Learning From The Early Years Of Netflix

To innovate, attack the old way of doing something with a new and revolutionary narrative. Watch how Netflix did it.

Do you remember the late fees that you had to pay when you were late returning a movie? In 1997, Netflix embarked on a mission to eradicate them, along with the associated painful feeling.

After a few years, the company managed to turn the narrative that ruled the industry on its head and replaced it with a new strategic narrative that put the consumer at the center.

The old narrative for renting movies was “our schedule”. The new narrative became “your schedule”.

Before Netflix, if you wanted to watch a movie, you had to do it around the video store hours. With Netflix, you could keep the movie as long as you wanted and order a new DVD whenever you wanted.

Check how this witty 2004 commercial sets up both narratives to joust and collide in a fight over who the winner is, you guessed it, Netflix.

https://www.youtube.com/watch?v=Ng7ETi7Q768

This is a brilliant example of how the company attacks the old way of doing something with a new and revolutionary one.

In only 30 seconds, the ad perfectly depicts why a company like Blockbuster failed to reinvent its future by missing the industry's next S-curve transition.

Let’s point out a few more characteristics of Netflix’s strategic narrative from the 90s.

Netflix framed its strategy with a clear enemy.

Today, most of us use Netflix for its streaming service and the original content that they create. For the most part, younger generations don’t know and might even find the concept of late fees comical, except when they’re getting hit with them by their library.

But I remember it vividly. The first time I used Netflix’s DVD service, I felt relieved from the worry of being treated like a bad student if I didn’t follow the rules of my video store to the letter.

Netflix’s enemy was clear: the late fee. And I felt like I was part of the winner’s club.

It was like when Google came out. Knowing that I could search for any information that I wanted was this awesome feeling. All of a sudden, Google helped me overcome this enemy: the messiness of the web.

Netflix stems from a situation experienced by millions.

The genesis of the strategy behind Netflix’s innovation comes from its co-founder Reed Hastings’ own experience.

As told in a 2006 New York Times article, Hastings was motivated by the desire to change an institutionalized and toxic practice that led to a philosophical problem: you shouldn’t have to feel bad because things happen.

“I got the idea for Netflix after my company was acquired. I had a big late fee for “Apollo 13.” It was six weeks late, and I owed the video store $40. I had misplaced the cassette. It was all my fault. I didn’t want to tell my wife about it. And I said to myself, “I’m going to compromise the integrity of my marriage over a late fee?” Later, on my way to the gym, I realized they had a much better business model. You could pay $30 or $40 a month and work out as little or as much as you wanted.”

Netflix’s leaders also walked the talk.

To deliver on its promise, Netflix took up a huge challenge: finding the best way to get as many movies as fast as possible to as many people as possible.

Hastings, his co-founder, and their team shaped the company's entire culture around their new strategic narrative. They built a strong culture of innovation where trying things, improvising, and even failing sometimes was possible.

Filled with purpose, the strategic narrative helped the company implement innovative management practices. Netflix eliminated the “fees” linked to controlling their employees’ sick and vacation time. Instead, they allowed people to manage their time off in the way they wanted.

According to Paul Johnson, former Director of Engineering at Netflix, “In a lot of companies, culture documents and mission statements go on the CEO’s office wall, and no one actually does anything with it. Netflix says they do this (the mission) and they really do it”. At Netflix, they live their strategic narrative.

Netflix started with a simple innovation and disrupted an entire industry. But what is truly remarkable is how it kept disrupting itself by constantly evolving its strategic narrative. From shipping DVDs, it went on to streaming movies and TV shows digitally.

Today, Netflix is known for creating outstanding original content and a radically new programming approach. Netflix also created a new habit, a new way of watching movies, a new strategic narrative that many of us have adopted in the past months: “binge-watching”.

What's next after that episode?