BACK IN THE STONE Age, when I was a kid, there were no video games. There was no Instagram, no Facebook, no Snapchat. There was no way to watch movies at home, unless you wanted to set up the old reel-to-reel and watch yourself as a baby. There wasn’t—in the Randolph household at least—even cable TV. The only way to rot your brain back then was by watching whatever was on the major networks. And on Saturday mornings and after school, that meant cartoons.
Back then, I’d watch anything: superhero cartoons, cartoon sitcoms like The Flintstones or The Jetsons, anything by Hanna-Barbera. But now, when I think of cartoons, I mostly remember the old stuff: Bugs Bunny and Elmer Fudd, Wile E. Coyote and the Road Runner, Tom and Jerry and Tweety and Sylvester. All of those cartoons, it strikes me now, are about pursuit—about one character chasing another, often to his doom. Elmer Fudd wants the wascally wabbit. Wile E. Coyote pants after the Road Runner. Tom and Sylvester, cats to the core, spend their lives stalking Tweety and Jerry.
Sometimes chasing a dream is like that: a singular pursuit of something nearly impossible. In the startup world, where the money is perilous and the timeline is unbelievably compressed, the day-to-day pursuit of your dream can appear frenzied—even manic—to outsiders. To your friends and family you’ll sometimes look more like Yosemite Sam than, say, Marc Randolph, successful CEO of a young e-commerce company. You’ll lose sleep, you’ll mutter to yourself while driving. When you try to explain your dream to other people, they won’t understand that it isn’t just about raising funds or customer conversion or daily monitors. It’s a surreal chase, a pursuit that gives your life meaning.
Funny thing about those cartoons—they never end in capture. They’re about evasion, disappointment, near misses. You get the feeling that if Wile E. Coyote ever actually caught the Road Runner, he wouldn’t know what to do. But that’s not the point. The point is the pursuit of the impossible.
Pursuing the impossible is a setup for pratfalls and comedy, drama and tension. Also absurdity. Because despite all the best-laid traps of Elmer Fudd or the most elaborate snares of Tom or Sylvester, a lot of those cartoons end suddenly, with anvils and pianos falling out of the sky.
Follow your dream, spend a year chasing it, and one day you might find yourself sitting dazed in a wreckage of black and white keys, bluebirds chirping around your head, with no idea of how you got there.
It was mid-September. We’d had an Indian summer in Scotts Valley, and even though it was early, I could already feel the heat coming off the pavement as I pulled the Volvo into the parking lot. The gardener must have gotten an early start to beat the heat: a hundred feet of freshly planted flowers already filled the beds lining either side of the driveway to our offices. I wasn’t sure what they were—tulips, maybe—but I couldn’t help but admire the neat rows and bright colors, every plant healthy and vibrant and new. I parked next to his wheelbarrow and noticed it was loaded high with last week’s flowers: uprooted daffodils, browned and wilted, dirt clinging to their shredded roots.
The circle of life.
A few parking spots over, Eric was struggling to load four new PCs onto an office chair, which he was using as a makeshift handcart. With the injection of money from IVP, as well as Tim Haley’s recruiting expertise, we’d been on a hiring spree. Each week brought a few new faces to the office. We were only at forty employees, so I still knew everybody—but I was starting to realize that there would soon be a day I didn’t.
“Let me give you a hand,” I said, picking up one of the boxes and balancing it between my briefcase and my hip.
“We really should invest in a real handcart,” Eric said as we squeaked up the ramp and into the offices.
Christina looked up from her computer when we passed, then went back to typing. “Reed stopped by this morning,” she said, tilting her head toward me but keeping her eyes angled at her screen. “Super-early, like six a.m. Said he was going to stop by again on his way back from the Valley tonight. He wants you to stick around until then.”
Christina nodded. “That’s it.”
I didn’t have much time to dwell on what Reed wanted, but I could guess. Most likely it was the Sony deal. Scammer aside, we were starting to see real returns from it—people were redeeming their coupons. It was by far the biggest bet we’d ever made, and considering all the chips we’d pushed into the middle, we needed it to pay off.
Or it could be an agreement with Amazon we’d been finessing ever since meeting with Bezos in June. We hadn’t been ready to sell then, but Reed had been ready to partner with Amazon in a different capacity. Reed agreed with me that if we were going to make it as a company, we’d have to focus on renting DVDs, not selling them. So he’d engineered a soft exit: Once Amazon moved into DVD, we’d push our users who wanted to buy DVDs there. They could rent through us, and buy through Amazon, via a link. In exchange, Amazon would direct traffic our way.
