SHORTSIGHTED LEADERSHIP – PART 2

In 1997, an irrational optimist, in his own words, Reed Hastings along with a carpooling partner Marc Randolph, had metaphorically speaking, jumped out of an airplane in the confidence that he could catch a bird flying by and had almost fallen splat. In short, he was an entrepreneur who had started a video rental company called Netflix. Hastings had owed a video store $40 for a misplaced video and in a spurt of irrational degree of optimism and confidence, traits which he in hindsight believes today as a prerequisite for being remarkably successful… converted into reality his idea of having a mail-based video rental business that would have no such unreasonable charges that he himself had suffered. Netflix launched as the first DVD rental and sales site with only 30 employees and 925 titles available. While the inspiration came from the Amazon model, strangely, a year later they were in front of Jeff Bezos who offered to acquire Netflix for between $14 and $16 million. Fearing competition from Amazon, Randolph at first thought the offer was fair but Hastings, who held a major 70% of the company, turned it down on the plane ride home.

Two years later as the dotcom bubble burst, Netflix suffered immense losses and were on their path to almost bankruptcy. In more glorious times two years earlier they had refused to sell to Amazon & now the time had to reconsider that option again. During the same time, the leader of the trade was Blockbuster Entertainment Inc. It was an American-based provider of home movie and video game rental services & consisted of 9,000+ stores and employed approximately 84,300 people: 58,500 in the United States and 25,800 in other countries. It had a flamboyant $50+ Million salary drawing CEO John Antioco. They operated out of a swanky posh 900,000 sf office-warehouse-distribution facility on a 46-acre site near Dallas.. in McKinney, Texas.

Netflix had been sending feelers for a long-time to Blockbuster that they wanted to sell… given that it was on a downward spiral. However, Blockbuster management kept avoiding the new kid on the block like a plague. One fine day, in the September of 2000, they suddenly consented to meet the Netflix founders at their swanky office the next day at 11:30 AM. The only problem was that it was physically impossible to travel all that way from their place to Dallas in such a short time. Hastings decided to charter a plane to which their CFO objected, since it was going to cost $20,000. The operating logic he gave was that they were on the verge of losing $50 Million as it is and another $20,000 wouldn’t matter much. And if the deal clicked, they would be in green. So, they took the charter flight and landed up at the swanky posh office of the market giant, Blockbuster.

The Netflix Leadership was blinded by the display of wealth and success at Blockbuster HO. Marc Randolph, noted that at Blockbuster’s Dallas headquarters, everything seemed designed to impress visitors with the company’s wealth and power, from the building, which he describes as “an unbroken cube of steel and glass” to the shoes worn by CEO John Antioco. “John’s shoes probably cost more than my car”… Randolph writes in his book. And John was entitled to this success. Two years ago, when he had taken over Blockbuster, the company wasn’t doing well, and was on a downward spiral due to poor business decisions like diversifying onto retailing apparel as well. John had turned the company’s fortunes around and had even raised $465 Million through a successful IPO.

Marc & Reed went on to pitch the possibility of the partnering of Netflix & Blockbuster to a very confidant, and sceptically wary Antioco… Reed quickly enumerated on Blockbusters strengths and areas of where the Netflix was expert at and beginning to gain significant foothold in the budding online space and the possibility of this synergy leading to the creation of a giant in the arena. Reed Hastings said, “We should join forces, we will run the online part of the combined business. You will focus on the stores. We will find the synergies that come from the combination, and it will truly be a case of the whole being greater than the sum of its parts.”

John Antioco, the magnanimously successful CEO of Blockbuster, in all his arrogant brilliance said, “The dot-com hysteria is completely overblown.” The leadership at Blockbuster, part of this meeting strongly felt that the business model of Netflix and just about any of these online offshoots was not only not sustainable but would never make money. As the Netflix leaders went on to counter this aspect, they were cut short and asked to quote their price, in the event of them being considered for acquisition.

“$50 million”. Reed said.

All along, the Netflix founders had found the Blockbuster CEO very polished, interested in the conversation and politely professional. At the mention of the $5o million, Hastings later notes in his memoirs that he was sure that he observed the peculiar expression on John Antioco’s face, as if he was trying his best not to burst out laughing.

Blockbuster Leadership very arrogantly snubbed the offer and didn’t bother to even consider the rapidly changing landscape of the industry they were in. So cocky and adamant were they in their own cocooned fundas and arrogant beliefs. Over a period of the next decade, Blockbuster went on declining, accumulating losses, failing to cash in on the changing business landscapes, being adamantly arrogant and clumsily inagile. Poor leadership and the impact of the Great Recession were major factors leading to Blockbuster’s decline, as was the growing competition from Netflix’s mail-order service, videos on demand, and Redbox automated kiosks. Significant loss of revenue occurred during the late 2000s (immediately after having snubbed Netflix) and the company filed for bankruptcy protection in 2010. Of the 9,094 stores, 9093 stores were shut down or sold away. 84,300 proud employees lost their means of livelihood here and their futures that they had built over decades of loyalty and confidence on the intelligence of their leadership. That day in September 2000, if Antioco had even offered a reduced deal, Netflix would have gone for it given their stressful situation. If only the Blockbuster leadership would not have been ostriched in their own dogmas and opinionated myopic view of business present & future, maybe, things would have turned out different with this merger for the unsuspecting loyal 84,300 believers of the organisation and its shareholders.

Leadership when afflicted with myopic farsightedness, biased dogmas and irrelevant & outdated competencies can cause long-term disaster to their ecosystem, shareholders and human capital that would have stayed invested in them. This is nothing short of white collared corporate genocide and mass annihilation of dreams, possibilities and futures of their trusted ones. Almost always, this goes totally unnoticed, unpunished and remains in academic case studies and corporate training folklores to simply cluck our tch tch disapproval at such a monumental dereliction of responsibilities, have a tea in the break and return to the monotonous mayhem.

In 2010 when Blockbuster shut shop, Netflix was worth around $10 Billion of market cap with $2.1 Billion annual revenue.

This year, Netflix peaked at a market cap of almost $1 Trillion with annual revenues of $29.7 billion last fiscal and a net income of $5.1 Billion and assets worth almost $50 Billion.

Today, the lone surviving Blockbuster store in Bend, Oregon, the only one left out of the 9094 stores, is a testimony to how corporate honchos can destroy gigantic possibilities & monumental futures with their short-sightedness and disbelief in unlearning & relearning. Parroting away philosophies doesn’t suffice in heralding change and nurturing agility of possibilities. Stubbornness of mindset is a progress termite that will slowly eat away the edifice of possibilities and potential. Slowly, painfully and surely.

For those who still have doubts, a corporate trip to the sole surviving Blockbuster at Bend, Oregon can help. Here you get to sip on a custom new beer, a limited-edition brew in honor of the store appropriately named “The Last Blockbuster”, created by Bend’s very own 10 Barrel Brewing. And yes, they also screen your favourite movies from Netflix at the Last Blockbuster Store…. 😊

Charaiveti….. Charaiveti….

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