To Innovate Like Netflix, Leaders Need 3 Key Traits

Distributors that don't disrupt their own businesses could suffer Blockbuster's fate.
Eric-Smith-84x84

When Netflix drove Blockbuster out of business, it highlighted the power of disruption and innovation, according to Netflix founder Marc Randolph, who delivered the keynote speech Sunday at the Heating, Air-conditioning and Refrigeration Distributors International annual conference in Orlando, FL.

Netflix defied the video rental business model of the late 1990s and early 2000s with its DVD-by-mail service, but it took the company reinventing itself ­– specifically when it shifted to a monthly subscription package and eliminated late fees – to create stickiness with customers and ultimately led to Blockbuster's demise.

Randolph said distributors should find inspiration from his company's success but also heed warnings from Blockbuster's missteps, namely, discounting Netflix's impact on the industry and then later turning down the chance to buy the company for a mere $50 million.

"What if you are the market leader?" Randolph asked. "How do you innovate and disrupt yourself before someone disrupts you? Anyone, anywhere can do it."

Randolph said companies don't need to "be in Silicon Valley," "have special training" or even be the "best and brightest" to lead innovative measures in their industries. Instead, he said, a company leader needs to possess three simple traits:

  1. Tolerance for risk: "Risk-taking is fundamental for any organization."
  2. A really good idea: "Ideas are the basis for innovation."
  3. Confidence: "You've got to believe this is going to work"

While many business leaders look for new ideas by finding a twist on the latest technology, industry trends or business model, perhaps the most useful method is to "look for pain," Randolph said. Since customers hated driving a rented movie back to the video store by midnight to avoid a late fee, Netflix found its billion-dollar idea by alleviating those concerns.

Randolph advised HARDI conference attendees to seek the pain points among their customers, explore ways to disrupt their business before someone else does – and then follow through on those ideas.

"There's no way to find out if it works without doing it," he says.

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