Trung Phan

Netflix is known for its cutthroat culture and willingness to pay top dollar for superstar talent.

The approach -- first outlined in a famous 2009 slide deck -- is about managing people in creative industries (eg. media, tech) while scaling fast.  

These 7 slides explain it 🧵 https://t.co/wKaNWMnTa1

1/ Netflix competes in media + tech (knowledge work that often requires creativity).

High-performers in these fields can be 10x better than the average.

In a "procedural" field (manufacturing), the best may only be 2x better (industries that deal w/ atoms are naturally capped). https://t.co/gIH9LKSCS8

2/ Most businesses get more complex as they grow.

To deal with this, companies introduce processes (and bureaucracy), which has the adverse effect of driving out creative talent. https://t.co/XwsXvYdR6D

3/ In "procedural" industries (e.g., manufacturing), good processes will often make up for a lack of "high-performing" creative talent. https://t.co/yYqF4VHgIq

4/ But during market shifts, process-driven companies are ill-prepared to change or adapt. 

Netflix competes in fast-moving industries (tech, media) that require creativity, innovation and quick adaption. It needs the right talent to manage the market shifts. https://t.co/eIX37PuXat

5/ Netflix's ongoing challenge is to scale its business and deal with complexity WITHOUT bringing in more processes. 

To do that, Netflix needed to staff with lots of A+ creative talent.

It does so by offering: 
◻️ Top-of-market comp
◻️ Tons of freedom https://t.co/fL8unzGPor

6/ The flipside of the coin is that if an employee doesn't fit, they'll quickly be dropped...as famously highlighted in this slide: https://t.co/apchHJpadC

7/ Netflix explicitly states that its culture is not for everyone: https://t.co/YYd4NS7Yuz

8/ And the streaming giant has faced its fair share of criticism for how it operates. https://t.co/bS7Csrd7l7

9/ Whatever you think of the strategy, it produces results (and your prob a customer):

◻️ successful transition from DVD to streaming
◻️ creation of original IP 
◻️ from 2k to ~10k employees 
◻️ subscribers 20m --> 200m+
◻️ market cap $2B --> $200B+

10/ Here's a final stat of note: Netflix’s revenue per employee is $2.6m.

More than:
◻️ Apple ($2m) 
◻️ Alphabet ($1.4m)
◻️ Microsoft ($877k)

(Apple obvi crushes profits and FCF, though) https://t.co/Cm1zSv8UMJ

11/ If you enjoyed that, I write threads breaking down tech and business 1-2x a week. 

Def follow @TrungTPhan to catch them in your feed. 

Here's one you might like: https://t.co/g0K61PjgtF

12/ PS. I also write a weekly Saturday email with insightful insights and really dank memes: https://t.co/AfxadXedRb

13/ Link to the 120-slide doc on SlideShare.

Looks like it was actually posted by Reed Hasting in August 2009 under the title "Minimize Complexity Growth": 

https://t.co/upIYLZ8NbS

14/ And here’s the funniest Netflix meme ever https://t.co/kkvf84W12m

15/ Here’s one more Netflix thread for ya https://t.co/7BMsLpJmQp

Smart threads. Dumb memes. Write on tech @TheHustle. Sold comedy film to Fox. Not Investment Advice (NIA) podcast: https://t.co/NfjmiP41my

Trung Phan 🇨🇦

Netflix now costs $15.49 a month. 

Based on a rigorous scenario analysis, NFLX would become the world’s 7th company worth $1T+ if it increased monthly subs to $69: https://t.co/WRzqGrK97z

BuT cUsToMeRs WiLl ChUrn. 

Based on everything I’ve seen on the internet, no they won’t l.

UPDATE: Netflix pricing power could move to $1k per month. 

Assuming linear correlation with current market cap holds (a reasonable assumption btw), NFLX will become the world’s first $15T company: https://t.co/PNaLFFNruP

A lot of people on Twitter ask “Why is LinkedIn so cringe?”

The answer is in the platform’s business model and what its algorithm incentivizes.

