Technology can almost disrupt anything. Here’s how Netflix disrupted everything.
Very few people think that the little routines and rituals they have in their lives and their business will be impacted. Very few believe that change is inevitable despite the world constantly changing. Those who resist this change falter. Those who don’t capitalize will get obliterated by competition. The rate at which technology moves is only further accelerated by the internet. A company like Netflix capitalized. Others didn’t.
One of my favorite stories that taught me great lessons was Netflix vs Blockbuster.
Go back to 1994. Blockbuster. A video rental giant worth $8.4 billion with 2,800 shops located worldwide.
Year 2000. Netflix. A DVD – postal service company valued at $50 million, posting losses that year at $53 million on their 2 year start-up.
10 years later; Blockbuster files for bankruptcy. Netflix valued at $9.2 billion.
A perfect example of 2 opposite forces colliding; an efficient but tightly managed empire encounters a creative, ‘the only rule is that there are no rules’ contender. It was the same year of 2010 when the founders of Netflix proposed a pitch to Blockbuster to have Netflix bought at $50 million. Only to get laughed out of the office.
It made sense to me why Blockbuster rejected Netflix’s offer. A relatively miniature company with a not-so-novel pitch of ‘Netflix team running the online segment of Blockbuster’. But what didn’t make sense, was why Blockbuster didn’t actually pursue their online segment.
Risk of Management
When you look at their organizational culture and management operations, it raises questions whether there was any room for creative innovation. Blockbuster was exceptional and very efficient in delivering entertainment to people. But they were also efficient in punishing them for late returns. The late fees were a lucrative business model so profitable that it made Blockbuster revisit the strategy after abandoning it for 3 years. It was a disastrous attempt to recapture lost profits. All the while when Netflix was signing deals with companies that streamed Blockbuster movies.
Blockbuster was more comfortable to return to old methods that generated profits over finding new innovative ways to adapt to the future. At a micro-individual level, this is what happens when you have a conscientious person that is high on both facets of industriousness and orderliness, while lacking creativity and openness.
It also indicates why companies need to hire both managerial & entrepreneurial individuals. In terms of organizational cultures, a good balance of orderliness and chaos, and one side acting as a devils advocate against the other, is the most effective way to secure the longevity of a business.
Amongst many lessons on the Netflix vs Blockbuster case, the one highlighted here is to break out of your bubble. If you’re in a position (or will be) of running a business, start with understanding who you are and which way your temperament leans. As the managerial type, you should hire entrepreneurs within the domain of your business. If you’re the entrepreneurial one (which you most likely are if you started your own business), then focus on hiring managers. Here’s an interesting ARTICLE from Investopedia explaining how Netflix makes its money.