Founder & CEO of Netflix, Reed Hastings, Definitive Startup Guide for Successful Entrepreneurs
Netflix has come a long way since its launch in 1997. That is 21 years ago, and Reed Hastings has overcome his fair share of challenges together with his brilliant co-founder Marc Randolph in their quest to take over the on-demand streaming business. Born in Boston, Massachusetts, Reed Hastings graduated from Bowdoin College with a Bachelor’s degree in Mathematics. He joined the Peace Corps and worked in Swaziland for two years teaching mathematics. Later, he joined Stanford University to a Masters in artificial intelligence. Coincidentally, Stanford graduate school of business named Netflix as the 2014 Entrepreneurial Company of the Year.
Reed has always had an entrepreneurial mind. While Netflix is now his most successful venture, it was not the first. Before the founding of Netflix, he started a company known as Pure Software in 1991. It was a debugging tool for software engineers. The company grew tremendously well and fast that in 1995 he sold it and made $750 million from his stake in the company.
In 1997, he got charged a fee of $40 for overstaying with a rental DVD from Blockbuster. That is when he realized that the DVD rental space needed disruption and there could be a market worth fighting for. He went on to launch Netflix later that year together with Marc Randolph. It started as a DVD-by-mail rental service that didn’t charge you any late fees for staying with a rental for long. All it did was required you to pay a subscription fee and you could rent the DVD which would be delivered to you by mail. You can keep it for a full month provided you had a monthly subscription going.
Back then Blockbuster was the big name player in this space. In its peak in 2004, the company had over 9,000 stores throughout the US and employed over 60,000 employees. It was quite the behemoth. It had so much influence in this space that Reed Hastings actually went to them in the year 2000 to offer a 49% stake of Netflix so that they could become partners. Netflix would then become the online rental arm of Blockbuster. Reed Hastings was turned down since Blockbuster didn’t think the online model would have worked.
Reed continued to promote Netflix as the underdog in the rental space with a better offering that was more affordable and very efficient. It was in 2005 that Blockbuster started to see what they had turned down; Netflix had accumulated over 4.5 million monthly users. The tables were turning. In 2010, just when Blockbuster’s downfall was looming, Netflix had grown to 16 million monthly users. It was towards the end of 2010 that Blockbuster filed for bankruptcy owing to a lot of debt, losses and competition from on-demand streaming services like Netflix and Redbox.
As Netflix continued to stamp its name as the new behemoth in on-demand streaming, it started producing its own shows. The first TV show it made was House of Cards, which is currently in its 6th season. It has been nominated for 9 Primetime Emmy Awards and won 3. The success of this show alone tripled the value of Netflix. It is now a company with a market cap of $121 Billion with Reed Hastings net worth rising to $3.1 Billion.largely due to his Netflix stake. He signed up for the Giving Pledge, a movement started by the Bill and Melinda Gates Foundation to compel rich people to pledge part or all of their wealth to charity causes around the world. He is also passionate and outspoken about education reforms in the USA.
For this entrepreneur who saw a problem in the movie market and decided to solve it, the road has been long and tough. Even tougher was Blockbuster trying to put up a fight before its insolvency following their bankruptcy filing in 2010. Reed Hastings has survived it all, and he gives the following tips for like-minded entrepreneurs who are starting up their ventures;
1. Make few decisions
Apparently, the CEO of Netflix can go a whole quarter without making any significant decisions. Sometimes he doesn’t know what decisions are being made by his team. This, he has said severally, works perfectly for him.
He has a meticulous hiring process for anyone who would like to join Netflix. He entrusts the team to make decisions that are best for the company. Without his involvement and decision making on a day to day, he gives his employees a large amount of freedom. If they want to make a difference in the company, they do not have to wait for him to pass a decision, they can make a difference by passing the decision and running with it.
There are chances that mistakes are made. However, the fact that he hires some of the best talent in Silicon Valley means that very few mistakes are made. If they are, his philosophy on employee freedom has made the team to understand that it is okay to make mistakes and learn from them. A lot of times, it is this very lessons that have helped propel Netflix ahead of the pack. For him as a leader, he maintains that doing less is more. It gives the employees freedom, it shows you trust their decision making and believe in their work.
2. Stay ahead of the competition
In 2004, Blockbuster was the biggest rental company for movies. Today it is a dead company having closed down its last remaining store in 2018. It had 9,000 stores. However, in the weight of their success they became blinded and stuck at one way of doing things. In the wake of the internet and as technology continued to evolve they still remained stuck in their way of doing things; no innovation; no questioning what the future looks like.
That was a huge fail in its part. However, for Reed Hastings, this was the advantage they needed to beat a humongous company that is sleeping on the money they have already made. When Netflix began, it was a dvd-by-mail service. Reed Hastings had looked at emerging technologies and seen that DVDs were becoming popular, something that Blockbuster ignored. Additionally, he had seen the capability to burn a lot of movies on them, not just one movie per rental as Blockbuster was doing. So he introduced this into the market and eventually Netflix became a DVD-by-mail rental service.