I wrote about it here: https://t.co/aX2fh5s6IJ

I cleansed the cringe from my LinkedIn profile by updating the education section last year: https://t.co/uJIA8ACysi

Received this DM from a former LinkedIn employee re: “Why is LinkedIn so cringe?” https://t.co/81DksWv2ph

In 2004, Elon Musk and Jeff Bezos met for a meal to discuss space. 

It was one of their few in-person interactions. 

That conversation perfectly captures the different approaches they've taken to space (and why SpaceX has pulled ahead of Blue Origin).

Here's the story 🧵 https://t.co/g1XtoheHeY

1/ For Bezos, the path to the meeting began in 1999 when he and famed sci-fi author Neal Stephenson watched the film "October Sky" (about NASA engineer Homer Hickam)  

After the viewing, the Amazon founder told Stephenson he always wanted to start a space company... https://t.co/oNvUYwZmu2

2/ ..and Stephenson said "why don't you start today?"

Stephenson -- author of classics such as "Snow Crash" -- was hire #1 and put together a team of thinkers and engineers.

Blue Origins was incorporated in Sept 2000. Bezos checked in one Saturday a month to talk shop. https://t.co/XGpjBnMwXl

3/ Around the time (2001), Musk was part of a space advocacy group called Mars Society. 

To create buzz, he pursued a project to send rats/plants to Mars to prove that it was possible. 

Musk even flew to Russia to buy 3 "refurbished ICMBs" but balked at the price ($24m total). https://t.co/Gk2sFi3RpV

4/ Instead, Musk decided to build his own rockets. He incorporated SpaceX in March 2002, ~18 months after Bezos and Blue Origin. 

He funded the venture from a cash windfall after eBay acquired PayPal for $1.5B. https://t.co/P6kDJVqhmf

5/ From the start, SpaceX was much more publicly visible. 

Musk's attempts to win NASA contracts (competing w/ Boeing and Lockheed Martin) included wild stunts. 

In Dec 2003, he rolled a SpaceX rocket down Independence Ave in DC and gave a speech at the Air & Space Museum https://t.co/nmv2OjgvkD

6/  Not long after -- in 2004 -- the two met to talk space, with very different missions in mind: 

◻️ Blue Origin: "Preserve the Earth” by going “to space to tap its unlimited resources and energy”.
◻️ SpaceX: Colonize Mars and "make humanity a multi-planetary species"

7/ While SpaceX had yet to launch a rocket into space, it was testing engines in Texas and Bezos wanted to pick Musk's brains. It was a very technical chat. 

Musk was unimpressed with Bezos' progress. https://t.co/hrijajv5Qa

8/ Like really unimpressed ("dude, we tried that") https://t.co/sl5mbDpyom

9/ Why did Bezos ignore Musk's advice? 

His history at Amazon clearly shows 3 things:
◻️vast patience 
◻️trailblazing its own path 
◻️constant experimentation 

If Bezos was wrong, he wanted to find out on his own. https://t.co/diOTvQeAIo

10/ Further, in 2004, Blue Origin was very much a side project. 

Bezos kept expenses to a minimum and wanted a lean team (~70) believing that constraints led to innovation.

He enshrined the philosophy in a "Welcome Letter" that all Blue Origin employees receive: https://t.co/1nihgXLCdm

10/ The "Welcome Letter" and notion of patiently pursuing a long-term objective is further encapsulated in Blue Origin's:

◻️motto = "Gradatim Ferociter" (step by step, ferociously) 
◻️coat of arms = a pair of turtles (AKA the tortoise vs. the hare) heading to the stars https://t.co/5m9pRGbwk4

11/ Conversely, SpaceX's motto is "Head down. Plow through the line" Musk's aim of creating a multi-planet species (eg Mars) requires urgency. 

(Bezos is more focussed on creating a space economy for millions of people)

SpaceX's first successful launch came 4yrs after they met. https://t.co/Wo4fNFXdag

12/ Clearly, Bezos' "tortoise" approach was losing.

