Supported by Greenhaven Road Capital, finding value off the beaten path.
Patty McCord wrote, Powerful: Building a Culture of Freedom and Responsibility, a book about her time at Netflix. The book reminded me of my time as a graduate student and the ways higher education is not like Netflix. McCord notes that it’s not the perks that get people to do good work, but interesting problems without too much friction. Grad school had perks (Look, a rec center!), kinda interesting problems and plenty of frictions.
Your intrinsic advantage. One competitive advantage of being an internet company is being an internet company. As Andrew Ng said, a mall with a website is not Amazon. Netflix’s problem was with the DVD queue. It vacuumed valuable resources. Should they keep the queue?
McCord et al. headed to the data center and looked at customer surveys. People wanted it, they said they liked seeing the list of movies coming to them. Okay, ask customers what they want and keep what they want, right?
What if there was a better way? What if a company could measure action, not attitude. Internet companies can. “But A/ B tests showed that it made no material difference in customer retention or the number of movies or shows watched or any of the other hard-data measures of customer satisfaction.”
The customer’s stated preference was X.
The customer’s revealed preference was Y.
This happened at eBay too, said Jeff Jordan. In an attempt to “add layers to the cake” they experimented with the Buy it Now button. The old-schoolers hated it but not nearly as much as everyone else loved it.
When stated and revealed preferences don’t align then having the latter is much more important. This was one of the reasons Kai-Fu Lee said China may surge ahead in AI research. “People’s spending patterns are so much more valuable than their clicking patterns.”
But data are not a silver bullet. Ted Sarandos told McCord, “There is lots of intuition that is acted on, and I look for people for the team who are smart enough to read the data and intuitive enough to know how to ignore it.” Sarandos wants people who know data is backward looking and act like it’s part of history, not an ordained future.
Internet companies get to act their age and move fast and test things.
Culture. If valuable homes are about future location, future location, future location then valuable organizations are about culture, culture, culture. McCord was one of the people who contributed to Netflix’s Culture Deck. She summarized culture to Barry Ritholtz:
Culture is the operating system for an organization.
Good arguments. “Our Netflix executive team was fierce. We were combative in that beautiful, intellectual way where you argue to tease out someone’s viewpoint, because although you don’t agree, you think the other person is really smart so you want to understand why they think what they think.”
But tawk is cheap and actions speak louder than words (as above). At RXBar Sam McBride had his evaluation in front of everyone. At Netflix, executives had to argue in front of others too. And sometimes Reed Hastings inverted their positions.
“He arranged a debate between the two (head of marketing, head of content), onstage, in chairs facing each other, in front of the rest of the executive team. And the really brilliant twist was that each one argued the other’s side. To prep for that, they really had to get into the other person’s skin.”
Good organizations search for the truth and don’t care who gets credit for finding it. Bad organizations search for credit and don’t care if they find the truth.
How do we make money? “But if I could pick one course to teach everybody in the company, whether they’re in management or not, it would be on the fundamentals of how the business works and serving customers.”
For example, what’s the Customer Aquisition Cost and what’s the Lifetime Value? McCord suggests sharing the CAC with customer service representatives so they understand, “each person who becomes a customer on another customer’s recommendation saves the company that amount of money.”
McCord’s attitude has evolved over time. There was one time she spent $100,000 on a Cinco de Mayo party which was, “enormously costly, time-consuming, and unproductive.”
Instead, communicate clearly about the business fundamentals with adults. If you do that, “the less important policies, approvals, and incentives are.” As David Ogilvy said, hire gentlemen with brains.
An example was when an engineer asked about the windowing process; where movies are exclusive to theaters, then hotels, then rentals, then cable. McCord didn’t know why this occurred. But she found out and conveyed why to her staff. That led Netflix to release all their episodes at once.
Windowing is one part of the movie business we looked at in our Pixar podcast:
Thanks for reading.