Please enjoy this transcript of my interview with Marc Randolph (@mbrandolph), best known as the co-founder and first CEO of Netflix, though his career as an entrepreneur spans more than four decades. Marc has founded or co-founded half a dozen other successful start-ups, including, most recently, Looker Data Sciences, which he sold to Google in 2019 for $2.6B. He is currently mentoring a handful of other early-stage companies and advising hundreds of other entrepreneurs. He is also an active seed investor in start-ups all over the world, author of an internationally bestselling memoir, and host of the new podcast That Will Never Work, where he dispenses advice, encouragement, and tough love to struggling entrepreneurs.
When not surfing, mountain biking, or back-country skiing, Marc is a frequent speaker at industry events, works extensively with young entrepreneur programs, sits on the board of the environmental advocacy group 1% for the Planet, and chairs the National Outdoor Leadership School‘s board of trustees.
Transcripts may contain a few typos. With some episodes lasting 2+ hours, it can be difficult to catch minor errors. Enjoy!
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This interview was transcribed by Rev.com.
Tim Ferriss: Hello, boys and girls, ladies and germs. This is Tim Ferriss. Welcome to another episode ofThe Tim Ferriss Show, where it is my job to interview and attempt to deconstruct world-class performers from all different avenues, all different areas of life, whether it be business, military sports, or otherwise. Now, today we have a very special guest, although he is best known as the co-founder and first CEO of Netflix, Mark Randolph’s story has a lot more to it. His career as an entrepreneur spans more than four decades. He’s founded or co-founded half a dozen other successful startups, including most recently Looker Data Sciences, which he sold to Google in 2019 for 2.6 billion, that’s with a B, billion dollars. He is currently mentoring a handful of other early stage companies and advising hundreds of other entrepreneurs.
He is also an active seed investor in startups all over the world, author of an international best-selling memoir, and host of the brand new podcast, one of my favorites titles for a podcast I’ve seen in a long time, That Will Never Work, and we’re going to talk about why that has some relevance to a lot of his story. In that podcast, he dispenses advice, encouragement, and tough love to struggling entrepreneurs. When not surfing, mountain biking, or backcountry skiing, Mark is a frequent speaker at industry events, works extensively with young entrepreneur programs, sits on the board of the environmental advocacy group [1% for the Planet]. I’m laughing, folks, because I just retook that about 17 times, and chairs the National Outdoor Leadership School’s board of trustees. You can find him everywhere on Instagram: @thatwillneverwork, Twitter: @mbrandolph with a P-H, Facebook at marcbrandolph, LinkedIn: marcrandolph, and website, where I’m sure you can find everything, markrandolph.com. Marc, welcome to the show.
Marc Randolph: Well, thanks, Tim. That was quite a mouthful, and I struggle with advocacy group as well, too. So don’t worry about that.
Tim Ferriss: Too many consonants and vowels. So I want to start perhaps in the midstream of your chronology of sorts, a little in the earlier chapters, and that is at 21 years old. So you were kind enough to send some notes to me, but they’re sufficiently cryptically written that I don’t know any of the story, which is perfect. That’s what I like. This alludes to surviving on the streets of Hartford, Connecticut for three days without money, watch, wallet, food, et cetera. Can you please tell me the story?
Marc Randolph: Yeah, it’s an experience that probably you wouldn’t find happening today; it begins verging on something almost illegal. But I was working at the time for a program which took young people from urban backgrounds, sometimes adjudicated youth, as they call them. We used to call it hoods in the woods, but took them out into the back country to try and really stress them a little bit and help them learn about themselves. And it was a pretty powerful experience for them. And as the training for us, they wanted us to have an experience where we felt similarly disoriented, so that we could understand what they were going through. And of course, all of us were pretty comfortable campers, hikers, backpackers, so they had to find something a little different, and the experiment they came up with involved taking us to an urban area — for me, it was Hartford, Connecticut — taking away our watch and our wallet and our ID, and dropping us off on a sidewalk at about 10:30 in the morning and saying, “We’ll be back for you in three days.” And they had us write an emergency phone number on our arm with a Sharpie, just in case, and we were on our own.
Tim Ferriss: Dog tags, but cheaper.
Marc Randolph: Exactly. But listen, I was probably more likely to chew my arm off than I was to call that phone number. I was going to make it through this thing. It was pretty fun for a while. And then of course, being a 21 year old, you begin getting hungry. So your first chore is to find food. And my first tactic was, it’s a little embarrassing even to say this, but I would go to the food court and I would hover until I saw someone get up from their plate and walk away with food still on it, and then like a seagull, I would swoop in and finish the food on their plate.
And that worked. And then, I began saying, “Listen, I should maybe cut out the middleman. I wonder if I can get some money and I can buy my own food.” And I came up with the idea that I would panhandle for it, and I thought to myself, “Well, how hard could that be?” And the answer is: really hard. And I don’t know Tim, whether you’ve ever had to walk up to a stranger and put your hand out and ask for spare change, but there is something deep in us in our pride that makes that really, really hard, and I tried for hours before I’d get up the courage to even make my first ask. And of course, the person just looks down and walks past you, and you just feel like nothing. But little by little, you begin to hone the ask. What do you say? How do you approach someone? What kind of person do you think is more likely to give you money? And after a handful of hours, I kind of had gotten the hang of it.
And the interesting thing, what worked for me, was complete sincerity. At the beginning, I was trying bullshit. “I’ve lost my wallet. I had it taken from me.” And after a while I just walked up to people and say, “Can you spare some change? I am really hungry.” And they could see it in my eyes and see it in my face, and that ended up being the most effective thing. And I have never, ever forgot that experience of begging for spare change on the streets of Hartford, Connecticut, because as an entrepreneur, it’s part of the job description that you’re always asking for money. And I just have to say that when you have begged for spare change on the sidewalk that asking a VC for $50,000 is nothing.
Tim Ferriss: That is a great story, number one. Number two, if you’re ever a professional wrestler or MMA fighter, I think Marc ‘The Seagull’ Randolph is a great option for you. And even as early as the panhandling experiment days, you were already split testing, and I think we’re going to come back to that, but I want to first go to the wilderness experiences, or those types of experiences that you alluded to. Was that organization the National Outdoor Leadership School, or was that a different organization at the time?
Marc Randolph: Yeah, that was a different organization. My summers all through late high school and certainly all through college, I would spend three months a year, basically leading either going on or later, leading these back country expeditions. And two months of the year, I would do them for the school called the National Outdoor Leadership School. And then one month a year, I would do it for an organization called the Wilderness School. And that was the one that was actually not done in the Rockies like NOLS was, but it was done on the East Coast, in the Berkshires and the Catskills, and that was the program that was for the adjudicated youth where I had to do the Hartford urban immersion program.
Tim Ferriss: What did you take from NOLS, and maybe you could elaborate a bit on that experience of the National Outdoor Leadership School. What did that provide you?
Marc Randolph: Just to jump to the punchline, pretty much that taught me almost everything I know about leadership, and it was a very special way of learning leadership. And just for some quick background, for those who have never heard of NOLS, it’s a leadership school, but it uses the wilderness as that classroom. And the format, although course lengths are different, are pretty basic, was they take a handful of people. They bus you to a trailhead, they drop you off, and off you go, and you’re out in the mountains for 30 days and there’s no contact. You’re not coming back into town. You’re a self-contained group. And then, you get picked up at the end of that 30 days, and the course is done.
But the learning methodology here is, each day, they break the group, which might have 12, 16 students, into small groups, three or four, and they appoint a leader of the day. And the leader of the day has responsibility for that group. What time they’re going to leave in the morning, what the route is going to be, when they’re going to stop for lunch, how long the rest breaks are going to be, whether they stop when someone’s complaining about a blister or say, “Let’s push on,” and trailing behind you, of course, is one of the instructors, one of the leaders of the whole group, but they’re not saying anything. They’re just watching and trying to make sure you don’t end up being eaten by a bear or falling in a river. But I started doing that as a student when I was 14 years old, and this was this opportunity to have real leadership responsibility, to make real decisions with real consequences.
But the most incredible part was, you found out, hours later, the results of your decision-making. You found out what happens if you don’t leave until 10:30 or 11:00 in the morning. You found out what happens if you let the break linger for an hour and a half for lunch. You find out what happens if you take the wrong trail. And you begin learning even more subtle things, you learn how to communicate with your group, how to communicate with confidence and clarity, decisions about things that you’re really not that confident or clear about, when you need to ask your group for input, and when you don’t. And I was learning that when I was 14.
And each time you do that, you’re given a bit more responsibility, and I ended up coming back and being an instructor for the school. So all of a sudden, I had a higher level of leadership, and eventually I was a course leader where I was in charge of the entire group for the 30 days. And so for me, by the time I actually entered the workforce, became an entrepreneur with real stakes, I had been doing those things already for years, and it was this chance to learn leadership by doing it, not by studying it, not by talking about it, but by actually doing it, and that ended up being the most incredible preparation for the career that I ended up choosing.
Tim Ferriss: Several follow-ups here, because I’m fantasizing about John Rambo, First Blood, developing my skills, not just communication, but practical wilderness skills. That’s partially tongue in cheek, but not entirely. Does the National Outdoor Leadership School offer programs, or extended programs, so not just a long weekend, but a week or two, for adults? I remember when I was working on one of my books, looking at different schools, like BOSS, the Boulder Outdoor Survival School, and I’m sure NOLS, if it has an adult program, for an adult who would want to experience something like this, are there options that you’re aware of?
