THE TINY DECISION THAT CHANGED NETFLIX FOREVER
In 1997, Netflix didn't exist yet.
Reed Hastings and Marc Randolph were looking for something they could sell over the internet.
They considered movies.
But there was a problem.
VHS WAS TOO EXPENSIVE
The original idea was simple:
Rent movies online → mail them to customers.
But VHS tapes were bulky, heavy and expensive to ship.
The idea looked terrible.
So they abandoned it.
Then they heard about something new:
DVDs.
THE TEST
DVDs were tiny compared with VHS tapes.
But there was still one question:
Could you actually mail one safely?
So Hastings and Randolph ran a ridiculously simple experiment.
They put a disc into an envelope and mailed it.
It arrived intact.
That tiny test changed their thinking.
The format was small enough, light enough and durable enough to make mail-order movie rentals potentially practical. Hastings later recalled testing discs because they couldn't initially get an actual DVD for the experiment.
NETFLIX WAS BORN AROUND THE DVD
Netflix launched in 1998 with:
925 titles
and about 30 employees.
But Netflix wasn't immediately the streaming company we know today.
It initially operated as an online DVD sales and rental business.
The company eventually discovered that rentals were the more interesting opportunity.
Then came another major decision:
SUBSCRIPTION.
In 1999, Netflix introduced a monthly subscription model.
By 2000, it had moved away from traditional per-rental pricing toward unlimited rentals without due dates and late fees.
That transformed the business.
THEN NETFLIX MADE THE BIGGER BET
The DVD business worked.
But Reed Hastings didn't want Netflix to become:
“The world's best DVD company.”
He believed entertainment would eventually move online.
So Netflix started investing in streaming.
In 2007, it introduced internet video alongside its DVD service.
The initial streaming library was tiny compared with its DVD catalog—around 1,000 titles versus tens of thousands available on DVD.
At the time, streaming wasn't obviously the better business.
It was the future Netflix was betting on.
THE REAL LESSON
Netflix repeatedly made decisions that looked strange before the market caught up.
↓
Test whether DVDs can be mailed.
↓
Build an online DVD business.
↓
Replace individual rentals with subscriptions.
↓
Invest in streaming while DVDs still make money.
↓
Eventually abandon DVDs completely.
Netflix mailed its final DVD in 2023, ending the business that had originally launched the company.
SIMPLE IDEA
The biggest business decisions don't always begin with millions of dollars.
Sometimes they begin with a tiny experiment that answers one important question:
“Could this actually work?”
Netflix didn't start by knowing exactly what the future would look like.
It tested one assumption at a time.
MAACAT PERSPECTIVE
The smartest part of Netflix's early strategy wasn't predicting everything correctly.
It was being willing to change the business when the evidence changed.
VHS didn't work.
DVDs did.
Per-rental pricing wasn't enough.
Subscriptions worked better.
DVDs eventually became outdated.
Streaming took their place.
The company kept changing the vehicle while keeping the destination:
Make entertainment easier for people to access.
