How Netflix Multiplied Its Value By 500x #scottsthoughts

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So today I'm going to walk you through a case study the story of Netflix how they started and eventually disrupted cable television how they disrupted the movie industry how they disrupted blockbuster how they became the largest entertainment company in the world. This is the story of Netflix their growth strategy their initial concepts from DVD subscriptions all the way through to becoming the streaming king of the world this is a business case study this is Netflix's growth story. So case study how Netflix multiplied as value by 500 acts so our story today dates back to 1997 beginning with the failure of the highly popular blockbuster so for those who are too young to remember blockbuster was a movie rental service with a physical store they had physical stores full of DVDs all over the US Canada North America the American tradition. I say general general weekend tradition was you rent a movie on Friday night you watch it with your family Friday or Saturday night you bring it back on Monday back in 1997 blockbuster and I think there's only one blockbuster left in the world now. But blockbuster was a billion dollar company with more than 6000 stores in the US alone having revenue of 391 billion dollars but the problem was at 16% of their revenue came from late fees which was annoying millions of its customers this was part of their business model that was a huge portion of the revenue not just renting the movies but counting on people to screw up. One of the customers one blockbuster customer got fined an excess of $40 in late fees this annoyed him so much that he went on to start his own company that man was none other than read Hastings and the company that he founded is what we know as Netflix today but Netflix didn't always start out as the subscription service you turn on your TV you see a whole bunch of be spoke made for Netflix movies and TV shows no it started off much different so let's first understand how Netflix started off it was very smart read and mark Randolph those are the two co-founders they were very smart in how they exploited the most undesirable attribute of their competition. So in 1997 Netflix started as a subscription based DVD in male service as in if you wanted to watch a movie instead of going to blockbuster you made a DVD order online you made a list of DVDs that you wanted to watch online and you send it to Netflix they would deliver the DVD within two to three days when you return the DVD you requested they would send you the next one on the list. All of this was being offered at an affordable subscription fee without any late fees at all so they were doubling down on the worst part of in-store movie rentals the blockbuster was offering. But they never got comfortable with their success so by 2007 Netflix introduced its online streaming service which was the first iteration of what we know today as the Netflix that we all know and love they called it watch now. The service was truly radical for the time many people thought the company was crazy and keep in mind they were public they had shareholders to answer to they had a board of directors they had a lot of people that were watching them they were not a startup when they introduced streaming. They were not happy with being comfortable with their success. Netflix's goal was to reduce friction in accessing entertainment this was always their vision and every thing that they did aligned with their vision this is a great lesson for founders too if you don't have that vision if you don't have that north star that you're going towards then a lot of people would have just been happy with a success that Netflix had when they were just getting DVDs to customers they were reducing friction to accessing entertainment that way but they wanted to take it a step further. So first Netflix refined and improved its DVD by mail service through faster delivery more distribution centers and eliminating fees that was the first way they wanted to reduce friction and accessing entertainment of course they already did this by removing any sort of late fees but they doubled down on it but here's the thing. Netflix was hitting some big numbers and even though they were hitting big numbers they were doing very well in the DVD rental business they knew that it wouldn't last they knew they had to do something different as an entrepreneur if you get comfortable with a single business success that is going to be your death that's going to be your downfall most companies fail to evolve they fail to adapt to changing business dynamic and environment they've been forced out of the market they get disrupted think about blockbuster blackberry no key think about what uber to the cabs think about what Airbnb did the hotel. If you do not disrupt if you are not future proofing if you are not forward thinking you are going to get disrupted so Netflix started early to future proof their business by entering the video streaming market they wanted to be the disruptors not they didn't want to be disrupted so by making this shift they can now provide subscribers with instant access to thousands of titles that you can binge watch on any device while cable companies were more concerned with traditional business models and quarterly revenue targets blockbuster wasn't doing anything they were just business as usual Netflix was looking a decade ahead into the future so needless to say if Netflix wanted to reduce friction to accessing entertainment and they wanted to allow everybody to stream movies online a technology to make their vision of reality was nonexistent they took on a huge risk and invested more than 40 million dollars in developing new streaming technologies in 2007 it's mind boggling to think that they invested 40 million when they were doing 80 million in revenue per year because there was literally no consumer demand for what they were offering a lot of people thought the idea wouldn't work however since most most people didn't believe in the tech they didn't believe in the concept there was no competition for streaming it's not like there is today with all these different streaming companies or all these different mainstream networks trying to get into streaming this was 2007 so by the time everyone else finally