What we can learn from the latest members of the billionaire entrepreneurs club: Reed Hastings, Co-Founder of Netflix
June 10, 2014
What are the lessons we can learn from the latest entrepreneur to join the ranks of the uber rich billionaires club? Well the first lesson would have to be stick to your guns when you think you have a disruptive idea that will change the world. As we have found with most successful entrepreneurs a start has a couple of initial traits such as a team of two people working together to bring an idea to life.
Such was the case with Marc Randolph and Reed Hastings who, in 1997, founded Netflix in Scotts Valley, California. Like most entrepreneurs they had already been involved with several start-ups with Randolph behind MicroWarehouse. Both men had also worked together at Pure Software so they had a feel for each-others working style, skills and habits. Reed Hastings had recently sold MicroWarehouse for a cool $700 million and the initial start-up capital for Netflix was $2.5 million.
Like all good success stories the idea for Netflix came when Hastings had to pay an overdue fine for returning a copy of Apollo 13 late to a store.
With only 30 employees and 925 titles at their disposal Netflix was launched in 1997 with a system that was fairly rudimentary in the beginning. By September of 1999 they had introduced a monthly subscription service and then in 2000 the model evolved once more with the company now built on a flat fee, unlimited rentals without due dates, late fees, shipping fees or per title rental fees.
As Hastings once said: “As an entrepreneur you have to feel like you can jump out of an aeroplane because you're confident that you'll catch a bird flying by. It's an act of stupidity, and most entrepreneurs go splat because the bird doesn't come by, but a few times it does.”
And that really was the case with Netflix because as you can see the model evolved post start-up to find its niche in the market in addition to the actual business model built around the need for the company to obviously make money and turn a profit. One important lessons for entrepreneurs and start-ups is that often your business model needs to evolve as you learn more from whatever is happening in the market at the time and at some point you will want to be the evolutionary leader as opposed to the adoptive follower.
As Hastings pointed out recently: “There is a revolution happening, and within two years I think that Wi-Fi and Netflix will be built into all the televisions.”
Which makes the point, you want to see what the lay of the land is in the not too distant future because, as is the case with Netflix, the business model wasn’t traditional like Blockbusters it was more about how would we live, work and play into the future. Ironically enough Netflix was offered to Blockbuster in 2000 but the offer was declined. Could it have been because Blockbuster was an early innovator in the sector of DVD and Video Cassette rentals but didn’t quite have enough vision to see where the sector was going which is why Netflix found its niche so quickly?
Hastings again on traditional companies: “Most companies that are great at something - like AOL dialup or Borders bookstores - do not become great at new things people want (streaming for us) because they are afraid to hurt their initial business.”
Of course today Netflix is a world leader and its founder has become a very wealthy indeed. The entire back story can be found here.
But what has Reed Hastings got in common with a lot of others? Well, in 2012 he joined Bill Gates and Warren Buffett in the Giving Pledge – which is an initiative of the world’s wealthiest people and families to dedicate the majority of their wealth to philanthropy.
Contrarily to what VCs say, don’t go after the biggest market possible. It’s key to completely dominate your market to extract significant profits from it so pick the smallest market possible to go after and focus relentlessly on dominating it. It must just be sizeable enough and offer the opportunity of growing 5-10x in the next 10 years.
Focus on flexibility, not process. If you focus too much on process, you will attract process oriented people and lose the creativity that will be required to thrive when market conditions change.
Don’t keep good employees, only keep super stars! It’s not enough to get rid of the lowest performers. Get rid of the B+ performers as well. In the last downturn, Netflix fired 1/3 of the company, mostly good performers, and went from 120 employees to 80 employees. Both the productivity and the fun of working for the company increased!
Don’t give bonuses. Star performers don’t work to earn a bonus at the end of the year. They take pride in the work they do and in successfully achieving their goals.
Don’t keep anyone who is there just to be there! To weed out those who don’t truly love working there Netflix gives generous severance packages to those who leave and even gives an incentive for people to leave in their first week on the job!
Give flexibility to employees with regards to pay. If they are risk takers and want many stock options, give it to them in exchange for lower pay. If they are more risk averse and would prefer only a salary, that’s ok as well. You need to adapt to their risk profile and needs.
Let employees think about their career development and express their desires. Map an appropriate career path with them. Employees are thus empowered to take charge of their careers. Help them find a job elsewhere if you can’t accommodate their wishes.
Commit to your employees that they will only be surrounded by super smart fantastic colleagues and stick to it!
If you work from a notebook computer give up your office and work at various places around the office (moving spot every day) to be around people. It’s one of the best things you can do! It should allow you to get a much better understanding of what is going on.
You can’t go past a news paper, radio show or television news story these days without being flooded by all things Bitcoin or Crypto Currency. Some say it’s the new world of money while others suggest its all just a passing fad. Whatever your position or preference of...
This week I announced a suite of measures for the Government to consider when it comes to small and medium sized business and what we can all be doing as we start to look at emerging from the COVID19 lockdown. The reality is that a good number of small business owners,...
As someone who has been working in suicide prevention for some years now i know that often having a simple conversation can make all of the difference when a loved one is doing it tough. COVID 19 and the lock down tends to amplify how we feel when we are isolation or a...
We know that mob out there are uncertain as to what the COVID-19 / Corona Virus means for them – this can cause us all to panic and some in community more so that others. Panic attacks can compound the situation so we gather some information about what you can do now t...
Don’t forget our elders can suffer in silence too: suicide prevention
Many people think that mental health and suicide are not topics that impact our elders but they could not be more wrong. The data tells us there continues to be an emerging trend when it comes to peop...