Interview with Reed Hastings

Reed Hastings, a name synonymous with global entertainment, recently returned to a familiar campus: Stanford Graduate School of Business. It was a full-circle moment for the Netflix Chairman and Co-Founder, who, as a lonely computer science master's student decades ago, had attempted to cross-enroll at the GSB, only to be turned away. Little did Stanford know they were rejecting a future media executive whose company would soon become a cultural phenomenon, prompting the GSB to create its very own Netflix-style trailer, a humorous ode to business school life, for his return.

The Spark of Creation: From Cinnamon Sticks to the Foot Mouse

Even before Netflix, Reed Hastings demonstrated an unyielding entrepreneurial drive. From junior high, selling cinnamon-soaked toothpicks for a nickel, he was "always doing little projects" driven by a desire to create. This early spark matured during his time at Stanford in the mid-80s, where he nearly dropped out to pursue what he believed would be a revolutionary "foot mouse" – a device designed to let users control a computer cursor with their foot, freeing up their hands from the keyboard and traditional mouse. Though it ultimately proved to be a "terrible idea" due to leg cramps and hygiene issues, Hastings reflects on the profound personal commitment: "I was equally committed to that terrible idea as I was to Netflix."

His first successful venture, Pure Software, a technical company specializing in C and C++ programming tools, offered crucial, albeit painful, lessons. Hastings admits, "I only had one gear which is working hard so I had no sophistication." Despite excellent products and doubling sales year over year, the company suffered from internal chaos, replacing its head of sales five times in five years. This experience, marked by what he describes as doing "things wrong," profoundly influenced his approach to building Netflix's culture.

Key Learnings:

• Early entrepreneurial ventures, even failed ones, build foundational skills and commitment.
• Product excellence alone isn't enough; sophisticated business and organizational understanding is vital.
• Internal chaos can undermine even successful products, leading to missed potential.

The High-Stakes Gamble: Navigating the Qwikster Storm

Netflix's journey wasn't without its near-catastrophes. The company was founded on the vision of "Internet movies," initially using DVDs as a temporary digital distribution network, knowing streaming was the ultimate destination. However, the path to streaming wasn't smooth. In 2011, Netflix made the bold and highly controversial decision to separate its DVD and streaming services, famously dubbed "Qwikster." This move resulted in significant customer backlash, a sharp drop in stock value (75%), and the company's first major layoffs.

Hastings explains the rationale behind this aggressive, risky move: "We had been thinking about streaming for 15 years...This was our moment and we were going to be the one." He believed that most management teams are "too cautious at preserving the current business" and that Netflix had to be so aggressive "it should make the hair on the back of our neck stand up." While the long-term vision of streaming eventually prevailed, the timing was off. Hastings candidly describes the immediate aftermath: "It felt roughly like you're driving, and you get distracted reading a text, and you crash, and your kid in the backseat's in the hospital." The company was "severely wounded." Despite the trauma, Netflix consciously chose not to "overcorrect" by becoming too conservative, trusting in their long-term, aggressive strategy to build a resilient streaming future.

Key Changes:

• Strategic shift to separate DVD and streaming services, accelerating the move to a streaming-first model.
• Aggressive long-term planning, prioritizing future vision over current business preservation.

Key Learnings:

• Aggressiveness is necessary for innovation, but market timing and customer readiness are critical.
• Resilience means not overcorrecting in the face of failure, but staying true to a core strategic vision.

Crafting a Champion Culture: Freedom, Responsibility, and the Keeper Test

One of Netflix's most celebrated and debated assets is its distinctive culture, famously outlined in its "Freedom and Responsibility" deck. Hastings emphasizes that they were "early in labeling it and saying, team, not family." This philosophy dictates that "everyone has to fight for their job every year, like it is in professional sports." A shocking statement 15 years ago, it declared that "adequate performance gets a generous severance package." This stark contrast to the traditional "family" model of organizations, rooted in 10,000 years of human history, required people to "not judge us like a family."

A core practice derived from this culture is the "keeper test." Managers are asked whether they would "fight to keep someone if that employee of theirs was thinking of leaving." If not, a severance package is offered. Hastings even role-played a compassionate yet direct firing, emphasizing that the generous severance "is a bribe to the manager to get the job done," as managers, being good "people people," often dislike firing. Reflecting on the evolution of this culture, Hastings wishes they had talked "enough about love." He now envisions a shorthand for the ideal Netflix employee: "big hearted champions, who pick up the trash." This embodies generosity of spirit, a demand for excellence, and a strong sense of responsibility to "do the right thing even when no one's looking."

Key Practices:

• Explicitly defined "Freedom and Responsibility" culture, emphasizing a "team, not family" mindset.
• The "keeper test" for managers to assess employee value and initiate respectful departures with generous severance.
• Promoting continuous, candid, and caring feedback as "brushing and flossing" for emotional hygiene.

The Future of Storytelling: AI, Gaming, and Global Responsibility

As a global company, Netflix faces immense responsibility in the stories it tells. Hastings clarifies the company's primary focus: "Our primary responsibility is to our customers to entertain them." He cites the tumultuous Dave Chappelle controversy as a pivotal moment that solidified their stance: employees should be proud of effective entertainment, "not to make them think that every show was a reflection of our values." This allows for the exploration of diverse fantasies and fictions without those elements being deemed acceptable in the office.

Looking ahead, AI is seen not as an existential threat, but as an "authoring essentially accelerant" that will help Netflix "be more creative" and produce more shows. While not yet in final production, AI is already "pretty incredible at the prototyping level." Hastings believes AI will move "up the stack," transforming low-level tasks and eventually more creative areas, much like in the legal field. Similarly, Netflix is heavily investing in gaming, seeing it as another form of "creativity" with similar high upfront investment and community-building needs as film and television. The real competitive concern, he notes, comes from "user-generated content, so YouTube and TikTok," which offers a different rhythm of entertainment and could shift audience tastes.

Key Insights:

• Netflix's core responsibility is entertainment, separate from enforcing company values within every show.
• AI is a powerful creative tool and accelerant for content production, set to transform various stages.
• Gaming represents a natural extension of creative storytelling, facing competition from user-generated content platforms.

Beyond Netflix: Philanthropy and Redefining Tomorrow

Now as Chairman, Reed Hastings enjoys a less hands-on role, allowing his successors, Ted Sarandos and Greg Peters, to lead. His primary focus has shifted to philanthropy, aspiring to be a "baby Bill Gates" – a technocratic orientation to improving human welfare. His efforts are concentrated on the African economy, exploring technological interventions like mobile networks and solar, and in the US, supporting nonprofit public schools, particularly charter schools, for their consistent excellence.

Hastings concludes with a powerful reflection on "redefining tomorrow," highlighting two major drivers of human progress: technology and "the moral ethical systems, the notion of identity...I call that story." He points to historical shifts like the New Testament's "turn the other cheek" ethos or the idea of "consent to the governed" as examples of moral progress with "tremendous impact in human society." For Hastings, while technology offers science-based solutions, especially for issues like climate change, the evolution of human psychology and the "big ideas that connect us" are equally vital for building a better society and a better world, driven by the enduring power of hope.

Key Practices:

• Transitioning from CEO to Chairman, enabling new leadership while focusing on philanthropic endeavors.
• Strategic philanthropic investment in areas like African economic development and US charter schools.
• Advocating for the power of technology and evolving moral narratives as drivers of societal progress.

"What's the story that gets us to trust each other? What's the story that makes us who we identify with?" - Reed Hastings