When we began building Netflix in 1997, most people thought we were nuts. DVD players had just started selling in the US in March, and by October we started executing our billion-dollar business plan with only $2 million in seed funding. Even with the dot-com era in full bloom, the idea of renting movies via mail struck most as somewhat ludicrous. Despite the odds and the obstacles, we persevered to create Netflix, which has revolutionized the movie rental industry.

Looking back on Netflix's startup story, five customer-focused lessons stand out as critical in creating this innovative Internet business.

1. Don't let the naysayers get you down

Starting a new company takes a lot of persistence, positive thinking, and a never-say-die attitude. Many experienced people gave us long lists of reasons why our business idea wouldn't succeed.

Why would people wait for movies to come in the mail when they could just go down the street to Blockbuster? How can you cost-effectively mail out movies? Won't they get broken, stolen, or damaged? Seeing the negatives is always the easy part. Solving such problems requires a special kind of creative stubbornness.

One by one, we went through the list of objections and eventually figured out each of them with unique solutions. Our customer research led us to several key customer insights, including the fact that over 60% of customers planned their video rental decisions. They knew what they wanted over a week in advance. We obsessed on our customized mailer packaging, our "per-package" economics, and 1-2 day delivery. The weight (and therefore cost) of the package was critical. We built everything from the ground up, step by step, and always with the end in mind.

We mapped the processing logistics of each package backwards. We started with the intimate knowledge of US Postal Service operations, then customized our software and operational technologies to automate our picking/packing/shipping and finally linked it all to our customer-facing Web site. We defined our operational culture by speed, weight, and daily process improvement. In short, we figured out a way to make it all work. If we had listened too hard to the naysayers and not stubbornly found a way around their objections, there would be no Netflix today.

2. Build operations for a 'wow' customer experience

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ABOUT THE AUTHOR

Jim Cook and Suzanne Taylor: Jim is a Netflix cofounder and managing partner at BenchBoard Financial Management; contact him via jcook@benchboard.com or visit www.benchboard.com. Suzanne is a marketing strategy consultant and coauthor of Inside Intuit; contact her via staylor@serrano.com or visit www.suzannetaylor.com.