Rather than rushing home and writing a Business Plan or hurrying to the office and doing a powerpoint slideshow, we decided we would try to take the first step to validating that idea. We drove down to santa cruz where we both lived. I bought a little music cd. I think it was patsy cline. We went next door and bought a little gift envelope. We put the cd in an envelope and mailed it to reids house. The next day when he picked me up, he had an unbroken cd and an envelope that got to his house 24 hours for the price of a first class stamp. If there was an aha moment, i think that was it. To where were you carpooling . Read was the founder of a Company Called peer atria. A big geeky software company. Integrity qa. I went to work for reid and we spent about nine months working together. As luck had it, we lived in the same town so we spent those nine months carpooling together. And then lightning struck. It was going to be acquired. Both reed and i were going to be out of a job. I decided this was perfect. I am going to start my next company. Read kinda wanted to keep her hand in this entrepreneurial thing. I agreed we would started and run it. He would be on the board and he would be the biggest financial backer. All we needed was an idea. That led to those crazy car rights. We brainstormed everything we could think of. Where did the title come from is that a quote from your wife . That will never work is a quote from my wife, but it is also a quote from the 10,171 other people that i told that other people that i told that idea too. I think everyone has had that experience where you come rushing in the kitchen and you have some great idea to tell your spouse or you come into the office with a great idea and everyone says that will never work. In many ways, this book is about the process of taking an idea that no one thinks will work. That my wife that would never work and somehow and explicitly turning it into a company that has changed the way we watch television. Before we get into the reasons that netflix will never work, there is some lore about the founding of the company. What is that . Well, people like the epiphany moment. They like to hear the moment that it all became clear. They want newton under the apple tree or in the bathtub. The reality is, it does not happen like that. Of course its been said it all originated with the movie. Yes, there was. But there was also someone who spent many, many years years doing subscriptions. A lot of personalization. Somebody else who had lots of experience with computer algorithms. Building websites. We had tons of people that each contributed little bits. When someone asks where the idea came from they dont want the 310 page book. They want the quick soundbites. That is what that will never work is about. It is the untold story of netflix. Talking about 1996 here. What were the reasons this was never going to work. There are lots of reasons everyone told me that will never work. The first one was the obvious one. If i was going to do dvd rental by mail, it meant i would be mailing a disk to someone and they would keep it for a number of days and mail it back. People said that is crazy. Why would anybody wait two days for a movie when they could go to one of the 9000 blockbuster stores. The other reason, perhaps the one that really got in our way was that everyone believes, this was a digital format. Just a matter of minutes before everybody was streaming. Downloading. And, of course, Reed Hastings and i knew this was true. Eventually people would be downloading or streaming movies. We just did not think it would happen that quickly. How do you build a company which is appropriate now when it is impossible to stream or download something but have it be in the right place so when that time came along we would be ready. It took almost 10 years before netflix transitioned to streaming. Those first few days of the company being online, what was that like . Well, that will never work in some ways is a compendium of all of the screw ups. All of the disasters. All of the missteps. All of the times you almost went out of business and you are correct. Our very first disaster in day one. We had spent six months building this simple ecommerce website. We were so excited. This is the moment we were going to go live. We had set up a computer in our Conference Room and rigged it up so a bell would ring every time an order came in. At nine am on april 14, 1998, our cp zero hit a few keys and we were live. It did not take long and we had that first thing. We cheered and began opening bottles of champagne. Two or three years later, ding, ding, ding. There we got two more orders. All of the excitement, we kind of lost track of things until someone noticed its been a while since the bell has rung. Is there a problem . It turned out in the first 15 minutes of being online, we crashed all of our servers. What did you do . [laughter] instead of me remembering that day toasting my success with champagne, my memory of april 14 is being at frys electronics, a superstore pushing the shopping cart while our cpl piled and all the components we would use to limp along that website that first long day. We had this pool about how any orders we could get. People said 10, 30. We ended that first day with 107 orders. Which. Which astounded me. That was my whole first month forecast. Now looking back, 107 orders, seven orders, that seemed pretty tripe where we are now. You spent quite a bit of time perfecting the mailer that netflix used. As i mentioned, netflix took 10 years before we got to streaming. We were mailing dvds to people. We had to go through the post office and we had to do it through firstclass down. In a way that didnt get mangled or broken or cut off to the side devising this simple envelope that could also double as a return envelope was a real work of art. We spent hundreds of hours perfecting it. I could not get my mind off of it. I dreamed about little red envelopes. Coming back at dinnertime. Passing a stack of envelopes. Before i even knew what i did, i ran out to my car and got something my wife and i called the restaurant bag. This was a collection of all the tools and tape and staples and grants that you would use to