Anthony Wood of Roku Inc. (NASDAQ: ROKU)

What makes Roku's Anthony Wood an outlier CEO? For a while Roku has been competing with three big tech companies (Google, Amazon and Apple) and staying ahead in that race despite being much smaller.

Sep 27, 2020

What makes Roku's Anthony Wood an outlier CEO? For a while Roku has been competing with three big tech companies (Google, Amazon and Apple) and staying ahead in that race despite being much smaller. In fact, Roku not just survived but is thriving: the company keeps gaining market share; it’s stock price went from $14 at IPO 3 years ago to $180 today. What is the secret? Roku’s founder is obsessed with delivering great value to consumers and making mutually beneficial partnerships with both content providers and retail partners. In 18 years since founding Roku Wood has built an extremely valuable asset. Covid-19 pandemic only accelerated secular shift towards streaming and Roku is well positioned to increase its lead over competitors.

Biography

September 2010 – present: Mr. Wood has served as chairman of the board of directors of BrightSign LLC, a digital sign controller company, which had been a division of Roku prior to August 2010.

April 2007 – January 2008: Mr. Wood served as Vice President of Internet TV at Netflix, Inc., an online streaming media subscription service.
October 2002 – present: has served as Chief Executive Officer of Roku; Chairman since February 2008 and President since July 2011; Chief Financial Officer from October 2002 to July 2010 and Secretary from February 2008 to February 2011.
September 1997 – August 2001: Mr. Wood served in various capacities at ReplayTV, Inc., a digital video recorder company he founded, including as its President and Chief Executive Officer, Chairman of the Board and President of Products.
March 1996 – September 1997: Mr. Wood served as Vice President of Internet Authoring at Macromedia, Inc., a software company.
June 1995 – March 1996: Mr. Wood served as Chief Executive Officer of iband, Inc., an Internet software company.
June 1986 – June 1995: Founder and CEO of SunRize Industries.

What kind of person is Anthony Wood (summary)

Serial entrepreneur, billionaire: Roku is his sixth company; today Wood’s stake in Roku is worth $4.0 billion
Tech industry veteran: wrote his first computer program in high school
Holds a bachelor’s degree in electrical engineering from Texas A&M University
Inventor: invented digital video recorder
Has skin in the game: with 18% stake Wood is the single biggest shareholder of Roku
Understands both the hardware and the software
Good at spotting new trends
Runs Roku quite conservatively: Roku maintains substantial positive net cash balance, FCF-neutral: -$23M FCF vs $3.1B revenue during Q1 2017 – Q2 2020)

Where the name “Roku” comes from:

“Susan (Anthony’s wife) and I were eating at a Japanese restaurant one night, and I was trying to think of a name for Roku. I asked the waiter the Japanese word for five, which is ‘go.’ Go was a failed technology company back in the day, so I said, ‘What about six?’ The waiter said, ‘Roku,’ and I said, ‘Okay, we’ll go with that.’”

Roku is the sixth business of Anthony Wood. The prior five were:

1) AW Software. Started in high school. Wrote a program. Sold one copy.

2) SunRize Industries (college period). Made software for the Commodore Amiga computer. Employed 14 people and had annual profit of $100k. Closed the company to focus on his studies.

3) SunRize Industries (California period).

4) iBand. Developed a user-friendly editor for web pages. In 1996 sold it to Macromedia for $36m (Wood was 30 y/o at the time).

5) ReplayTV. Developed a digital video recorder (DVR). Was sold in 2001 to Santa Clara-based consumer electronics firm SonicBlue for a reported $42 million.

A good summary of what Anthony Wood was doing before Roku:

Wood, who just turned 50, has been founding companies his entire adult life. Growing up—first in Manchester, England, and then in Georgia and Texas—he was one of those kids who tinkers with everything. He built transistor radio kits, a Morse telegraph. He spent the eighth-grade in the Netherlands, where he took a computer class and taught himself how to program. Back in Texas, he got his first computer, a used TRS-80, and began writing software; one program, he says, was like a “very early version of BitTorrent.”
In his junior year at Texas A&M University, where he majored in electrical engineering, Wood started a company called SunRize Industries that made software for the Commodore Amiga. He soon grew SunRize to 14 employees and about $100,000 in profit, in the process almost flunking out of school. “I would optimistically sign up for classes and then fail to attend them,” he explains. Forced to choose, he shuttered the company and completed his degree.
After graduation he moved to Silicon Valley with his girlfriend, now his wife, a fellow Texas A&M graduate he had begun dating after hiring her at SunRize. He founded SunRize “version two,” but when Commodore began tanking, he launched a new company, iBand, to take advantage of the coming dot-com boom.
The company’s signature product was a user-friendly editor for web pages. One year later, in 1996, Macromedia scooped up iBand for $36 million, and Wood took a job as the company’s vice president of Internet authoring. It was the first time he had ever worked for anyone else. He was 30 years old.
Wood’s primary aim during these years was to make money, and lots of it. “I didn’t grow up very rich,” he says. “My dad grew up pretty poor, and then he did better [for himself], but we didn’t have that much money. So I was like, ‘Wow, these guys start businesses and they get rich. That sounds great!’ It wasn’t really well thought out.”
“It’s not an honorable motivation,” he adds, his honest English face flushing, “but it does work.”
Once he’d made the money, he wasn’t afraid to spend it. Steve Shannon, who co-founded iBand and is now general manager of content and services at Roku, paints a picture of Wood at this time as almost preternaturally confident and driven: “Imagine if you had half a million bucks to your name that you had earned through your own sweat equity. I think most people would want to squirrel that away or maybe put it in a house. But Anthony is just a double-down kind of guy, so he took that money and rolled it into his next startup.”
It’s a gamble Wood has made repeatedly in his career. His tenure at Macromedia was rocky, and involved a demotion in fact if not in title. When his two-year contract was up, he left to found ReplayTV. A fan of Star Trek: The Next Generation, he was often frustrated at having to miss new episodes when they aired. Out of that frustration his company was born. “I felt like it was a risky business to start,” he says, “but I figured at least I’ll get a DVR out of it.” [12]