Nothing about this deal was official yet. In fact, in September, I think I was the only one who knew about it. Reed and I had been going back and forth on the subject for weeks. Even though halting DVD sales had been my idea, the thought of jettisoning the only profitable part of our business still made me nervous. But Reed and I were both convinced that we had to choose what we were going to focus on, and partnering with Amazon would not only reinvigorate our rentals, it would be a real feather in our cap. It would validate us.
We were thinking a lot about validation in those days. That’s how Tim Haley saw the Sony deal: if they were willing to work with us, we were worth investing in. Sony made us credible—even at an incredible cost. A partnership with Amazon, in Reed’s view, could do the same thing.
I was dying to find out what had happened over the weekend. How many new Sony customers had ripped open their new players, noted down their product serial numbers, and headed to Netflix to redeem their offers? I knew Reed was equally curious. Maybe he thought we would have new numbers to go over at the end of the day. I made a note to myself to make sure I had up-to-date reports before he came back. But for now, there were plenty of other things to worry about. Like the morning monitors.
It was nearly six when Reed finally swept in. I was writing copy, but I could hear his progress through the office, from the front to the back. First, I heard the beach chair creaking in front of Eric’s desk as Reed pulled it around to Eric’s side so he could point something out on the screen. Then, a few minutes later, I heard him asking our controller, Greg Julien, for an update on cash. Soon he made his way back to my office.
“Got a minute,” he said, with no upward inflection, like it wasn’t a question, like he almost hoped I didn’t.
Reed looked serious. And he was dressed the part, in the formal (for him) outfit he wore only for important meetings: black linen pants and a gray turtleneck, with black dress shoes. I pointed to his neck and tried to make a joke of it—“Reed, it’s almost ninety outside”—but he didn’t seem to hear me.
“We need to talk,” he said. He was carrying his notebook computer open in his hand, holding it by the corner of the screen with the keyboard hanging below. I could see that it was open to a PowerPoint slideshow, and I could just make out the first slide. ACCOMPLISHMENTS, it read, in bold 36-point type.
Reed stepped into the room, grabbed the chair in front of my desk, and in one motion swung it around to my side, with the seat facing out. He straddled it, leaning his chest across the back, then spun the laptop so I could see the screen. It was exactly what he did when he wanted to show Eric how badly he’d bungled a piece of code.
Where is this going, I thought.
“Marc,” Reed started slowly, “I’ve been thinking a lot about the future. And I’m worried.”
He paused, trying to read my face. Then he pursed his lips, looking down at the screen like it was a set of cue cards, and continued. “I’m worried about us. Actually, I’m worried about you. About your judgment.”
“What?” My mouth, I’m sure, dropped open.
Reed directed my attention to the screen, then hit the space bar. One by one, “accomplishments” animated their way onto the screen.
- Hired original team.
- Established coherent culture.
- Launched site.
It was like a slideshow at a funeral. I could tell it wasn’t going to get better from here.
“What the fuck, Reed,” I finally managed to blurt out. “You’re concerned about where we’re going, and you’re going to lay it out for me in fucking PowerPoint?”
My voice had started to rise, but then, noticing my office door was still open, I dropped it to a whisper.
“This is bullshit,” I hissed, pointing at the laptop. “There is no way I’m sitting here while you pitch me on why I suck.”
Reed blinked and sat still. I could tell he hadn’t expected this reaction. He pursed his lips again. I knew he was analyzing pros and cons, evaluating his next steps, his mind whirring just like the cooling fan in the Dell in front of us, still displaying its list of my accomplishments. After about ten seconds he nodded, then reached over and shut the computer.
“Okay,” he said. “This isn’t about how you suck, though.”
“Good,” I stammered. “Okay.” I could feel my anger subsiding, replaced now by a sense of dread. I stood up and closed the office door.
“Marc,” Reed started in as I settled back into my seat, “you’ve done some amazing things here.”
“But I’m losing faith in your ability to lead the company alone. Your strategic sense is erratic—sometimes right on, and sometime way off. I’ve seen issues with judgment, hiring, financial instincts. And I’m concerned that I’m seeing these kinds of issues at our small size. Next year’s problems and the year after’s will be much harder, and the consequences for missteps much more severe. Things are only going to get worse as the company grows.”
There’s a speaking tactic in business, useful for breaking bad news. It’s called a shit sandwich. You open up with a string of compliments, praise for work well done. That’s your first piece of bread. Once that’s done, you pile on the shit: the bad news, the less than glowing report, the things your audience doesn’t particularly enjoy hearing. You close with more bread: a blueprint for moving forward, a plan for dealing with all the shit.
