I learned the growth hack The New York Times used to explode readership.

Last week I read An Honorable Titan, a biography about Adolph Ochs, who acquired The New York Times and turned the paper into an institution. Adolph executed this strategy in around 1900, but I think it’s ingenious and something others could find helpful. So, what’d he do exactly?

The Times’s daily circulation was stuck at 26,000, and it was losing money. The Times made money from sales at newsstands and advertising revenue. Adolph determined that he needed to double his circulation to 50,000 to break even.

His paper was respected and sold for the going rate of $0.03. Papers that sold for less than that were deemed sensationalized and from the yellow press. These lower-quality papers sold for $0.01. At the time, the thinking was that anyone who wanted to read a respectable paper would have $0.03. The $0.01 and $0.03 tiers were accepted pricing norms.

This pricing logic didn’t make sense to Adolph, and he decided to blow it up. He hypothesized that “the requisite number of readers could be found among those to whom the difference between three dollars a year and ten dollars a year for a newspaper was a material difference.” Using this logic, he priced the Times at $0.01. The move shocked everyone. His advisers and other publishers thought he was crazy because he essentially reduced his revenue from newsstand sales by 66%. Said differently, he had been losing money before, and he would lose money faster—and be wiped out—if he were wrong.

A funny thing happened. Circulation skyrocketed from 26,000 to 75,000. This jump allowed him to increase advertising rates because more people saw the ads. The Times went from losing money to being solidly profitable. The newspaper world called Adolph’s move a stroke of genius.

What did Adolph see that others had missed?

The unsaid and accepted logic behind pricing at that time was that the poor were unintelligent and, therefore, had no desire to read a respectable paper. Adolph recognized that intelligence is evenly distributed through the population at all economic levels. Doing the math, he realized that the rich are a small percentage of the population and if intelligence is evenly distributed, there was huge unmet demand among the largest segment of the population, the poor.

If, say, 10% of people are intelligent and 100 people are rich, 10 would desire a respectable paper like the Times. If 1,000 people are poor, 100 would want the paper if it was affordable.

Adolph didn’t just accept the status quo. He did his own thinking to reach his own conclusions instead of accepting the thinking of others. This approach allowed him to see an opportunity everyone stared at but couldn’t see.

Two weeks ago, I read a second biography about Albert Lasker, The Man Who Sold America. It mentioned how Lasker worked with Adolph Ochs, who owned The New York Times, to free Leo Frank, who had been charged with the murder of Mary Phagan in Atlanta in 1913. Lasker and Ochs, both Jewish, felt Frank was being wrongly accused because he was Jewish. Learning how Lasker and Ochs created a sophisticated media campaign to draw attention to this case nationally was fascinating.

I’d never heard of Ochs, but I was curious about his journey and how he became the owner of The New York Times. This week, I began reading a biography about him, An Honorable Titan, by Gerald Johnson.

I’m early in the book, but I’ve already been surprised by Ochs’s history: The publisher of a nationally recognized and New York–based newspaper dropped out of school at 14. He wasn’t from an elite family or background. He had to start working full-time at 14.

Adolph began his career as an information entrepreneur in Chattanooga, Tennessee, where he sold a directory at age 19. In 1878, he and a partner created a directory of all the businesses in Chattanooga. This was a manual effort requiring them to canvass the entire city house-by-house to collect the information before they compiled it in a book.

The benefit of this grunt work was that Adolph developed a detailed understanding of the town, its businesses, and the entrepreneurs who owned them. His directory became a valuable resource that allowed him to establish relationships with all the entrepreneurs in town and add value to them by providing aggregated information about where to buy goods and services.

Adolph was selling information that, for the most part, was readily available to everyone in Chattanooga. But by compiling it and making it easy to use, he created something of value that others were happy to pay for. It’s not exactly the same, but it reminds me of how Michael Bloomberg took publicly available bond market data, centralized it, and made it easy for people to make buy-and-sell decisions around bonds (more here). The information product is still, as of this writing, the anchor of his empire and over $100 billion fortune.

It’s interesting how these two information entrepreneurs took a similar approach when they started out though there’s a 100-year gap between them.

