Seek Go Create

January 31, 2020 § 1 Comment

A great friend, Tim Winders, has started a great podcast called “Seek Go Create”. Our conversation can be found at the link below. He begins with asking me about the new book “That Will Never Work” (Netflix founding story) and he masterfully helps me share my Silicon Valley experience over the last 30 years with a focus on topics such as “Risk Culture”, the Silicon Valley “underbelly”, my time at Mozilla, and ending with some of my thoughts on Leadership, Teams, Integrity and Trust.

Spotify Podcast:

Apple Podcast

https://podcasts.apple.com/us/podcast/seek-go-create/id1481874131?i=1000463765672

TuneIn Radio: 

http://tun.in/pjIsI

Maybe a good “listen” on your next commute?  or simply save it in your podcast library and come back to it.

That Will Never Work

December 11, 2019 § Leave a comment

In the tradition of Phil Knight’s Shoe Dog comes the incredible untold story of how Netflix went from concept to company – all revealed by co-founder and first CEO Marc Randolph.

Once upon a time, brick-and-mortar video stores were king. Late fees were ubiquitous, video-streaming unheard of, and widespread DVD adoption seemed about as imminent as flying cars. Indeed, these were the widely accepted laws of the land in 1997, when Marc Randolph had an idea. It was a simple thought – leveraging the internet to rent movies – and was just one of many more and far worse proposals, like personalized baseball bats and a shampoo delivery service, that Randolph would pitch to his business partner, Reed Hastings, on their commute to work each morning.

But Hastings was intrigued, and the pair – with Hastings as the primary investor and Randolph as the CEO – founded a company. Now with over 150 million subscribers, Netflix’s triumph feels inevitable, but the twenty first century’s most disruptive start up began with few believers and calamity at every turn. From having to pitch his own mother on being an early investor, to the motel conference room that served as a first office, to server crashes on launch day, to the now-infamous meeting when Netflix brass pitched Blockbuster to acquire them, Marc Randolph’s transformational journey exemplifies how anyone with grit, gut instincts and determination can change the world – even with an idea that many think will never work.

What emerges, however, isn’t just the inside story of one of the world’s most iconic companies. Full of counter-intuitive concepts and written in binge-worthy prose, it answers some of our most fundamental questions about taking that leap of faith in business or in life: How do you begin? How do you weather disappointment and failure? How do you deal with success? What even is success?

From idea generation to team building to knowing when it’s time to let go, That Will Never Work is not only the ultimate follow-your-dreams parable, but also one of the most dramatic and insightful entrepreneurial stories of our time.

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Note: the above is republished from littlebrown.com. It’s the best excerpt to capture what That Will Never Work (published October 2019) is all about.

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For those of you who didn’t know me 20+ years ago (1997) – ( I had just turned 30) “That Will Never Work” captures me quite well. I particularly love this quote…..

I had the opposite problem with a man named Jim Cook — who ended up as one of the most important members of the Netflix team.

page 40…is where my part of the story begins…

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The original story of how we founded Netflix was published in 2012 by Gina Keating called “Netflixed” (below). Coincidentally, a documentary was made from this book and in Nov 2019 it was awarded “Best Documentary” at the Lone Star Film Festival.

“Best Documentary” Lone Star Film Festival – November, 2019
Netflixed - Amazon

Published in 2012 by  industry journalist Gina Keating, “Netflixed” tells the story of how it all began.   Gina sat down face-to-face independently with all us (the founding team members) and one-by-one we told our stories over the course of several months.  We shared all our remaining artifacts/documentation (old envelopes, financial plans, old screen shots, 10 free rental coupons, etc) to help in her endeavor.

Gina painstakingly stitched all our stories together and added other industry interviews (Blockbuster, Walmart) and then followed through all the way to the recent strategic debacle (“Quikster”) and the newest MBA case study of failed company splitting, price raising, and customer loyalty/brand destruction).