I’m quite familiar with the shit sandwich. Hell, I’d taught Reed how to make one. So it was with a peculiar mix of bewilderment and a teacher’s pride that I watched him serve one up to me on a silver platter.
“You don’t think I’m a good CEO,” I said, cutting him off.
“I don’t think you’re a complete CEO,” Reed said. “A complete CEO wouldn’t have to rely on the guidance of the board as much as you do.”
He put his fingertips together and touched them to his chin, as though praying that he could get through what he was trying to say to me. “I think we both know that IVP was only willing to invest in us because I promised that I would be actively involved as chairman. That’s a problem. And it’s not just fund-raising. One of the reasons I’ve been so active is because I’m scared about what would happen to the business if I weren’t. I don’t mind the time, but the results to date have not been sufficient. No one can add enough value from the outside. Especially as the pace picks up.”
For the next five minutes, Reed laid out a meticulous argument for why the company was in trouble, if I were to continue leading it alone. He put forth a clear-eyed assessment of my first year in charge, my accomplishments and my failures. It was like watching a computer play chess, ruthlessly and quickly. His analysis was both detailed and general—it veered from individual hires I’d made to errors in accounting to corporate communications. It all went by in a blur, but one thing he said really stuck out.
“You don’t appear tough and candid enough to hold strong people’s respect,” he said. “On the good side, no one good has quit, and your people like you.”
I had to smile at that. Forget radical honesty. This was brutal honesty. Ruthless honesty.
“Gee, thanks,” I said. “Put that one on my tombstone: He may have run his business into the ground, but no one good quit, and his people liked him.”
Reed didn’t react to this bit of gallows humor at all. He just kept going, like he was reciting something he’d memorized. I’d taken away his slides, but this was a speech he’d definitely rehearsed. He was nervous about delivering it.
“Marc,” Reed said, “we’re headed for trouble, and I want you to recognize as a shareholder that there is enough smoke at this small business size that fire at a larger size is likely. Ours is an execution play. We have to move fast and almost flawlessly. The competition will be direct and strong. Yahoo! went from a grad school project to a six-billion-dollar company on awesome execution. We have to do the same thing. I’m not sure we can if you’re the only one in charge.”
He paused, then looked down, as if trying to gain the strength to do something difficult. He looked up again, right at me. I remember thinking: He’s looking me in the eye.
“So I think the best possible outcome would be if I joined the company full-time and we ran it together. Me as CEO, you as president.”
He waited again. Seeing no reaction, he plunged on. “I don’t think I’m overreacting. I think this is a thoughtful solution to an unhappy reality. And I think the CEO/president arrangement would give the company the leadership team it deserves. We could make history we are proud of for the rest of our lives.”
Finally, mercifully, he stopped, rocked back slightly in the chair, and took a deep breath.
I sat there not speaking, just slowly nodding. That’s what happens when a piano falls out of the sky on your head.
I’m sure Reed wondered why I didn’t see the situation with the same clarity and logic as he did. I knew that Reed didn’t—couldn’t—understand what was going through my head. Thank God for that, because the words going through my head weren’t polite.
I knew that a lot of what he was saying was true. But I also thought that we were talking about my company. It had been my idea. My dream. And now it was my business. While Reed had been off at Stanford and at TechNet, I’d been pouring my entire life into building the company. Was it realistic to expect anyone to get every decision right? Shouldn’t I be allowed to work my way through mistakes?
He wasn’t wrong about those, either. He had a point about some of our missteps, and our future going forward. But my initial reaction to what Reed was saying that day in the office was that it had more to do with him than me. I kept thinking: He’s realized that he made a life mistake. Hadn’t he been bored at Stanford, and dropped out? Hadn’t he been disappointed by his work in education reform at TechNet? He’d skipped the early days of Netflix because he wanted to change the world, revolutionize education—and most of the teachers and administrators he’d encountered just wanted their pay grade to go up with seniority. And now that he saw that the little crazy idea we’d tested together had real potential, he suddenly found problems with my leadership? Was I not fit to run the company alone, or did he just want back in, without the ego hit of being my employee?
I was furious and hurt. But also, even in the moment, I knew that Reed had a point.
What this complex mix of emotions looked like, only Reed knows. But it must have looked pretty remarkable, because even he noticed that he needed to say something nice—to put the top bun on the shit sandwich.