Marc Randolph: Absolutely, because you can learn leadership at any age. And certainly, the format is slightly different, but there’s courses, which are, for example, as short as three days, there’s courses that are as long as an entire year, there’s semesters. The one I described is the core offering, which is one month, but of course, it’s unreasonable to expect an adult who has a job and a life to detach for an entire month. So yes, there’s great programs for adults, and they’re given not just in the United States, but all over the world with varying degrees of difficulty, depending upon what your physical appetite is for that type of thing.
Tim Ferriss: Let me ask you about communication, because you mentioned communication and how much that changed your communication with groups about decisions, say, throughout this entire process. And it makes me think of Warren Buffett, who will often say that his best investment was in a Dale Carnegie course on public speaking, because it puts everything else that you do on steroids if it’s done well. How did your communication change over time when communicating these decisions? In other words, if you were to look at the before shot, you have some audio of your first maybe awkward attempts at communicating, and then you flash forward a few years and look at the after, could you give us an example or describe how those would be most different?
Marc Randolph: Yes, certainly. You’re actually very astute to pick up that leadership is a hugely communications driven thing. And people are looking to you to, as I said, communicate with some confidence and clarity where we’re going, and there’s lots of ways to do that. And one of the things that experience teaches you, one of the things that NOLS teaches you, is that we all have different leadership styles, and you have to find a leadership style that works for you. Some leaders work much better by leading from the front, so when they’re communicating, it’s really, “Here is what we’re going to do.” But other leaders are much more collaborative. They’re one of those leaders where it’s never quite clear who’s making the decision, because they’re so good at soliciting opinion, and having it come out as a group opinion. It’s also leadership is highly situational.
If we’re just going for a hike, I’m more than happy to sit, and let’s talk about where we’re going, and what do you think, and how’s everyone feeling today? But listen, when the shit hits the fan, when things are really nasty, when you’re high on a peak, when the weather’s coming in, there is no time for that. In that case, you have to shift and realize, now I have to basically say, “Do this now,” and that people recognize in my voice, the urgency of this, that there’s not time to challenge this. There’s not time to question this. If we don’t go now, someone’s going to get hurt. I’ve spent pretty much my entire life continuing to work on communication skill.
When I look back at college, the two most valuable classes that I took was a writing class and a public speaking class, and I use both of those skills almost every single day. And I’ve also realized that you never, and are never, finished getting better at them. Writing a book, wow. That required all kinds of understanding of how much more complex this was than I ever imagined, and all the things that I had to learn. And as I began getting into public speaking six or seven years ago, where I had to do this, not in front of five or 10 people, but in front of 5,000 or 10,000 people, it just steps it up incredibly. But that’s what’s fun. Learning a craft, that’s the best.
Tim Ferriss: Let’s hone in on what appears to be one of your superpowers, and certainly craft, and that is split testing, iterating. We’ve talked about the panhandling, and as also an aspiring busker, so not only do I want to be John Rambo, but also busker at some point who drums on the sidewalk for money anonymously, pseudonymously at some point.
Marc Randolph: I see a reality show in that somewhere, Tim. I do. The Masked Busker. Oh, my God. Is that Tim Ferriss drumming?
Tim Ferriss: If I’m looking for other ways I can self immolate publicly, I will definitely jump on more reality television. But when did you first cut your teeth, or how did you most effectively cut your teeth professionally? And you can take that in any way that you like with split testing and iterating. Maybe you could explain what that even means for people who may not know the term.
Marc Randolph: Sure, and this goes way back to the very roots of entrepreneurship. Probably the first thing I did was, I did candy arbitrage, where basically you recognize, “Wow, I can buy a bag of candy for a dollar, with 20 pieces in it, and I can sell each of them for a dollar at school.” And you realize that there’s this opportunity, and you jump in. That’s what I did when I was probably in fourth or fifth grade. But the iteration comes from, “What can I get away with?” At first, you buy it for 10 cents and sell for 20, and you go, “That was easy. Maybe I can sell it for $2.” And of course, it doesn’t go so well, but little by little as you keep trying different things, you hone in on the one that actually has the best return for you.
I also sold American seeds, which is probably the closest thing that America had to indentured servitude back in the ’60s when I did it, where basically you went door to door selling seed packets. And if you sold 7,000 or 8,000 seed packets, you could win a 15 cent whistle or something like that. But nevertheless, I was into it, because I’d go up to the door and I’d pitch it, and it wouldn’t work. And then, I’d have to try at the next door. And little by little, again, you’re trying different things. And what happens if I say, “I’ve put together a combo pack,” or, “If you buy three, I’ll throw in a fourth for free.” And each trying all those little things to find out which ones work best, which ones work best for you, which one works best for the product you’re trying to sell.
We can jump into this. This is a big piece of my life. Before I really became a tech entrepreneur, I was a direct marketing guy, junk mail, direct response television, catalogs, mail order, magazine circulation, and that is entirely about testing things, trying different things and seeing which ones work, which ones don’t, and for ones that work, what works better.
Tim Ferriss: I’ll share something that I don’t think I’ve ever shared publicly before. One, people may have heard, which is I, in college, applied to a few different jobs. One was Trilogy Software, which I was very excited about. Didn’t get the job, ultimately. The other one that I was excited about, which I also did not make the final cut for, was working at Capital One. Capital One, for people listening, you might recognize that associated with credit cards. At the time, they were one of the most sophisticated direct mail outfits. They were extremely analytical and very, very good at split testing. And I, as someone as a kid who had terrible insomnia and watched lots of infomercials, was fascinated by all of this iteration and the idea that you could, over time, determine exactly what worked and exactly what didn’t. Could you speak to a credo, a quote of yours, that is a sharp contrast with, “There are no bad ideas?” It is, “There’s no such thing as a good idea.” Could you speak to that, and also maybe give us examples of some ideas that started off really bad in your life?
Marc Randolph: I’m not even sure where to start with. There’s such an overwhelming collection of bad ideas. Over time, I’ve migrated, and I’ve moved from thinking, “There’s no such thing as a bad idea,” into, “Well, yeah, there are some bad ideas.” And now, I am firmly convinced there’s no such thing as a good idea. Every idea is a bad idea. No idea performs the way you expect once you collide it with reality. And the more I learn, the more I believe that it’s true. And what that has forced me to do is say, “I’ve got to stop thinking about things and I’ve got to just begin doing them, because that’s the only way I’m going to figure out whether it’s a good idea or a bad idea.” And that’s hard for us. It’s hard for people, because people don’t like to fail.
They want their experiments to work, and so they do this terrible thing where you keep it in your head, where it’s safe, and where it’s warm, and where you can embellish it, and it’s a great idea, as long as it’s all imaginary and in the safety of your head. It can grow and you can add on divisions and you can pivot it into new areas, and you’ve built this huge castle in your mind. And then of course, if you ever decide to do it, of course, it’s way too big and too complicated to do. So it’s all about taking these bad ideas and colliding with the reality as quickly as possible. And I will give you the classic, classic idea, and this is actually the Netflix beginning, and it came from when my Netflix co-founder, a gentlemen named Reed Hastings, and I, were both out of work trying to figure out, what do we do next?
And I knew at that point that I was going to start another company and Reed was going to go back to school, but he was going to fund this startup we were going to do. We had to find the idea together. And there’s a bunch of crazy ideas, which I probably should go into with you. Actually, I’m going to take a second and do it, if that’s okay. I want to tell you some of the crazy ideas that actually might’ve been Netflix, because they’re examples of bad idea, good idea, who knows? So one of them was personalized shampoo where, and I had this great idea, and I pitched Reed that, “Okay, here’s how it goes, Reed. You’re going to cut off a lock of your hair. You’re going to mail it to us, and then our team of ace hair scientists is going to formulate a custom blend just for you, and then you’re going to subscribe to it.” And then Reed thought that was pretty stupid, so that didn’t go any further.
So then the next day in the car, I was carpooling to work with him, I go, “Okay, here’s the next one. Custom dog food. We’re going to formulate a custom blend just for your pet, for its breed and its gender and its activity level or its climate or whatever,” and he didn’t like that, either. And then, the other one was video rental by mail. And that wasn’t quite as bad, because video rental was a $6 billion category. But the problem was, this is 1997. Video rental was on VHS cassette. And you may remember, it was big and awkward and expensive. And we bagged that one. And now, here’s the thing I was talking about about, good ideas, bad ideas. We one day heard about this technology called a DVD, and we were in the car talking about DVDs, and it’s small, and it’s light, and it’s thin, and then the idea popped in our head that maybe, we could mail DVDs to people, that this might dust off that old video rental by mail idea.
But rather than saying, “What a good idea, let’s do some research,” rather than rushing to the office and working on a business plan, rather than putting together a pitch deck, we just turned the car around mid-commute and drove back down to the town we lived and tried to buy a DVD. And of course there weren’t any, it was in test market, so we bought a used music CD and mailed that to Reed’s house in Santa Cruz for the price of a postage stamp. And the next morning, we learned, is it a good idea or a bad idea? Because he had gotten this CD, that had got to his house in less than 24 hours for the price of a postage stamp. And that was a way of knowing, is it a good idea or a bad idea? And I have seen that play out a thousand, if not a thousand, a million times. We are constantly surprised. The one you think is great is terrible. The one you think is terrible is great. It’s impossible to know until you try it.