Headcount
◻️ 2010: SpaceX (900) vs. Blue Origin (275)
◻️ 2017: SpaceX (5k) vs. Blue Origin (1k)

Blue Origin's New Shepard would finally touch the edge of space in Apr 2015, ~7 years after SpaceX. https://t.co/3GhavsmoXZ

13/ Meanwhile, SpaceX owns the public's imagination and wins government contracts:

2012: 1st spacecraft sent to ISS 
2016: 1st vertical lancing on ocean platform
2017: 1st re-used rocket 
2018: Falcon Heavy (largest rocket in operation) launched
2020: 2 astronauts sent to ISS https://t.co/wfUjBocmM6

14/ In April 2017, Bezos said "enough", announcing he would sell $1B of $AMZN a year to fund Blue Origin.

A few months later, he hired Bob Smith -- an aerospace exec from defence contractor Honeywell -- as Blue Origin CEO. 

Blue now has 3.5k employees (vs. SpaceX @  9.5k). https://t.co/QNASlmYBg1

15/ Blue has aggressively poached SpaceX employees, often 2x-ing their salary: 

"I think it’s unnecessary and a bit rude,” Musk says of the practice. 

In April 2021, Blue Origin challenged a $2.9B contract NASA awarded to SpaceX. Musk taunted Bezos with this tweet and image: https://t.co/Zz7Nd6EiyN

16/ Now, Bezos will fly to space on July 20 with his brother and 2 other passengers. 

Last week, he donated $200m to the Smithsonian Institute to promote science and space research.

While Bezos ignored Musk's advice at in 2004, these moves are right out of Musk's PR playbook. https://t.co/2wvsWHNm2q

17/ Musk himself booked a space flight on Richard Branson's Virgin Galactic. 

No date is set but the two hung out the morning before Branson went to space on July 11 (beating Bezos by 9 days). 

No word if Musk and Bezos will brunch before Bezos' flight (unlikely). https://t.co/VmpDF4PO6N

18/ With Bezos retiring from Amazon and all in on Blue Origin, the battle between the world's 2 richest people  may just be starting ($205 Bezos vs. $160B Musk)

To win the Space Race, it's looking like Bezos is ditching Aesop's tortoise.

Next step: Become Blue Origin CEO? https://t.co/SkU7EhJVGr

19/ If you enjoyed this, FOLLOW @TrungTPhan for other baller business stories and some really dumb memes: https://t.co/AgK3thwfNW

20/ Sources 

Book excerpts from Christian Davenport's excellent "Space Barons": https://t.co/Kbvnvssy8G

Great breakdown of Blue Origin vs. SpaceX from Brad Stone: https://t.co/i0NPyT4li6

21/ NOTE: Photo that leads the thread is NOT from the 2004 meeting b/t Bezos and Musk (it's the only photo can find of the two together). 

It's from 2008, at an economics workshop. Third person is U of Chicago professor Sendhil Mullainathan. 

More here: https://t.co/qgw3k7NtMG https://t.co/98SJoiUJTa

Makes me feel a whole lot better about my unused Audible credits https://t.co/rR4m16Kp7C

Anonymous $30m Bezos space flight bidder right now: https://t.co/gqVboMAlI5

We’ll be debating acceptable reasons a to give up a non-refundable $30m space flight on the next episode of Not Investment Advice (NIA):

◻️ The second coming 
◻️ Kanye and Jay-Z concert reunion 
◻️ or Reservation at The French Laundry??

https://t.co/nx6GiLpv95 https://t.co/u9e9vfCXL5

Apple’s first CEO was named — you can’t make this up — Michael Scott.

When Apple went public in 1980, he owned 5.6% of the company ... compared to Steve Jobs (15.0%) and Steve Wozniak (7.9%) https://t.co/qbNkU53Wrl

More on Markkula, who owned 14% of Apple at IPO:
◻️First outside check ($250k in 1977)
◻️Was one of first 3 employees and owned up to 30% of Apple
◻️ Big early contributions and actually hired Michael Scott
https://t.co/jTp4VeTg9l https://t.co/pe7riNLQ32

Here’s the Apple Michael Scott. He left Apple in 1981 (replaced by Markkula as CEO): https://t.co/cOZEYAS2lB https://t.co/xjqKpK5y5K

No wonder the iPad is “paper thin” https://t.co/OmHsRukMPx

The Oakland-based warehouse will be valued at ~$80m and potentially trade with the ticker -- you can't make this up -- $AMZL.