Below are selected quotes from Anthony Wood on various topics:

On Roku:

“Our core expertise is to produce great-looking products and great user interfaces.” [1]
“If you think of the range of new connected devices, at one end you have Apple. They make almost all their money on hardware,” Wood said. “And on the other end, you have companies like Amazon that sell their hardware at cost but make most of their money from content. We’re more toward the Amazon end. We make some of our money from the hardware… but we get revenue share. We did about $100 million in sales last year, but we’re still not profitable. We’ll probably turn a profit sometime in 2013.” Of course, with sales and revenue share from current products alone, Wood said the company could be profitable right now if it wanted to. “But there’s still so much to invest in, so many opportunities.” [4]
"We sell hardware, but we are also a distribution platform for television over the Internet.” [6]
"Our customers are not early adopters. They're people who watch TV. We put a lot of effort into making it really simple." [6]
"And in two years, when you want to upgrade to the latest technology, you just replace it [streaming stick]," Wood said. Moreover, the stick signals Roku's new push into the smart TV market. "It's a go-forward strategy for us," he said. "Over time, we'll probably end up licensing directly into smart TVs. Four years from now, I think almost all TV content will be Internet delivered. It'll be through a variety of platforms, but I think the streaming players and smart TVs will be the majority." [6]
On first Smart TV partnerships with TCL and Hisense: “We focused on the design principles that made our player successful and are applying that to TV,” Wood says, noting that Roku’s user interface was built in-house. “This is our software. We license the software. We also did some of the hardware reference design.” [8]
“We focus on a product that’s super easy to use, a great value and has lots of content” [15]
“TV licensing is where we see the fastest growth coming from, and it will soon be the largest contributor of new accounts.” [17]
“People are often amazed at how much we’ve done with the number of engineers we’ve got.” [31]
“We have succeeded by building a great UI, making it super easy to use.” [38]

On goals, vision and future:

Almost ten years after founding Roku, Wood really is starting to scare the traditional cable industry. He’s already sold a million Roku boxes and streamed a billion minutes of content from Roku devices. And this year, Wood expects to sell a million and a half boxes, thus making Roku, Wood says, the 10th largest cable company in the US. And that’s just the beginning. Wood’s goal is to control video access to the world – to be the “one box that rules them all.” [3]
Wood said the company expects to sell 19 million boxes over the next three to four years. But for 2012, Wood said smart TVs are going to be the next focus for Roku. At CES, the company unveiled its streaming sticks, thumb-sided drives for MHL ports, which Wood said should be part of all new TV sets within four years. [4]
“Yeah, $100 million is nothing for Apple–it’s like a rounding error. They probably spend more money than that on their cafeteria. But for a new company [like us] in a new category, it’s a fast ramp that will turn into $1 billion in sales in the not-too-distant future.” [5] – Roku reached $1 billion revenue in 2019
“Our goal is to be an operating system for TV, we are focused on that” [10]
"We sell more streaming players than anyone, but it's also probably not the most important part of our business. The most important part of our distribution business is TV licensing." Wood believes that all TVs will soon be powered by an advanced TV operating system. And he wants Roku to win that market. [13]
“The massive TV ecosystem is in the midst of a complete re-platforming, with streaming (aka OTT) at the heart of the industry’s transformation… Our mission is to be the TV streaming platform that connects the entire TV ecosystem… I believe the TV ecosystem is at a tipping point, and I couldn’t be more excited about what the next 15 years of transformation and disruption will bring.” [16]
“My philosophy is that our goal is to build the operating system for TV, that is the long term goal, it is like Android or Windows, we want all TVs in the world to run our platform. If we do that, the stock will be worth a lot of money.” [18]
“We do think the future is a different UI, which is more content-focused. More recommendation-focused. And we have that UI! It’s called the Roku Channel… The Roku Channel is our sort of sandbox for building a next-generation, content-first user interface. And someday, when we think it’s ready and good enough and has enough content in it, it’ll probably become the home screen.” [22]
On how streaming/cable landscape will look like in five years: “I believe that all TV will be streamed and, with it, all TV advertising will move into the modern internet area. More content will be available, and customers will have more choices. Proprietary cable boxes will disappear, and all video services will be apps or integrated into a handful of streaming platforms. The Roku OS will be a leader for the big screen TV with a large market share.” [28]
“My goal would be to be in over 50 percent of all TVs around the world… There’s a billion broadband households in the world. They’re all going to get all of their TV from streaming” [30]
“We have now entered the streaming decade when we believe consumers around the world will choose streaming as their primary way of viewing TV.” [35]