caught on and some people are still just catching on now in 2021 Netflix was way ahead of them so the company doubled down invested 40 million dollars had the best streaming tech the most extensive list of titles because they already were doing this for expect many years before they had the largest subscriber base in 2008 the company announced it was stopping its DVD retail sales one week after debuting the watch now on all Mac and Apple platforms by 2011 Netflix rebranded its DVD rental business spreading its streaming business and rental business and changing them all into subscription packages and that's really where that hockey stick growth just took off so from 2013 you can see that the online technology is going to be a huge risk of getting into the market in the future so that's really the biggest risk of the market. quite honestly say Netflix began to conquer the world or at least the streaming world the company dove headfirst into original programming with a tie profile political drama house of cards both critics fans gave the show rave reviews and they're already dominating the streaming market now they're doing original programming and it was it was an absolute hit that was a crucial turning point in Netflix's growth because when they dropped DVDs and they dropped retail DVDs and they dropped subscription DVDs and they invested all of this into they invested so much money into into subscription streaming and even like even the tech behind subscription streaming these were all major risks all major risks this was a publicly traded company this could have blown up in their face but after they really figured out their streaming and then they started going into original titles and those hit home and those really resonated that's when they really liked their growth was exponential and at this point nobody could keep up from 2016 onwards Netflix received numerous awards and accolades including 54 nominations at the 68th prime time Emmy Awards and everything else is history they simultaneously went live in 130 countries their feature films also became increasingly ambitious and attracted some of Hollywood's finest green writers directors actors in 2017 Netflix subscribers had surpassed a total number of cable subscribers in the United States and with this Netflix essentially became the largest entertainment provider in the world so what are some key takeaways from their incredible growth their incredible success story well number one identify your key growth metric and stick with it it's no secret that most new businesses fail some fail because they take too many risks at once others fail because they don't aim high enough or take any risks at all as a business person as an entrepreneur it is essential to identify a massive potential market that you can grow into and test and iterate and try things so that you can exploit as much out of that potential market as possible you can get the most out of that potential market because the first way you tackle that market may not be the most successful way so you have to try and test and iterate but you have to know what that key growth metric is so for example so for Facebook a social media giant they have billions of users but they still care about users engagement and still try and figure out new ways to maximize user engagement that is their key growth metric Google still interested in a number of searches conducted every single month even though like who would ever say that there's a competitor for Google right now but they still care about the number of searches conducted every single month despite being one of the largest tech companies in the world they still know what their metrics and Netflix their key metric was how many movies a user watched they knew that if they could figure out how many movies a user watched and they could find ways to get a user to watch more movies they would be successful so that is reducing friction to access entertainment getting a user to watch more movies that was their growth metric and everything they did revolved around that metric they also made some obvious moves and you can make obvious moves so obvious moves don't necessarily have to be done so by 2007 it was obvious that the DVD rental market was facing a decline it was an obvious move to look for a way to track new customers while retaining existing ones it was an obvious move to move away from DVDs blockbuster didn't make the obvious move data was showing that it was an obvious move the evolve or die was very very much a thing but too many established players could not grasp the change was coming if Hastings had listened to the naysayers who thought that streaming videos was nothing but a fad there would be no Netflix and they would have not had the success that they they had and there would probably be someone else that would have moved into that position so focus on obvious moves pay attention to your market pay attention to your customers their habits because they are going to tell you where they want to go and if you don't listen to them again you will be disrupted last thing was focus on quality this is so obvious but it's I just have to reiterate throughout the history everything they did was high quality you have to understand that this allowed them to achieve that North Star metric that key KPI that key growth metric from getting DVDs to customers faster to developing new streaming technologies by investing 40 million dollars in technology for a market that at the time didn't exist the quality of the Netflix experience and the quality of the content was always at the forefront they never ever sat at sacrificed any sort of quality this has helped them build not only a large subscriber base but a loyal audience of fans quality doesn't necessarily mean just spending more money on your product how's your customer support how's your onboarding process improving the customers experience should be one of your cornerstones for your company just in case customers don't see things from your perspective be quick to listen to them and evolve accordingly and those three things of course they've had tons of different strategies over the years that have helped them be successful but those three things has really helped Netflix get from where they started to where they are today that is the story of Netflix and that is why they're so successful