“Don’t be upset,” he finally blurted out. “I have tremendous respect and affection for you. It pains me to be so harsh. There are a million good things about your character, maturity, and skill that I admire greatly. I would call you partner proudly.”
Reed paused again. I could tell there was more coming. How could there possibly be more to say? My head was spinning.
“I need some time to process this, Reed,” I said. “Look, you can’t just come in here and propose taking over the company and expect me to say: Oh, how logical, of course!”
My voice was getting high again, so I stopped talking.
“I’m not proposing that I take over the company,” he said. “I’m proposing that we run it together. As a team.”
There was a pause, a long one.
“Look, I’m your friend no matter how this works out,” Reed finally said, standing up. “But if this is something that you are dead set against, I’m not going to force it down your throat, even though in my position as a shareholder I could. I respect you too much to do that. If you don’t believe that this is in the best interest of the company, and don’t want to go forward this way, I’m fine with that. We’ll just sell the company, pay back the investors, split the money, and go home.”
When he left my office he shut the door quietly behind him, like someone leaving a hospital room. The sun was setting, but I didn’t get up to turn on the light. I sat in the dark until almost everyone had left—everyone but Kho, who ambled in sometime after nine, whistling and drumming his fingers on a grease-stained pizza box.
Radical honesty is great, until it’s aimed at you.
I’m not going to lie to you, or to myself. What Reed said to me that day in mid-September hurt. It really hurt. Not because Reed was being unkind—he wasn’t—but because he was being honest. Brutally, astringently, rip-the-bandage-off honest.
This was radical honesty, the same type that we’d practiced from the beginning, back in my Volvo on Highway 17. Reed didn’t have an ax to grind, or any ulterior motive. He was driven by what was best for the business, and he respected me too much to do anything else but tell the complete, unvarnished truth. He was just doing what we’d always done with each other.
And the more I thought about it, the more the PowerPoint touched me. Was it clumsy? Yes. Was it totally like Reed to try to frame a delicate, emotionally volatile conversation within the safe confines of a series of animated slides—a presentation of a type that I had taught him to deliver? Also yes.
But insulting? No. I could see, now that he was out of the room and I was sitting in the dark, that Reed had been so nervous about giving me honest feedback that he’d needed a prompt, a set of written reminders, something to make him feel like he was on solid ground. He’d wanted to make sure that he did it right. He wanted to make sure he said the things that needed to be said.
They were hard to hear. But it was even harder to admit to myself that Reed was right. I was having problems. Our IVP investment had almost fallen apart because of me—because our new partners knew that without some bold stroke born of dramatic, intuitive, and confident leadership, this company was never going to make it. They had never said it out loud, but it was probably obvious to everyone else in that room that the bold stroke, the dramatic and confident and intuitive leadership, was not going to come from me.
The more I thought about it, the more I realized that my dream had evolved. It had originally been a single dream: a new company, with me at the helm. But sitting in my office, hearing Reed articulate where I was falling short, and listening to him make the case for why the company needed both of us, together, at the helm, I realized that there were really two dreams, and that I might need to sacrifice one of them to ensure that the other come true.
The company was one dream. Me at the helm was another. And if the company was going to succeed, I needed to honestly confront my own limitations. I needed to acknowledge that I was a builder, someone creative and freewheeling enough to assemble a team, to create a culture, to launch an idea from the back of an envelope into a company, an office, a product that existed in the world. But we were exiting that initial stage. Now we were going to have to grow, and rapidly, and that took a different skill set entirely.
I have a pretty good sense of my skill as an entrepreneur. I don’t think I’m tooting my own horn to say that I’m in the 98th percentile. I knew, even then, that I could lead the company as it grew.
But I also knew, even then, that Reed was in the 99.9th percentile. He’s one of the all-time greats. And he was better at this stage of things than I was. More confident. More focused. Bolder.
It was totally obvious to me that when it came to our most pressing and urgent need—money—Reed was better. He’d almost singlehandedly founded a company and had brought it through an IPO as CEO. He was a known quantity. Investors were far more likely to bet on him than me. We’d already seen that to be the case.
I had to ask myself: How important was it to see my dream come true? And was it even my dream anymore? We now had forty employees, each of whom was as emotionally committed as I was to making Netflix a success. They stayed late, worked weekends, missed commitments to friends and family, all in service to something that had begun as my dream—but which, God bless them, they had adopted as their own. Didn’t I owe it to them to do everything I could to ensure that we survived, even if it meant that my role would no longer be the one I’d imagined for myself?
