What I Learned from Netflix’s Reed Hastings

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4 MIN
December 25, 2017

What I Learned from Netflix’s Reed Hastings

(Note: much of the content in this article is a summation of a Podcast on 6/28/17 from Masters of Scale)

 

Culture and content

On June 28, Masters of Scale investigated the success behind Reed Hastings and Netflix, which he founded. Among many things I learned, I’ve realized how the company is almost as important as the product being sold. The structural integrity of a company is always at risk––especially in the early stages––and it’s incumbent on the founder to ensure everyone you bring in is culturally appropriate in every level of activity.

 

Instantaneous or gradual?

Reed alludes to the prominence of the horse, for millennia, as a primary means of travelling. As long as it lasted, the means of improving travel were a better saddle or hooves and producing an improved animal. In 1900, however, everything was different. In the course of around 30 years, vehicles replaced horses as the way to go. Reed says technological shifts can be almost instantaneous or merely gradual––and it’s very important to know which is which.

 

Identifying a variety of change

Reed knew he needed employees who would optimize the early business model, shipping rental DVDs, yet also allow it to fade away once the technology for internet streaming became more feasible. Sometimes, you just need to get better at what you’re already doing; other times, you need to change everything. This insight motivated Netflix’s business plan, but also informed the evolution of its culture. You need both kinds of change an an employee who embraces them.

 

Culture is in the behavior of every employee

Culture is a prominent feature of a functional company, but culture isn’t merely an indication of everything you’re doing. Instead, culture is meant as a reflection of the optimal way everyone already functions as they achieve a goal. A culture should be founded in the first days of your existence. Another issue is how you get a diverse array of employees willing to instill your values without being homogeneous––especially when you’re hiring hundreds of employees.

 

Embed culture before scaling

The effect of a good culture is evident from top to bottom: if you notice a waiting area in disarray, there’s a reasonable chance the rest of the company is disorganized. In order to the culture to succeed, everyone in every level of standing must buy in. Although the ideas behind your culture are flexible and may be different from other companies, you must establish them early. Usually, they solidify fast and it’s harder to implement them on a larger scale.

 

A lack of culture may sink your business

Reed’s original company, Pure Software, was hiring employees and buying companies left and right. This might seem like a very positive thing and, in a sense, this is one, but they were scaling in a way inconsistent with their original values. He was trying to compensate for the lacking by staying up late and working harder. It’s just never enough if only one person is doing it. Everyone has to take ownership of the culture––every hire is intentional.

 

Leave a little room for failure

The major mistake of Pure Software was they tried course-correcting an error they made anyway. They attempted to ‘dummy-proof’ every system; in doing so, they ended up with a number of systems where only dummies wanted to work. As their employees became dumber, the market changed, at which point the employees were too slow to keep up. Employees did as they knew rather than adapting with critical thinking.

 

Cycle of employment

They had the wrong employees because of mistaken management decisions, which selected for them. In order to defer a weak culture, you have to avoid even an instance of admitting it. Your original employees will be the ones who hire a the following waves of employees. Originally, Netflix was a very disruptive video rental service, which beat Blockbuster to the punch, achieving the number one spot in a newly minted industry medium.

 

Every detail is essential

Netflix exceeded competition because of a constructive culture. Every element, no matter how small, informs the success of the company: from the content produced to the transportation used, give everyone license to own their belief in the company. Some are averse to the freedom of deciding on travel arrangements, yet others feel it encourages a level of independence and trust a company may never achieve without a meaningful level of agency.

 

Netflix Culture Deck

Reed also produced a 100-slide manifesto on Netflix’s ethos, which is their culture deck. He communicated it with new employees and refined the deck in accordance with their impressions. The deck is viewed by the millions and also studied all over the world. Interestingly, however, the deck is also meant to deflect a kind of job seeker. The same philosophy appealing for many is also repulsive for others.

 

Collaboration over isolation

It’s really important for a company to focus on teamwork over individual performance. According to Margaret Heffernan, there’s a longstanding idea you should generate competition in the workplace. Although you may be well-served being competitive with yourself, performing better each day, everyone else should want you to succeed and vice versa. Negative competitiveness is a major reason for dysfunction in a company.

 

Team, not family

A company of helpful and generous employees will be better off than a highly (internally) competitive one. The combination of teamwork with assistance is more reflective of an athletic team than a family. Indeed, while a team expects high performance and uses internal collaboration, a family is built on unconditional love. Unconditional love is ineffective in a company. An effective company is “warm, not cuddly.”

 

Diversity

If you’re scaling quickly, you will be tempted to put speed over quality. Even if you do it with hesitation, understand you’re ultimately saving yourself (and other employees) a lot of grief by hiring effectively. As a universal credo, you look for diversity. This is diversity of thought as well as culture. A product for a minority group may appear like a niche to a room of white, Ivy League males, yet anyone from the demographic will indicate otherwise.

 

Strategy, too

Sacrificing diversity will result in misunderstanding a consumer as well as missing relevant opportunities. Evolution in diversity is only one part of a constant evolution from who you are into who you want to be. Moreover, while culture is essential for effective scaling, there are other important features of a growing business. Strategy is essential, and you are better off excelling in both.

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