The resulting book gives us all an extremely accurate history of Netflix and yet another behind-the-scenes view of company building.   It also provides a great opportunity for me to pull in an old blog post I wrote in 2006 as others have begun asking me again where they can find my old published article.

Five Lessons From the Netflix Startup Story

by Jim Cook  |
April 11, 2006
When we began building Netflix in 1997, most people thought we were nuts. DVD players had just started selling in the US in March, and by October we started executing our billion-dollar business plan with only $2 million in seed funding. Even with the dot-com era in full bloom, the idea of renting movies via mail struck most as somewhat ludicrous. Despite the odds and the obstacles, we persevered to create Netflix, which has revolutionized the movie rental industry.

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

1. Don’t let the naysayers get you down

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

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

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

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

2. Build operations for a ‘wow’ customer experience

We knew that if we didn’t find a way to work within the US Post Office’s systems, we wouldn’t succeed. We had to build operations to create an exceptional customer experience (the “wow!”). To understand how the Post Office backend worked, I spent hundreds of hours at a few of the largest regional Postal Centers, observing and asking tons of questions.

I noticed letters being sorted by several high spinning circular drums. While these crushing metal drums enabled the separation and processing of over 40,000 standard size letters per hour, it was obvious that a thin plastic DVD would not survive the journey. With a sinking stomach, I felt the business idea slip away. But then I noticed a separate conveyor belt sorting magazines and other larger pieces of “flat mail.” How would I ensure that the package always used this flat mail machine and not the letter sorter?

I found out that if an envelope had certain dimensions and other characteristics, it would be sorted by this alternate system instead of the large, crushing metal drums. Better yet, this flat mail sorting machine would read a bar coded delivery address and could automatically sort the item into “carrier walking route” sequence. Now the wheels were really turning. The fact that we could provide the right-size packaging, bar code, and other characteristics would make it possible for extremely fast processing of a mail piece with absolutely no human intervention or other physical touch.

Our resulting “Netflix envelope” was one of our biggest “customer wows.” Its design was critical not only for the customer experience but also for our operations and business model. We had to design the envelope so that it met several criteria:

  • Naturally, it had to effectively hold and protect the DVD.
  • It had to meet stringent Post Office criteria so we could mail with the equivalent cost of a first-class stamp.
  • It had to transform into the return envelope so that DVDs would find their way back to Netflix quickly and in good condition.
  • It had to be “operational”—easy to insert and remove the discs and something that could be pre-printed in mass quantities.
  • Above all else, this envelope was our “product.” It was the only thing that our customers would touch and see. Therefore, it had to have all the key features of a great marketing piece.

Since 1998, there have been over 150 versions of this little red package. It wasn’t always red, but we determined that red was the easiest color to see in the post office. It wasn’t always paper thin—our first package was much thicker, and we shipped 3 DVDs in the same envelope. By testing, learning, and improving, we did such non-intuitive things as print the inside return address upside down to make processing more efficient. We had to build a mini “pocket” inside the package to ensure that the Post Office stamp-canceling machine wouldn’t break the DVD inside. A very recent change added a little cut-out on the outside of the package, enabling one to check the disc in by “seeing” the inside disc barcode without having to open the package. The amount of time and motion this one little step saves is enormous given today’s processing volumes of over 20 million DVD returns every month.

3. Develop three-step solutions

When I worked at Intuit in the early days, cofounder Scott Cook used to espouse the value of three-step (or less) solutions. Many high-tech products build in unnecessary complexity for consumers. By contrast, the most successful products take tedious and difficult chores and make them easy—so easy that consumers can solve their problems in three steps or less.

A great example of Netflix’s three-step solution is the now famous and patented Subscription Queue. We knew our success would be limited if we required customers to come back to our Web site every time to place their next rental order. Our research told us that the average video rental customer rented 5-7 movies per month. Why make that customer come back to our Web site each and every time to rent something they already knew they wanted and could simply put on a list?

So, in 1999, we created the first ever online queue—a list of movies that customer knew they wanted to eventually watch. Within a few short months, our customer base had an average of 20-25 movies in the queue—the research was right! Of course, now, we literally had to re-customize our operational software and Web site to enable this new subscription queuing process.

