How Roku Thought Outside the “Box”

Shawn Carolan
Nov 17, 2017 · 5 min read

Disclosure: Menlo Ventures is an investor in Roku.*

Millions of people know Roku as the little black box that streams Netflix to their TVs, but there’s far more to the story than this. Following the company’s September IPO and rise to $3.9 billion** in market cap, Roku has emerged as the №1 IPO of the year and the unexpected market leader in streaming TV amidst a landscape of giants that includes the likes of Apple, Amazon, Google, and Samsung. By comparison, if Roku were a cable company, it would be the fourth largest as of Sept 30, 2017 with 16.7 million active accounts — trailing close behind AT&T/DirecTV, Comcast, and Time Warner — and the fastest growing of them all.

How did they succeed under the noses of such powerful competitors? And what lessons can be learned by early-stage consumer startups with world-changing ambitions?

Dream Big

Keep Your Eye on the Prize

  • They Started Early: Sometimes available technologies may not support exactly what you envision creating out of the gate. To get a head start on the competition, Roku first rolled out two lower bandwidth products: SoundBridge, a digital audio player, and PhotoBridge, a digital image viewer. These early products served as literal bridges to long-term success: helping Roku to grow a team with unique expertise; build manufacturing relationships, retail distribution, and brand awareness; establish internal systems for firmware updates and progressive releases; and moreall before launching the first Netflix streaming video player.
  • They Defined Value: Achieving large-scale behavior change is no small feat for any startup, but getting crystal clear on your product value provides a north star. Roku aimed for the consumer value trifecta: “better, faster, and cheaper.” In Roku’s case, high quality streaming video to the TV meant better content breadth, faster start times with everything on demand, and cheaper a la carte programming options relative to fat bundles.
  • They Aligned the Business Model: The hundreds of billions of dollars of market capitalization for the existing TV ecosystem participants lies in advertising and premium content fees. Though Roku needs streaming boxes and TVs in homes to grow their footprint, they knew the margin needed to come from platform, not hardware revenues. In Q3, 89% of total gross profit came from the platform.
  • They Stayed Focused: If distraction is the enemy of productivity, then Roku’s triumph also stems from an unwavering commitment to laser focus on its core product. Rather than divide resources between multiple product lines, Roku discontinued SoundBridge and PhotoBridge and remodeled its commercial signage business, BrightSign, into a separate company as soon as they knew they had a hit on their hands with the video player. Only after the video player had established №1 market share did they begin licensing the Roku TV OS to manufacturers to multiply their footprint. TCL, their first TV partner, achieved the №2 spot for US smart TV sales in September after less than three years in the market.

The journey to a breakthrough product isn’t a sprint, but a marathon that will be more manageable with intermediate waypoints that deliver value while growing team competence and removing potential roadblocks.

Learn From Experience

Find Your Allies

Exploit Network Effects

One Last Thing

* Menlo was the largest shareholder prior to IPO, and I’ve been on the board since 2008.

**Market cap as of Thursday, November 16th, 2017.

STARTUP POETRY

thought pieces at the intersection of consumer tech…