I’m curious to learn more about Ochs and how all this led him to The New York Times.

Yesterday, I shared what I learned about how much of the company each Netflix cofounder owned (see here). I also learned from reading Netflix’s S-1 document that VC firm Technology Crossover Ventures (TCV) owned roughly 43% before the IPO and roughly 34% after it. I learned that TCV partner and cofounder Jay C. Hoag has been a Netflix board member since 1999 (see here). Jay and TCV invested before the IPO, so they’ve seen the company go from a promising start-up worth tens of millions to a global, publicly traded company worth over $400 billion.

I view investors who found investment firms as entrepreneurs, so I was curious to learn more about Jay and TCV. I’m early in my research, but I found Jay’s interview (listen here) from 2021 on the Invest Like the Best podcast. A few things I found interesting:

• Netflix stock traded down 15–20% after the 2002 IPO and stayed down for about six months.
• TCV was founded as a private and public (i.e., “crossover”) investor. This means that it invests in private technology companies (i.e., start-ups) and technology companies traded publicly on the stock exchanges.
• In 2011, TCV made a PIPE investment in Netflix after the stock had declined 70%. The stock traded down further after the PIPE investment, which was for $400 million, with T. Rowe Price participating, too. More details are here and here.  
• “By being a private investor, it made us better public market investors” and “By being a public market investor, it made us better private investors.”
• “The capital allocation exercise is to look across the technology landscape, take advantage of all the research and knowledge that we have, and look for the best investment . . . and not be bucketed by either private or public.”

Jay and TCV also invested in Zillow, Peloton, Facebook, Airbnb, Tripadvisor, Spotify, and many more wildly successful technology companies. I’m excited to learn more about Hoad and what led to his outsize success.

Last week I read a biography about Netflix’s early years, That Will Never Work. In one of my posts, I shared how the Netflix cofounders initially divided ownership between the two of them: about 68% for Reed Hastings and about 30% for Marc Randolph. I also shared in a separate post that Marc gave Reed some of his shares in the company when Reed took over as CEO about a year after the company was founded. Both posts were based on what Marc wrote in the biography.

The last part of the book is about going public in 2002 and the day of the IPO. According to my research, the company’s market capitalization (valuation) when it went public was around $300 million (now, it’s more than 1,300 times more: over $410 billion). I was curious how much of the company each cofounder owned when Netflix went public, so I did some digging. I found the company’s 2002 S-1 Registration Statement it filed so it could go public; what I was looking for is on page 66. Here are the details:

• Reed Hastings owned 20% of the company before the IPO and roughly 15% after it. His 15% stake was worth roughly $45 million.
• Marc Randolph owned roughly 5.5% of the company before the IPO and roughly 4% after it. His 4% stake was worth roughly $12 million.

An interesting data point in the S-1 is that VC firm Technology Crossover Ventures (TCV) owned roughly 43% before the IPO and roughly 34% after it. TCV’s ownership stake can be seen on page 66 of the S-1. It’s under the name of TCV founding partner Jay C. Hoag, who is also on the Netflix board. In the biography, Marc says TCV led the company’s series C in early 1999 with a $6 million check and, in April 2000, ten days before the dot-com bubble burst, invested $40 million. IPO documents (page 61) show that TCV invested another $8.3 million in July 2001 via a promissory note and warrants. After the company went public, TCV’s 34% stake was worth roughly $102 million.

The above isn’t a complete picture of everything that happened between the company’s founding and its IPO. Other financial transactions (such as stock options being issued, founders selling shares via secondary transactions, etc.) likely impacted each founder’s ownership at the time of IPO.

I enjoyed Marc’s description of the early days of Netflix. It was helpful for me to see the data around company ownership at IPO.

I finished reading That Will Never Work, the biography about Netflix’s early years. Cofounder and first CEO Marc Randolph’s perspective on taking the company from idea to IPO in seven years is full of wisdom that entrepreneurs will find helpful.

