What does it take to be a great chief executive officer? For many CEOs, it means making most of the major decisions and settling the tough calls. For others, it means being a product genius, akin to Steve Jobs, able to divine the next big thing again and again. But none of those attributes applies to Reed Hastings, the cofounder and CEO of Netflix.
Hastings prides himself on making as few decisions as possible, and he lets his team dream up new products and new initiatives. That may sound like a recipe for failure, but it obviously isn’t. Worth more than $23 billion, Netflix has redefined how American consumers watch movies and is disrupting the established business model of cable television. In September, Stanford Graduate School of Business awarded Netflix its 2014 ENCORE award for the most entrepreneurial company of the year. In accepting the award, Hastings discussed some of the lessons he has learned during his 17 years at the helm of the company.
Stay ahead of the competition.
When Netflix was founded in 1997, Americans who wanted to watch a movie at home went to a video store, rented a DVD or VHS tape, and then tried to return it on time. The largest rental chain by far was Blockbuster, which at one time had more than 9,000 stores and 60,000 employees. Hastings says he realized that a plastic disc has room for a huge amount of data and weighs next to nothing, making it feasible to distribute movies on DVDs by mail. The idea caught on, but Blockbuster was slow to respond, not recognizing Netflix as a serious competitor until 2004. “They had a big advantage, were 15 times our size, and if they had started [a mail-order business] two years sooner, they probably would have won,” Hastings says.
Employee freedom and responsibility go together.
“I take pride in making as few decisions as possible, as opposed to making as many as possible,” Hastings says. One example: Netflix’s decision to produce the popular House of Cards was a huge one, but the meeting that gave the project a green light lasted just 30 minutes. Others had already laid down the groundwork and details, making it easy for Hastings to sign off. “It’s creating a sense [in your employees] that ‘If I want to make a difference, I can make a difference.’” Freedom is only one part of the Netflix culture; the other is responsibility. Netflix, says Hastings, has created a culture of high performance. “Adequate performance gets a generous severance package,” he says, adding that “we turn over a lot of people.”
Realize that bigger isn’t worse.
Hastings advises young CEOs to memorize the first 86 pages of Beyond Entrepreneurship by James Collins. “You have to fight the idea that as you get bigger, the culture gets worse. At Netflix, we’re significantly better [than we were] because we have more brains thinking about the problem. If you have 1,000 really thoughtful people thinking about how to improve, you’ll make a lot more progress than if you have 100,” Hastings says.
You don’t have to be Steve Jobs to be a great CEO.
Without mentioning Apple or the late CEO Steve Jobs by name, Hastings says certain companies’ conception of the top job was very different than his view. “Some companies operate by the principle of the product genius at the top,’’ Hastings says. “There’s this whole motif that to be a great CEO you have to be a great product person. That’s intoxicating and fun, but you build in incredible amounts of dependence on yourselves. You’re much stronger building a distributed set of great thinkers,” he says.
Don’t make your process “dummy-proof.”
“People tend to think that they need a process for everything, and once in a while you hear ‘We’re going to dummy-proof it.’ But if you dummy-proof the process, you only get dummies to work there,’’ Hastings says. “That’s why we’re so opposed to that and focused on giving people great freedom. They’ll make mistakes, of course, but you’ll get a lot of great ideas.”
Being aggressive is good, but it can lead to mistakes.
Netflix made a radical change in its business model in 2009, separating the mail-order business from the streaming business and charging separately, in what amounted to a rate increase of about 60%. Consumers hated it, the stock market hated it, and the company quickly backed off. Asked to explain his thinking, Hastings says: “We were so obsessed with not being the next Kodak, the next AOL, about not being the company that clung to its roots and missed the big thing. We said if there’s a bias, we should be more aggressive; we have to be so aggressive it makes our skin crawl.” In retrospect, Hastings says he realized that his timing was terrible, though he thinks the plan might have worked if existing customers were grandfathered in to avoid a price hike.