How Netflix Multiplied Its Value By 500x

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Growth Story is a weekly podcast that breaks down the strategy and tactics utilized by high growth companies, in a short case study format hosted by Scott D. Clary (@scottdclary)

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Welcome to success story, the mostuseful podcast in the world, I'm your host Scott de Clary. The success Torypodcast is part of the hub spot podcast network. The hotspot podcast networkhas incredible podcast, like the Mar Tech podcast hosted by Benjamin Shapiroeach week. The MARTEK podcast tells stories of world class marketers whouse technology to create lasting success with their business and theircareers. If you like any of these topics, you're going to like the MarTec podcast, how science is changing advertising how to set up a CR M, soyou actually use it private equities. Take on digital transformation by bigsocial is focused on news letters. If these are topics that resonate with yougo check out the Mar Tech podcast wherever you get your podcast or youcan also go. Listen a HUSBAC S, podcast network. So today I'm going to walk youthrough a case study the story of Netflix how they started and eventuallydisrupted cable television, how they disrupted the movie industry, how theydisrupted blockbuster, how they became...

...the largest entertainment company inthe world. This is the story of Netflix their growth strategy. Their initialconcepts from DVD subscriptions all the way through to becoming the streamingking of the world. This is a business case study. This is netflix growthstory, so, okay study how Netflix multipliedis valued by five hundred x. So our story today dates back one thousandnine hundred and ninety seven beginning with the failure of the highly popularblockbuster. So for those who are too young to remember blockbuster was amovie rental service with a physical store. They had physical stores full ofDVDs, all over the US, Canada, North America, the American tradition, I saygeneral general weekend tradition. Was You rent a movie on Friday night? YouWatch it with your family Friday or...

Saturday night. You bring it back onMonday, back in one thousand, nine hundred and ninety seven blockbuster-and I think, is only one blockbuster left in the world now, but blockbusterwas a billion dollar company, with more than six thousand stores in the USalone having revenue of three hundred ninety one billion dollars, but theproblem was at sixteen percent of their revenue came from late fees, which wasannoying millions of its customers. This was part of their business model.That was a huge portion of the revenue, not just renting the movies, butcounting on people to screw up one of the customers. One blockbuster customergot fined an excess of forty dollars in late fees. This annoyed him so muchthat he went on to start his own company. That man was none other thanRed Hastings and the company that he founded is what we know as Netflixtoday, but Netflix didn't always start out as the subscription service. Youturn on your TV, you see a whole bunch of be spoke made for Netflix movies andTV shows. No, it started off much different. So let's first understandhow NETFLIX started off. It was very...

...smart, read and Mark Randolph. Those are the two cofounders. They were very smart in how they exploited the most undesirableattribute of their competition. So in one thousand nine hundred and ninetyseven netflix started as a subscription based DVD in mail service. As then, ifyou wanted to watch a movie instead of going to blockbuster, you made a dvdorder online. You made a list of DVDs that you wanted to watch online and yousend it to Netflix. They would deliver the DVD within two to three days. Whenyou return the DV DVD requested, they would send you the next one on the list.All of this was being offered at an affordable subscription fee without anylate fees at all, so they were doubling down on the worst part of in storemovie rentals. That blockbuster was offering between two thousand and twothousand a d three way before they had this streaming service. The companystill enjoyed consistent growth Netflix when public and make two thousand twoagain way before the streaming service,...

...with initial share price of fifteendollars to day and Netflix share is worth over five hundred dollars by theend of two thousand and six Netflix had over six million subscribers boasting aseven year annual compound growth rate of seventy nine percent. Finally, theyhad become profitable in two thousand and six. The company generated morethan eighty million dollars in profits, but they never got comfortable withtheir success by two thousand and seven Netflix introduced its online streamingservice, which was the first iteration of what we know today as the Netflixthat we all know and love, they called it watch now. The service was trulyradical for the time many people thought the company was crazy and keepin mind. They were public, they had shareholders to answer to, they had aboard of directors. They had a lot of people that were watching them. Theywere not a start up. When they introduced streaming, they wereprofitable, they were doing well, but they were not happy with beingcomfortable with their success. Remember Netflix goal was to reducefriction and accessing entertainment. This was always their vision and everything that they did aligned with their...

...vision. This is a great lesson forfounders to if you don't have that vision. If you don't have that NorthStar that you're going towards, then a lot of people would have just beenhappy with a success that Netflix had when they were just getting DVDs tocustomers. They were reducing friction to accessing entertainment that way,but they wanted to take it a step further. So first netflix refined andimproved its DVD by mail service through faster delivery, moredistribution, centers and eliminating fees. That was the first way theywanted to reduce, friction and accessing entertainment. Of course,they already did this by removing any sort of late fees, but they double downon it. But here's the thing Netflix was hitting some big numbers and eventhough they were hitting big numbers, they were doing very well in the DVDrental business. They knew that it wouldn't last they knew that they hadto do something different as an entrepreneur. If you get comfortablewith a single business success that is going to be your death, that's going tobe your downfall. Most companies fail to evolve. They fail to adapt tochanging business, dynamic and...

