EntreLeadership - What Really Killed Blockbuster (It Wasn’t Streaming)

Starting point is 00:00:00 Hey guys, I really need your help with something. I want you to shape what comes next for the Entree Leadership Show by participating in our 2026 audience study. Text survey to 33789 to get the link or go to ramsysolutions.com slash survey. Once you've completed the survey, you can enter for a chance to win a standard ticket to Entree Leadership Summit 2027. Everybody closes September 30th. Most people think they know the story of why Blockbuster video disappeared, but they don't.

Starting point is 00:00:45 There were actually four huge, fatal mistakes that killed Blockbuster, and all of them were completely avoidable. So in this episode, Entry Leadership's head coach John Falcons will break down what really happened and how to avoid their mistakes so your business doesn't end up like them. Let's get to it. Blockbuster used to be an American staple. At their height, they dominated the video rental industry. In 2004, they were doing $6 billion in revenue.

Starting point is 00:01:15 They had 84,000 employees and 9,000 stores in 26 countries. They even had one in New Zealand. But now there's only one left in Bend, Oregon. And it's hard to believe because for a whole generation, a Friday night wasn't complete without a run to Blockbuster. Now, if you're like me and you grew up in the country, you probably weren't even allowed to watch TV. But for most people, that wasn't the case. So what made Blockbuster bust?

Starting point is 00:01:45 Everybody assumes streaming killed video stores, but the truth is, there were warning signs way before that. Let's go back a little bit. David Cook opened the first Blockbuster in 1985 in Dallas. Two big advantages Blockbuster had over the mom-and-pop rental stores were, they had a bigger selection of movies, something like 8,000 movies to pick from versus the 200 to 300 that the typical stores had. They had modern, efficient computer checkout processes using barcodes, which at the time was revolutionary. Then in 1987, they sold to three investors for $18.5 million. They started buying up local video stores left and right, and over the years, they grew aggressively

Starting point is 00:02:29 by opening a new Blockbuster store at the rate of something like every 17 hours they were opening a new store. By the early 90s, they were global. Then they got bought by a company called Viacom for $8.4 billion. That was 1994. And I want you to remember Viacom because we're going to talk more about them later. For the next decade, Blockbuster dominated the market. But the whole time, there was a problem hiding underneath all of that. A huge part of their annual revenue came from something that eventually would like the fuse of their demise.

Starting point is 00:03:04 And that was late fees. They charged a dollar every day a video was late. By 2000, that added up to $800 million in late fees a year. You had to drop your video off by noon, which was super inconvenient. And they knew that. It was on purpose. They cared more about their bottom line than their customers. and they got addicted to the money they made with late fees.

Starting point is 00:03:30 So here's their first big mistake. They built their business around something that their customers hated. That sounds like a terrible plan. And that's just slimy. Now, I know most of you run into business aren't that way. You're not intentionally trying to screw your customers over, but it's also easy to miss things that are frustrating to your customers.

Starting point is 00:03:49 So let me ask you this. What part of your business model causes the most frustration for your customers? Asking that question reminds me of of one of our business principles here at Ramsey. That is, if you help enough people, you don't have to worry about money. Let me say that again. If you help enough people,

Starting point is 00:04:07 you don't have to worry about money. You have to put your customer first. You have to put glasses on that see your business through their eyes. Because if you do things that just frustrates your customers, it's gonna make it hard for them to do business with you. And that's a guaranteed recipe that they're gonna go do business with somebody else.

Starting point is 00:04:26 Now, BlockBusters, decision to go all in on late fees wasn't just slimy, it also opened the door for their competition. There's a legend that Reed Hastings founded Netflix in 1997, partly due to the fact that he got a $40 late fee on the movie Apollo 13. Netflix was a small mail-order DVD business, and it was losing money. But in 2000, Blockbuster had the chance to buy Netflix for $50 million And they just laughed at them. And now, Netflix's market value is $394 billion. That's billion with a B.

Starting point is 00:05:02 That wasn't a $50 million mistake that they made. It's almost a half a trillion dollar mistake that they made. Trillion with a T. At the same time, the dot-com explosion was happening. People could see how it would change entertainment forever. Customers wanted more efficient ways to watch movies at home. And Netflix solved customer problems that Blockbuster was actually creating on purpose. Netflix didn't have late fees.

Starting point is 00:05:29 You didn't have to drive to the store to get the movie. Netflix even had more movies to choose from than Blockbuster. They had unlimited rentals for one low flat fee. The market was changing. And Blockbuster's next big mistake, they didn't change with it. They protected what they had instead of building towards what was possible. And as a result, revenue starts. shifting from Blockbuster to Netflix.

Starting point is 00:05:54 It really should be no surprise. Here's the thing about business. The one constant you can always count on, that's change. That's why in Entree leadership, we teach being proactive about disruption. If you don't reinvent your business, somebody else is going to reinvent it for you.

