’t be afraid to burn your boats when necessary
By 2011, it was clear to Netflix execs that the movie and television companies that had supplied them with all of their content were eventually going to want to build their own services and that Netflix was in danger of getting cut out of the supply chain. They got ahead of this by creating their own supply, first with Lilyhammer, then House of Cards. Now, the company produces hundreds of hours of original content at a cost of more than $5 billion per year. Again, they did not focus on the competition (and all the people telling them that technology companies could not be successful content companies). Instead, they focused on what they could do to deliver better content to their customers. They used data and analytics about content consumption to drive acquisition. They also offered the creatives a much higher degree of control than they could get from the legacy studios.
There are so many lessons to be learned from the Netflix playbook. From long-term focus, to customer obsession, to betting big when the time is right. Good luck using some of these insights with your business!