Tim Ferriss: So personalized shampoo, custom dog food, were there any non-negotiables, or non-negotiable aspects, characteristics, of the ideas that you brainstormed? So for instance, listening to just the very short list, one of the questions that popped into my mind was, what percentage of these businesses that you’re brainstorming were subscription-based? Was that a prerequisite? Were there any prerequisites, or was it all just blank slate?
Marc Randolph: I think you’ve touched on one of the greatest ironies of the entire Netflix story, I think. Yes, there was absolutely prerequisites. And just to back up the story a hair, I mentioned earlier that I had spent 15, 20 years as a direct marketing guy. I had done everything in direct marketing. I had done catalogs, I’d done mail order, I’d done magazine circulation. In other words, subscription business. And so in 1996, ’97, the internet was just starting to take off, and there was this little company called Amazon, which was actually starting to show some promise in selling books. I immediately, immediately saw that this was incredible. This was direct response on steroids. This was the most incredible tool for someone who was a direct marketer. And so, one prerequisite absolutely was, I was going to do e-commerce. One of these ideas, it had to involve selling something on the internet.
The second prerequisite, as you probably picked up from the personalized shampoo, custom dog food, another one was custom sporting equipment, like bats or surfboards, was that I wanted it to have a high degree of personalization. I had been at the cutting edge of direct mail personalization, but that was lame. The best we could do was, “Dear Tim Ferriss. Won’t all your friends and neighbors at 27 Crescent Circle…” it was just so ridiculous. And I immediately saw that with the internet, we could create a custom page just for you. So that was a prerequisite. And yes, I wanted subscription. I wanted a recurring revenue business model. I wanted to sell once and then just fight to deliver product everyone wanted to keep. And this great irony is that Netflix started without subscription. I thought, “There’s no possible way I can do a subscription business in video rental by mail.” But it was so compelling on the other dimensions. It was so compelling in terms of personalization, in terms of what we could do as an online site relative to what a bricks and mortar store like Blockbuster could do that I decided this was worth pursuing, even though it didn’t have subscription.
And just to get the punchline here, that the reason that the book was called That’ll Never Work, the reason that the blog is called That Will Never Work is because that is what every single person I pitched that idea told me. My investors, my employees, my wife told me, “That’ll never work.” And they were right. It didn’t work. And it took us a year and a half of one failed experiment after another, one test after the next. And the thing that eventually turned it around was subscription. Kicking myself even now.
Tim Ferriss: Yeah. You guys had due dates, late fees, it was all a la carte.
And you iterated. What did the approach to iteration look like? In other words, did you have a system? I think a lot of people test, but it’s in a pretty ad hoc way. Maybe they keep good records, maybe they don’t. How did you approach these tests over a year and a half?
Marc Randolph: Well, it evolved. And it evolved pretty quickly. We launched this great excitement, it was April of 1998. So 23 years ago. Wow. And almost immediately realized there was good news and there was bad news. And the good news was we had a $100,000 month, but it was all selling DVDs. And that was kind of almost an afterthought of selling DVDs. And the rental was sucking wind. We were doing, what? Two percent of our revenue in rental. Because nobody would do it. And we go, “Okay, we’ve got to try some new things to try and unlock this rental business.” And the problem wasn’t that I didn’t have ideas of things I wanted to try. I had tons of ideas. The problem is that back then I was a bit of a perfectionist. And so the tests we put together would be these mini works of art.
We’d do custom photography, or we would lovingly craft and argue all the copy. We would spell check it and have copy editors review it. And we would stress test the site and check every link. And as you can imagine, that would take two weeks to put together. And then the test would fail. And we’d look at each other and say, “We just wasted two weeks.” And we’d say, “Okay, faster.” And we’d cut some corners and do a test a week. And it would fail. And then we’d cut some more corners and we’d begin to do a test every other day. And then pretty soon a test every day. And soon we were doing four and five tests in the same day. And as you can imagine, they’re getting pretty sloppy by then. There’s misspellings, there’s the wrong image, the watermark is still in it. We’re crashing the site and the links don’t work. I mean, it is so sloppy.
But this learning, it was incredible because we realized it didn’t make a difference. That no matter how crappy this test was, that it was still going to surface things. So in other words, if it was a bad idea, even these beautiful two-week tests didn’t make it a good idea. But if we had stumbled on something interesting, even with these unbelievable mistakes and crashed sites and dead links, people still would raise their hand. They would shine the spotlight. They would call us, they would come to the door. And then you saw as plain as day what was working and what you had to then fix. And it always surprised us.
And so this insight informed everything from then on. And this insight was that it was not about having good ideas, it was about building this system and this process and this culture for testing lots of bad ideas. And Netflix has never turned back from that. I’ve never turned back from that. I’ve realized that the key to being successful is not how good your ideas are, it’s how good you are at being able to find quick, cheap, and easy ways to try your ideas. That’s what I look for now in entrepreneurs, that’s what sets apart the good ones from the mediocre ones.
Tim Ferriss: So let’s double click on that because this is exciting territory. So if we just grab sort of an analogous, let’s say it’s a comparison, it’s a metaphor, choose your word, but in the world of science, scientific research, the scientific method, really, it’s science per se, isn’t this kind of god with a lab coat on, but the scientific method is a way of testing hypotheses. But the scientific method itself doesn’t generate good hypotheses. Right? So there’s something to be said for certain assumptions that are made, certain assumptions that are tested, that come up then with the ideas or the statements to be tested.
And when I’m listening to you describe this story, I would imagine there are many entrepreneurs who, after a period of time, when they look at their revenue breakdown and they see 98 percent DVD sales, two percent DVD rentals, they say, “You know what? Great. We’re going to double down on DVD sales because that is the signal we are getting. That is the product market fit that we are seeing.” And they would have become the, I don’t remember the exact name, Columbia Records or these various outfits that would sell music by mail, right? So you’d become the equivalent or sort of the Amazon of DVD sales. Why didn’t you do that?
Marc Randolph: Doing a startup is kind of like riding a mountain bike downhill, which you’ve got to spend 95 percent of your time staring five to 10 feet in front of you. But every so often, you’ve got to look up and see where you’re going. And we were basically struggling to hang on to doing that $100,000 first month. But every time you looked up, you did not like what you saw. Amazon, which right then was just selling books, had made no secret of the fact that they wanted to be the everything store. And we knew that the next category they were going to go into was music and movies. We knew that pretty soon once DVD got a foothold, that Walmart would begin selling DVDs, Kmart would begin selling DVDs, that PetSmart would sell DVDs, that everybody would be selling DVDs. And we didn’t think we could or want to compete in what was essentially going to be a commodities business.
So the challenge was wow, how do we get out of this? How do we jump from a dead end business, which is paying all of our salaries so we can ride it for a while, but how are we ultimately going to make the rental part successful? Because that’s the only one which we think we can sustainably maintain. And the challenge here was doubly bad because doing both things at the same time was really nasty. I mean, selling and renting was confusing to customers. It was really hard to describe what we did clearly. And operationally, it was complicated. I mean, the checkout process was really complicated. Our metrics and analytics were all confused. The warehousing, the inventory. And the insight that came here was that we couldn’t do both. That if we were going to be successful, we had to pick one of them.
And so the challenge for us was which one? And as you mentioned, the temptation, the easy path, was basically to say, “Well, let’s stick with sales. It’s paying 98 percent of our revenue. We’ll figure it out.” But on the other hand, if we could get rental to work, that could be a huge business. And one that we could probably own because it was so operationally complex because the margins are so good.
And it points to this other incredibly important attribute for entrepreneurship besides this predisposition to action that I was talking about earlier, which is courage. You have to have the willingness and the confidence to walk away from sure mediocrity to bet everything on the long shot of a big success. And that’s just balls. You’ve got to say, “I’m going to bet we can figure this out. And so let’s bet.” And in Netflix’s case, we did that. We, almost six months in, decided that all the things that were happening with sales was just making it harder. And so we stopped in a single day and walked away from 98 percent of our revenue. And said, “If we’re going to make it, we’re going to make it as a rental company.”
Tim Ferriss: Was part of that predicated on thinking of your, this is not quite the right term, but kind of exit strategy in the type of business you were building in so much as thinking about kind of go big or go home? This is either going to be a publicly traded company, or it’s going to be zero. This is not a lifestyle business. We don’t want a lifestyle business. Therefore, we’re going to bet on this. We’re going to bet on that two percent. We’re going to bet that we can turn that into 100 percent. Was any of that predicated on the possible outcomes that you had seen as your menu of options?
Marc Randolph: I wish you could have seen my face as you were asking that question because I sincerely don’t think that ever crossed my mind one way or the other. Seriously. I never was thinking, “Oh.” There never was an exit strategy. I never, at Netflix or any of the other proceeding startups that I did, thought about that. This was all about solving a really interesting problem. And the path to solving that really interesting problem led through having to be willing to walk away from the sales because that was not helping us solve the big problem.
There are realities to the business, of course. You need financial permission to keep going. But I certainly wasn’t thinking, “Oh, mediocre success could be a nice lifestyle business.” Because it was more. I was caught up in the excitement and intellectual stimulation of saying, “Wouldn’t it be incredible if we could figure out a new model using the internet to be a better way for people to rent movies?” And that’s what I thought about every morning when I came to work. That’s what I thought about all day. That’s what I thought about when I went home. And that doesn’t lend itself to thinking, “Oh, I could probably get out easy here. Or I could return money to the investors and go home.” Never part of the plan.