And as time passed, DVDs were being surpassed quite fast by the streaming market because the internet was becoming more readily available. There were less and less dvd rentals, and more online subscriptions for Netflix on-demand streaming service.
This just a show of how awake to the times Netflix was, and how asleep Blockbuster had been for so many years before their bankruptcy. As an entrepreneur, he was always watching to see where the market is headed and adjust to it; helping him stay ahead of Blockbuster with every passing day. Innovation should never stop once you get customers or become big in a certain space. It is part of growth, and it should happen as much as your growth or even more.
3. Culture is critical
Company culture at Netflix is important. The CEO has maintained that there should be no excuse for culture distortion as the company grows big. He has found a way to maintain the culture at Netflix by allowing everyone to get involved in the thought process of how the culture can be shaped better to integrate everyone in a growing company.
Netflix is no small fish in employee numbers. It is one of the biggest employers in Silicon Valley with over 2,000 staff in their campus. However, the very culture that was there when they were two has continued to evolve with the growing team. Evolution of culture does not mean change of culture. It is only bettered to take care of the numbers.
Make the culture better as you get bigger. ~ Reed Hastings
He advises all entrepreneurs to read Beyond Entrepreneurship by Jim Collins and store the first 86 pages in their daily practice. Since you have more people thinking about the culture as you grow, you have more brains pulling together to make it better, not to abandon it.
Netflix has maintained their employee freedom in decision making approach to running the company which is a big part of the culture. They have maintained or bettered the working environment and conditions. They have said no to hiring brilliant jerks, since such people affect employee and team morale towards the negative. For growing startups, maintain the culture. Be a huge startup, not a corporate block.
4. You don’t have to be an Elon Musk or Steve Jobs
A very outstanding fact about Elon Musk is that he is the product genius in the companies he leads. For the late Steve Jobs as well, he was the product genius in Apple. While this is great, you don’t have to be this kind of entrepreneur.
At Netflix, Reed Hastings is the CEO and Founder, however, he is not the be all and end all of innovation. He has allowed his very talented team to lead on this front. He has made it a team of product geniuses. As a proponent of employee freedom in workplaces, scrapping of bureaucratic processes that lead to suppressing of innovation and creativity has been core to his beliefs.
He leads the company by making less decisions, allows employees to make a difference with their creativity if they want to and ensures that if anything were to happen to him making him leave the company, the distributed set of thinkers will be able to carry the company ahead without him.
As a founder if you are not a great product person, do not let it bother you. Utilize your other strengths to build a great team of creative talent, delegate and trust in their ability to take the company to the next level.
5. Develop demonstrable values
One of the most impressive things about the Netflix pitch deck that Reed Hastings developed for the company while it was starting out was the company values. In his pitch deck in 2009, Netflix refuted the ambiguity of listing values like integrity, excellence, communication, and respect without elaboration and also because huge companies had these values but lived by the exact opposites. Instead, he developed values for Netflix while elaborating that actual company values were demonstrable by who got rewarded, promoted, or let go. For Netflix these were behaviors and skills that are valued in fellow employees.
He listed nine behaviors and skills for which Netflix would call their values and for which they would reward, promote, or let go of employees who did not demonstrate them. Some of these values were:
- Judgement – making wise decisions, identifying root causes, getting beyond treating symptoms, articulating what they were trying to do, smartly separating what can be done well now and what can be improved later.
- Communication – listening well so you can better understand rather than reacting fast, concise and articulate in speech and writing, treating people with respect in spite of their status or disagreements with you and maintaining a calm poise in stressful situations.
- Impact – accomplishing amazing amounts of important work, demonstrating consistently strong performance so colleagues rely on you, focusing on great results rather than processes, exhibiting bias-to-action and avoiding analysis-paralysis.
- Curiosity – learning rapidly and eagerly, seeking to understand strategy, market, customers, and suppliers, broadly knowledgeable about business, technology and entertainment and contributing effectively outside of your specialty.
- Innovation – re-conceptualizing issues to discover practical solutions to hard problems, challenging prevailing assumptions when warranted and providing suggestions, creating new ideas that prove useful, keeping the company nimble by minimizing complexity and finding time to simplify.
These are some of the values together with their demonstrability as per Reed Hastings 2009 pitch deck. The upcoming entrepreneurs need their very own equivalents for their startups, since the values are nothing if they cannot be seen to be practiced.
6. Be honest
Reed Hastings, while running his first company, Pure Software, avoided being honest just to be kind. While he had a pretty good exit in that venture, he feels that the process of growth and managing of that company would have been better had he been more honest when feedback was required from the teams about various things.
Now he lives by the rule “if someone is frustrating you at your company tell them.” It is no use keeping quiet about it so you can seem like a kind boss. At Netflix he takes no prisoners. If you are a failing employee or a brilliant jerk you will know, and none of these types of employees are tolerated at the company. Netflix doesn’t shy away from cutting dead weight. Performance has to be proven and non-performance is punished by being let go.
What are some of the interesting aspects of Reed Hastings leadership styles you can borrow for your startup or next entrepreneurial venture? Let us know by leaving a comment or tweeting us @thepressfarm. Clap or like if you loved this story so that others can see it too. Cheers!