One of his principles I enjoyed was what Marc and Reed Hastings call the “Canada Principle.” For the first twelve years, Netflix served only the United States. But several times during that period, they thought about expanding into Canada. It was close, so shipping costs would be low (it was shipping DVDs then), and the regulatory environment was friendly. Canada looked like low-hanging fruit.

But first appearances were deceiving.

When they dug into it, they learned it would be complicated:

• French is the main language spoken in some parts of Canada, so they’d have translation issues.
• Canadian dollars differ from U.S. dollars, so they’d have to deal with currency issues.
• The postal system in Canada was different, so special envelopes would be necessary.

When they ran the numbers, they learned they’d get a roughly 10% revenue boost by expanding into Canada.

They then considered the “effort, manpower, and mind-power” required to expand into Canada. It would be a big lift for their team. Then they analyzed how much they could increase revenue if they applied the same amount of effort to other aspects of the business.

Using that framework to evaluate the decision made things crystal clear. If they applied that effort in other areas, they could get a far greater return by increasing revenue considerably more than 10%. Expanding into Canada wasn’t the best way to allocate their resources. The return was too low relative to other options requiring similar effort.

They realized that Canada was a short-term, obvious move that would provide short-term benefits. “It would have diluted our focus,” wrote Marc.

After this experience, Netflix adopted what Marc calls the “Canada Principle.” When faced with options, evaluate the potential return of each of them and the effort and resources required to generate it. Pick the highest-return activity and focus on it. Don’t spread yourself thin and lose focus by doing low-return activities.

Marc and Reed realized, through trial and error, that focus is a superpower and that if they could focus on the right high-return activities, they’d have a competitive advantage. The Canada Principle became key to deciding what initiatives to pursue or kill.

The Canada Principle led the company to stop selling physical DVDs and focus entirely on subscription rentals, even though DVD sales were 90% of their revenue. It also helped them decide against pursuing automated DVD rental kiosks, despite promising results from months of testing. (Side note: a team member on the kiosk project helped found Redbox.) All of these were the right decisions. They kept the company focused. They leapfrogged competitors and built a behemoth that’s now publicly traded and has a market capitalization (valuation) of over $410 billion as of this writing.

I didn’t have a name for it when I was building my company, but I applied the Canada Principle several times when making strategic decisions. It was sometimes painful in the short run, but it usually led to the best long-term decision.

Yesterday, I shared what I read in the Netflix biography That Will Never Work about how cofounders Marc Randolph and Reed Hastings divided equity and how the first financing round led to Reed owning 68% of the company to Marc’s 30%. I shared all the math in this post.

The interesting outcome of that scenario was the ownership, voting control, and control of the board. Marc was CEO, but he owned a minority 30% stake in the company and didn’t have voting control. He also didn’t control the board because he wasn’t the board's chairman. Reed wasn’t an employee of the company but owned a majority 68% stake in it, which meant he had voting control. He was also chairman of the board, so he effectively controlled the board, too.

Marc and Reed were friends and had worked together at another company. They spitballed ideas until they landed on the idea that became Netflix. So they were used to working together and being brutally honest with each other.

In the fall of 1998, about a year into the company’s life, Reed sat Marc down and told him that he’d done some good things. Then he added, “I don’t think you’re a complete CEO” and “A complete CEO wouldn’t have to rely on the guidance of the board as much as you do.” Reed proposed that he join the company full-time and become the CEO. He suggested Marc become the president and that they run the company together as a team.

Reed had voting and board control, so technically he could have forced this decision on Marc. Instead, he left it up to Marc. Marc thought about it and in the end decided that Reed was better suited to be CEO and that he himself was better suited to work alongside someone disciplined like Reed. They divvied up duties. Reed focused on what they called “back-end” functions such as finances, operations, and engineering. Marc handled customer-facing things like PR, web design, movie content, partnership relations, and customer service.

With the changes agreed to, there was one last issue: compensation. Reed surprised Marc by requesting that the two cofounders redivide their ownership. Reed wanted 2 million more shares—and he thought they should come from Marc.

Marc doesn’t share exact numbers in the book, but he does say, “In the end, I’d agreed that a third of the shares Reed wanted, if he was to come on as CEO, would come from me. The other two-thirds he was going to have to ask the board for. Which he did – and which he got.”