Tim Ferriss: How did you think about naming the company? What were some of the best worst ideas that you or anyone else had?
Marc Randolph: Yeah. Naming a company is brutally hard because the criteria for a good name has a lot of elements to it. I mean, for one, you’d like something that was evocative of what you were trying to do. You want it to be easy to spell. You want it to have the .com available and maybe the .biz and whatever the other possible things. You want to make sure you can also get alternate spellings. You want to make sure it doesn’t mean some terrible obscenity in Lithuanian. You want to make sure you can get a trademark. Now you need to make sure, can I get the Twitter handle? Can I get Snap? Can I get TikTok? I mean, you need to cover all these bases. And it’s really hard now, and it was really hard then.
And it’s so hard that, well, so when you start, when you found the company, when you actually incorporate, and you say, “Okay, now I’ve got to begin paying people. I need to have checks. I need to enter into contracts.” You’re not ready to go through that huge uphill battle to figure out your name. You just come up with what’s called a beta name. It’s the name you’re going to use while you’re kind of getting ready to launch. And our beta name at Netflix, this is kind of a little Netflix trivia, was actually called Kibble. We were kibble.com. Like the dog food.
Tim Ferriss: You’d been infected by the custom dog food idea. That’s great.
Marc Randolph: Well, yeah. And I just happened to own Kibble. Probably because I was so excited about the custom dog food idea. But the thing is when — I had a person who was one of my early investors at Netflix, as a matter of fact, but on a board, but also a friend of mine who I had done a startup with in the past, who gave me the advice. And he said, “Marc, when you’re picking your beta name, pick something so bad that when you finally get to the point you’re trying to pick your real name and you’re really struggling, you won’t be tempted to use your beta name.” So that was the other advice.
Tim Ferriss: It’s good advice.
Marc Randolph: So we were struggling as, of course. So we’re getting to the end. We’re getting probably only at two or three weeks away from launch. And we still don’t have a name. And so we go, “Okay, we’re going to have to force this one.” And we got everyone in a conference room and we, on a whiteboard, made two columns. And in one, we brainstormed every possible word that was evocative of the internet. Net and web and E. And in the other column, we brainstormed words that were evocative of video or rental. And then began drawing all the criss-crossing lines between them. And some of them were, I thought, pretty good. My favorite, actually, was replay.com, which I thought, “Oh, that’s pretty cool.” But replay was available, but it cost $40,000. And they may as well have quoted me $40 million at that point. I wasn’t going to pay $40,000 for a domain name.
Another one was cinemacenter.com. And then we had all the other variations. We had web flicks, we had Netflicks with a C-K-S, we had all these crazy names. And Netflix was far and away no one’s favorite. And I don’t know whether you remember this, Tim, but back in the ’60s and ’70s, the nickname for porno used to be a skin flick or skin flicks. And everyone was going, “Oh, we can’t call it flicks. And that X. That X is even worse.” But after awhile, you’re going down the list and you go, “I can’t get the domain name. It can’t get the trademark. This is already being used in Canada.” And then finally you go, “Okay, listen, we’ve got to make a decision.” And Netflix was a little porny, but it was the best we could do.
Tim Ferriss: And I just want to underscore one thing you said that’s really important. Likely, at least at the time, available as a trademark across the board, right? Domestically and internationally. If you look at something like replay.com or even Netflicks with a C-K-S, you can, I’m stretching a little bit here, but you can get into kind of descriptive, murky territory. And like you said, there are these check boxes that are really important to look at very closely. A friend of mine, because we’re recording this during the GameStop mania and excitement, a friend of mine was thinking of using the sort of WSB, Wall Street Bets, et cetera, for a sort of spinoff business of sorts. And he was about to put a bunch of money into developing it. And I said, “Before you do that, make sure you go to uspto.gov, take a look at who owns the trademarks. And you may just dodge a massive bullet.” Which he ended up doing.
So Netflix. So we have Netflix. Now you’ve invoked a name. And the name is one of the demigods, maybe even a major, not lesser god, of e-commerce. And that is Jeff Bezos. So less than a year into this Netflix, little porny, but effective journey, you get a call from none other than Jeff Bezos inquiring about potentially buying the company. Can you tell me about your trip to Seattle or anything else about that exchange?
Marc Randolph: Well, you’ve got to understand how it felt for me to get a call from Jeff Bezos. I mean, this was two things. First of all, this was the idea that everybody said, “That’ll never work.” This is the idea that no one had confidence in. And to get a call from Jeff Bezos, I mean, the pioneer, the king of e-commerce, oh my gosh, the validation. It was like, “Okay. Someone, not just someone, not just anyone, but Jeff Bezos sees potential in this.” So it was this tremendously exciting moment. And when he called, he was a little cagey. It was like, “Listen, I’d love to get caught up. Come on up to Seattle. I’d love to meet you guys. Let’s just come on up and we’ll get acquainted.” So he didn’t come right out and say he wanted to buy the company, but it didn’t take rocket science to figure out that’s what this meeting was going to be about.
As I mentioned earlier, they were just books at that point. And we knew that video or music or both was next on the list. And so I was pretty sure that Netflix was a candidate to be a maker by evaluation. In other words, maybe he could jumpstart into video by buying us. So Reed and I flew up to Seattle. And this is pre-Waze and pre-Google Maps. We had printed out the map from a site called MapQuest.
Tim Ferriss: MapQuest. I knew it was coming.
Marc Randolph: If you can remember those days. And I was so sure that Reed had fucked this up, if you’ll pardon me. Because we were in a pretty sketchy part of town. I mean, we’re walking past — there’s broken glass on the sidewalk, there’s people sleeping in the doorways, there’s hypodermic needles, there’s sex shops. And I go, “There’s no way that the pioneers of e-commerce are here.” But yes, you turn the corner and there in this old warehousey building, through these dusty plate glass windows, I could see in and see that there was a sign, lo and behold, Amazon.
And we go in. And you can’t picture this because it is jammed to the gills with people and dogs and pizza boxes and printers stacked on top of piles of books. And people are crammed in five or six to a cubicle. And they get ushered into this conference room. And the conference table is four doors that are obviously not in doorways, they’re on saw horses, but pushed together to be a conference table. And in fact, as you’re walking in, we had noticed that every single person was working at a desk made out of a door. And it was, “Wow, this is pretty crazy.” And we had this great conversation because Jeff and I kind of were totally riffing on this excitement of starting these companies. And he was talking about when he had rigged up a bell that would ring every time an order came in, which is exactly what we had done. So we had this kind of opening day excitement stories to tell.
But of course we got down to business. And in fact, yes, they were interested in perhaps using Netflix to jumpstart into video. And they talked to us, understood everything. And on the way out, we had the CFO of Amazon escort us out and kind of did the hints. She goes, “In the event this happened, just to set expectations, it’s probably going to be in the $10 to $15 million range.” And that wouldn’t have been so bad for something I’d been working on for less than 12 months. And at the time, I owned 40 percent of the company.
But it was really interesting what Reed and I talked about on the flight home. Because again, this is the company that everyone had said will never work. But we had managed to put together an e-commerce website. We had managed to find a copy of every single DVD available at the time. We had forged these partnerships with all the DVD player manufacturers that were bringing us in customers. And it felt like at that moment that we had got it all figured out. And we kind of looked at each other and said, “I don’t think we’re ready to hand someone else the keys.” And so in some ways, this wasn’t a trip up to sell the company, or maybe the trip up was to sell a company. But on the way back, it felt more like a commitment ceremony where we kind of had to look each other in the eyes and say, “Are we in? Or are we not in?” And I think, luckily for the rest of the story, we were in.
Tim Ferriss: So you’ve described the flight out. I would love to hear you talk about the flight in. And maybe part of this extends to — well before that — but how did you prepare for or strategize for the Amazon meeting?
Marc Randolph: Oh, the depths of —
Tim Ferriss: And the reason I ask, in part, sorry to interrupt you and me both, but part of the reason I ask is that you mentioned a term that I think is really important. And that is the buy or build decision, right? So Amazon can use you to jumpstart their video business, but they could also choose to build it themselves. And sometimes big companies, I’m not saying this is what Amazon did, but sometimes big companies will invite smaller companies in to have them open the kimono, so to speak, and share lots and lots and lots and lots of details, sometimes under cover of due diligence, so that they can then go ahead and just build everything a lot faster internally, right? That does happen. I’m not saying with Amazon, but it does happen. So I’d love to hear how you guys prepared for this meeting.
Marc Randolph: So I’d been in Silicon Valley for 10 years by that point. And I knew that was certainly one of the components of someone’s interest. I knew there was always the chance that they’d just pick our brains and do it themselves. And so that navigation wasn’t particularly tricky because we knew going in what to expect. But I much prefer to be pretty forthcoming. And I’ve always believed it’s better to assume good about people than to protect myself from bad. I’m willing to get burned because normally, it works better for me if I go in being vulnerable and honest. But the real story, the preparation, I laughed when you mentioned that because it really is, in some ways, maybe it’s a flaw of mine, but the best is that I am a ridiculous over-preparer for important things in my life.
