Tuesday, January 19, 2010

A Million Reasons to Talk To Strangers

Don’t talk to strangers. Who hasn’t heard these words at least once while growing up?

But as a rebellious entrepreneur, what happens when you DO talk to strangers?

This is the story of BellKor’s Pragmatic Chaos. For the uninitiated, this is name of the group that won Netflix’s innovation contest that challenged all comers to improve the recommendation technology used by the movie rental company by 10%. Comprised of a collection of computer scientists, electrical engineers, statisticians and more, this group worked to beat a rival group, Ensemble, by 24 minutes to produce the winning algorithm to help Netflix’s business dilemma.

You see, Netflix had a problem. Armed with its own team of smart engineers, they had been unable to find the right predictive algorithm to influence customer behavior. Unable to crack the code, they were faced with a decision to either hire more employees or continue down the same path that had failed to bear fruit. Wasn’t that Einstein’s definition of insanity?

So, like a slightly rebellious child that didn’t always listen to their parent’s advice, they decided to talk to strangers.

BellKor’s Pragmatic Chaos achieved the Holy Grail when they were able to hit Netflix’s 10% mark that was given as the threshold for victory. The most amazing thing wasn’t just that Netflix didn’t have a business relationship with this group prior to the contest. It was that the prize winners – from all backgrounds and disciplines and parts of the world– didn’t all know each other either. In fact, the first time BellKor’s Pragmatic Chaos had ever physically been in the same place at the same time was when they walked on stage to collect their Ed McMahon style oversized check for one million dollars.

To a large degree, they were even strangers amongst themselves.

The X-factor for both BellKor’s Pragmatic Chaos and Ensemble was collaboration between diverse ideas. The top two teams beat the challenge by combining teams and their algorithms into more complex algorithms incorporating everybody’s work. The more people joined, the more the resulting team’s score would increase. In fact, teams that had it basically wrong — but for a few good ideas — made the difference when combined with teams which had it basically right, but couldn’t close the deal on their own. Ironically, the most outlying approaches — the ones farthest away from the mainstream way to solve the given problem — proved most helpful towards the end of the contest, as the teams neared the summit and final hours.

It’s all about the power of collaboration and its surprising ability to produce unexpected positive results.

As an entrepreneur, just imagine the ability to discover solutions to unsolvable problems. Being able to be a matchmaker of good ideas with the right people. Or the business opportunities that are invisible but waiting to be discovered.

If collaboration aka crowd sourcing among all entrepreneurs was nearly effortless, seamless and as remarkably focused as Netflix’s innovation contest, the possibilities are endless.

For Netflix, not only did they achieve their goal of improving their customer’s membership experience through better movie suggestions, but the company also uncovered new business ideas and unexpected ways to improve their overall business model. And they did it for less than the payroll they would have spent internally over the same period of time on the same engineers that had previously failed to produce the desired results. In fact, Netflix was so pleased with the outcome to this contest, that they have already launched another one.

So the next time someone says “don’t talk to strangers” - tell them you can think of a million reasons to ignore them!

Reed Hastings, Founder & CEO of Netflix from Arik Hesseldahl on Vimeo.

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