In the end, roughly one year after the birth of the company, Marc relinquished the CEO title to Reed and Reed received additional shares. By this point, they’d raised an additional $6 million from Institutional Venture Partners, a prominent VC firm in Silicon Valley at the time. I’m not sure what the exact ownership split between the cofounders was, but I’d assume Reed had a significant, majority ownership stake in the company.

That’s the story of how Reed Hastings became the CEO of Netflix, as told from Marc Randolph’s perspective.

I’m making my way through That Will Never Work, a biography about Netflix’s origin. I finally got to the part I’ve been curious about. Marc Randolph is the author and was the first CEO and cofounder of Netflix, along with Reed Hastings. I’ve always considered Reed the founding CEO, and this book is helping me understand why.

A little bit of background first. When they started the company in 1997, Marc and Reed each received 50% ownership. They valued the company—an idea and two guys—at $3 million (pre-money). They issued 6 million shares, with each share valued at $0.50. Here’s how the ownership looked at this point:

• Reed: 3m founder shares *$0.50 per share = $1.5m (50%) ownership stake
• Marc: 3m founder shares *$0.50 per share = $1.5m (50%) ownership stake

To capitalize the company, they raised $2 million from investors. The company was worth $3 million (pre-money) and raised $2 million from investors, so its post-money valuation was $5 million (pre-money plus cash raised). For their $2 million, investors were buying 40% of the company. Here’s the math:

• $3 million pre-money valuation + $2 million raised from investors = $5 million post-money valuation
• $2 million raised from investors / $5 million post-money valuation = 40% ownership

Six million founder shares already existed. To give investors 40% ownership, the company issued 4 million investor shares, increasing the total to 10 million: 6 million founder shares split between Reed and Marc and 4 million investor shares.

Marc had a young family and was working full-time in the business, while Reed was part-time and had ample liquidity from selling another company. Reed believed in the idea and invested $1.9 million of the money they needed, and angel investors contributed the other $100k. Marc didn’t invest any capital. Here’s how the 4 million shares issued to investors were split between Reed and the angel investors:

• Reed: 3.8m shares ($1.9m / $2m = 95%) * 4m investor shares
• Angels: 0.2m shares ($0.1m / $2m = 5%) * 4m investor shares

This is where the ownership between the two founders changed drastically. Reed was a cofounder and investor, while Marc was just a cofounder. Here’s how their ownership changed after this fundraise was completed:

• Reed: 68% = 6.8m total shares (3.8m investor shares + 3m founder shares) / 10m total shares
• Marc: 30% = 3m founder shares / 10m total shares
• Angels: 2% = 0.2m investors shares / 10m total shares

Even though they were cofounders and Marc was CEO, Reed had a majority 68% ownership position in the company and was also the Chairman of the Board. Marc was CEO but had only a 30% ownership.

In the next post, I’ll detail how the ownership and other dynamics led to changes in leadership titles.

I’m still reading That Will Never Work, a biography about Netflix’s origin. The author, Marc Randolph, shares his perspective on the early days as cofounder and the first CEO of Netflix.

Netflix is a household name worldwide. It’s the go-to streaming service for people to watch movies, shows, and other television content. The company is publicly traded and has a market capitalization (valuation) of over $410 billion.

But things didn’t start that way. The company was born in 1997. Users could buy or rent DVDs by placing an order on its website. The orders were all fulfilled via snail mail from its small office in Scotts Valley, California. The launch of Netflix was a big deal that included tons of press. It was so successful that on the first day, the company servers crashed multiple times and the team had difficulty keeping up with and fulfilling all the orders.

What surprised me was how many orders the company processed that day: 137, which seemed low to me. Given the amount of publicity they'd generated before launching, I expected them to have done hundreds or even thousands of orders. But it was only 137, and that exceeded their initial expectations. They thought 15 to 20 people would order DVDs that day.