And just to give you a really quick example of this from way earlier in my life, I was a second baseman when I was playing high school baseball, which that was basically the end of my baseball career. It’s as far as I got. But I thought I was a pretty good high school second baseman. And one of the jobs of a second baseman is to backup first base when a throw goes to first. And there was one particular game where all of a sudden a throw came to first base and missed first base. And amazingly enough, I happened to be back there and snagged the ball and threw the runner out at second. And when I came in, the coach was going, “That was amazing. How did you know to be back there for that play?” And it was puzzling to me because I said, “I am back there every pitch. I run behind first base every pitch.”
And that’s how I treat these kinds of negotiations. I’m ready for pretty much anything. I think deeply about what could this meeting be about? What are the questions they’re going to ask? What do they really want to know? What are the best way to position our company favorably? What do I need to understand about Amazon to make the decision about whether I might want to have the company sold to them? And then I go through what my answers might be. And of course, you’ve prepared 100 different answers and you only end up using eight of them. But that’s okay. That just means that it comes off more positively for you. Don’t try this at home, folks. Yeah.
Tim Ferriss: Yeah. So that’ll never work. You heard it over and over again from possible sources, financing, from everybody left and right. With respect to Netflix, what were the biggest things that people missed or got wrong in terms of assumptions about Netflix that led them to conclude that’ll never work? And I’ll give just a quick example. With, say, Uber, for instance, early on, they were turned down by everybody for financing just about because it was assumed that whatever market they had, their total addressable market, it was a fraction of whatever the current on demand black sedan car service market was. And that was an incorrect assumption, because ultimately, Uber Black ended up funding the R&D and subsidizing what later became UberX. And before you know it, the market expands exponentially. So what were people missing or getting wrong that led them to say, “That’ll never work?”
Marc Randolph: There was two reasons that almost everybody drew on to conclude that’ll never work. And the first was Blockbuster. Here we were, this tiny little upstart; everyone said “Blockbuster is the problem.” And that just made sense because Blockbuster at the time had 9,000 stores. They had 60,000 employees. They were doing $6 billion in revenue. And the thought that we could get a foothold against that and worse, it wasn’t just getting a foothold against a bigger company, it was basically saying, “We’re proposing a model where you come to the internet and you order a movie and we mail it to you. And this is going to take anywhere from one to four days for that movie to arrive.”
And people could not get their hands around how that could possibly work when you could pretty much throw a stone from any place in the United States and hit a Blockbuster. Why would anybody do it through you when they could just drive five minutes and rent from Blockbuster? And they had a point. We did have some things up our sleeve, basically the fact that everyone hated Blockbuster. You always want to compete against someone that everyone else hates.
Tim Ferriss: Why did they hate Blockbuster?
Marc Randolph: Blockbuster, part of it was Blockbuster’s attitude. Blockbuster did not believe that they were in the customer service business. And so people were frustrated with the experience. They also relied in their business model on late fees.
Tim Ferriss: Late fees. Oh, I remember that.
Marc Randolph: In fact, they actually had an internal term for it, and they called it managed dissatisfaction.
Tim Ferriss: Oh my God, that’s great.
Marc Randolph: Yeah. And you always want to compete with someone whose core tenant is managed dissatisfaction. They also had a problem that because they were really in the demand fulfillment side that they had this new release issue, where a new release would come out and people, like lemmings, would all flock to the Blockbuster and they would all want the same movie. And of course, Blockbuster can’t afford to buy enough copies to satisfy every single person who wants it on day one, because their whole model is you buy it once and then you turn it 20 or 30 times. And so what they have to do is basically say, “We’re going to have a lot of people not getting the movie they came in for, and that will force them to come back again and rent it next week or the week after” so they can get the turns out of it.
So all these things were fundamentally frustrating to customers. And discovery. The reason that everyone flocked to new releases was it was so hard to find something else to watch that you would do that, if you may remember this, you’d go to the store and you’d basically begin doing this pacing like a tiger you see at the zoo up and down each aisle, just hoping something leaps out at you that you haven’t seen before, or that you’ve heard of that you want to watch. And so you naturally gravitate to the new release wall, not because they’re better movies, because it’s a higher percentage of movies you haven’t seen yet. Anyway, lots and lots of reasons we go, “This should be disruptable.” But Blockbuster was just one reason.
The other reason everyone said that’ll never work was the fact that the DVD was digital. It was a digital medium. And everyone said, “Well just a matter of time months before this movie can be downloaded or streamed. Who’s going to want to get it on DVD when they can just stream it to their house?” And they were right about that latter one. We thought they were wrong about the timing, that it would be a long shot if it was going to happen in a few months. We thought it was going to be years. But nonetheless, both of those were very reasonable objections about why this business would never work. And we really had to attack both of those if we were going to be successful.
Tim Ferriss: So you invoked Darth Vader in this particular movie, Blockbuster. And although the story of Blockbuster is also amazing. I mean just Huizenga and the entire arc of that is just amazing in and of itself. But two years in, so the perfect storm of bad news as I have it here, led you to fly, not to Amazon, but to Dallas to try to sell Netflix to Blockbuster. What happened there? What was the bad news? And how did that trip to Blockbuster go?
Marc Randolph: These stories have such twists and turns and ironic moments. When we started, we spoke earlier in our conversation about the struggle to find, as I say, the repeatable scalable business model, how when we launched, it didn’t work, how we had to figure out how to get rental to work and how we struggled for a year and a half. And that eventually, the thing that worked was this completely irrational combination of things. One of them, as I mentioned before, was subscription. But the other thing was that one day, I was in our warehouse. And at the time, we probably had several hundred thousand DVDs in the warehouse. And I remember looking around at these full shelves and thinking, “What a shame. They’re doing us no good sitting on the shelf. I wonder if there’s some way to store these movies at our customers’ houses, let them just keep them. And maybe they do, I don’t know, peer-to-peer exchange, maybe they keep it as long as they want, when they want another one, they mail it back and we’ll replace it.”
And that idea, when combined with subscription, was worth a test. And when we tested it finally, after a year and a half, it worked. And it worked remarkably well. It took off. I mean, people were signing up in droves, thousands a week for this new no due dates, no late fees, subscription video rental program. Now, that’s a great story. But as you may know about the subscription business, it has some great things about it and some bad things about it. And the great thing about it is it’s recurring revenue. Once you’ve acquired that customer, if you take good care of them, they pay you month after month after month for years if you do a good job. The downside is all the acquisition costs take place up front, all the money you spend on marketing and fulfillment and customer service to get that customer is out the door. And it’s usually a number way in excess of how much they pay you that first month. It takes having them be a customer for six to 12 months, or even longer sometimes, to recover that marketing expense.
So when orders are flooding in the door, on one end you’re going, “This is fantastic,” but it also means that money is flying out the door. And that is not so fantastic. And it’s especially not so fantastic when you get to April of the year 2000, when all the wheels suddenly come off the cart of the dot-com bubble, if I can mangle two metaphors there, sorry. But in other words, what had been easy in March, basically we’d just go outside the Netflix headquarters, we’d wave the green flag and the big dump truck full of money would back up and dump it into the driveway, and we’d send one out with the wheelbarrows to bring the money in. All of a sudden you get to April, and the drivers are putting their head down and averting their eyes and speeding past you. There is not a cent to be had, especially not for a company with dot-com in its name. So we are desperate. We have finally cracked the code. We’re succeeding, but we’re going bankrupt in our success. And that was probably the lowest moment.
And Reed and I looked at each other and basically decided this is the time to, as they refer to it, time to pursue strategic alternatives, which is the Silicon Valley expression for “Basically, you’ve got to sell this sucker, and fast.” And the obvious strategic alternative at the time was of course Blockbuster. But they were huge, they were $6 billion in revenue. We were $5 million in revenue, we were 100 employees and they were 60,000 employees. So we tried getting this meeting, nothing. Wouldn’t return the calls, wouldn’t respond to the emails. So this is all preamble to this meeting with Blockbuster, but it’s such a crazy story. The time they chose to call happened to be — we were doing this corporate retreat at a place called the Alisal Ranch, which is in the foothills outside of Santa Barbara. And as you can imagine, it’s pretty casual, because we’re casual at work. So when you go to a retreat, you’ve got to work at it.
And I had brought nothing but T-shirts and flip-flops and shorts, and that’s when they call and say, “We’d love to see you tomorrow morning in Dallas.” And we’re looking at each other and going, “There is no way. We can’t get from this ranch in Santa Barbara to Dallas by tomorrow morning.” And so we did the thing that you would prudently do when you’re many millions of dollars in the hole, which is we chartered a corporate jet to fly out to Dallas. Oh, this is perfect. So I’ll share with you one more piece of Netflix trivia. So that jet was owned by Vanna White.
Tim Ferriss: Okay, didn’t see that coming.
Marc Randolph: Yeah, I know. Me neither. But anyway, so we fly to Dallas. We end up being ushered up into this big 17 or 18-story glass and steel skyscraper. And they bring us into this conference room which is the size of a football field, and this beautiful, endangered hardwood conference table. And I remember sitting there going, “Oh my God, every place has paper and a pen and they go, but they’ve got extra office supplies. This is something.” And then in come the Blockbuster guys in their very expensive clothes and alligator shoes, which is in contrast to me, who’s in a T-shirt and shorts and flip-flops. And I was jealous because Reed had on a Hawaiian shirt, and he had buttons. But anyway, we make our pitch and we’re going to combine forces that we will run the online part of the business, Blockbuster will run the stores. We laid out all the incredible synergies that come from having this splendid model business, and then we’d all live happily ever after.
