Want to Be a Disruptor?

Just focus on the market that nobody is paying attention to.

In one way, the story of Netflix taking down Blockbuster is an inspiring one: just a handful of people with no experience in the video industry, using nothing more than imagination and persistence, taking down the biggest video rental company in the world.

But what if you are the 800 pound gorilla? Then it’s a different story, isn’t it? Because then the moral is little different — and a little unsettling. Then this story suggests that the people coming after you are going to look nothing like you. And they are not going to come after the things you do well. They are going to target the things you don’t do well. Or can’t do. Or are unwilling to do.

But that’s the nature of disruption. You never know where it’s coming from. And if it’s done correctly, it’s almost indefensible.

In the spring of 1998, on the eve of Netflix launching its video-rental-by-mail business, the thought that we might eventually disrupt the video industry and take down Blockbuster was ludicrous. Blockbuster was huge: 7,000 stores. More than 75,000 employees. Nearly 5 billion dollars in annual revenue. While we, on the other hand, were a dozen people hunkered down in an old bank building with dirty green carpet. We stored our paltry selection of 900 videos in the bank’s old walk-in safe.

Our dream at that time wasn’t world domination; it was simply to get to the size of a single Blockbuster store, which meant doing about $650,000 in annual revenue. But even that was ambitious. In 1999, Blockbuster boasted of having a store within a ten-minute drive of virtually every major neighborhood in the United States. Why would someone wait three or four days for their video to arrive by mail?

That said, we did have reasons for confidence, primarily because the Blockbuster customer experience left a lot to be desired. Finding things to watch was hard, so most customers gravitated to the New-Releases wall. But Blockbuster purposely wouldn’t buy enough copies, hoping to spread the demand for new titles over several weeks. They called this “managed dissatisfaction”. And you always want to compete with a business that has “managed dissatisfaction” at the core of their business model.