keep three kids under five amused at a restaurant. I remember pulling this open and reconstructing this envelope in about two or three hours at night, the Warehouse Manager on the way out the door, give this one a try. When netflix first went online, you are mailing these by hand. People were actually packing them by hand. Absolutely. At the beginning, it was was pretty scrappy. You have no money. This tiny little office. This smelly green carpet. Warehouse being stored in an old safe. This happened to be an old back. We had to use every single square foot that we had. We did not even have furniture. People were bringing in beach chairs. My wife came in after dinner one time and she was coming to get me and she looked and said, wait a minute. Are those our dining room chairs we were doing everything that we had to. Packing dvds by hand was the least of it. Who funded netflix to begin with . You know, Reed Hastings, this is the understatement of the year. Turned out to be an unbelievable partner. Perhaps the most important thing is read was the first person who really believed in this idea. The first person who did not say that will never work. Reed wrote a check for 1. 9 . 9 million. He wrote me a check. He handed it to me and i remember going, zero oh my gosh, this is the biggest check i have ever held in my hands. I took it down to our local wells fargo branch. I remember standing in line with this check wondering what is going to happen. Is the person behind the counter going to hit a little buzzer and then the manager of the bank will come out and bring me back insuring me champagne . It was kind of an anticlimax. I handed her the check and i think all she said was due on any cash back with that . I also had to go out and ask other people. I to ask my mother. I had to ask friends. Theres a reason why these are called the friends and family round. What is the role of the venture capitalist. Is there a negative side to that . Venture capital is the essential fundraising mechanism that used in Silicon Valley. But he much in a place people are doing startups. These are people willing to invest money into a business. Doing it under very long odds. The reality is, that will never work. Most of of the time, they are right. If a venture capitalist willing to take a chance that nine out of the 10 investments they make will fail, on the off chance that one of them succeeds, and you mentioned, is there a dark dark side to it, in some ways, maybe its not a dark side, but you have to know what you are getting into. When a venture capitalist if you the money, and in fact, it is essential in starting and growing netflix, but they are not doing it because they really like the idea and want to see you succeed although they do. They are doing it because not only do they expect their money back, they expect their money back times 10. Once you are in that game, you are all in it for the long game. You cannot go to them and say i think i have enough. Your commitment is you will do Everything Possible to make sure their investment pays off. In your book you write that tech is a true meritocracy. It is one of the most wonderful things about tech. The foundation of tech is coding. It is computer code. Computer code is remarkably transparent. There is a principal among coders called peer review. You ask one of your peers to sit down and review it with you. It doesnt make a difference what you look like. It doesnt make a difference how you dress. It doesnt make a difference what time of the day you got to the office, what time you leave or even what you smell like. It has permeated Silicon Valley. We certainly are the beneficiaries of it. Certainly i would not know a line of code if you wrapped it around my neck, but we all get a chance to recognize we can be casual. Ultimately judged in the value of our work which is a tremendously refreshing thing. April 1997. Netflix. Netflix went online. At what point did you feel financially secure. One of the essential ingredients of being an entrepreneur is you never feel secure, financially or otherwise in terms of the otherwise piece, it is inherent in a startup that you struggle and claw and climb your way to the top of this first hill and you collapse in a keep when you finally made it only to catch her breath and look up and see an even bigger hill in front of you. When we started netflix, our goal was to be as big as a single blockbuster blockbuster. 750,000 a year. We had back on the first two or three months. Then you look up and say there is 9000 blockbusters. Once we pass a blockbuster, there is hbo and comcast. There is amazon. It is never ending. Part of that is recognizing you can never sit back and say we are done. Economically, i have never been someone who is motivated by how much money i have. That is not the point of this. Its the fun of coming into a room and sitting down and solving really interesting problems. That, i could can never get enough of. At one point, blockbuster wanted to buy netflix. Is that correct . Early stage. Then it is game over. This was in 2000. The company was about two and a half years old. The bad news is, we were on track to lose 50 million getting there. You dont need to be a financial analyst to understand that is not sustainable. We decided to do this thing that all prudent entrepreneurs do. Pursue strategic alternatives. Code four weve got to sell this our obvious alternative was blockbuster. 