Our new ability to automatically send out the next movie on the list also served another key customer goal of reducing delivery time and always ensuring a customer had at least one Netflix movie to watch at all times. This offered service customers could get nowhere else. It was fast and it was easy.

4. Copy the best

Why reinvent the wheel if someone has already come up with an easy-to-use, useful, and elegant solution? When designing the Netflix Website, we turned to the best: Amazon. Some of the ideas that we adapted for the Netflix Web site:

  • Product and button placements
  • Overall color schemes
  • Size of DVD images for fast page loading
  • Customer reviews and movie reviewer articles
  • Easy-to-use search with categorized searching by movie genre
  • Overall Web site navigation

5. Focus on rabid early adopters

It’s hard to believe, but Netflix launched and operated for the first five years without spending any significant advertising money. We had two secret weapons.

First, we had a meaningful connection with the rabid early DVD adopters on Usenet groups, the equivalent of early 90s bulletin boards and today’s blogs. When we launched our Web site, we made no public announcements. We hoped that this soft launch would bring in volumes of more than 10 or so “friends and family” orders per day. Unexpectedly, 500 orders arrived the first day, almost exclusively from our Usenet advocates who noticed the site was live and announced it to their networks. Within 30 days, we were consistently processing 1,000 orders per day, within three months over 2,000 orders per day, and thereafter continuing ahead of Amazon’s historical growth curve.

Our second key weapon was securing a coveted “ten free rental” coupon in every single DVD player sold by the big three manufacturers: Panasonic, Sony, and Toshiba. Combined, these big three had 85% market share. Ordinarily, it is extremely difficult to persuade major manufacturers to put promotional material in their packages. But at the time, these DVD player manufacturers were actually in fear of becoming another failed LaserDisc or Betamax. It was far from a foregone conclusion that DVD would catch on.

By offering 10 free rentals to consumers when they opened up their new DVD players, we gave consumers access to a breadth of titles that were very hard to find in traditional retail stores. We paid nothing out-of-pocket for the placement of the 5″ x 7″ purple branded coupon inserts. It was in the manufacturers’ interests to promote our service so that DVD technology wouldn’t die. We made sure that the coupons were the “last in” on the assembly line and therefore one of the first items a consumer would see upon opening their new DVD player.

Today, word of mouth still drives over 80% of all new customers. The customers are no longer early adopters, but they are just as rabid.

* * *

We started with an initial company goal of being bigger than the biggest single Blockbuster store in the US.

Today, the company’s market value is twice as big as Blockbuster’s. Netflix now boasts over 4 million customers and a market value of over $1.5 billion. Eight years later, the company is still quite young and services only 4% of all US households.

While the company faces many competitive pressures and a changing landscape of digital movie delivery, one thing is clear: Netflix’s relentless focus on customer-driven innovations will continue to provide the golden keys to unlock its revolutionary and evolving business.

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If you are still reading and want to hear more…..

LeanStartup Up did a Webcast on this story last summer (June 2017) Here

PTEP – Extending Stock Option Exercise Periods

April 20, 2019 § Leave a comment

There is a fast growing movement underway in Silicon Valley changing an ancient stock option practice (ancient in Silicon Valley terms) which originally helped build VC backed startups but is now so outdated and misaligned with modern day private company times that Mgt teams/Boards across the Valley are mostly quietly changing the exercise periods of stock options board meeting by Board meeting.

The acronym is PTEP or Post Termination Exercise Period for Stock Option holders (primarily employees of private VC backed companies.

The issue is a forced 90 day exercise period once an employee decides to leave their company. If an employee can’t afford to pay the Stock Option exercise price + the taxes on any gains, the option which has been vested and earned by the employee is forfeited.

The crisis at hand is the unarguable facts that private companies are staying private much longer and valuations are soaring creating a huge economic disadvantage that greatly misaligns the original intentions of stock options as well as the meritocracy value systems that most leaders espouse.