On business philosophy:

“…bang for the buck and drop-dead simplicity are two of the company’s core principles, the third being providing great content” [4]
“I like solving problems, and businesses are like multidimensional puzzles”. [12]
Greg Garner, a principal hardware engineer at Roku and a longtime friend and colleague of Wood’s, calls him a triple threat. “Anthony’s very technical. He understands the hardware and the software, which is very rare,” Garner said. “And I can’t figure out how he does this, but he somehow predicts future trends and can form a business around an idea a year or two before the trend hits.” Wood’s third threat, according to Garner: “He’s a risk-taker who encourages the same behavior in his employees.” [15]
“I think my views on how to make money in business evolved over the years. It’s hard to make money when you pick fights with the incumbents in the industry. So I think it’s possible to make another better TV-viewing experience. That’s the theme.” [28]
“Looking back on my career, I would say that I have two main skills. First of all, I have an engineering background. I love technology. I taught myself to program computers when I was 13. I understand technology. I love it. I understand what it can do and what it can’t do. Then second, I have good judgment on what people want to buy.” [28]
On his typical day as a CEO of Roku: “It's fun. Our company is completely focused on how to make TV better for everyone. I spend a lot of time focused on our strategy, and the products we sell.” [28]
“One of the most important things in a successful company is the right timing. There are not a lot of original ideas. They’re very rare. There’s someone who does it at the right time and does it well, with good execution. So the combination of what’s possible, what consumers will pay for, and good timing has been my formula for success.” [28]

On competition:

“One reason some companies are not profitable is because they're spending a lot of money on marketing to acquire customers. We don't do that. Where we spend a lot of money is on engineering to build the best products… We spend money making sure it's the best platform. There is just so much opportunity to build things that generate revenue that it's just not the right time to cut back on engineering.” [19]
“In the tech business, superior technology often wins and tech companies basically compete on how smart their employees are and the quality of their products... We’re much more focused. All we do is we come to work every day and we think about how to make TV better.” [25]
“Our competitive advantage is our software – it is purpose built for TV (as opposed to being built primarily for phones or PCs). This results in a better UI, more content, and a lower HW cost structure.” [28]
“When I wake up in the morning I don’t think about our competitors. I’m focused on how can we make our experience better, how can we allow our partners to make more money; how can we get scale on our platform.” [37]

Other:

On consumer trends: “The behavior that we expect is that consumers will sign up for a few subscription services, but then they will layer on a lot of ad-supported content. And as streaming becomes even more mainstream, consumers are looking for more free content.” [17]
On his concerns: “I'd like to scale Roku faster. Hiring is one of those barriers and here in Silicon Valley it's crowded – if anyone reading this want to work at Roku – we're hiring! Check out our jobs page.” [28]
On advice to young entrepreneurs: “I would say that there’s a lot of focus these days on entrepreneurs raising money, asking how to pitch the business, but no matter how good they pitch, most investors are not going to invest in an unproven idea from someone who’s new to their career. My advice would be you need to build something. In the tech business, you need to build something and make some progress. Focus on that rather than trying to raise money. Then, once you’ve got something growing, if you want to raise money to accelerate it or take it to the next level, then it’ll be possible, because you’ll have something to show to investors. I would also say that most people aren’t successful the first time they try. There are exceptions like Bill Gates and Mark Zuckerberg. But they’re the exceptions. Most successful entrepreneurs, if you look at it, they’ve had several attempts… So be persistent, which is hard. Sometimes you don’t have the right team, you don’t have the right abilities, whatever, so you’re unlikely to be successful.” [28]
On why Roku provides guidance in terms of Adjusted EBITDA: “The reason we picked Adjusted EBITDA is it’s essentially a proxy for cash flow. In our outlook for 2020 we said we are going to run the business at breakeven EBITDA which is essentially neutral cash flow.” [39]

References

[1] The Engadget Interview: Anthony Wood, founder and CEO of Roku

[2] DVR's Inventor Wants to Revolutionize TV Again

[3] Keen On… Anthony Wood: The Inventor of Personal Video Recorder on the Future of TV (TCTV)

[4] How Roku is kicking the cable industry’s butt & where it’s going next [exclusive]

[5] Roku CEO: Why Tim Cook Is Wrong To Call Apple TV A “Hobby” Product

[6] Roku pins TV's future on Internet streaming

[7] Inside Netflix’s Project Griffin: The Forgotten History Of Roku Under Reed Hastings

[8] Roku, The Streaming Media Innovator, Introduces Branded Smart TV Sets For CES

[9] Roku CEO: Apple TV is a money-loser

[10] Roku Gets Another Huge Competitor Today. No Big Deal, Says Anthony Wood. (Video)

[11] Roku CEO discusses state of Internet video, TV