...environment. They've been forced out ofthe market they get disrupted so think about blockbuster blackberry, no Ki!Think about what Uber do the cabs think about what air binbad the hotels, ifyou do not disrupt if you are not future proofing, if you're not forwardthinking you are going to get disrupted, so netflix started early to futureproof their business by entering the video streaming market, they wanted tobe the disruptors. Not they didn't want to be disrupted. So by making thisshift, they could now provide subscribers with instant access tothousands of titles that you could bing watch on any device. While cablecompanies were more concerned with traditional business models andquarterly revenue targets, blockbuster wasn't doing anything, they were justbusiness as usual, Netflix was looking a decade ahead into the future, so,needless to say, if Netflix wanted to reduce friction to accessingentertainment, and they wanted to allow everybody to stream movies online, thetechnology to make their vision of reality was not existent. They took ona huge risk and invested more than forty million dollars in developing newstreaming technologies in two thousand...

...and seven, it's mind boggling, to thinkthat they invested forty million when they were doing eighty million inrevenue per year, because there was literally no consumer demand for whatthey were offering. A lot of people thought the idea wouldn't work. However,since Mo most people didn't believe in the tech they didn't believe in theconcept. There was no competition for streaming. It's not like there is todaywith all these different streaming companies or all these differentmainstream networks trying to get into streaming. This was two thousand andseven so by the time everyone else finally caught on and some people arestill just catching on now in two thousand and twenty one Netflix was wayahead of them, so the company doubled down invested. Forty million dollarshad the best streaming tech, the most extensive list of titles, because theyalready were doing this for x many years before they had the largestsubscriber base. In Two Thousand and eight, the company announced it wasstopping its DVD retail sales one week after Debung, the watch now on all MACand apple platforms by two thousand and eleven Netflix rebranded, its DVDrental business, spreading its streaming business and rental businessand changing them all into subscription...

...packages, and that's really where thathockey stick growth just took off so from two thousand and thirteen, you canquite honestly say: Netflix began to conquer the world, or at least thestreaming world. The company dove head first into original programming with athigh profile political drama house of cards. Both critics fans gave the showrave reviews and they're already dominating the streaming market, nowthey're doing original programming, and it was, it was an absolute hit. Thatwas a crucial turning point in Netflix growth, because when they dropped DVDsand they dropped retail DVDs and they drop subscription DVDs and theyinvested all of this into they invested so much money into into subscription streaming and evenlike even the tech behind subscription streaming. These were all major risks,all major risks. This was a publicly traded company. This could have blownup in their face, but after they really figured out their streaming and thenthey started going into original titles...

...and those hit home and those reallyresonated that's when they really like their growth was exponential, and atthis point nobody could keep up from two thousand and sixteen onwardsNetflix received numerous awards and accolades, including fifty fournominations at the sixty eighth prime time. MIAWA's and everything else ishistory. They signed simultaneously went live in a hundred and thirtycountries. Their feature, films also became increasingly ambitious andattracted some of Hollywood's finest green writers, directors actors in twothousand and Seventeen Netflix subscribers had surpassed a totalnumber of cable subscribers in the United States and, with this Netflixassent effectively became the largest entertainment provider in the world. Sowhat are some key? Take aways from their incredible growth. Theirincredible success story will number one identify your key growth metric andstick with it. It's no secret that most new businesses fail some fail becausethey take too many risks that want...

...others fail, because they don't aimhigh 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 intoand test and iterate and try things so that you can exploit as much out ofthat potential market as possible. You can get the most out of that potentialmarket, because the first way you tackle that market may not be the mostsuccessful way. So you have to try and test and iterate, but you have to knowwhat that key growth metric is so, for example, so for facebook, a socialmedia 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 the numberof searches conducted every single month, even though like who would eversay that there's a competitor for Google right now, but they still care,but the number of searches conducted...

...every single month. Despite being oneof the largest tech companies in the world, they still know what theirmetric is and Netflix. Their key metric was how many movies a user watched.They knew that if they could figure out how many movies the user watched andthey could find ways to get a user to watch more movies, they would besuccessful. So that is reducing friction to access entertainment,getting a user to watch more movies. That was their growth metric andeverything they did revolved around that metric. They also made someobvious moves and you can make obvious moves obvious moves. Don't necessarilyhave to be dumb. So by two thousand and seven, it was obvious that the DVDrental market was facing a decline. It was an obvious move to look for a wayto attract new customers whatever, while retaining existing ones. It wasan obvious move to move away from DVDs. Blockbuster didn't make the obviousmove. Data was showing that it was an obvious movie, evolved 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 thoughtthat streaming videos with nothing but a fat, there would be no Netflix andthey would have not have had the success that they had and there wouldprobably be someone else that would have moved into that position. So focuson 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 ifyou don't listen to them again, you will be disrupted. Last thing was focuson quality. This is so obvious, but it's I just have to reiteratethroughout the history of Netflix everything they did was high quality.You have to understand that this allowed them to achieve that North Starmetric that KKI that key growth metric from getting DVDs, the customers fasterto developing new streaming technologies by investing forty milliondollars in technology for a market that, at the time didn't exist, the qualityof the Netflix experience and the...

...quality of the content was always atthe forefront they never ever set. I sacrificed any sort of quality. This ishelped them build, not only a large subscriber base, but a loyal audienceof fans. Quality doesn't necessarily mean just spending more money on yourproduct. How's. Your customer support, how's, your on boarding process,improving the customers. Experience should be one of your corner stones foryour 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. Ofcourse, they've had tons of different strategies over the years that havehelped him be successful, but those three things has really helped Netflixget from where they started to where they are today. That is the story ofNetflix, and that is why they are so successful. A.

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