Netflix has come a long way since its launch in 1997. That was now 25 years ago. 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 pursue a Master’s in artificial intelligence. Coincidentally, the Stanford graduate school of business named Netflix the 2014 Entrepreneurial Company of the Year.
Reed was born an entrepreneur. While Netflix is now his most successful venture, it was not the first. Before founding Netflix, he started a company known as Pure Software in 1991. This was a debugging tool for software engineers. The company grew so tremendously that in 1995 he sold it and made $750 million from his stake in the company.
Inspiration from Blockbuster
In 1997, Hastings had to pay a fee of $40 for an overdue rental DVD from Blockbuster. That was when he realized that the DVD rental space needed disruption and there was a market worth fighting for. He went on to launch Netflix later that year with Marc Randolph. Netflix first started as a DVD-by-mail rental service that didn’t charge you any late fees for staying with a rental for long. All you needed to do was to pay a subscription fee and you could rent the DVD which would be delivered to you by mail. You could even keep it for a full month provided you had a monthly subscription going.
Back then Blockbuster was the biggest player in this space. At Blockbuster’s peak in 2004, the company had over 9,000 stores throughout the US and employed over 60,000 employees. It was quite the behemoth. In fact, Blockbuster 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. Unfortunately, Reed Hastings was turned down since Blockbuster didn’t think the online model would work.
Promoting Netflix as the underdog
Reed continued to promote Netflix as the underdog in the rental space with a better deal that was more affordable and 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 debt, losses, and competition from on-demand streaming services like Netflix and Redbox.
As Netflix continued to build 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 produced 6 seasons worth of engaging content. 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 $166.80 billion with Reed Hastings net worth rising to $3.9 billion largely due to his Netflix stake.
As Netflix grew, Hastings signed up for 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 charitable causes around the world. He is also passionate and outspoken about education reforms in the USA.
Lessons that we can learn from Reed Hastings
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, works perfectly for him.
He also has a meticulous hiring process for anyone who would like to join Netflix. He trusts the team to make decisions that are best for the company. Without his involvement and decision-making on a day-to-day basis, his employees have a large amount of freedom. If they want to make a difference in the company, they do not have to wait for him to make a decision. Instead, they can make a difference by making the decision and running with it.
There are chances that everyone on the team will make mistakes. However, the fact that he hires some of the best talent in Silicon Valley means that these people make very few mistakes when they combine forces. When they do make mistakes, Hastings’ philosophy on employee freedom has helped the team to understand that it is okay to make mistakes and learn from them. Often, it is these very lessons that have helped propel Netflix ahead of the pack. As a leader, Hastings 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. In fact, Blockbuster once had 9,000 stores. Today it is a dead company having closed down its last remaining store in 2018. However, at the height of success, Blockbuster became blinded and stuck in one way of doing things. In the wake of the internet and as technology continued to evolve, the company still remained stuck in its way of doing things; no innovation; no questioning what the future looked like.
That was a huge fail. However, for Reed Hastings, this was the advantage they needed to beat a humongous company that was sleeping on the money they had 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, a fact that Blockbuster ignored. Additionally, he had seen the capability to burn a lot of movies on them, instead of just one movie per rental as Blockbuster was doing. He introduced this to the market and eventually, Netflix became a DVD-by-mail rental service.
As time passed, DVDs were surpassed quite fast by the streaming market because the internet was becoming more more accessible. There were fewer and fewer DVD rentals and more online subscriptions for Netflix’s on-demand streaming service.
The importance of spending more advertising dollars
This just shows how aware of the times Netflix was, and how asleep Blockbuster had been for so many years before their bankruptcy. As an entrepreneur, Reed was always watching to see where the market was headed and adjust to it. This awareness helped 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 you should innovate even more as you grow.
Netflix hasn’t only relied on innovation to help them stay ahead of the competition. In fact, they have employed marketing, advertising, and public relations to help them grow. Every other day there is news about Netflix in one media outlet or the other. We’re always seeing PPC ads on various websites and on Google Search. YouTube is full of trailers from Netflix shows. On Facebook, their trailers and boosted posts are all over the place. They are staying ahead of the competition on all fronts. At the moment, Netflix is spending more advertising dollars than any other streaming service worldwide.
Staying ahead of the competition for startups today requires the same mentality as that of Netflix. Utilizing several strategies to grow digitally should be a priority for startups and eCommerce companies. The internet now presents several marketing strategies for companies to grow and stay ahead. Among them is engaging in PR campaigns to get your name in the news every other day. Facebook ads and Google Adwords come into the picture to generate leads and customers while SEO is added as a consistent strategy for getting higher rankings in search engines.