In essence, we have a situation where the wealthy who can afford to exercise these options after 90 days have the opportunity to get more wealthy and vice versa.

I’ve been personally involved in much of this discussion from Board rooms to Panel Talks to private COO and CFO web/email groups.

I’ve recently posted my views to a few of these groups and have received such overwhelming agreement from peer CEOs, COOs, CFOs that it’s time to publish here as well to ensure the strong chorus is amplified.

Bottom Line: Stock Option times are a changing and it’s time to change with the times and be part of the leadership of creating a healthier economic reality for employees.

Here’s my post to those other groups that I’m sharing more publicly here:

Headline:

The private markets are catching up to ancient and outdated stock option practices.  Huge misalignment of fair compensation practices with regards to stock options.

Providing stock options to employees is a 30+ yr practice in which the underlying terms and practices have never changed/been updated.   4 yr cliff vesting, 10 yr option expiration, 90 days to exercise, only the 1st $100K of ISO’s can be exercised in any given year.  Only cliff vesting has been addressed in 30 yrs (it used to be annual cliffs)

The Problems in these stale practices are clear.   The Avg Private company is now staying private for 12 yrs (latest data).  30 years ago, the average was 4 yrs.   $100K ISO Exercise Limit has not changed with Inflation….should be in the $300-$400K range in today’s dollars.    Stock Option exercise prices used to be pennies or tens of cents.

Finally, the topic here, 90 days to exercise is so MISALIGNED, it remains the only form of compensation that can effectively be TAKEN BACK by those in power and with much deeper pockets.

We are dealing with a severe conflict of interest and “compensation strategy misalignment” and “fair dealings with total compensation” every time I hear a VC or a Board proclaim a “disadvantage to the company or to other shareholders” and the argument of having to expand the cap table because of the underlying Option Pool,

To set the facts straight, when the discussion is about extending the stock option exercise period, we are dealing ONLY with Vested Stock Options.     Stepping back and asking “What’s the Right Thing To Do Here?”, there is generally a failure to recognize that Vested Stock Options are “Earned Compensation”.    The employee worked “Sweat Equity” and typically took lower cash pay as part of their overall comp package.

And yet, how can it be that “Earned Compensation” can be swiftly taken back within 90 Days?   The party with the power says there’s a catch!    You are required to pay me a large % of the value of what you’ve earned (30-50% taxes) before I pay you your earnings?  You don’t have the cash to pay me before I pay you?    Too bad, I get to put those earnings back into my pocket?

Can anyone imaging treating other forms of earned compensation this way?  Your annual bonus?  Your annual commission?  Imagine being forced to pay the taxes on your annual bonus or commission upfront before the company pays you the actual bonus cash?  To add insult, imagine a company or board saying “If you can’t pay the taxes, you lose your bonus” and that gives us the opportunity to pay higher bonuses to others?  As ridiculous as that sounds, it’s exactly the practice that’s going on with stock options.

When framed this way, people should be up in arms about this practice especially with the complete lack of changes in the private marketplace now that companies are staying private longer, stock option prices (409a valuations) are the competition for attracting and retaining talent has never been higher.

So, in classic market condition corrections, there are now nearly 100 brand name private VC backed companies that have been proactive and have changed these ancient practices.  

The rest of the Private markets will follow sooner or later once they realize this is actually both a new retention tool and an alignment of interests tool.

github.com/holman/extended-exercise-windows

Extending exercise periods once a valuable employee hits 2 or 3 yrs and then extends a year for every year of service thereafter up to say 7 years is another retention tool not much different than “Refresh Grants”.

In the end, company’s, Boards, VC’s should never argue that they are “giving something” to these employees.  These employees EARNED this value by providing their valuable services to the company.   An employee shouldn’t have to be wealthy to acquire the value they’ve earned and certainly shouldn’t have this value taken away due to lack of affordability.

“The principle we’re operating under is one of fairness,” explains Pinterest co-founder Evan Sharp. “If you’ve made an important contribution to Pinterest, you should be able to keep that value. And that shouldn’t just be for people with enough cash to satisfy their tax liability.”