To be fair, the plan is to create a REIT of other industrial properties that all work with Amazon...but still, $AMZL. 

https://t.co/B3p3iTDmiM

Sorry: Oakley, California ... not Oakland! (WE NEED EDITS BUTTONS!!)

The IPo deck for this single Amazon warehouse will be glorious: 

Revenue driver: Amazon
Industry: Amazon
Key risk: Amazon
Upcoming catalyst: Amazon 
Long-term thesis: Amazon

In less than 2 years, Disney+ notched 104m subscribers and is prob worth $100B+ as a standalone entity. 

How did Disney build a Netflix competitor so fast? By acquiring a tech firm spun out from MLB (yes, Major League Baseball) for $2.6B.  

Here's the story 🧵 https://t.co/msgF1FRgSL

1/ It starts in 2000: the height of Dotcom.

MLB Commissioner Bud Selig wants to consolidate digital rights and create websites for the league's 30 teams. 

To make sure the project is "fair" to every team, he creates an independent arm: MLB Baseball Advanced Media (BAM). https://t.co/XzoY15t4aX

2/ To fund BAM, Selig asks for a $4m commitment ($1m per year for 4 years) across all 30 teams = $120m. 

The first big project -- MLB .com -- is outsourced to a consulting firm. It's a complete disaster. 

Lesson learnt: BAM will now create everything in-house. https://t.co/3TIa6tb50V

3/ In 2001, Japanese sensation Ichiro Suzuki (the OG Ohtani) joins the Seattle Mariners. 

BAM creates an audio streaming product so that Japanese fans can listen to games lives. 

They spend millions on the product but it totally flops...getting less than 1k subscribers. https://t.co/uvOHEqYz3c

4/ With these failures, BAM looks doomed. 

Running low on cash, the unit catches a break: MLB gives BAM ticketing rights. 

BAM then tells TicketMaster "pay up or no baseball". The ticket giant ends up giving BAM $10m, which it uses on its next bet: streaming video. https://t.co/zt4Qg1DI45

5/ On August 26th, 2002, the MLB streams its first ever game: New York Yankees vs. Texas Rangers. 

This is 3 years before YouTube is launched.

30k people watch at a pathetic speed of 280 kilobits per second (one BAM exec calls is like "watching a flip book"). https://t.co/FIPbn1fHKF

6/ Even so, fans LOVE it. 

For the 2003 season -- 4 years before Netflix streams -- MLB TV debuts and 100k fans pay $80 for access to live stream games. 

BAM is now stable and only takes $77m (of the $120m commitment) from team owners before paying a dividend. https://t.co/hMz9JQAnXD

7/ With a cash cow in place, BAM starts innovating.

It figures out how to handle live audiences at scale, video quality and key issues that every streaming service will eventually face: https://t.co/elvBgoY1WK

8/ By mid-2010s, BAM is the fastest and most cost-effective streaming provider.

BAM builds for the WWE ('14), NHL ('15), PGA ('15), Playstation ('15) and HBO Now ('15). 

HBO thought it would cost $900m over 3yrs (BAM did it for $50m in 3.5 months). https://t.co/5ILuR4XR3m

9/ To reach its full potential, MLB spins out BAM as "BAM Tech" in 2015 (sales = $900m, employees = 800+). 

Enter Disney: the media conglomerate knows streaming is the future and needs expertise.  

In August 2016, it buys 1/3rd of BAM for $1B with the option to buy more. https://t.co/IiTVcreC1C

10/ In August 2017, Disney drops another $1.6B ($2.6B total) to own 75% of BAM Tech. 

