Within my personal observation, seems like Netflix has been part of most people life as their go-to for relaxing. Especially on the weekend. How is your weekend so far, does it filled with Netflix and chill?
Today I zoom out on Netflix because of one crucial chapter in Clayton Christensen’s book. I make some notes after reading How Will You Measure Your Life? by Prof. Christensen. He really had an interesting way to see how theory in business might applied in life.
In the chapter about “marginal thinking”, he explains the story of Netflix growth, and the decline of Blockbuster, and then relate that to #integrity.
Rather than make people go to the video store,
why don’t we mail DVDs to them?
Netflix’s business model made profit in just the opposite way to Blockbuster’s. Netflix customers paid a monthly fee, and the company made money when customers didn’t watch the DVDs that they had ordered. Blockbuster, with all its resources and brand recognition, decided not to go after this nascent market.
By 2002, the upstart was showing signs of potential. It had $150 million in revenues and a 36% profit margin. Blockbuster thought online rental services are “serving a niche market.”
Netflix, on the other hand, thought this market was fantastic. Compared to non-existent business, Netflix was very happy with their relatively low margins and their niche market.
Who was right?
In 2010, Blockbuster declared bankruptcy.
By 2011, Netflix had almost 24 million customers.
Prof. Christensen wrote:
Marginal thinking is a dangerous way of thinking. Almost always, such analysis shows that the marginal costs are lower, and marginal profits are higher, than the full cost. This doctrine biases companies to leverage what they have put in place to succeed in the past, instead of guiding them to create the capabilities they’ll need in the future. If we know the future would be exactly the same as the past, the approach would be fine.
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Marginal thinking made Blockbuster believe that the alternative to not pursuing the postal DVD market was to happily continue doing what it was doing before, at 66% margins and billions of dollars in revenue.
Blockbuster should have been thinking,
“If we didn’t have existing business how could we best build a new one? What would be the best way to for us to serve our customers?”
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In professional life, Prof. Christensen argued that marginal thinking applies in choosing right and wrong. How to live a life of #integrity, and stay out of jail. The marginal cost of doing something “just this once” always seems to be negligible, but the full cost will typically much higher. Prof. Christensen also put the story of Nick Leeson. Who were known as the trader who brought down British merchant bank Barings to bankruptcy in 1995 due to billion of trading losses before being detected.
Sometimes, taking the shortcut don’t seem that bad at the start. This is almost always how it plays out. Because failure is often at the end of a path of marginal thinking, we end up paying for the full cost of our decisions, not the marginal costs, whether we like it or not.
The marginal costs are almost always low. But each of those decisions can roll up into a much bigger picture, turning you into the kind of person you never wanted to be. That instinct to just use the marginal costs hides from us the true cost of our actions.
The first step down that path is taken with a small decision. You justify all the small decisions that lead up to the big one and then you get to the big one it doesn’t seem so enormous anymore. You don’t realize the road you are on until you look up and see you’ve arrived at a destination you would have once considered unthinkable.- Clayton Christensen
This chapter hits me hard as I’ve seen examples close to me. I guess, it was just started from “little tricks” or “little tweaks here and there”. Once we did that, I guess it’s true we didn’t see any immediate disadvantage. But often, we immediately see the “advantage.” Just like a time-bomb, our “little tricks” became “big problem” eventually. We ended up paying the sudden full cost once we realized everything is not reversible.
I hope I can stay true to myself. Do the right thing in life and in works.
I still have fear, that some bad decisions truly compound quickly.
I hope we can stay away from these kind of unhealthy problems.
