Reed Hastings - Building Netflix

“Qwikster was a sad episode in 2011 where I became convinced we really had to go all in on streaming and drop DVD and put DVD in its own company. Unfortunately, most of the customers were mostly using DVDs, so they didn't like it. Lots of cancellations, stock dropped by 75%. Ultimately it's the right thing to have separated DVD and streaming, but we did it too fast. The big analysis of it afterwards was lots of the executives thought it was very problematic.”— Reed Hastings

Strategy & Decision Making · Leadership & Management · Psychology & Behavior

DUR_ENDURING

Private doubts suppressed when success track record creates deference

“We humans value being nice and we value loyalty. Yet in the workplace, that's a tension. Being nice is in tension with being honest. I generally like people that are nice, yet I want to be honest with each other in the workplace so we're more productive. We have to find a way to give each other permission to not be conventionally nice and instead to be focused on the team's success, which is being very direct. Similarly with loyalty.”— Reed Hastings

Leadership & Management · Psychology & Behavior · Culture & Society

DUR_ENDURING

Company-as-family creates toxic niceness; sports team enables honest performance focus

“At Pure Software, I wasn't careful about hiring, and talent density declined. When you analyze what happened, declining talent density was a major factor. With declining talent density, you need a bunch of rules to protect against mistakes, and that only further drives out high-caliber people. Through that experience I realized I'd tried to run software like a manufacturing plant, reducing error and putting in process. That doesn't get high productivity or high talent.”— Reed Hastings

Leadership & Management · Operations & Execution · Strategy & Decision Making

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Low talent density creates rules that drive out remaining talent

“The test that we encourage people to use is if someone were quitting, would you try to get them to stay, to keep them? That turns out to be a good test relative to all the relief we sometimes feel when someone not great moves on. I would say something like, hey Patrick, I see you're working really hard. You're trying. I'm so sorry to tell you that honestly, if you quit, I wouldn't try to change your mind to stay.”— Reed Hastings

Leadership & Management · Psychology & Behavior

DUR_ENDURING

Keeper test: would I fight to keep this person if they quit?

“We instituted a much more collective information process on decisions going forward where everybody weighed in 10 to negative 10 on decisions, then it's all in a big shared document. So everyone sees what everyone else thinks. If we had had that decision process in place, I may well have thought, well, these are all fantastic people and they're all horrified at this idea. So I may be right, but let's at least go a little bit more gently.”— Reed Hastings

Strategy & Decision Making · Leadership & Management

DUR_ENDURING

Informed captain: visible input scores but individual decision authority

“When we were fundraising in 1997, '98, '99, everyone was excited by internet delivery. I'm like, but it's not even close. It didn't matter. They were excited about it. So we were contrarian and we had a contrarian thesis that we could build a business with DVD and then transition it to streaming. It's precisely because of that contrarian thesis that we didn't have much competition. Because it worked, we created great value. Streaming first entered my mind from the beginning.”— Reed Hastings

Strategy & Decision Making · Business & Entrepreneurship

DUR_ENDURING

Contrarian bridge strategy created moat: VCs wanted internet, not DVDs

“Board members want to add value because they're getting paid. The problem is by the conflict rules, they don't really know the business. You're doing that board one day a quarter for the most part. On one day a quarter, it is super hard to add value. So you see a lot of directors who struggle to add value, and then management has to be super polite to them. Board members ask hard questions and management ducks and weaves. First part is board members to realize, I'm not here to add value.”— Reed Hastings

Leadership & Management · Strategy & Decision Making

DUR_ENDURING

Board's job is insurance not advice; prepare for crisis

“One of the best things is to do large severance packages, like 4 to 9 months of salary. It feels expensive at first, but one, it makes the person who's let go feel a little bit better because they've got a bunch of money in their pocket. Two, it helps the manager do their job because then they don't feel as bad in letting the person go. It just sets up a much better mutual feeling. Third, it's not a moral issue. You didn't fail. It's just like a professional sports player.”— Reed Hastings

Leadership & Management · Psychology & Behavior

DUR_ENDURING

Generous severance removes moral barrier for managers and dignity loss for departing employees

“I've come to look at hiring with a pretty broad funnel, hiring a lot of people. Then over the first year, you really get to know them and figure out what you want to do. Do you want to keep them or not? Other people have a view like very hard to get in, but then you can stay no matter what. That's been more of the Google orientation. It comes from their graduate school background. It's really hard to get into Stanford Graduate School, and then it's hard to get pushed out.”— Reed Hastings

Leadership & Management · Strategy & Decision Making

DUR_ENDURING

Broad funnel with high year-one turnover beats narrow funnel with lifetime tenure

“What I loved about looking at Facebook's business was ad-supported and everything they did that was on the core, like Instagram, worked incredibly well. When they tried to do crypto or other things that were not big ad-supported businesses, it didn't work well. That's an example of companies get good at something, and then if you can add to the core mechanism, that's great, rather than go off to new fields all the time.”— Reed Hastings

Strategy & Decision Making · Business & Entrepreneurship

DUR_ENDURING

Expand core monetization engine; avoid unrelated revenue streams

“I fall in love with ideas easily. The original one was that DVD was very lightweight. This was coming out of the AOL mailing CDs to everyone to install AOL. I was pretty familiar with mailing because I've gotten tons of these just through the mail. The classic computer networking thought experiment is what's the bandwidth of a FedEx of a tape through the mail? You calculate it and it's like terabits per second at low cost. To send a backup tape by FedEx.”— Reed Hastings

Strategy & Decision Making · Technology & Engineering

DUR_CONTEXTUAL

DVD by mail as bridge to streaming; physical as temporary network

“From maybe 2004 on, we had open compensation. The top 100 or 500 people of the company could see all the comp throughout the company. The rationale was then they could keep similar people in a similar vein and there would be more trust around gender, around other dimensions that could be discriminatory because the data was all out for everyone to see. That was all true, but it also created a lot of petty rivalries. I make a huge amount of money. This other person makes plus $10,000 more.”— Reed Hastings

Leadership & Management · Psychology & Behavior

DUR_ENDURING

Open comp reduced discrimination but created petty rivalries; net negative