5 million in sales. They were were 6 billion in sales. We were probably 300 employees. They were 60,000 employees. We tried getting this meeting, nothing. As luck would have it, actually finally called us for a meeting. We were at this corporate retreat in Santa Barbara at the mountains. We flew from Santa Barbara to dallas for the meeting. Because we were on retreat and because of the casualness, i was in shorts and a tshirt. They usher us up into this huge Conference Room. Income the blockbuster folks and we make our pitch about combining the companies. Blockbuster could have bought netflix for 50 million, but they laughed at us. In some ways, it was a disappointment because i was hoping that this could be the day that saved us. The influx of money or even better. Making our problem someone elses problems. In many ways, this was a moment we finally said to ourselves, wow. The only way out is through. We will have to solve this problem on our own. You say that the culture, the Corporate Culture of netflix is freedom and responsibility. Where did that come from and its not a common Corporate Culture in Silicon Valley . It is a very common culture for earlystage companies. That is for obvious reasons. As i mentioned before, you have no resources. You have lets say seven people doing the job of 100 people. Everyone is stretched thin. There certainly is no time for commandandcontrol. No time for me to say here is your job. Here is what you have to do. Here is how you do it tiered check in with me every few hours and let me know how it is going. You see that hell over there . I will meet you at the top in a week. They have to figure it out on their own. Freedom to decide the ultimate best way to solve the problem. The responsibility to see that it is solved. It is a fairly easy thing to do when you have seven employees. You can hand pick people with the responsibility to handle all of that. It is a little bit harder when you have 70. Even harder when you have 700. What is truly remarkable at netflix is they still have managed to preserve that culture was 7000 employees. And that is the remarkable thing about netflix and something that is very, very rare. Something that has continued in a different form is the subscription model to netflix. Correct. That is not something you hit upon at the beginning. Ironically, and i kick myself sometimes for missing that. You know, i am one of those persons who was a fortyyear overnight success. Netflix was my sixth startup. Two of them were actually in the publishing business. I spent many years mastering magazine circulation. Mastering subscriptions. The idea we could apply subscriptions to video rental by mail was so far out there. Video rental in general was so far out there. It took us a while to get there. It took us two 1 2 years half years of failed experiments before we finally stumbled on this crazy combination of things which was a Subscription Service it was also the no due dates and no late fees. Finally making a list of movies you wanted to see so we could ship them to you automatically. If you wouldve asked me when we launch the company years earlier what with the Business Model look like . I never could have told you it would be subscriptions. Who knew. What do you think of the name netflix . [laughter] well, it is growing on me. One of my early investors actually gave me some great advice. At the beginning when you just start, you dont have a formal name yet. You still have to write checks. You need to have a lease. You need to have a company name. You have a beta name. The name you will use while you are figuring it out. His advice was pick a beta name that is so bad that when you run into problems finding your real name, you wont wont be tempted to use it. Our beta name was kibble. Like the dog food tiered one of my favorite names was it is not success unless the dogs eat the dog food tiered you could have the best advertising in the world, but if if the dogs do not eat it, nothing happens. I wanted that to be the culture of netflix. It had to work for customers. As he predicted, we got close to april and had to come up with a real name. All the good ones were taken. They were trademarked or the domain name was used or admit something of seen in some foreign language. In some ways, netflix was the last name standing. Its okay. It seems to be okay now. Take one, take two. Scene one. Scene two. Now showing. These are some of the names you all were considering for this company. Describe Reed Hastings. Reed is a genius. What can i say. I will modestly say im a pretty good earlystage entrepreneur. I am probably in the top 1 , but , reed is probably in the top one 10th . In earlystage entrepreneur. Phenomenal is a late stage entrepreneur. He has the whole package. What was fantastic about working with readers how the two of us work together. In many ways, we brought a combination of skill sets and attitudes. I came from the world of marketing where my entire expertise was empathy. Understanding how things we said or did would be received by customers. Reed brought this understanding of how we could actually deliver those things in new and different ways and ultimately do it at scale. And the two of us also brought a culture which we shared of this radical honesty. We could argue like cats and dogs but as soon as we stumbled upon the right thing, immediately forget whose idea it may have been. Who raised what objective and immediately fallen behind so obviously the right idea. He was a great partner. I think in many ways one of the smartest things i ever did at netflix was make room for him to come in fulltime. The mac 1998 he said to you im losing faith in you. Yes. It was a difficult moment. We had just made the pitch for our series. It had not gone so well. One night reed poked his head into my office and delivered that news, those words that no one likes to hear which is weve got to talk. He was losing some constants. He would join the company fulltime and run the company together. He was ceo and president. It was a real moment of reckoning for me because on one hand i had this dream of starting and running a Successful Ecommerce company but now i had to ask myself which parts of the dream were the important ones and was it the starting or the running its part or was it the successful part . I realized that eventually realized the thing i owed was making this dream come true not only for me but for everyone else and for my employees and investors and for our customers. I recognize that probably almost inarguably having run the company together would be the more successful way to do it. I think looking back history would say that was a pretty good decision. You write to read emergence as the head of the Company Saved our assets at mr. Randolph lets move forward to 2002, another quote from the book, i will never have to work again. It is funny im back in new york today and last night i got in late and spent the day on a plane and i walked down to the sight of what used to be rays pizza, one of the 17000 i