Welcome to the Resilient Business Series. In this series, we examine businesses and organisations that have gone through events like recessions, pandemics and world wars who not only survived, but thrived. We find out how they did it and the lessons you can apply to your business.
This week we examine Netflix and how they split their business into two to survive …
Before 2011, Netflix was on the up. Between 2006 and the beginning of 2011, their subscriber numbers jumped by 290% to 24.6 million and they were on the way to becoming a billion-dollar company.
Netflix had a secret though, it was suffering the mother of all hangovers from the GFC. By the end of 2011 they were down 800,000 subscribers and the stock price had dropped by 80%.
You probably have a Netflix account yourself, and it’s hard to imagine the internet streaming giant of today in such dire straights.
But, that’s where it found itself and Netflix needed a way out…
Netflix split the business into two and focused on streaming customers and mail-order DVD customers. No longer could you bundle the two together for a couple of dollars extra and you lost your personalised suggestions.
If you wanted both physical DVDs and streaming, you essentially now paid for two subscriptions. Cue furious users and investors jumping ship.
Netflix took a One Metric That Matters approach. They didn’t focus on anything else except subscribers and knew if the numbers lifted, everything else would align.
The first step was a public apology from founder and CEO Reed Hastings, who apologised for the split and terrible naming of the new DVD arm (Qwikster).
After the apology, Netflix stayed firm and kept the split between streaming and DVD rentals – renaming the mail-order service dvd.com.
They based their argument on the idea that if they didn’t take risks now, there would be no Netflix in the future. In fact, it was more risky to do nothing, than be bold and continue their push to becoming a streaming only business.
“. … companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover. Companies rarely die from moving too fast, and they frequently die from moving too slowly.”– Reed Hastings. Netflix founder and CEO
Eventually (as you well know), Netflix became the streaming giant they are today with $20 billion in revenue in 2019 and 180+ million subscribers.
If you head to dvd.com now, all you will find is an empty website, proof that Netflix’s gamble paid off.
What can you take away?
1) Focus on one metric that matters – it’s so easy to be seduced by vanity metrics and the latest dashboards. Having one metric that matters gives you clarity and allows you to focus on what’s truly important (we use 1MTM at foundU).
2) Stay strong – Netflix knew the future was in streaming video and not DVD. They stuck to the belief and it paid off.
3) Take a risk – Netflix was bold and went in with the mindset of we can fail at being a DVD and streaming company, or we can fail at being a streaming company. Either way, there is a risk of failure.
Next week, how Procter & Gamble invented the soap opera to survive the Great Depression.