And it was going great. They were leaning in, they were asking good questions. And then they asked of course the obvious question, which is, “How much? How much are we going to pay for you guys?” And we had obviously rehearsed this one on the plane. So Reed screwed up his courage and leaned in and said $50 million. And they laughed at us. I mean maybe not out loud, but I swear John Antioco was trying to hold back a laugh. And as you can imagine, the meeting went downhill pretty quickly after that. And it was this long, quiet ride in the cab back to the airport and even quieter ride back to Santa Barbara on the plane. And it was a crushing moment because we had finally gotten this meeting. It was self-evident to us that this blended model of online and stores could be an incredibly powerful force and Blockbuster hadn’t seen it.
And so now, rather than this being, as they say in the movies, the deus ex machina moment, where the heroes are backed up against the cliff and the Indians are lining the cliffs and there’s sudden death, and all of a sudden, in comes the cavalry and plucks them to safety. But unfortunately, not only was Blockbuster not going to save us, Blockbuster was going to compete with us. And wow, that was sobering. And as we got back and said to ourselves, “What’s going to happen?” It was this realization that this was one of those problems that there wasn’t going to be a shortcut. There was not an easy way out. There was not something we missed that, as my dad used to say to me sometimes, “Marc, sometimes the only way out is through,” that we were going to have to confront this head on and take on Blockbuster.
And it took us, I don’t know, 10 plus years. But eventually, the company that had 9,000 stores is down to one, and the company they could have bought for $50 million is now worth $250 billion. And it’s such an amazing turn when I think back to that moment to where Netflix is today. But Tim, the amazing thing here is that when I tell that story to people, there’s this dichotomy of reactions, because for the people who are the entrepreneurs, they’re going, “Oh, this is so inspiring.” A handful of people with no experience in the video industry took down a $6 billion company. But sometimes, I tell that story to corporate audiences and for them, it’s a very different message because then it’s basically you have no idea who’s coming after you and they’re going to come after you not doing the thing you do well, they’re going to come after you in the thing you do poorly, or you don’t do at all, or you’re scared to do.
Tim Ferriss: Watch out for the people that you consider rounding errors.
Marc Randolph: Touche.
Tim Ferriss: As one Yahoo executive said to a friend of mine, Alexis Ohanian, who co-founded Reddit. He said, “Oh, you guys are a rounding error,” in a meeting looking at their traffic. Didn’t turn out so well for Yahoo. So I can see it from a number of different perspectives. And first question I’d like to ask is related to your reputation for not accepting “No” as an answer, right? So I’m trying to zoom in, because hindsight 20/20, of course it makes an excellent story, but there are lots of startups that go out of business. There are lots of startups that don’t survive the existential threats and the economic meltdowns. They just do not make it through. So when I go back to that point in time, you guys offer or propose 50 million, they basically laugh. Why didn’t you keep dropping the price until you found a price they would accept? I’m not saying you should have done that, I’m just wondering that it must have been a whole mix of emotions. Why not look for the soft landing at a lower price? Or find a price that would finally be a “Yes?”
Marc Randolph: I think there was a couple of things. We hadn’t picked $50 million at random. On one hand, it had no underpinnings in valuation. This wasn’t based on multiples of next 12 months revenue or anything that you’d normally use to value a business that you were trying actively to sell. It was based on two things. It was based on number one, we had raised $50 million to date and had spent most of it. And this was a way for Reed and I to make our investors whole. And that if it was going to be dramatically less than that, we were less interested. The other one was the reasoning we thought that would make $50 million reasonable was not what was Netflix worth to someone as an ongoing Netflix, but what would it be worth to Blockbuster, to their $6 billion in revenue, to have a team of people who were deeply involved in the technology of video rental, which quite frankly, Blockbuster wasn’t?
And so we thought that them recovering their investment many times over purely by getting a small bump in the $6 billion of revenue would make it work. But neither of those reasonings for them resonated. And so I don’t think this was a question of, “Well maybe 40, maybe 35.” I think they would have gone back to some cashflow analysis or some next 12 month revenue, and that would have been dramatically, dramatically less sufficient that it wasn’t worth us recovering pennies on the dollar for investor. Better for us to say, “Well screw it. Let’s prove these guys wrong.”
Tim Ferriss: So next, I want to bring up — I would love to hear you explain something that I see referred to as the Canada Principle. Now, I want to read a line here, it’s on bgr.com, but this is a quote from you. Please feel free to correct me if I’m wrong. “I’d certainly be extremely surprised to ever see ads on Netflix, only because Netflix is so focused on the Canada Principle.” What in the hell is the Canada Principle?
Marc Randolph: So the Canada Principle. So when you’re starting out, as we were in the United States, and you’re starting to get a little bit of traction, so this may be where we’re past the Blockbuster thing, our subscription, no due dates, no late fee program is doing gangbusters. And people say, “You should go into Canada. That’d be an easy 10 percent bump in your revenues,” because Canada is approximately 10 percent of the market size of the United States. And at first, you go, “Well that’s interesting. Yeah, that’d be a pretty easy way just to get a quick 10 percent,” but then you begin to think about it and you go, “I’m not quite so sure about the easy.” I mean for one, they do have a different currency. Some of our DVDs have different rights arrangements in Canada than they do here. There’s this little issue of language that part of Canada actually speaks French and in fact, legally mandates that the materials are in French as well as in English.
And you begin accumulating all these small things, which under some circumstances you might go, “That’s not a bad price to pay for an additional 10 percent bump in your revenue.” But what we realized is we were growing so quickly at that point, that were we to take the exact same effort, as minimal as it might be, that it took to get into Canada and just apply it back on our core business, we would get a way bigger bump than 10 percent. And what the Canada Principle really says is, “You’ve got to focus,” that the real key is picking the two or three things that are the most important that if you get those right, nothing else matters, and allocate all of your resources to that. And you have to very, very consciously choose not to do things which appear easy. You’ve got to say, “Uh-oh, there’s Netflix clones launching in the UK. Should we enter the UK to try and stamp them out to beat them to the punch?”
And you have to say, “No, we are way better taking the distraction that would occur doing that and doubling down on the things that we’re already good at,” because that learning, that acceleration will just pay dividends down the road when we eventually do decide to enter the UK, for example. But that focus, that’s at the heart of I believe what makes any startup successful is not getting distracted. We used to also refer to it as scraping the barnacles off the hull, because as you’re moving, you’re testing things and you’re trying things, and you’re slowly but surely creating new features to your business. And of course, you have a new thing you want to try and now all of a sudden, it’s got to be reverse compatible with this. And you want to change the price, but you go, “Wait a minute, what about that small group who have this different offer?”
And you have to consciously go into a meeting wherever you discuss what you’re going to do next, at the same time discuss what are we going to stop doing? All of those things designed to make sure you’re putting all of your attention on the things that really matter.
Tim Ferriss: I love that expression, the scraping the barnacles off the hull. It’s so true. I mean this is particularly true in — well it’s true in many things, but software development. I mean you get paid for adding features or you get rewarded for adding features as a programmer, seldom rewarded for removing features, which is how you end up with a lot of bloated, over-featured software. One of the quotes from the same piece that I mentioned that I really like is: “These things which seem like low-hanging fruit never are. Ads are a distraction, never an additive thing.” So the followup to that that I have for you is what were some of the most tempting opportunities that in retrospect were most important to say “No” to? You’ve mentioned a couple, right? Canada, you’ve mentioned entering the UK. Were there any other temptations or internal pressures? Anything that in retrospect were really important to have said “No” to?
Marc Randolph: There was certainly the temptation to do softcore adult, not hardcore stuff, but adult content, only because that’s such a huge driver of new technologies. And that took some discipline to say, “We don’t want to get entangled up in that.” And not out of any moralistic preaching about what’s appropriate or not appropriate, but purely because being a company which pretty much had customers in every single county in the United States, we just didn’t want to leave ourselves vulnerable to a particular district attorney who was behind in the polls someplace and wanted to take down the smart alecky e-commerce folks way back in California. That was one we dodged early on. Games, people talked about we should do games, but it didn’t take too much thinking to realize that games do not have the shelf life that movies do, able to dodge that one.
Probably the closest we came to getting distracted was as we approached what was going to be our first shot at an IPO, we had decided we were going to become a portal, because portal was the business model du jour at the time, which basically said, “No, no. You’re not a movie rental site. You are everything movies. You’re going to be where people come for show times, you’re going to come to get reviews. You’re going to be able to buy tickets.” And we actually started on the path of building that out. And we put in place our IPO prospectus based on the fact that we were going to be a portal. And when the bubble burst in April 2000, and we had to pull our IPO, that was such an unbelievably lucky break because if we had ended up going public as a portal, we would have been committed and we never could have made that work.
Tim Ferriss: A friend of mine — I’m blanking. It might be Mike Maples, Jr. who said to me, or actually I think it’s Brandon Stanton of Humans of New York fame, but said, “Sometimes, you need life to save you from what you want to give you what you need,” something along those lines. I’m paraphrasing. But yeah, sometimes those catastrophes are lucky breaks. I want to talk about something that is a bit of a 90 degree turn, but we’ve been, I think, talking a lot about strategy, about the business, about Netflix. And that’s certainly on one side of the ledger, but while this is all happening, you have a personal life to think about, to manage well, poorly, or somewhere in between. And I want to read a paragraph about Tuesdays at 5:00 p.m., and then I’d love to discuss this because this is something that my girlfriend and I would like to work on.
