Reed Hastings, founder of Netflix: fortune, management, scandals…

Reed Hastings, founder of Netflix: fortune, management, scandals…

Reed Hastings revolutionized the world of entertainment with the launch of Netflix in 1997. The streaming giant began as a simple company selling DVDs on the Internet. It was in 2007 that the company diversified and opened up to new services. Focus on the journey of Reed Hastings, the genius behind this platform that has transformed our uses.

Reed Hastings today owns 1% of Netflix, which went public in 2002. Before his Netflix adventure, he sold his first software company which he launched in 1991, Pure Software, and which had enjoyed great success. But the engineer that resided in him was not necessarily in agreement with the CEO position he occupied. He remembers: “I tried to fire myself twice, but without success. » The company was ultimately sold for $700 million in 1997.

In 1997, he created Netflix which originally operated as a DVD subscription service and over time became a video streaming service offering many films, shows and series as well as original content. It now has 221 million customers around the world.

Biography of Reed Hastings: Teaching, entrepreneurship…

re:publica 2015 - Tag 1 | Reed Hastings spricht auf der re:p… | Flickrre:publica 2015 - Tag 1 | Reed Hastings spricht auf der re:p… | Flickr

Reed Hastings was born October 8, 1960 in Boston. He is the founder of Netflix and is a member of the board of directors of Facebook. He was born into a very wealthy family, the son of a lawyer father who worked in the administration of Richard Nixon for the Department of Health, Education and Welfare. “He comes from the highest American society, we could almost speak of nobility”underlines Gina Keating, a former journalist for the Reuters agency, who followed him for many years before releasing a book on his entrepreneurial adventure, “The Epic Battle for America’s Eyeballs” (Portfolio Hardcover, 2012).

Reed Hastings decided to attend Bowdoin University in Maine where he earned a degree in mathematics. Then, he joined the Marine Corps before teaching mathematics for three years as a Peace Corps volunteer in Eswatini. He subsequently resumed his studies at Stanford University in artificial intelligence. In October 1991, he founded Pure Software, a company whose aim was to facilitate the use of the operating system and which was therefore sold in 1997 for 700 million dollars.

The young entrepreneur finds himself with a nice sum in his pocket, so he decides to embark on a new project with the help of his partner, Marc Randolph. The idea for Netflix came to him after he paid $40 for a movie he had rented and returned it too late.

Reed Hastings: the crazy Netflix adventure and the separation with Marc Randolph

While Netflix was originally a subscription and mail-order DVD rental service, Marc Randolph and Reed Hastings made a shift to create an entertainment platform where people could freely access a library of purchased content. low prices to studios who did not recognize the value of what they had in their hands.

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In the 2000s, Reed Hastings took control of Netflix and pushed aside his partner, Marc Randolph, thus marking his ground. “In the early days, the company was dominated by marketing and creatives. They were the ones who invented the interface, who really thought about how people would use the site. Reed had no appetite for that side of things. In the eyes of the engineers, however, he was a rockstar,” explains Gina Keating.

Reed Hastings had big ambitions for Netflix and wanted to make his company a multinational. It’s a successful bet given that the platform now has millions of users around the world. The CEO of Netflix is ​​passionate about algorithms. In 2005, he spent his Christmas vacation, not enjoying his family, but designing a mathematical formula superior to the one invented by his engineers. Netflix is ​​now known for the power of its algorithms that suggest content to users that they are likely to enjoy.

In the mid-2010s, Netflix opted for the creation of original works: films, series, cartoons, interactive content and now video games… Now, Reed Hastings has made Netflix one of the biggest production studios of all. Hollywood. The platform no longer depends on the content of other large firms which have also entered the streaming race.

The teachings and management lessons of Reed Hastings

According to the book No Rules Rules: Netflix and the Culture of Reinventionit is important for the company to give a certain freedom to its employees. Their performance depends above all on confidence. At Netflix, employees do not have sick days or compulsory vacations. Everyone is free to manage their time as they wish.“We’re not trying to make our employees happy, we’re trying to make them productive.” Reed Hastings, for his part, does not give up his days off and takes six weeks a year to take a step back and focus on his “physical and mental” well-being. He says that these long breaks make him much more efficient.

In addition, Netflix adopts a policy of transparency. If, in certain companies, financial data is secret, this is not the case within streaming platforms. This creates a greater sense of responsibility and belonging.

