Reed Hastings is leaving as CEO, that’s how he made Netflix great

Reed Hastings has always said it himself: If I no longer fulfill my role as CEO, I will leave. That time has obviously come now. Hastings is stepping down from his role as co-CEO of Netflix, a position he has held with chief content officer Ted Sarandos since the summer of 2020

Sarandos is staying on and will have chief operating officer Greg Peters by his side from now on, as it was announced on Thursday at the presentation of Netflix’s year. Hastings remains as chairman of the company.

Reed Hastings career

Reed Hastings is a serial entrepreneur. He started at a young age: he founded Pure Software in 1991, after graduating in computer science from Stanford University in 1988.

After his studies, he worked briefly at Adaptive Technology, where he developed his own software tool. The entrepreneurial gene must have tickled, because since starting Pure Software he has always remained an entrepreneur.

Soon his software company began to grow significantly, and Hastings said he could no longer keep up. He tried twice to fire himself as CEO, but the board would have nothing to do with it. Finally, Hastings left himself in 1997 after Pure Software merged with Atria Software and the new company’s stock market value declined.

The birth of Netflix

That same year, Reed Hastings co-founded Netflix with Marc Randolph. Back then with a completely different revenue model than how we know the online streaming service today.

He got the idea when he was far too late to deliver the film Apollo 13 to the video store. He knew he had to pay a fine and was afraid to tell his wife. He therefore removed the most common consumer annoyances from video stores and started an online video store. The new thing was that no return date was attached, and therefore no fines had to be paid.

Netflix was a success in the US, but Hastings did not sit still. He wanted his company, despite strong growth, to retain an entrepreneurial character and not get bogged down in endless hierarchy.

Netflix’s special culture

It has largely succeeded. The company has more than 11,000 employees, 231 million subscribers worldwide and had nearly $32 billion in revenue last year. Partly thanks to the culture Hastings established at the company.

He laid out his management vision in a 126-page slideshow that was once described by Sheryl Sandberg as “the most important document Silicon Valley has ever produced.” Hastings explained, among other things, how Netflix handles matters such as recruiting talent, rewarding and developing leadership.

Here are three of Reed Hastings’ management strategies:

1. Reward performance, not effort

No matter how hard an employee works, if their performance isn’t up to par, then you have to let them go, Hastings says. With a nice redundancy scheme, it goes without saying. People who perform well should be rewarded for this, even if they achieve their results with relatively little effort. A talent also does not have to spend a fixed number of hours behind his desk, as long as he delivers work that is of high quality.

The only exception to this is the “radiant jerks” as Hastings calls them. No matter how skilled they are and what level their work is, you can’t afford a bad apple in the workplace. Such an unpleasant personality can harm your entire team. That risk is too great and does not outweigh the possible benefits. Furthermore, an atmosphere of internal competition is unacceptable, says Hastings.

2. Take care of the employee’s freedom

As companies grow and need to hire more employees, many entrepreneurs often lower their requirements for talent. Instead of choosing only the best employees, the conditions on the work floor are adapted to facilitate the less skilled and self-employed.

Hastings emphasizes that this is not the way. Businesses that grow need to increase their demands, or else they get stuck in all sorts of corrective patterns and procedures that will only make the business less flexible. As a growing company, you want to be agile and competitive.

Furthermore, according to Hastings, it is important that people should be able to make mistakes. The common theory of error, that prevention is better than cure, does not hold true in a creative enterprise.

3. Pay your people what they deserve (no more, no less)

Offering a competitive salary is important in the battle for talent. A great employee gets more done and costs less than two average people. So Netflix is ​​betting on paying top wages in its market.

But this does not mean that the company pays too high prices in the hope that people will then stay on board with the company. The salary is always determined based on three things:

  • What would the employee earn elsewhere?
  • What will Netflix lose if it has to hire another employee to replace it?
  • What is the company willing to pay to keep that employee on board?

Ultimately, the most important thing is that you pay your employees based on their individual value. This means that one will make rapid jumps and another will show a very flat salary trend. The salary development depends on how an employee develops in terms of skills and responsibilities and how popular he is on the external market.

Read more about Reed Hastings and Netflix culture:

Leave a Comment