It then announces it will launch streaming for: 1) ESPN (sports network); and 2) its outrageous IP catalogue (Marvel, Star Wars, Pixar, Classics).

BAM Tech becomes Disney Streaming Services. https://t.co/F1YIs7GxmJ

11/ At first, many are critical of the Disney deal. 

Former CBS head Les Moonves says "We didn’t buy BAM Tech for a zillion dollars. We [built streaming] internally."

As it turns out, timing is everything: Disney+ launches in November 2019, months before a global pandemic. https://t.co/UeYGRr0D1E

12/ With the stay-at-home orders in place, Disney+ is among the big COVID media winners. 

By March 2021 (1.5 years from launch), Disney's streaming service reaches 100m subs.

A *much* faster pace than Netflix or AMZN Prime, all powered by the artist formerly known as BAM Tech. https://t.co/z5S3cSKZrt

13/ Today, Disney+ has ~104m subs. 

Of course, you can't actually *separate* Disney+ from its parent. But using the same "market cap-per-sub" ratio as Netflix gives Disney+ a standalone value of $119B. 

While that is ~35% of Disney's total value... https://t.co/NTC7z59o6m

14/ ...it's not an outrageous value guessimate. 

Consider this: $DIS is up 55% of the past year, from $212B to $330B. That's a $118B market cap gain even as its parks, cruise and theatre businesses have been mostly shuttered. https://t.co/QM4FVY1Z1i

15/ And lets not forget that -- last fall -- Disney frickin' reorganized the entire company around its direct-to-consumer streaming business. https://t.co/T4xdmezblm

16/ The latest data point. 

Disney released the Marvel film "Black Widow" over the weekend. It had the largest COVID-era box office domestic opening in the US: $80m.

The film also came streamed on Disney+...where it pulled in nearly as much money: $60m. 

Thank you BAM Tech. https://t.co/uzKhfELc62

17/ If you enjoyed that, follow @TrungTPhan for other business breakdowns and some really dumb memes: https://t.co/Czg9SnbDLA

18/ Sources

NYT: https://t.co/NgLD1Ksz1q

Matthew Ball Thread: https://t.co/lCFR0EiB1r

The Diff: https://t.co/Ge8BOngSZg

The Verge (core article): https://t.co/8nakRasowx

19/ Other thoughts:

◻️ Between 2009-19, Disney spent $80B on content (Marvel, LucasFilms/StarWars, Fox). BAM Tech at a fraction of spend ($2.6B) was the streaming unlock.
◻️ Can BAM Tech be in the same ballpark as FB/Instagram ($1B) and Google/YouTube ($1.6B) for value creation? https://t.co/5U6UsJ4DiQ

20/ If you prefer Disney parks to streaming, check this LOL. https://t.co/slUvUL0xSL

Bjorn Kuipers refereed the Italy-England final. 

He is the world’s “richest referee”, worth ~$15m from his ownership of a Dutch grocery chain.

It’s called Jumbo Supermarket and sponsored F1 superstar Max Verstappen! Legendary. https://t.co/SF6bD0s9hn

“he studied business in university” but comes from a family of Big Game Football refs https://t.co/P08mjEy3r5

CORRECTION: Kuipers owns a number of Jumbo locations, not the entire chain (which is apparently huge in Netherlands). 

h/t @dannypostmaa https://t.co/2Qp4hAWQ0p

China has roving KFC vending machines. I repeat, China has roving KFC vending machines. https://t.co/LwBKkmagBi

Brace yourself for buzzwords: “The company uses autonomous vehicles connected to 5G networks and QR codes to distribute its product on the streets of Shanghai.”

https://t.co/eolkNp65xw https://t.co/AlNzLgmEde

We are def talking about this on the next episode of the Not Investment Advice (NIA) podcast. 

All questions welcome: “How do you keep the chicken crispy?”

🔗 https://t.co/2rzl0XH0iF https://t.co/Z7oW5VHiub

@TrungTPhan's Latest Twitter Threads

Read threads by Trung Phan and get notified about future ones.