Starting point is 00:06:11 Arrogance kills a lot of businesses. You need to break things before they're broken. You need to shoot sacred cows. That means while your vision and principles shouldn't change, Your products, your processes, and services should. So here's what you need to be asking yourself, what part of my business works today but won't work five years from now? We'll get right back to our episode, but first, as your business grows,

Starting point is 00:06:36 everything gets more complex. There was a time when we had too many disconnected systems and not enough visibility across the business. We wasted time chasing information instead of making decisions. That's why we got NetSuite. NetSuite brings your financials, inventory, CRM, and more together in one place. More than 44,000 businesses run on NetSuite, including Ramsey Solutions. And now they're taking the next step with NetSuite Next, making it easier to put AI to work across your entire business.

Starting point is 00:07:12 NetSuite Next automates routine work like following up on overdue accounts, and with NetSuite Next, AI is built into A&I. everything you do so you can ask questions just like you're talking with a member of your team. You'll have the information you need to make decisions faster. That means less busy work and more time growing your business. And right now you can try NetSuite Next for free. If your revenue is at least seven figures, go to NetSuite.aI slash Ramsey. That's netsuite.aI slash Ramsey. Now, let's get back to the episode. Even as Netflix was growing, Blockbuster could have turned things around,

Starting point is 00:07:55 but the pressure of falling behind led to desperation, and desperation led to their next mistake. They got rid of late fees, but they didn't have a plan to replace that revenue. All that did was accelerate their demise. In 2004, they threw a Hail Mary launching Blockbuster online, and they were trying to copy Netflix DVD mail service, but it cost them $200 million to get going. They made decisions out of Foursherr.

Starting point is 00:08:21 fear and change their business model. Now they had brick and mortar stores with fixed costs and declining revenue, a mail service with new added costs, and they eventually tried streaming, but it was all too little, too late. This led them to mistake number three. They panicked when they should have been strategic. If you're just trying to keep up with what your competition is doing, you're already losing. Reacting is never going to win. As we teach in Entree leadership, focus and clarity win. Winning is an intentional act. Nobody wins by accident.

Starting point is 00:08:55 Clarity comes from defining your vision and developing your strategy and staying discipline to that strategy. You can't chase every opportunity and build a great business. Do one thing really, really well. So ask yourself, do you have a clear plan to execute your strategy

Starting point is 00:09:11 and the discipline to stick to it? Or are you just reacting out of fear? For a second, Blockbuster was able to put pressure on Netflix and stay in the game. But there was one final nail in their coffin. Remember that company that I mentioned earlier? Viacom?

Starting point is 00:09:27 They saw the writing on the wall. In 2004, they spun Blockbuster off into its own company and assigned them almost $1.5 billion in debt in the separation. It was a crushing blow. Blockbuster had no protection from a parent company. They didn't have enough cash flow to invest in the business. And three strikes against them were high interest payments. declining revenue, and high fixed costs to keep those brick and mortar stores running.

Starting point is 00:09:53 Blockbuster's final fatal mistake, they crippled the company with debt. Once Netflix started streaming in 2007 and the 2008 global economic crisis, it was all over. By 2010, Blockbuster was filing for Chapter 11 bankruptcy to clear about a billion dollars in debt. After 20 years of being the top dog, everything came crashing down. A lot of business owners believed debt is necessary to grow their business, but at Entree leadership, we teach that debt limits your options when you need them the most. Debt is risk.

Starting point is 00:10:27 Cash is freedom. Our business runs at the speed of cash. Slower is safer. You're able to ride out the storms. So let me ask you, if revenue dropped tomorrow, would you have the cash flow to survive? Ultimately, Blockbuster didn't die because the world changed. They died because they didn't change with it. It's a failure of vision, a failure of nerve.

Starting point is 00:10:47 They thought they were just in the video rental business. They weren't. They were in the home entertainment business, and they didn't take care of their customers. By the time they realized they needed to change, the cow was out of the barn. And they had paid the ultimate late fee. They disappeared. Blockbuster fell into the trap of many companies at the top of their game. They got comfortable with success, took their foot off the gas, and stopped relentlessly pursuing excellence, and it killed them.

Starting point is 00:11:18 Don't let that happen to your business. Fight against complacency. Never stop innovating. Never stop improving. And if you want to make sure your business lasts, grab a copy of Build a Business you love, where I'll teach you the process I followed to grow my company from a card table in my living room

Starting point is 00:11:36 to a $300 million business. And if you enjoyed this episode, be sure to like, share, and subscribe for more real world leadership content. I'm your host Dave Ramsey, and this is Andre Leadership. You know.

EntreLeadership - What Really Killed Blockbuster (It Wasn’t Streaming)

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.