What was more important, my title or their jobs?
I stood up from my desk and walked to the window. I could see the nearly empty parking lot, the flower beds at its perimeter in full bloom, illuminated by the orange light of streetlamps. Tomorrow, by six in the morning, that lot would be filling up with Toyotas, Subarus, and VWs belonging to the people who worked for me. Many of those cars had payments attached to them, and insurance policies. Bills. And in a way, I was responsible for those.
When your dream becomes a reality, it doesn’t just belong to you. It belongs to the people who helped you—your family, your friends, your co-workers. It belongs to the world.
Looking at those cars in the parking lot, I really knew that Reed was right. That the CEO/president arrangement would give the company the leadership it deserved. Would greatly increase our odds of success. Would create a company that we could be proud of for the rest of our lives.
And in retrospect, of course, Reed was right. Netflix might have survived with me continuing on as sole CEO. But you don’t write a book about a company that survives. There is no doubt in my mind that without him assuming more of a leadership role, Netflix would not have become the company it is today. Paradoxically, if I hadn’t relinquished the title of CEO to Reed in 1999, I wouldn’t be writing this book.
The company needed us to run it. Together.
When I’m feeling down, and need to remember moments of courage from my past, I don’t immediately think back to some faraway mountain peak, a dangerous climb, or a treacherous river crossing. I don’t even think back to those mornings in Reed’s car, or the first meetings in Hobee’s, when I was trying to convince talented (and reluctant) people to quit their jobs for a crazy and illogical venture. I don’t think of the original leap of faith, the running start, the hundreds of failed tests with no indication that any of them would ever work.
I think of leaving the office that night. I think of driving slowly home through the empty streets of Scotts Valley, ready to tell my wife that I’d decided I should no longer be sole CEO of the company I’d founded. And knowing that I was doing the right thing.
By now you know that chapters in the Netflix story rarely end neatly, all wrapped up in a tidy red-and-black ribbon. And this chapter is no different. I did make that lonely drive home, and I did sit on the porch with Lorraine for a few hours that night, a bottle of wine between us, as we went through the logic—and emotion—of my decision. And we did ultimately decide that Reed’s proposal was the right thing to do—that I owed it to my employees, my investors, and myself to ensure that the company would continue to be successful, even if it meant stepping down as sole CEO.
But as I finished turning off the lights, and Lorraine carefully loaded our wineglasses into the dishwasher, I sat down at the kitchen table to do a last check of email. Flashing at the top of the in-box was an email from Reed. Time: 11:20 PM. SUBJ: Honesty.
The email summarized and reiterated the afternoon’s conversation. I was sure it was essentially a transcription of the PowerPoint slides. There were bullet points dealing with my strategic sense, hiring, financial controls, people management, and ability to raise capital. Now that I’d had time to think about what Reed had said, it was easier to see it in writing. My eyes scanned to the end: “I sincerely wish things were different, Marc, for both of our sakes, but in my heart of hearts I believe everything I said today to be true.”
Then there was something new.
But in a similar vein it is my best sense that the right thing to do to reflect the change is to re-split our stock options. IVP invested on the promise that we could execute as Chairman/CEO; it is not right to go back to them and say it didn’t work, that we need another 2m options for me.
I couldn’t believe what I was reading. In the sentences that followed, Reed was saying that in order to come in as CEO he needed more options. And worse, he was saying that a big slug of those shares should come from me. That I should give up some of my equity in the company, since we would now be splitting the responsibilities.
“That’s bullshit!” Lorraine shouted, once I had explained to her what Reed was asking for. “You guys started out fifty-fifty even though you were doing all the work, pulling sixty-hour weeks as CEO and he was sitting on his ass as chairman. Now that he actually has to come to the office, suddenly the fifty-fifty isn’t good enough?”
Lorraine was furious, shaking her head so hard I thought she might hurt her neck. I tried to calm her down, but it was a lost cause. “It’s bullshit,” she kept saying. “Bullshit. That’s all.”
After she stomped upstairs to the bedroom, I sat quietly at the kitchen table and carefully closed the lid of my laptop. I knew it would take me a while to get to sleep. There were a thousand things going through my mind—how we’d break the news to the rest of the company, what I was going to say to Reed the next day about the options. How my role would change in the coming months, and how I’d deal with the transition.
The future of the company stretched before me, daunting and open, and although I couldn’t say, that night, that I was at peace with my decision, I knew that I would be, someday soon. I was starting to see how Reed and I could work together to make the company a success. I could practically hear the engine of our collaboration start to hum.