3. Culture is critical
The 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 to shape the culture better to integrate everyone in a growing company.
Netflix is no small fish in employee numbers. In fact, it is one of the biggest employers in Silicon Valley with over 2,000 staff on its campus. However, the very culture that was there when they first started out has continued to evolve with the growing team. The evolution of culture does not mean a change of culture.
Make the culture better as you get bigger. ~ Reed Hastings
Hastings 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 rather than abandon it.
Netflix has maintained employee freedom in its decision-making approach to running the company. This is a big part of the culture. They have maintained and, in many cases, improved the working environment and conditions. This includes having an open vacation policy and allowing employees to bring their disciplined dogs to work. They have said no to hiring brilliant jerks since such people negatively affect team morale. If you’re heading a growing startup, be sure to maintain the culture. Be a huge startup, not a corporate block.
4. You don’t have to be an Elon Musk or a Steve Jobs
An outstanding fact about Elon Musk is that he is the product genius in the companies he leads. The late Steve Jobs was the product genius at Apple. While this is great, you don’t have to be this kind of entrepreneur.
At Netflix, Reed Hastings is the CEO and Founder. Even so, 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, the scrapping of bureaucratic processes that lead to the suppression of innovation and creativity has been core to his strategy.
He leads the company by making fewer decisions and allows employees to make a difference with their creativity if they want to. This ensures that if anything were to happen to him, the distributed set of thinkers would be able to carry the company forward 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 because huge companies demonstrated the exact opposite of the values they preached. Instead, he developed values for Netflix while elaborating that actual company values were evident in decisions such as who got rewarded, promoted, or let go. For Netflix these skills are valued in fellow employees.
He listed nine behaviors and skills for which Netflix would call their values and for which they would reward or promote employees. Likewise, they let go of employees who did not demonstrate these values. Some of these values were:
According to Hastings, team members who have good judgment do the following:
- Make wise decisions
- Identify root causes
- Go beyond treating symptoms
- Articulate what they are trying to do
- Strategically separate what can be done well now and what can be improved later
Communication requires team members to:
- Listen well so you can better understand rather than reacting fast
- Be concise and articulate in speech and writing
- Treat people with respect in spite of their status or disagreements with you
- Maintain a calm poise in stressful situations
In order to create impact, team members should:
- Accomplish amazing amounts of important work
- Demonstrate consistently strong performance so colleagues rely on you
- Focus on great results rather than processes
- Exhibit bias-to-action and avoiding analysis-paralysis.
Curious team members tend to:
- Learn rapidly and eagerly
- Seeking to understand strategy, market, customers, and suppliers
- Be knowledgeable about business, technology, and entertainment
- Contribute effectively outside of your specialty
Innovative team members have a habit of:
- 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
6. Be honest
While running his first company, Pure Software, Reed Hastings 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. Whether you are an underperforming employee or a brilliant jerk you will know it, and neither of these types of employees is 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.
7. Believe in yourself, especially when the world does not
Reed has learned first-hand that people can always find reasons to shoot your ideas down. This is especially the case when it comes to the people closest to you. If you rely on friends and family to cheer you on every time you have a new business idea, then you will be sorely disappointed. This is because people are wired to play devil’s advocate before they even gather the energy to play enthusiastic supporter.
It’s important to believe in yourself as an entrepreneur. That is not to say that you should throw caution to the wind and ignore what other people think about your business idea. Rather, you should weigh people’s advice against your judgment. If you believe your idea has potential despite what others are saying, then you should run with it. Ultimately, optimism will push you to succeed in a way that skills and marketing savvy won’t.
8. Trust your employees to take ownership of the company
When Rob Caruso, the new VP of digital products at Netflix, showed up at his first-ever quarterly business review, he was flabbergast to find Reed presenting the company financials to a crowd of 400 managers.
Most entrepreneurs would rather cut off their fingers than show employees the company books. This is because doing so could result in insider trading. However, Reed doesn’t believe in keeping secrets from employees. On the contrary, he is convinced that being open with your staff makes them feel trusted and encourages them to take ownership of the company.
“Secretiveness was so omnipresent that when I left HBO to join Netflix I had a big shock. Netflix treats employees like adults who can handle difficult information and I love that. This creates enormous feelings of commitment and buy-in from employees.” ~ Rob Caruso
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 @pressfarmpr.
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