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 D clary. Thesuccess story podcast is part of the hub spot podcast network. The hub spotpodcast network has incredible podcast like the Martec Podcast, hosted by Benjamin Shapiro.Each week the Martech podcast tells stories of world class marketers who use technology tocreate lasting success with their business and their careers. If you like any ofthese topics, you're going to like the Martyche podcast. How Science is changingadvertising, how to set up a crm so you actually use it. Privateequities take on digital transformation by big social is focused on newsletters. If theseare topics that resonate with you, go check out the MARTECH podcast wherever youget your podcast, or you can also go listen on hub spotcom slash podcastnetwork. So today I'm going to walk you through a case study, thestory of Netflix. How they started and eventually disrupted cable television, how theydisrupted the movie industry, how they disruptive...

Blockbuster, how they became the largestentertainment company in the world. This is the story of Netflix, their growthstrategy, their initial concepts, from DVD subscriptions all the way through to becomingthe streaming king of the world. This is a business case study. Thisis Netflix has growth store worry. So Kay study how Netflix multiplied his valueby five hundred x. So our story today dates back to one thousand ninehundred and ninety seven, beginning with the failure of the highly popular blockbuster.So, for those who are too young to remember, blockbuster was a movierental service with a physical store. They had physical stores full of DVD's allover the US, Canada, North America. The American tradition, I've 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 backon Monday. Back in one thousand nine hundred and ninety seven blockbuster, andI think there's only one blockbuster left in the world now. But blockbuster wasa billion dollar company, with more than six thousand stores in the US alone, having revenue of three hundred ninety one billion dollars. But the problem wasat sixteen percent of their revenue came from late fees, which was annoying millionsof its customers. This was part of their business model. That was ahuge portion of the revenue, not just renting the movies, but counting onpeople to screw up. One of the customers, one blockbuster customer, gotfined and excess of forty dollars in late fees. This annoyed him so muchthat he went on to start his own company. That man was none otherthan read Hastings, and the company that he founded is what we know asNetflix today. But netflix didn't always start out as the subscription service. Youturn on your TV you see a whole bunch of bespoke made for netflix moviesand TV shows. No, it started off much different. So let's firstunderstand how NETFLIX started off. It was...

...very smart, read and Mark Randolf. Those are the two cofounders. They were very smart in how they exploitedthe most undesirable attribute of their competition. So in one thousand nine hundred andninety seven, netflix started as a subscription based DVD in mail service, asin, if you wanted to watch a movie instead of going to blockbuster,you made a dvd order online, you made a list of DVD's that youwanted to watch online and you send it to Netflix. They would deliver theDVD within two to three days. When you return the DV DVD it'd requested, they would send you the next one on the list. All of thiswas being offered at an affordable subscription fee, without any lay fees at all.So they were doubling down on the worst part of instore movie rentals.Of Blockbuster was offering between two thousand and two thousand and three, way beforethey had this streaming service, the company still enjoyed consistent growth. Netflix whenpublic and make two thousand and two again,...

...way before the streaming service, withinitial share price of fifteen dollars. Today and Netflix share is worth overfive hundred dollars. By the end of two thousand and six, Netflix hadover six million subscribers, boasting a seven year annual compound growth rate of seventynine percent. Finally, they had become profitable. In two thousand and six, the company generated more than eighty million dollars in profits. But they nevergot comfortable with their success. So by two thousand and seven, Netflix introducedits online streaming service, which was the first iteration of what we know todayas 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 companywas crazy. And keep in mind they were public, they had shareholders toanswer to, they had a board of directors, they had a lot ofpeople that were watching them. They were not a startup. When they introducedstreaming, they were profitable, they were doing well, but they were nothappy with, being comfortable with their success. Remember, Netflix's goal was to reducefriction and accessing entertainment. This was always their vision and everything that theydid aligned with their vision. This is...

...a great list of our founders toif you don't have that vision, if you don't have that North Star thatyou're going towards, then a lot of people would have just been happy witha success that Netflix had when they were just getting DVDs to customers. Theywere reducing friction to accessing entertainment that way. But they wanted to take it astep further. So first Netflix or fined and improved it's DVD by mailservice through faster delivery, more distribution centers and eliminating fees. That was thefirst way they wanted to reduce friction and accessing entertainment. Of course, theyalready 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 andeven though they were hitting big numbers, they were doing very well in theDVD rental business. They knew that it wouldn't last. They knew they hadto do something different. As an entrepreneur, if you get comfortable with a singlebusiness success, that is going to be your death that's going to beyour downfall. Most companies failed to evolve, they fail to adapt to a changingbusiness dynamic and environment. They've been...

