Lessons from Reed Hastings, CEO of Netflix

October 9, 2009

I had the pleasure of being invited to attend the Liberty Media Net Leaders Forum. The forum was fantastic featuring great presentations from Mark Mahaney, the star Internet analyst from Citigroup, and a chat between John Malone and Greg Maffei, respectively Chairman and CEO of Liberty Media. Reed Hastings’ discussion of the lessons he learned as CEO of Netflix were one of the highlights of the day.

If you read Reed’s fantastic presentation on Netflix’s culture which circulated on the Internet a few months ago, the lessons will be familiar, but are interesting nonetheless:

  • Contrarily to what VCs say, don’t go after the biggest market possible. It’s key to completely dominate your market to extract significant profits from it so pick the smallest market possible to go after and focus relentlessly on dominating it. It must just be sizeable enough and offer the opportunity of growing 5-10x in the next 10 years.
  • Focus on flexibility, not process. If you focus too much on process, you will attract process oriented people and lose the creativity that will be required to thrive when market conditions change.
  • Don’t keep good employees, only keep super stars! It’s not enough to get rid of the lowest performers. Get rid of the B+ performers as well. In the last downturn, Netflix fired 1/3 of the company, mostly good performers, and went from 120 employees to 80 employees. Both the productivity and the fun of working for the company increased!
  • Don’t give bonuses. Star performers don’t work to earn a bonus at the end of the year. They take pride in the work they do and in successfully achieving their goals.
  • Don’t keep anyone who is there just to be there! To weed out those who don’t truly love working there Netflix gives generous severance packages to those who leave and even gives an incentive for people to leave in their first week on the job!
  • Give flexibility to employees with regards to pay. If they are risk takers and want many stock options, give it to them in exchange for lower pay. If they are more risk averse and would prefer only a salary, that’s ok as well. You need to adapt to their risk profile and needs.
  • Let employees think about their career development and express their desires. Map an appropriate career path with them. Employees are thus empowered to take charge of their careers. Help them find a job elsewhere if you can’t accommodate their wishes.
  • Commit to your employees that they will only be surrounded by super smart fantastic colleagues and stick to it!
  • If you work from a notebook computer give up your office and work at various places around the office (moving spot every day) to be around people. It’s one of the best things you can do! It should allow you to get a much better understanding of what is going on.
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