More Good Reading Here:

Forbes: top compensation attorney = author

https://www.forbes.com/sites/edwardzimmerman/2017/08/27/stock-options-vc-backed-startups-extend-post-termination-exercise-period-ptep/#630a895f5568

https://www.forbes.com/sites/edwardzimmerman/2016/08/23/how-startup-founder-stock-often-triggers-unnecessary-personal-tax-hits/#33150dfe562a

Quora

www.quora.com/Why-d…-Trieu

Pinterest in 2015:

www.foundersworkbench.com/start…years/

Steve Blank

steveblank.com/2019/04/10/startup-stock-options-why-a-good-deal-has-gone-bad/

NEXT STEPS: For those involved in a position to change your companies practices here, so your homework.

1) Read these links and others.

2) Talk to your legal counsel

3) Draft and propose the proper changes for your company to your Board.

This is long overdue…..it’s time to show leadership again in this very important compensation area.

Best of Mozilla

June 30, 2018 § 1 Comment

As I depart Mozilla in 2018, I arrive at yet another inflection point in Mozilla’s history.

Mozilla is an incredible success story. From $0 in revenue and cash 15 years ago to $500M in both revenue and assets in the latest published annual report(s). From Mitchell’s Vision and Manifesto in the early 2000’s to the launch of Firefox 1.0 in November, 2004,  Firefox and everything Mozilla stands for has made an impact on the world.

We “Took Back the Web” in 2005 with only a few thousand square feet of space and now have multiple international Mozilla offices with over 1,100 employed Mozillians and thousands of additional open source contributors.

It’s been a privilege to have played a part in scaling Mozilla from this 18 person startup to the multi-national, top brand organization we are today. We made an impact on the industry and we continue to be a powerful voice for the web, the technology industry, and operating as a developer community.

Mozilla is one of those rare special places where you simultaneously seek to change the world and, by doing so, Mozilla changes you.

Mozilla taught me the true meaning of “Open” and how to lead powerfully with both Trust and Transparency. I’ve done my very best to coach/teach other Mozillians these key learning’s and to continuously design these key principles into Mozilla’s “internal operating systems”.

There are too many friends and teammates and Mozillians worldwide to thank who won’t see me as often in the offices but who I’ll still be hanging out with on the web and social media sites.

In the end, the only thing that matters is we connected with each other, learned from each other, and we made a difference. We learned to trust each other by operating transparently and in turn we learned how a small army of awesome Mozillians could leverage and compete with tech giants.

There are so too many stories and so many memories with so many people. The best I can do to convey my experience is to offer a sampling of my “Best Of” in the form of  what everyone loves these days “Videos on the Web”!

In no particular order and with 100% certainty I’ve missed some important “moments in time”, I offer you my take on “Mozilla’s Best of Vdieos” along with some historical and important blogposts from Mozilla leaders in an attempt to capture and share Mozilla’s amazing history over the last 10+ yrs.

There’s a lot below and it may all be tl;dr (too long; didn’t read) for you.  If that’s you, then at least BOOKMARK these links in Firefox or for bonus points SAVE the links to Pocket and Share!
Thank you Mozilla and all Mozillians!
Jim

MOZILLA’s BEST OF (Greatest Hits)

History of Mozilla

Chris Beard’s Mozilla Firefox Brand Manifesto:  We Answer To No One But You!: 

Quick Mozilla Firefox Videos:

I AM A MOZILLIAN!

ARE YOU A MOZILLIAN?

THE WEB WE WANT:  An Open Letter

Seniors React to Firefox Data Privacy

FIREFOX FLICKS: (2012)

UNBOXING FIREFOX:

WHAT DOES THE FOX SAY?

