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Breaking Into the Habit of Transformation - Mitch Lowe, Co-founding Executive of Netflix

27 January 2023

Mitch Lowe – Co-founding Executive of Netflix

During the TM One Leap Summit 2022, we had the honour of inviting Mitch Lowe, a co-founding executive of Netflix as a keynote speaker. This article highlights the key takeaways from his speech.

Since its’ inception, the founders of Netflix have pursued a central and personal mission – to create the most convenient and seamless movie-viewing experience at home. In achieving this mission, they embarked on a decades-long journey which forced them to pivot their businesses, alter business models, and risk stable revenue sources on new products multiple times; decisions which culminated into the Netflix we all know today. What is the secret sauce that pushed Netflix to continuously evolve their offerings?

In his keynote, Mitch shared key moments and lessons from the Netflix journey that allowed them to constantly reinvent the way the world consumes entertainment:

  1. Business leaders who push through the fear of failure
    • At the height of the dot-com bubble in 1998, the first Netflix business model was positioned as “putting a video store on the internet”. During a time of phones being the size of literal bricks, and floppy disks holding only 2.8MB of data at best, the founders were met with immediate resistance, even from closest friends and family. Despite the resistance and hesitance, the founders persevered on their missions and Netflix’s first business model of ala-carte DVD rentals was met with some success, doing about USD10 – 15 million in revenue, at the time.
    • For business leaders, the desire to prove naysayers wrong can be turned into a powerful motivator during tough times. When confronted with doubt, a sense of courage and conviction is critical in steering an idea towards success.
    • At the height of the dot-com bubble in 1998, the first Netflix business model was positioned as “putting a video store on the internet”. During a time of phones being the size of literal bricks, and floppy disks holding only 2.8MB of data at best, the founders were met with immediate resistance, even from closest friends and family. Despite the resistance and hesitance, the founders persevered on their missions and Netflix’s first business model of ala-carte DVD rentals was met with some success, doing about USD10 – 15 million in revenue, at the time.
    • For business leaders, the desire to prove naysayers wrong can be turned into a powerful motivator during tough times. When confronted with doubt, a sense of courage and conviction is critical in steering an idea towards success.
    • At the height of the dot-com bubble in 1998, the first Netflix business model was positioned as “putting a video store on the internet”. During a time of phones being the size of literal bricks, and floppy disks holding only 2.8MB of data at best, the founders were met with immediate resistance, even from closest friends and family. Despite the resistance and hesitance, the founders persevered on their missions and Netflix’s first business model of ala-carte DVD rentals was met with some success, doing about USD10 – 15 million in revenue, at the time.
    • For business leaders, the desire to prove naysayers wrong can be turned into a powerful motivator during tough times. When confronted with doubt, a sense of courage and conviction is critical in steering an idea towards success.
  2. Only do what you can do better than everyone else
    • During the early 2000s, business appeared to be stagnating as customers were not returning to Netflix on a regular basis. A focus group participant mentioned in passing that by the time the rental DVD arrived at his house, he was no longer in the mood to watch the DVD. This statement presented an innovation opportunity to Netflix: how could the company shorten the amount of time between wanting to watch a movie and consuming the movie to almost zero?
    • The answer lay in moving away from the rental business model, which was already saturated with competitors such as Blockbuster. Netflix subsequently pivoted into the subscription model which endures until today.
    • Ultimately, focussing on doing what no one else does and doing it well can be a key growth driver for businesses. By focussing efforts on doing what no one else was, Netflix was able to find a specialty and hone in on it more effectively than other players in the market; ultimately owning the business model and making it signature to the company. Build a market in which no other company can compete with you.
    • During the early 2000s, business appeared to be stagnating as customers were not returning to Netflix on a regular basis. A focus group participant mentioned in passing that by the time the rental DVD arrived at his house, he was no longer in the mood to watch the DVD. This statement presented an innovation opportunity to Netflix: how could the company shorten the amount of time between wanting to watch a movie and consuming the movie to almost zero?
    • The answer lay in moving away from the rental business model, which was already saturated with competitors such as Blockbuster. Netflix subsequently pivoted into the subscription model which endures until today.
    • Ultimately, focussing on doing what no one else does and doing it well can be a key growth driver for businesses. By focussing efforts on doing what no one else was, Netflix was able to find a specialty and hone in on it more effectively than other players in the market; ultimately owning the business model and making it signature to the company. Build a market in which no other company can compete with you.
  3. Be aware of growing trends but stay patient with ideas that don’t immediately take off
    • Along with the pivot into the subscription model, Netflix became aware of the growing appeal of on-demand online media among consumers as the early forms of video and audio streaming consumption began to grow. In the early 2000’s, Netflix developed its’ first streaming product: the “Netflix box”. It would convert internet signals to be compatible with televisions, arguably an early version Smart TV. The set-top box would enable viewers to stream movies and TV shows from Netflix’s then-nascent “Watch Now” catalogue.
    • When pitched to big consumer electronics retailers in 2005, the product was rejected as nobody believed there would be an audience who wanted to watch long-form content on the internet. However, when YouTube and Spotify gained popularity between 2006 - 2008, it rapidly altered the public’s expectations towards online platforms and entertainment, and the market appetite for streaming content began to grow exponentially.
    • It turned out that the public was, indeed, willing to consume content over the internet, but not at the expense of additional hardware. Netflix merely needed to shift away from the “Netflix box” towards creating a reliable streaming software, with higher content quality than their competitors. Thus, Netflix began their venture into streaming and never looked back from there.
    • A keen eye on changing consumer habits and the ability to spot potential gaps to open within markets are vital to driving growth. However, there is merit to having patience and perseverance when ideas are not immediately taken up by customers. While innovation is vital to meeting new customer expectations, timing and patience is important too when launching novel products and services.
