Blitzscaling 16: Reed Hastings on Building a Streaming Empire

Key ideas

Hastings explains talent density, hiring as experiment, generous severance and context over control, and why a scale business like Netflix differs from a network-effect business that must blitzscale.

From a machine transcript of the audio. Quotes link to the moment they are said.

1. 1

   A layoff revealed the value of talent density

   Hastings says Netflix laid off a third of the company in 2001, going from 120 people to 80, and expected progress to stall. He says it got more done instead, and concluded that with the right density of talent very little process is needed. That led not to yearly layoffs but to managers asking each year whether they would try to change a person's mind about quitting, with a generous package if not.

2. 2

   Hire experimentally, part generously

   Hastings says six to eight hours of interviews tell you less than three months of working together, so Netflix does not try to hire perfectly and he does not review resumes or block hires. He gives the severance minimum as four months (three at the start), and says it brings a legal release, no employee lawsuits so far, and an easier decision for managers than a drawn-out performance improvement plan. He adds that it took him about three years as a first-time CEO to see firing as protecting the company rather than as cruelty.

3. 3

   Optimize for flexibility, not efficiency

   Hastings says Pure Software added a process after each error, which left people good at following rules but not at rethinking the market when it moved from C++ to Java, and the company struggled and was sold. At Netflix he says managers set context, such as the goal, the constraints and how much the problem matters, rather than directing specifics, with decision owners and almost nothing by consensus. He argues management's short-term pull is toward efficiency, while flexibility matters more over the long term.

4. 4

   When attacked, strengthen the core

   Hastings says that when Blockbuster attacked in 2005, Netflix responded with four new efforts: its own social network, ad sales, used DVD sales and buying films to publish. He says none contributed to the eventual win and all were closed, and that going from about 98% perfect to 99.9% on operations would have done more. He says the lesson is why Netflix now answers questions about news or sports with a confident no.

5. 5

   Blitzscale only for network effects

   Hastings separates scale businesses, such as Netflix and Amazon in his account, from network-effect businesses such as LinkedIn, Facebook and eBay. He argues only extreme winner-take-all dynamics justify blitzscaling's sloppiness, including not worrying about talent density. In a scale business, he says, being first matters less: Netflix could overtake a company that started in Germany two or three years earlier.

In Reed’s words

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