One of the management methods adopted by Netflix and Reed Hastings is keeper test (guardian test): Reed Hastings only wants to keep in his company employees for whom their managers would do anything to keep them on their team.

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Another method used by Reed Hastings is 360 degree feedback dinners. These are annual dinners where members of each team meet for long hours. In turn, each member of the team speaks and gives their opinion on a particular person, listing their strengths and weaknesses. “At first, I was shocked. But after interviewing 200 people, I realized that people liked this exercise. The first time, you go to this dinner a little tense. But in reality, everyone tries to be generous and help the person who is being criticized. This dinner requires courage, but it also allows everyone to get to know each other better,” remembers Erin Meyer.

Reed Hastings’ Key Principles

The organization of Reed Hastings is based on three important principles:

  • Attract the best talent and retain them regardless of the cost.
  • Promote organizational transparency.
  • Remove controls (vacation days, hierarchical controls).

In 2001, Netflix had to cut 120 jobs. While Reed Hastings was convinced that these departures would have an impact on the atmosphere at work, the opposite happened. By choosing to eliminate those who were producing passable work, the CEO saw an increase in “talent density.” Which means that everyone’s quality of work, whether good or bad, is contagious. Those whose work is average necessarily affects everyone else and the quality of group discussions loses relevance.

Reed Hastings applied this same principle to Netflix co-founder Marc Randolph. He convinced the latter to return 650,000 shares that he owned at the time and to relinquish his hierarchical functions.

The very particular character of Reed Hastings

Reed Hastings adopts an attractive compensation strategy and recruits dedicated and passionate people. But the atmosphere at work is not necessarily warm. The CEO explains: “We are not a family.” The successful entrepreneur is extremely demanding and cannot tolerate “brilliant assholes”. It is for this reason that layoffs are very frequent and compensation is significant. For example, in September 2001, Reed Hastings terminated the contract of 40% of its workforce.

Furthermore, the boss of Netflix has not always made the right decisions, as demonstrated by the example of his terrible decision, in 2011, to increase the combined DVD-streaming subscription price by 60%. It was only a matter of time before Netflix lost 800,000 subscribers and saw its stock price fall by 74%.

Reed Hastings has a very strong and slightly egocentric personality: “The fact of having been right so often sometimes pushes him to arrogance. Before his communicators corrected him, he sometimes tended, with journalists, to roll his eyes and blurt: “What a stupid question!” » », notes Keating in his work. He still recognizes that other engineers are capable of developing an algorithm more powerful than Netflix’s, as demonstrated by the competition he organized in 2006, offering $1 million to those who improve by 10%. the predictive power of one of its programs.

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Reed Hastings’ fortune

According to the latest estimates, Reed Hastings’ fortune amounts to $3.5 billion. The founder of Netflix owes his interesting financial assets in particular to his shares in the company which is listed on the stock exchange.

The collapse of Netflix on the stock market

The streaming giant’s stock has lost 40% of its value in recent months. This fall comes after the announcement of the results for the first quarter of 2022 and the loss of 200,000 subscribers. The sector leader who hoped to gain 2.5 million subscribers lost them for the first time in ten years. Reed Hastings and the group explain in particular that this drop is due to the suspension of its service in Russia, following the war in Ukraine.

In addition, platforms have flourished in streaming and inflation has had a negative impact on the performance of the company, which decides to make a big decision: to appeal for advertising financing. “ Netflix indicates that it still expects 2 million fewer subscribers in the 2nd quarter and is starting to find solutions to charge the 10 million users who benefit from it for free by sharing access codes »underlined Kenneth Leon, analyst for CFRA who lowered his share price estimate.

Netflix founder and CEO Reed Hastings resigns

Faced with the scandals that have surrounded Netflix recently (wave of layoffs, expenses, toxic management, etc.), its founder and co-CEO, Reed Hastings announced his departure. It was during the presentation of the Q4 2022 results that the entrepreneur announced that the company would now be led by Greg Peters and Ted Sarandos. The latter also focuses on the content offered by Netflix which is being devoured by an actor that we did not see coming: Prime Video. For his part, Greg Peters’ expertise revolves more around advertising.

However, if Reed Hastings leaves Netflix, the company is unlikely to change course. Its objective remains the hunt for account sharing with the aim of ensuring financial profitability. However, this technique could push users to the competition which offers much more attractive prices with content that becomes interesting.