The Rise and Fall of Netflix

Read time: 3 mins, 42 sec

Hey there 👋 - it's Brian.

Let's talk about the strategies behind the rise and fall of Netflix.

The backstory:
They beat Blockbuster, made a cultural shift that grew their business by $300B+, then lost ~60% of their valuation.

In this issue you’ll learn:
• How Netflix injected strategy into their culture
• Get you the dead-simple frameworks Netflix used to grow
• Tips to help you avoid their mistakes

Let’s make your business an outlier 👇

Netflix feels competitors closing in. They need a change

Reed Hastings, Netflix CEO, had just overcome the threat from Blockbuster with their new business model: the DVDs by mail business.

But the iconic red envelop business is dying.

They begin to feel pressure from much larger competitors: Google, Amazon, Time Warner, and Apple.

Netflix needs to make a drastic change to survive.

Up until this point, most of the focus was on exceptional execution, but execution without strategy puts them at risk to be wiped out.

"Strategy" is a dirty word

Reed knows he needs a strategy, but he's an execution guy.

He hates how complicated traditional, "ivory tower," strategy is. He hates that it's magically created by senior leaders behind closed doors and pushed down to the rest of the company.

Reed doesn't want this at his company. But to help Netflix survive the competitive pressure and grow into an iconic company, he needs change.

He decides he to find a strategy framework that's simple and that he can embed into the culture at every level.

The rise of Netflix: Helmer’s 7 Powers

Reed finds Hamilton Helmer, a consultant on a mission to make strategy simple and pull it out of the ivory tower. Everyone deserves access and input into the company strategy.

Helmer agrees to help Reed, and brings his simple strategic framework to teach to the people at Netflix: his 7 Powers.

The Netflix-ers tell Reed that this training is the most transformational shift in thinking they've had in their career.

Netflix prioritizes driving the 7 Powers in to their culture.

Then, over the next 14 years, this new strategic culture drives $300B+ in growth.

So what are the 7 Powers?

7 Powers are ways to sustainably differentiate your business. It's your competitive moat.

When you're creating your strategy be sure to include competitive moats to protect your business from competitors.

Side note: most people misunderstand how to build a strategy. Here’s an outline to what you need for your strategy.

Now for Helmer’s 7 Powers:

The fall of Netflix

Fast forward to 2021 and Netflix's valuation drops by ~$200B. How can this happen if they have such a strategically minded organization?

Factors that went into Netflix's crash

1) Increased competition
Netflix was first to the streaming market and took market share quickly. Now, there are too many different places to find video streaming content.

Netflix is struggling to differentiate and their value is decreasing in the minds of consumers. When more competitors come to market, differentiation becomes even more critical.

7 Powers is a critical exercise for differentiation. They previously won with counter-positioning (a better business model against Blockbuster) and cornered resources (proprietary Netflix shows).

Now, competitors are using the same Powers, and Netflix needs to refresh their strategy and target new Powers.

2) Increased prices (lost ~600k subscribers)
For customers accessing content on multiple platforms, the value of a Netflix subscription decreased. Then, Netflix increased the price of a subscription.

600,000 subscribers left when they felt the increased price was no longer worth the subscription.

Raise prices when your product's value is dropping and you'll lose customers. Differentiate and improve the value of the product before you increase prices.

3) Russia / Ukraine war
Netflix took a stance and pulled out of Russia. This was the right move in the long run, but cost them ~700k Russian subscribers.

Customers are more likely to buy from companies that take a stance.

How can you avoid a crash?

Let's start with a harsh truth:

Strategy greatly improves the odds you'll succeed, but doesn't guarantee it.

The world is too complex.

Strategy is also not a one-and-done process. Competitors change, industry forces change, you need to change with it and keep a competitive advantage.

So what do you do to increase your odds of success?

1) Refresh your strategy more frequently
Write down the factors that may impact your business and cause your strategy to change:
• Changing industry trends?
• New tech solutions?
• New competitors?

A changing landscape means you'll want to check in on your differentiation.

2) Scenario Plan for uncertainty
There's a separate strategy exercise for times that are exceptionally uncertain (e.g., COVID, Russia / Ukraine war, the changing streaming landscape).

Come up with the future possibilities, and develop a strategy for each. This process helps prepare your business for outcomes that could happen.

How to build your strategy for uncertainty in the thread below:

Ready to act on what you learned?

And there you have it, Helmer's 7 Powers and how Netflix brought them into their culture.

Check out Hamilton Helmer's book, 7 Powers for details.

Which of Helmer's Powers are you using in your business?

I'm confident that if you begin to use more Powers in your business you'll have a lasting competitive advantage.

See you again next week!

Brian
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