And here it is, and feel free to fact check. “I vowed early on I was not going to be one of those entrepreneurs who was on his sixth startup and his sixth wife. So we had this tradition that every Tuesday without fail, 5:00 p.m., I left the office and my wife and I did a date night. And at first when you announce that that’s going to happen, everybody goes, ‘Yeah, yeah, yeah. Sure.’ But I was serious. If there’s a crisis, well we’re going to resolve by five p.m. Okay, you have to talk to me? Great. On the way to the car. Fantastic things happen.” Can you please speak about this decision and how you stuck to it and implemented it? Because I know a lot of couples and I am part of one of them who have committed to this but it falls by the wayside. This happens a lot. And I’d love to hear you tell your story and share any advice that you have for people who might want to emulate this.
Marc Randolph: I’ve always had my priority to be balance. And like everyone, I screwed it up but I was able to self-correct right about when I turned 30. Of course, during my 20s and late 20s I worked like a dog and my girlfriend then, who’s now my wife — I think that was hard on the relationship. The fact that I would go and work on weekends. I would be there ’til eight or nine o’clock at night, essentially squeezing in my relationship in whatever spare time was left from the business that I was working on. But I was also short-changing not just her. I was short-changing myself.
My passion is outdoors. My passion is backcountry skiing and mountain biking and surfing and kayaking and alpine climbing. These are not things that you can squeeze in between your 11 o’clock and your one o’clock calls. If you want to be able to continue to do those, you’ve got to make space for them. And so, I had this moment where I said, “I am not going to lose these two important parts of my life,” and began compartmentalizing. And that’s when the date nights started. And it was not just Netflix. It was other companies prior to that where they saw this happen. And people talk all about corporate culture and they write manifestos and they put together slide shows and they carve it in their building cornerstone. But culture is not what you say, it’s what you do.
People all preach about, “We believe in balance,” and “Take care of yourself,” and then they don’t act it. And what was so fascinating about me having that discipline that at least one night a week I would leave at five o’clock, no matter what was going on is that once I got through the first two or three months of it, it got immeasurably easier because people stopped asking. They stopped trying to put meetings on the calendar after five on Tuesdays. They realized they were going to have to resolve this crisis on their own or do it before five if they wanted me to help.
And the best part was that everyone else began realizing that they could do this. That they could not only leave at five o’clock on Tuesday because they realized there was nothing that I was going to drive that was going to pull them back. I was modeling how I really wanted the culture of that company to be. And I’m still pretty busy, but I still manage to get away and go for a five or six-day backcountry skiing trip. I still get to fly up to northern Alaska and do two weeks in the Noatak River because I make space for that and I prioritize that space and the things I have to get done, I make sure I get them done before I leave, and then prepare to get picked up by someone else while I’m gone, and then I can jump back in when I return.
And it’s hard, but it’s important. And it does not happen if you wait until “Let’s see if I have enough time.” It only happens if you make that time.
Tim Ferriss: How did you land on Tuesday nights? And did it start off on a different night and just not work to end up on Tuesday?
Marc Randolph: I don’t remember. Yes. It moves around and it moves — the shorthand, every Tuesday is probably a little bit just making it a simpler story. The point is it’s every week. And a lot of times the babysitter can’t do it on Tuesday so fine, we’re going to do it on a Thursday. But it wasn’t so much the discipline of that. It was the fact that this is going to happen and this is going to happen before anything else gets scheduled. But I would say by and large it was Tuesdays or sometimes Wednesdays.
Tim Ferriss: Could you tell a story of a time that it was stress-tested? Where there was a crisis that was large enough or a situation that seemed important enough where you’re like, “God, I really — I would probably be best for the business for me to push date night.”? Are there any examples of how you’ve navigated that, that you could share?
Marc Randolph: Yes, of course there are. The founder of NOLS, a guy named Paul Petzoldt, used to say, “Rules are for fools because in the mountains things happen and even though all of your processes and systems say do it one way, sometimes you’ve got to do it a different way.” And it’s also people I know who are really disciplined about their eating. Listen, once in a while you got to let loose. You’ve got to be able to fall off the eating well wagon and have six slices of pizza. But it’s fine as long as you get back on the next day.
One of the core principles of meditation is, “Oops, I got distracted. Let’s get back to it.” So, yes, there’s certainly circumstances where those Tuesday rules got broken but they were dramatically the exception. And the trick was when recognizing when it happened and not to have that be the camel’s nose under the tent, but to say, “That was a once in a long period exception.” And certainly things have happened when Netflix went public, when we were fighting for our life with Blockbuster, when there’s personnel crisis that I just have to be there for. But it’s something that my partner, my best friend, can understand because she sees that the consistency is there on the other side of it and that if I’m saying, “This one time, I need to do this,” that I’m not just making it up. Not an excuse.
Tim Ferriss: Can you make any recommendations — number one, I love the expression, “Camel’s nose under the tent.” I’ve never heard that before in my life. It sounds amazing. Sounds like the good title for a parable of some type. And the question I have is what advice could you give to people who want to implement a date night? What are some tactical pieces of advice or best practices, recommendations for those who are starting off with some training wheels? They don’t even know what to do. Does that mean watching a movie and eating popcorn? Is it going out and having dinner? Let’s pretend that COVID doesn’t exist just for the moment. What are some of the things you’ve learned over time? Any recommendations?
Marc Randolph: Yeah, absolutely. First of all, these aren’t one size fits all. This worked for my wife and I. This worked for the type of business I was in where I was the boss and I could do this. Obviously, you may not be able to do this if you work for someone else. You can’t just go, “I’m leaving at five o’clock. Thanks very much.” It’s recognizing the principle behind it and saying, “What would work for me?” That’s part one.
Part two is do not design a New Year’s resolution with 18 different things in it. Any of us who have made resolutions know you’re lucky if you can make one of them happen, no less trying to have this aspirational list of all the things that you think would be wonderful if they happened. Start small. Say, “I’m going to put my phone away every Saturday from nine in the morning until Sunday morning and be present,” and see how that feels. In other words, take steps which are possible. Take steps that are manageable.
And then the third thing I’d recommend is I’m a big believer in establishing habits. And this, of course, has been beaten to death but doesn’t make it any less true — is that pick something and try to stick with it. It is more important to find something that you can reasonably do over the long haul than it is to make this a huge jump but not be able to hang onto it. And it’s with practice, with realizing that, wow, if I don’t do email all weekend, the world didn’t end. Or if I say I’m going to do it from after five on Sundays, no one freaked out. Maybe I can try something a little bit different in a few months.
That’s all. Doesn’t need to be what I’ve done or what worked for me. It’s what works for you. It’s the principle. It’s that business is secondary. I really believe that. You can have all the money in the world but if you don’t have a strong relationship or you’re not doing the things that make you happy when you’re not at work, what’s the point?
Tim Ferriss: Let’s talk about that type of clarity. Specifically, what I have down here in my notes is a moment of clarity that you experienced through which you find your purpose in life. That’s a statement I definitely want to unpack. And that seems to have led to writing your book and ultimately to your new podcast. What was this moment of clarity? What was the purpose that you found clarity around?
Marc Randolph: I’ve had two big phases in my life and I have to — briefly, I have to give you the first piece because it’ll explain what happened in the second one. I’ve always believed that if you get older, you are incredibly lucky if you find out two things. Two important things about yourself. And the first is what are you good at? And the second thing is what do you enjoy? And I was remarkably lucky early in my life, in my early 20s, to discover those things and even more lucky that they are both the same thing. It was early stage stuff. It was entrepreneurship. It was starting things. I love it. I love that challenge. I love the problem solving. I love sitting around the table with the smart people solving really hard problems.
Here’s the immodesty alert. I’m actually really good at it just because I have some of those innate skills. Maybe it’s from all the direct marketing stuff. Maybe it’s just that I’m really good at focus or have an innate sense of triage. But I’ve been incredibly lucky that I’ve gotten to pursue that for 40 years and I’ve started a bunch of companies, all of which were so exciting and so fun. And two of them which did remarkably well economically, too.
And that was my purpose for the first 50-some odd years of my life. And then I had left Netflix. And I left Netflix back in 2002. No, 2003. So quite a while ago. And I was drifting a little bit. I was pretty fulfilled because I was mentoring other early stage companies, I was working with entrepreneurs. I was getting my fix. And then I got invited to come to Necker Island, which is Richard Branson’s — the founder of Virgin, billionaire — his private island in the British West Indies — to come for four days and hang out in the beach and kite-surf and party. That’s pretty special. And I said, “No, thank you.”
That decision lasted about as long as it took to tell my wife about it and then all of a sudden now I’m canceling my boy’s mountain bike week that I had planned for that same time and all of a sudden we’re buying sunscreen. But it wasn’t all going to be just fun and games. I was going to Necker Island because they wanted me to do a 40-minute presentation on turning dreams into realities for a conference of women successful business owners. And the title of this conference was Finding Your Purpose.
And I was going — to my wife, I go, “Eh. Well, we’ll go. I’ll do my bit and then we’ll spend three or four days on the beach. Not so bad.” I went, gave my speech and then decided I’d hang out and listen and find out what this Finding Your Purpose stuff is all about. And I listened to the first speaker and then I sat down in the chair again. And then the second speaker and put my towel under my chair. And one day led into the next and the next and pretty much I had realized I had dramatically overbought on sunscreen.
