What Netflix And House Of Cards Can Teach Us About Why Most Companies Fail

In this series, professionals at Shoptalk discuss the most pressing issues facing their industries today. Write your own #Shoptalk16 post here. Most companies fail - that’s a well known fact. It’s the underlying reasons that are misunderstood. Excluding those ideas that never become actual businesses, most failed companies don’t suffer from lack of demand. Their Core offering is what pushed them past an “idea” and into a business. The killer for businesses is the challenge around building and scaling the mission Critical technologies that connect product with customers. Netflix is an excellent example of a company that identified its Core and leveraged that knowledge to succeed. Ask anyone and they will say what they love about Netflix are things like “Convenience”, “Variety”, “House of Cards”. Early on, Netflix understood that. It also understood that streaming quality was something not Core for their business, but still Critical. If the delivery is anything short of seamless, then the experience is ruined. But it’s House of Cards, the content, that the customers pay for! Customers don’t care how House of Cards gets to them, so long as they can watch it anytime, anywhere. For Netflix, the realization was that the streaming technology itself was not Core to their business, but still Critical. Instead of enduring a costly and distracting build out of proprietary streaming infrastructure, Netlfix turned to Amazon Web Services (“AWS”). Netflix realized that AWS was already fast, stable, and secure. By shifting resources away from the Critical to the Core, Netflix was able to further its lead in things like usability and content selection. It also doubled down on its willingness to offload the Critical by partnering with companies like Toshiba and Panasonic to bring Netflix-ready devices to market. In turn, by focusing investments on their Core, Netflix enabled themselves to to get into the content production side of the business. In other words, Netflix decided its strength was customer relationships and content. It outsourced Critical to remain focused on Core. Coke does marketing and not bottling, Nike excels at design but uses partners for manufacturing. Iconic businesses succeed because they embrace their Core and find partners for Critical. The theme of Core vs Critical is central to how commerce business succeed. A commerce company begins with merchandise: Products that it wants to bring to market. To make this merchandise compelling, it employs a unique combination of creative inputs: Storytelling, pricing, etc. Over time, this combination becomes the  “Core” of the company and determines its success. Every great company has a highly differentiated Core, sometimes referred to as its “soul” or “voice.” Besides the Core, there remain Critical business functions. While necessary to keep a company competitive, the Critical does not define or differentiate a Brand. For commerce, the Critical includes the major functions needed to acquire, market, and fulfill merchandise. The Critical is just that - critical. For example, a company that can’t deliver merchandise on time will certainly fail. But succeeding at shipping will not gain a business brand recognition or make it great. That kind of success only comes from a combination of seamless Critical operations and a compelling Core message. The problem for most growing companies is that Critical infrastructure is massive. It’s also not typically where a company’s founding team excels. Trying to solve for the Critical on your own can only serve to distract you from the Core. The main takeaway is that iconic companies know exactly what is Core and are proactive in finding partners for Critical. Without division of labor, companies fail. But instead of being discouraged by this truth, companies should trust themselves to do what they do best. Find your Core, focus on it, and find partners for the Critical. It’s daunting, but it’s also effective and necessary. Focusing on the Core is a company’s best bet at not just surviving, but thriving in its journey to become a brand.