...forced out of the market. Theyget disrupted. So I think about blockbuster, blackberry, no KIA. Think aboutwhat Uber did the cavs? Think about what air being be did thehotels? If you do not disrupt, if you are not future proofing,if you are not forward thinking, you are going to get disrupted. Sonetflix 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 accessto thousands of titles that you could Binge Watch on any device. While cablecompanies were more concerned with traditional business models and quarterly revenue targets. Blockbuster wasn'tdoing anything. They were just business as usual. Netflix was looking at decadeahead into the future. So, needless to say, if Netflix wanted toreduce friction to accessing entertainment and they wanted to allow everybody to stream movies online, the technology to make their vision of reality was non existent. They tookon a huge risk and invested more than forty million dollars in developing new streamingtechnologies in two thousand and seven. It's...

...mind boggling to think that they investedforty million when they were doing eighty million in revenue per year, because therewas literally no consumer demand for what they were offering. A lot of peoplethought the idea wouldn't work. However, since most people didn't believe in thetech, 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 orall these different mainstream networks trying to get into streaming. This was two thousandand seven. So by the time everyone else finally caught on, and somepeople are still just catching on now in two thousand and twenty one, Netflixwas way ahead of them. So the company doubled down, invested forty milliondollars, had the best streaming tech, the most extensive list of titles,because they already were doing this for x many years before. They had thelargest subscriber base. In Two Thousand and eight, the company announced it wasstopping its DVD retail sales one week after debuting the watch, now on allMAC and apple platforms. By Two Thousand and eleven, Netflix rebranded its DVDrental business, spreading its streaming business and...

...rental business and changing them all intosubscription packages. And that's really where that hockey stick growth just took off.So from two thousand and thirteen, you can quite honestly say netflix began toconquer the world, or at least the streaming world. The company Dove headfirstinto original programming with a high profile political drama house of cards. Both criticsfans gave the show rave reviews and they're already dominating the streaming market. Nowthey're doing original pro programming and it was it was an absolute hit. Thatwas a crucial turning point in Netflix's growth, because when they dropped DVD's and theydropped retail DVDs and they drop subscription DVDs and they invested all of thisinto they invested so much money into into subscription streaming and even like even thetech 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 there streaming and then they started going intooriginal titles and those hit home and those...

...really resonated, that's when they reallylike. Their growth was exponential and at this point nobody could keep up.From two thousand and sixteen onwards, Netflix received numerous awards and accolades, includingfifty four nominations at the sixty eight primetime emmy awards, and everything else's history. They sign simultaneously went live and a hundred and thirty countries. Their featurefilms also became increasingly ambitious and attracted some of Hollywood's finest screenwriters, directors actors. In two thousand and seventeen, Netflix subscribers had surpassed a total number ofcable subscribers in the United States and with this Netflix ascent effectively became the largestentertainment provider in the world. So what are some key takeaways from their incrediblegrowth. Their incredible success story will number one one. Identify your key growthmetric and stick with it. It's no secret the most new businesses fail.Some fail because they take too many risks...

...that once others fail because they don'taim high enough or take any risks at all. As a Businessperson, asan entrepreneur, it is essential to identify a massive potential market that you cangrow into and test and iterate and try things so that you can exploit asmuch out of that potential market as possible. You can get the most out ofthat potential market, because the first way you tackle that market may notbe 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 billionsof users, but they still care about users engagement and still try and figureout new ways to maximize user engagement. That is their key growth metric.Google still interested in the 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 knowwhat their metric is, and netflix their key metric was how many movies auser watched. They knew that if they could figure out how many movies theuser 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 everythingthey did revolved around that metric. They also made some obvious moves, andyou can make obvious moves, so obvious moves don't necessarily have to be done. So by two thousand and seven it was obvious that the DVD rental marketwas facing a decline. It was an obvious move to look for a wayto attract new customers where while retaining existing ones. It was an obvious moveto move away from DVD's blockbuster didn't make the obvious move. Data was showingthat it was an obvious move. The evolve or die was very, verymuch a thing, but too many established...

...players could not grasp the change wascoming. If Hastings had listened to the naysayers who thought that streaming videos wasnothing but a fad, there would be no Netflix and they would have nothave had the success that they had and there would probably be someone else thatwould have moved into that position. So focus on obvious moves. Pay attentionto your market, pay attention to your customers, their habits, because theyare going to tell you where they want to go and if you don't listento 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 historyof Netflix, everything they did was high quality. You have to understand thatthis allowed them to achieve that North Star metric, that key KPI, thatkey growth metric, from getting DVDs to customers faster to developing new streaming technologiesby investing forty million dollars in technology for a market that at the time didn'texist. The quality of the Netflix experience...

...and the quality of the content wasalways at the forefront. They never ever set I sacrificed any sort of quality. This has helped them build not only a large subscriber base but a loyalaudience 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 experienceshould be one of your cornerstones for your company. Just in case customers don'tsee 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 overthe years that have helped them be successful, but those three things hasreally helped Netflix get from where they started to where they are today. Thatis the story of Netflix and that is why they're so successful.

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