    • Along with the pivot into the subscription model, Netflix became aware of the growing appeal of on-demand online media among consumers as the early forms of video and audio streaming consumption began to grow. In the early 2000’s, Netflix developed its’ first streaming product: the “Netflix box”. It would convert internet signals to be compatible with televisions, arguably an early version Smart TV. The set-top box would enable viewers to stream movies and TV shows from Netflix’s then-nascent “Watch Now” catalogue.
    • When pitched to big consumer electronics retailers in 2005, the product was rejected as nobody believed there would be an audience who wanted to watch long-form content on the internet. However, when YouTube and Spotify gained popularity between 2006 - 2008, it rapidly altered the public’s expectations towards online platforms and entertainment, and the market appetite for streaming content began to grow exponentially.
    • It turned out that the public was, indeed, willing to consume content over the internet, but not at the expense of additional hardware. Netflix merely needed to shift away from the “Netflix box” towards creating a reliable streaming software, with higher content quality than their competitors. Thus, Netflix began their venture into streaming and never looked back from there.
    • A keen eye on changing consumer habits and the ability to spot potential gaps to open within markets are vital to driving growth. However, there is merit to having patience and perseverance when ideas are not immediately taken up by customers. While innovation is vital to meeting new customer expectations, timing and patience is important too when launching novel products and services.
  4. Encourage a culture of innovation and improvement across the entire company
    • Netflix’s pivot into streaming, and creating a superior product compared to their competitors effectively cemented the company’s position as a market dominator. However, the challenge remained in keeping customers loyal to Netflix. The key to maintaining a loyal customer base then lay on making small innovations which improved the streaming experience. The platform’s features such as the “Skip Intro” and “Next Episode” button have now become mainstays of the streaming experience, even amongst competitor streaming platforms.
    • These features were not conceptualised by specialised teams. Many of the smaller features were ideas from those outside the development team, such as a warehouse worker. The culture of the company was built on a desire to make the platform better, across all employees.
    • Netflix understood that the innovative spirit could come from anywhere and anyone, but only if the environment allowed for ideas to be freely shared and explored. Nurturing cultures that are open to suggestions and critiques with the honest interest of product improvement is insurmountably useful in enabling companies to constantly innovate and transform.
    • Netflix’s pivot into streaming, and creating a superior product compared to their competitors effectively cemented the company’s position as a market dominator. However, the challenge remained in keeping customers loyal to Netflix. The key to maintaining a loyal customer base then lay on making small innovations which improved the streaming experience. The platform’s features such as the “Skip Intro” and “Next Episode” button have now become mainstays of the streaming experience, even amongst competitor streaming platforms.
    • These features were not conceptualised by specialised teams. Many of the smaller features were ideas from those outside the development team, such as a warehouse worker. The culture of the company was built on a desire to make the platform better, across all employees.
    • Netflix understood that the innovative spirit could come from anywhere and anyone, but only if the environment allowed for ideas to be freely shared and explored. Nurturing cultures that are open to suggestions and critiques with the honest interest of product improvement is insurmountably useful in enabling companies to constantly innovate and transform.
  5. Combining innovation with actionable data
    • Small innovations came from everywhere within the company, but the engineering and development team also created several ground-breaking innovations to the Netflix service. The most notable innovation was the team’s initiative to analyse every frame of every content being viewed by a user, which would determine a user’s experience. For example, if a viewer was on a low-bandwidth internet connection, Netflix’s algorithm would adjust to a different version of the content best suited to the user’s environment to ensure the smoothest viewing experience.
    • 10 years ago, when streaming first began gaining popularity, the active collection, usage and analysis of data to improve on a user’s experience was considered a breakthrough. Today, the practice has demonstrated its’ value across several industries and verticals within businesses. Businesses are inundated with data, but a core principle regarding data remains relevant and valuable – the ability to identify relevant, useful data and turn it into actionable improvements to the user’s experience will endure as a powerful tool for businesses.  
    • Small innovations came from everywhere within the company, but the engineering and development team also created several ground-breaking innovations to the Netflix service. The most notable innovation was the team’s initiative to analyse every frame of every content being viewed by a user, which would determine a user’s experience. For example, if a viewer was on a low-bandwidth internet connection, Netflix’s algorithm would adjust to a different version of the content best suited to the user’s environment to ensure the smoothest viewing experience.
    • 10 years ago, when streaming first began gaining popularity, the active collection, usage and analysis of data to improve on a user’s experience was considered a breakthrough. Today, the practice has demonstrated its’ value across several industries and verticals within businesses. Businesses are inundated with data, but a core principle regarding data remains relevant and valuable – the ability to identify relevant, useful data and turn it into actionable improvements to the user’s experience will endure as a powerful tool for businesses.  

As businesses continue its’ rapid expansion into the digital world, many business leaders may feel that the landscape has become incredibly crowded and impossible to compete in. However, truly making a difference in the world and providing great services still hinge on tried-and-true traits. Business leaders need courage, the ability to find a gap in the market and fill it better than anyone else, patience, an innovative and supportive team, and the ability to turn customer information into better experiences. These may not be new tips, but they have indeed proven to be valuable to Netflix and certainly, to many other titans of business out there.

Visit www.tmone.com.my for more information on how TM One’s digital and smart solutions can enable and accelerate your Next business innovation and transformation

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