But it made me think, “What is my purpose?” I was here as a speaker, but it was speaking to me. And I was going, “I have this amazing platform,” because Netflix has done remarkably well largely since I left. The things have nothing to do with me except perhaps my DNA in the foundation I established. But because of it, people will — I can get 10,000 people to come sit and hear me speak for an hour. I can get thousands of people to read things that I’ve written. But what am I doing with that? What’s the point? What do I really believe in that I want to use this thing for?
And it was, like you said, that moment of clarity, where there was — I was not doing the right things with it. And I had to change it. And what I decided simply was this — that all of this 40 years of being an entrepreneur and all these tips and tricks and secrets that I’d learned to get startups off the ground were, not surprisingly, the exact same tips and tricks and secrets and approaches and attitudes that you could use to get any idea off the ground. And that all of us have these great ideas but that most of us never act on them. And I decided then and there that that was my purpose — was to give people that nudge, give them that support, give them that encouragement that says, “I can do this. I can — I have this idea. I’ve always wanted to do this.”
It doesn’t need to be a business. It could be, “I’d love to live in the city but I can’t afford it. How can I figure this out?” “I’d love to change jobs. How can I make that happen? How do I start?” And it led to the book That Will Never Work, which, on one hand is the starting and growing of Netflix, but it’s really more fundamentally these lessons about how do you take an idea and make it real?
For years, I’ve been mentoring early stage companies. I’ve been doing these hour-long advisory calls when people write me and go, “I’m struggling with this, with that.” And I say, “Let’s get on the phone for an hour. Let me see what I can do to help.” And about a year ago I began recording those calls because I thought this might be interesting to somebody. And it was remarkable because when I did play these tapes for people, it totally resonated with them. They empathize with the protagonists who are struggling. Some of the tips I was giving them, they could apply to their own stories. And that, fundamentally, is what led to me saying, “This is an opportunity to actually make it even more broadly available,” which led to the That Will Never Work podcast, where it’s basically not me interviewing people; it’s me just doing what I do all the time, which is helping other early stage entrepreneurs take that idea and make it real. Or take the idea they’ve already made real and bring it to the next level. Or turn their side gig into a real gig.
It’s been remarkable and it’s just so fulfilling in that — and to be quite honest, it’s not entirely altruistic. I still get now to sit down with people and sit around the table and solve these really interesting problems but I don’t now need to stay until one in the morning working on it.
Tim Ferriss: That Will Never Work, the podcast. This is where you dispense the advice, encouragement and tough love to an assorted cast of characters, including struggling entrepreneurs. Could you give us a teaser of the format? It sounds like it’s conversational, just like these phone calls that you recorded. Can you tell us about any of the people who make an appearance? Or the types of people?
Marc Randolph: What’s really fascinating is when I started doing this I thought, “I’m going to run out of topic.” That we’re going to hear the same things over and over again. How do I — do I do an app? Or how do I raise money? But what you realize is everyone’s struggling with something different and they’re all coming with these incredibly fascinating businesses. One of the young women that I interviewed early on is — she worked for a pickup artist for 10 years. You know, the kind of people who train men to pick up women. And she finally said, “This is totally awful,” and she started a business that helps people find genuine connection, men and women, and is running these seminars to do that but was struggling with how to build the funnel to end up making this an economically sustainable business?
That was a fascinating business. Another woman runs an — this is not the theme, so don’t draw too many lines between these. She runs an erotic art gallery online and selling very, very high-end quality erotic art. But of course, the most obvious place to promote would be social media but she keeps getting banned and so she’s struggling with, “How do I walk that fine line? How can I perhaps lean into this problem and become maybe a spokesperson for unreasonable censorship?”
Another person is on the verge of breaking ground on a 60,000 square foot indoor adventure park in Texas with things like zip lines and repellings and beer. What would go wrong with that? But what he was calling about was he realizes that once this thing is open, that’s an 80 to 100-hour work week. How is he going to maintain balance in his life with all of this happening?
They’re remarkable stories. They’re interesting people. They’re funny. And I learn things and I’m hoping the people who are listening will not only be entertained but also learn something, as well.
Tim Ferriss: Sounds incredible. Can’t wait to listen. And That Will Never Work can be found wherever fine podcasts are found? Or is there a particular outlet? Is it exclusive anywhere? Or is it non-exclusive and ubiquitous?
Marc Randolph: It is — well, we’re trying to make it ubiquitous but I’m pretty sure unless you have some very obscure podcast platform that you prefer, you’ll find it on all the obvious places.
Tim Ferriss: Perfect. I just have maybe one more question. One or two more questions for you.
Marc Randolph: Sure.
Tim Ferriss: And this has been so much fun. This is a question that sometimes leads to a dead end, so it’s not always easy to answer. But I’ll try it anyway because it’s fun. And that is, if you had a billboard, metaphorically speaking, on which you could put an image, a quote, a question, a fortune cookie, mantra, anything, to get that message to billions of people, assuming they would understand what’s up there, what might you put on such a billboard?
Marc Randolph: Oh, God. This question, you’re not going to believe — well, early on we said I would be very transparent and vulnerable because I actually — I’ve had this discussion with my family before. A quick background on this.
Tim Ferriss: It doesn’t have to be quick. I got all the time in the world.
Marc Randolph: Okay, good. Me, too.
Tim Ferriss: Take your time.
Marc Randolph: Four or five years ago, maybe a bit more — maybe 10 years ago, I was driving — I live in Santa Cruz, California, which is pretty much the most politically left-leaning city in the most politically left-leaning state. And I was driving by and it was one of those things where everyone was protesting and I can’t remember what the issue was. It was one of those things like, “Honk if you’re for this.” But everybody was for that. And I go, “Why are you — if you really believe so strongly in change, why are you doing it here where that issue is going to win 99 to one? Why aren’t you going and doing that on the corner in Arkansas or whatever the politically polar opposite is from California? From Santa Cruz?”
And it gave me an idea, as always does when I — usually when I come up with something that’s a problem, instantly comes up with the idea. And I was going, “What if you made a platform that allowed people to do that? Which is they have an issue they feel strongly about. How could they not express that concern but do so in a place where it actually might make a difference? Try and advocate for the issue you believe in in a place where that is actually being contested?” And I don’t mean presidential swing-state things. I mean small issues.
And then I go, “The cool thing would be if these were crowd-sourced campaigns.” And I think the way to test it is to do billboards. That we will do a crowd-sourced contest for this issue of what the billboards should say and then people will vote with their dollars on which billboard with the understanding that whatever billboard wins, that all the money flows to that billboard and then the money goes to actually running that billboard in the — someplace else in the country or in the world.
And, of course, that idea didn’t go anywhere. But one of the things we were joking about is what would be the universal billboard to put up? And my family loves these types of exercises because they very quickly veer toward the absurd. So, the reason I was so embarrassed you asked this — and I will confess what the billboard we decided we’d put up everywhere would be. And it would largely be to support horse owners that we know. And it would say, “Hoof,” okay? And then a big heart and then “ED.” You know, hoof-hearted. That is the billboard. God, I can’t believe I said that.
Tim Ferriss: That’s great.
Marc Randolph: Well, I’m being transparent.
Tim Ferriss: Hoof-hearted. Or Hoof love erectile dysfunction.
Marc Randolph: There are so many different ways to read this. You’re going to have —
Tim Ferriss: I like the fact that it’s kind of —
Marc Randolph: You’re going to have to write it out.
Tim Ferriss: It’s like a Rorschach test. It’s kind of a Rorschach test.
Marc Randolph: It’s like a license plate. It’s a hoof, H-O-F, then a picture of a heart, and then E-D. Hoof-hearted.
Tim Ferriss: Oh, I get it. Hoof-hearted. Hoof-hearted. Hoof-hearted.
Marc Randolph: Yeah.
Tim Ferriss: I haven’t lost hope in this universal billboard idea. Marc, I would expect no less from Marc “The Seagull” Randolph. And this has been so much fun. I really appreciate you taking the time. And I’ve greatly enjoyed this. Is there anything else you’d like to say or share or request of this audience before we wrap up? Any closing comments at all that you’d like to make?
Marc Randolph: Certainly. I would really have missed my chance if I didn’t say something to the people who are listening here. I talked before about my whole purpose is giving people this nudge and all my years as an entrepreneur, all my six-seven companies, all the people that I’ve worked with, all the companies I’ve coached, the most fundamental thing I’ve learned that separates the people is they start. They stop thinking and they start doing. And if I could encourage every single person here who has an idea — and I know you all have an idea. I know everyone who’s taken a shower has had an idea. But what really separates people is the ones who actually get out of the shower and do something about it, to paraphrase Nolan Bushnell.
I would just say think about that. Think about the next time you have the idea that you don’t make an excuse, that you don’t say, “Well, I need a co-founder. I need an MBA. I need financing.” That’s ridiculous. If you have an idea, the only way you’re going to find out if it’s a good idea is to do it. So, take that swing.
Tim Ferriss: Here, here. Take that swing. MarcRandolph.com, @ThatWillNeverWork on Instagram, Twitter, @mbrandolph. Facebook, MarcBRandolph. LinkedIn, Marc Randolph. And of course, we’ll link to all of these things and more in the — let me try that again. We will link to all these things and more in the show notes at tim.blog/podcast. Marc, thank you so much for all the time.
Marc Randolph: Tim, it was such a pleasure. And thank you so much for the time. I really appreciate it.
Tim Ferriss: And to everybody out there listening, thank you for tuning in. And until next time, get out there in the world, take that swing.
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