The Greatest Thing to Happen to Netflix: Humilating Rejection

By Markets Fool.com

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It's entirely possible House of Cards would have not occurred if Blockbuster had acquired Netflix in 2000. Source: Netflix.

Rejection hurts; always has, always will. Regardless of whether you are a rational and well-adjusted adult, a 2-year-old toddler, or -- even worse -- a politician, there's something about being told "no" that's difficult to handle. Simply put, the feelings you experience when told "no" are completely rational, and you should probably worry when you stop having a negative response to rejection.

However, what separates those who eventually succeed from those who don't is how they handle rejection. For many great entrepreneurs, failure and rejection are part of the process. In many cases, in fact, rejection can be the best thing to happen to a person or a company. For perhaps the best example of this, take Netflix . In 2000, the company offered to sell itself to then-video rental giant Blockbuster for $50 million. It failed miserably in the process.

A stunning lack of vision
Former Netflix CFO Barry McCarthy provided detail on the negotiations in a 2008 interview with the Unofficial Stanford blog (viaVariety). By his account, the ordeal was embarrassing:

I remembered getting on a plane, I think sometime in 2000, with [CEO] Reed [Hastings] and [Netflix co-founder] Marc Randolph and flying down to Dallas, Texas and meeting with John Antioco. Reed had the chutzpah to propose to them that we run their brand online and that they run [our] brand in the stores and they just about laughed us out of their office. At least initially, they thought we were a very small niche business. Gradually over time, as we grew our market, his thinking evolved but initially they ignored us and that was much to our advantage.

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To Netflix's advantage indeed. Within a decade, Netflix was bringing in more revenue than Blockbuster and helped sealed its rival's fate: Blockbuster declared bankruptcy in 2010. Meanwhile, Netflix is now worth $25 billion -- an annualized gain of 51% from the $50 million price tag it sought from Blockbuster in 2000.

It's safe to say that rejection was the best thing to happen to Netflix's CEO.

Rejection was (probably) the best thing to happen to Netflix
It's impossible to know what could have happened to Blockbuster if it had acquired Netflix. Meanwhile, it would be understandably difficult for Netflix to innovate once owned by the incumbent market-share leader thanks to the Innovator's Dilemma.

What Netflix was promoting was disruption with its subscription-based DVD rental model, and Blockbuster was more concerned with monetizing its existing retail-focused rental model. Any marketing and promotion of Netflix's model was tantamount to betrayal of Blockbuster's core business.

Furthermore, it would be hard to imagine Netflix's subsequent moves: Under Blockbuster's management, it's entirely possible Netflix would not have been able to start its wildly successful streaming business nor its original content focus. For Netflix investors, those moves have recently added more value than its declining legacy DVD-by-mail business.

There's a lesson here. In your life, failure and rejection will happen. Don't sweat the next time you don't receive that new job, raise, or promotion. That said, only you can determine your response to rejection. I'd say Netflix's response is a textbook example on handling rejection and it should be used as inspiration.

The article The Greatest Thing to Happen to Netflix: Humilating Rejection originally appeared on Fool.com.

Jamal Carnette has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.