The Birth of Netflix

There are many books about Netflix, but most of them discuss the business model and corporate culture, and there is no book that tells in detail how Netflix went from a seemingly insignificant DVD rental business to its current market value of billions of dollars.

The author of the book "Replay Netflix" is a co-founder of Netflix. In this book, he talks about the birth of this idea, how to build a team, and how to optimize the business model. Many specific examples in the book are very informative.


The translated title of this book is not good, as the book does not actually review much, but rather tells the entrepreneurial story, and then stops at the time of going public. The English title "That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea" is actually very appropriate, as it conveys the process of Netflix's birth and how this seemingly insignificant idea became a billion-dollar company.

Here are some of my thoughts after reading this book.

A Good Idea#

A good idea is selected from numerous bad ideas. The most widely circulated story about the creation of Netflix is that Reed1 rented a movie "Apollo 13" from Blockbuster and had to pay a $40 late fee when he returned the videotape, which led to the idea of starting Netflix.

This story has a lot of dramatic tension, and the media loves it. But it is not true.

The true story is that they discussed and debated countless ideas before trying the DVD rental idea. The author of this book, Marc, has a booklet where he records his scattered ideas, and then he discusses them with Reed. For example, custom baseball bats, personalized surfboards, custom dog food for pet dogs, etc., all of which were rejected by Reed one by one. Reed's reason was that customized businesses are not good, the effort to make a dozen products is 12 times the effort to make one product, and it doesn't become easier over time. Such ideas will never succeed.

At this point, it can be seen that Reed is a rational person with a business mindset. Marc, on the other hand, is like a passionate entrepreneur with countless ideas and enthusiasm. This is a foreshadowing in the book.

Regarding the generation of great ideas, he also conveys a viewpoint: Epiphany is extremely rare. In entrepreneurial stories, the so-called epiphany is often oversimplified or even fabricated. The idea of renting DVDs also came about through countless discussions, assumptions, tests, and validations.

Finding the Right People#

In addition to a good idea, finding the right people is also important for entrepreneurship. A good idea is the direction, and the right people are the guarantee to reach that direction.

To do well in the DVD rental business, it is important to find someone who understands the industry. Mickey is such a person. When Marc met Mickey, he was very clear about his value: he was a passionate movie lover, and his accumulated knowledge of movies and insight into human nature allowed him to accurately predict customers' emotions, interests, and tastes, and recommend suitable movies to them. This is like a living recommendation algorithm!

To please Mickey, Marc often invited him to eat at Buck's Restaurant2, which caused him to gain some weight. He called it the "Founder's 15 pounds". The weight gain of these 15 pounds brought him the reward of Mickey joining the team and providing great help for the operation of the business.


Human energy is limited, and it is irrational to invest limited energy in infinite things. The same goes for companies. Time and money are limited, and sometimes you have to give up something in order to move forward lightly, focus more, and go faster and further.

Netflix has made two classic decisions in its history, which reflect the foresight and decisiveness of the two founders.

One is after the failed acquisition negotiation with Amazon, Marc and Reed decided to cancel the DVD sales business. The reason was that Amazon would soon enter the online DVD sales business, and the newly established Netflix was not a competitor to Amazon at all. Moreover, if Netflix operated both DVD sales and rentals at the same time, it would confuse consumers and make the business more complicated.

This is putting all the eggs in one basket, and it is the only way to ensure that no eggs are broken.

The other is focusing on the subscription model. When exploring new operating models, they tested three ideas.

  • Family rental library: Users can rent 4 DVDs for $15.99 per month, with no limit on the return time. When they return a DVD, they have the opportunity to rent another one.
  • Serialized delivery: Users can create a DVD wishlist, and when they return a DVD, the next one on the list will be automatically sent to them.
  • Subscription model: Pay a monthly service fee once, with no restrictions on the return time.

The final test result was that users really liked the subscription model without late fees, but there were still a small number of people who chose to be billed per item. The subscription model had already shown great potential at that time, while per-item billing was the demand of a small number of people and required attention to be divided into an outdated model. Should the two coexist or should only the subscription model be retained? In the end, Netflix chose to completely abandon the per-item billing rental model in February 2000 and fully transition to a subscription service.

Extreme focus may seem cold and even cruel, but it is also a form of courage, a simple and efficient approach.

Corporate Culture#

Corporate culture is the foundation of a company. I see the embryonic form of Netflix's corporate culture in the entrepreneurial team of this book.

First is freedom and responsibility. There is no attendance clocking in at Netflix, you can come whenever you want as long as you complete your work, regardless of where you are or how you do it. For example, their front desk responsibilities can be summed up in one sentence: present the best side of the company. There are no long to-do lists or restrictions, only one goal, and how to achieve it is up to the employees. In the end, they have a great front desk.

Second is candor. When the company was in a period of rapid growth, Reed, Marc's friend and business partner, gave him candid advice - to give up the CEO position and let Reed take over. How can you give up when the company you have nurtured is like your own child?

Reed's candidness was not about "usurping power", but his goal was for the company's long-term development. He made sufficient preparations for this candid conversation, explaining Marc's achievements and failures as CEO for a year, and the conclusion was that in the current environment, he was not the best choice for CEO. The company is already "smoking", and if things continue like this, the company will "catch fire".

After two candid conversations, Marc gave up the CEO position and became the president of the company to participate in the company's affairs. This decision should be the most important turning point for Netflix, and it even prevented Netflix from falling behind or being eliminated in the fierce competition twenty years ago.

Reed is more rational and has a stronger business mindset, and his execution ability is fast enough. He is the more suitable choice for CEO.

With a corporate culture of freedom and responsibility, absolute candor, great ideas, and an excellent team, all of these have taken Netflix to a new height.

Related reading:

In this documentary, you can truly experience how passionate and inspiring Marc is, and how intense the competition between Netflix and Blockbuster was.

You can watch the film on Bilibili here (recommended by @yzqzss).


  1. Wilmot Reed Hastings, Jr. (born October 8, 1960) is an American entrepreneur, co-founder, chairman, and co-CEO of Netflix.

  2. Buck's Restaurant: One of the Silicon Valley temples, where numerous companies were born. Either ideas were conceived here, or funding support or other ways were used to establish them.

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