Johnathan Nightingale on Firefox (2013)

BONUS CUT:  Making Espresso at Mozilla:

Creating the Firefox Monument: 2014

New Firefox Quantum:  (2017)


BLOGPOSTS:

Mitchell Baker’s Blog: 

John Lilly: 

Denelle Dixon: Online Privacy  

Harvey Anderson: Health of the Web: 

Mark Surman:

Deb Cohen:

Laura Thomson:

https://air.mozilla.org/minimum-viable-bureaucracy/

https://air.mozilla.org/go-faster/


OTHER KEY LINKS

Annual Report – State of Mozilla 2016:https://www.mozilla.org/en-US/foundation/annualreport/2016/

IRL:  Internet in Real Life Podcast: 

https://irlpodcast.org/

Break the Pattern – Focus Your Vision

May 29, 2018 § Leave a comment

“Break the Pattern:  Everything is Always In Question…Even When It’s Going Well”

“The Flaw the Japanese Pottery Master Leaves In”

“Perfection Means Wholeness, Completeness…Not Flawlessness..the Flaws Stay In”

“Why Do We Do It This Way?”   “How Can We Do It Better?”

“Get A Clear Lock On What You Are Trying To Do and Why”

 

More Dewitt Jones:  Similar but different stories and insights:

 

StoryTelling: Change Your Lens – Change Your Life

May 1, 2018 § Leave a comment

“Our Vision Controls Our Perception.  Our Perception Becomes Our Reality”

“There’s More Than One Right Answer”

“There’s Far More Right With the World Than What’s Wrong With It”

“Extraordinary Visions Release Passion”

“I Saw An Angel In The Stone and Carved To Set It Free” – MichelAngelo

Dewitt Jones is great.   A great storyteller with a great message and great photos!

 

p.s. – Don’t forget to bring your “juice camera”!

GRATITUDE: A Good Day

April 22, 2018 § Leave a comment

When you are 92 and you have life experiences like Brother David Steindl-Rast, I always listen.

A simple and wonderful message on a Sunday.

* “It is not happiness that makes us grateful…….it’s gratefulness that makes you happy”

* Stop, Look, Listen, GO!

If you liked that 2007 video, he updated it in 2017.

Same message but worth watching again!

Connection is the New Currency

March 30, 2018 § Leave a comment

In this post, the focus is on Trust, Transparency, Leadership, Storytelling, and how all these concepts interlink:

Trust and Permission

“We seek out people who tell us stories that resonate, we listen to those stories, and we engage with those people or businesses that delight or reassure or surprise in a positive way. And all of those behaviors are the acts of people, not machines. We embrace the humanity in those around us, particularly as the rest of the world appears to become less human and more cold.

Leadership

“Management is almost diametrically opposed to leadership

Leadership, though, is a whole other game. Leadership puts the leader on the line. No manual, no rule book, no überleader to point the finger at when things go wrong. If you ask someone for the rule  book on how to lead, you’re secretly wishing to be a manager.

Leaders are vulnerable, not controlling, and they are racing to the top, taking us to a new place, not to the place of cheap, fast, compliant safety.”

StoryTelling

“After trust is earned and your work is seen, only a fraction of it is magical enough to be worth spreading. Again, this magic is the work of the human artist, not the corporate machine. We’re no longer interested in average stuff for average people.”

Humanity

“the people you seek to lead, the people who are helping to define the next thing and the interesting frontier, these people want your humanity..”

This was all taken from the following:  I thought

A Long Article – Worth the Read

Code Poets – “Good People Working Together Create Big Things”

March 9, 2018 § Leave a comment

Ran across a remarkable video (Tedx talk) by Jim Zemlin – CEO of the Linux Foundation

For anyone wondering what Mozilla has been like over the years, this video explains a ton.   Very similar companies. Very similar cultures.

For anyone inside of Mozilla, this video will resonate strongly.
Enjoy!

Bracing for impact

July 28, 2014 § 1 Comment

http://sethgodin.typepad.com/seths_blog/2014/07/brace-for-impact.html

When you walk around bracing for impact, you’re dramatically decreasing your chances. Your chances to avoid the outcome you fear, your chances to make a difference, and your chances to breathe and connect.