When I read this section, I thought about where the company is today and that first launch day. My takeaway is that everything starts not just small but really small. It takes time to make people aware you exist, even if you have a great solution. It’s the discipline to get a little better and compound your learning and growth consistently every single day that leads to massive outcomes over a long period. Being a breakout success on day one is the exception, not the norm. Most companies we consider wildly successful started small and got better every single day, year after year.

For the last year, I’ve been enamored with media entrepreneurs and biographies about them. This week, I started reading That Will Never Work, a biography about Netflix’s origin story. It’s written by Marc Randolph, the cofounder and first CEO of Netflix. I always think of Reed Hastings as the first and only CEO—I had no clue Marc was the founding CEO.

I’m early in the book, but I’m enjoying Marc’s recounting of the early days and how he overcame early obstacles.

One thing that resonated with me was his approach to naming the company and the concept of a beta name. Fun fact: the company was originally named Kibble. The logic behind the name was based on an old advertising and marketing saying: “It doesn’t make a difference how good the ads are if the dogs don’t eat the food.”

Marc chose this name because he wanted to remind the team that if the product was lackluster, it wouldn’t matter how well they sold it. He picked “Kibble” as a placeholder to remind his team to focus on building an amazing product that people would love.

Marc realized that picking the right name can take months and that you must give yourself time for serendipity to kick in. Instead of forcing a name at founding, he chose a beta name—a working name you use to get the company up and running (email, bank accounts, website, etc.). The key to a beta name is that it must be something so bad that there’s zero chance you’ll keep it. If you pick something tolerable, he said, your exhaustion and familiarity six months down the road may lead to your just keeping it. But, if you pick something awful, you’ll be forced to rename the company.

Ultimately, his team wanted one word that combined movies and the internet: Net . . . flix.

Marc detailed how hard it is to pick a good name. Here’s what to think about:

• A good name rolls off the tongue. One- or two-syllable words are best; ideally, the emphasis is on the first syllable. His examples: Google and Facebook.
• Too many syllables, too many letters, and people might misspell your website. Too few and they might forget the name.
• A name isn’t great if someone else already owns the domain or the trademark. Double-check before settling on a name.

Even a good name might not be an immediate slam dunk. Marc’s team didn’t initially like “Netflix” because “flix” made some team members think of “porno” or “skin flicks.” When the team was down to the wire and had to decide, they slept on it for a night and agreed it was their best option.

Naming is hard, but it shouldn’t stop you from moving the company forward or building your product or solution. Beta names give you a placeholder and time to find the right name. Marc’s beta name approach is great, and I plan to use it.

Early this year, I read the updated version of Poor Charlie’s Almanack, a collection of Charlie Munger’s speeches on mental models and psychology. The book was a masterclass on decision-making. Since then, I’ve reread sections of the book and found recordings of the speeches. What Charlie Munger shares in those speeches is knowledge and insight that he spent decades acquiring. His wisdom feels like a cheat code, and I want to leverage it fully.

I wanted a cheat sheet of Munger’s wisdom to reference as I make decisions. During my research, I found something pretty helpful. It’s an animated video that condenses the most important lessons from Munger’s 1995 speech “The Psychology of Human Misjudgment,” which lasted about 75 minutes, into 14 minutes.

Tiny, a publicly traded Canadian holding company that acquires and owns businesses long-term, created the video. Here’s what its cofounder, Andrew Wilkinson, said this week in his newsletter about why they created the video:

In 1995, Charlie Munger, Warren Buffett’s longtime business partner, gave an incredible speech about why humans do stupid things.

In it, he breaks down all the key psychological effects that warp our thinking and cause bizarre behavior.

In 2014, I made it my mission to memorize this talk. I listened to it every single day on my drive to work and tattoo’d it into my brain.

It has been one of the most durable and important pieces of content I’ve ever consumed, and a few years ago, Chris and I decided to make it more accessible.

We took the original hour long scratchy audio recording and turned it into a shorter and more accessible animated video.

I’ll still create a cheat sheet, but I’m going to test Wilkinson’s approach and listen to this video daily to see if doing so accelerates my understanding of the concepts Munger discussed in this speech.

If you want to watch the 14 minute animated version of Munger's speech, you can find it here.