Planning for the futre

$40 dollars. That is all it took to start Netflix.

It was the 29th of August, 1997 and Reed Hastings got a $40 fine for returning the movie Apollo 13 late.

The pain of this fine made Hastings think about a world where you could order movies online and then get them sent to you in the mail.

Or so the story goes, however, it is just a nice piece of marketing. The real story is that Hastings and his business partner, Marc Randolph, saw that a looming merger would put them out of a job, so they played with a lot of ideas to start their own business.

Many of the ideas Hastings dismissed as never being able to work, then Randolph heard of a new product coming from Japan, the DVD.

Hastings and Randolph went to a record store and bought a CD and sent it to Hastings’s house, which was just a few blocks away. The CD arrived intact and they knew they had a viable business.

The rest is history, they made a subscription DVD service, then they changed to streaming in 2007, and now they are the dominant global streaming platform spending more on content (US$18 Billion in 2021) than many nations spend on defence.

Strategy vs Planning

Strategy is essentially choosing where to play and how to win. This is very different from planning which is choosing how to use defined resources.

Strategy is nebulous, you are making bet on how the world is going to work.

Planning is working in certain terms. We have this many people and we have X amount of hours each day. We have X amount of money to spend so we will buy this widget creator.

Strategy is difficult and feels unsafe because you don’t know if you are going to be right or not. Planning is safe, there is no risk, and you are working within known environments. Most people play it safe, especially the big players.

Your planning should be reinforcing and enchanting your startegy, not a replacement for it.

Face The Fear

Netflix saw the world that could be. They took a punt that the internet would make going to the video store an activity from a bygone area.

Blockbuster famously had a chance to buy Netflix but couldn’t see how the world was changing. It was safer to build the next store and get the next franchise rolling. That process had worked for them for years, why is today any different?

We all know how this played out. Blockbuster is no more and Netflix is in most homes on the planet.

Be brave, create a thesis of how the world will be and how you will serve it, and then execute that idea by using your resources wisely.

Learn from your thesis and do it all over again.

You have to adjust and update your strategy as the environment around you shifts. Most established players don’t want to risk anything so they hold onto their size as new competitors chip away.

The problem as Ernest Hemingway wrote – How do you go bankrupt? Two ways, Gradually, then suddenly.

Blockbuster was afraid to reassess their strategy, they played it safe and worked on their planning, it was easier to avoid any upstarts, so they didn’t fear Netflix until suddenly it was too late.