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Learning Leadership From the Master of Disaster Reed Hastings & Netflix

Tags: Leadership, management, mindset
Learning Leadership From the Master of Disaster Reed Hastings & Netflix

Netflix is a bit of a hot topic right now; it’s becoming more and more of a success story thanks to Reed Hastings and the journey he is taking Netflix on – both up and down Mr Hastings has the potential of becoming a great leadership icon.

 

Netflix has had a couple of turbulent years thanks to some questionable decisions that were made by Mr Hastings thus showing a weak management style. With these questionable tactics Mr Hastings was able to go from Fortune’s Business Man of the Year to the ridicule of comedy sketches.


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The list of mistakes and questionable decisions are as follows:


  • Ignored the pleas from everyone within Netflix to split the company into 2 separate entities – Qwikster, mail order DVD rentals and Netflix the on demand streaming company.
  • Arrogance from previous successes made Reed Hastings think less of the opinions and fears that the other senior members of Netflix had regarding the split.
  • Raising prices 60% to accompany the split and making the subscribers pay for each service separately, ultimately giving the users 2 of everything – bills, card details, lists, reviews. This destroyed the major unique selling point being the ease of use when it came to ordering and streaming films.
  • Losing a licencing agreement with Starz over the use of films, losing 2500 films of which greatly affected the content count for Netflix.
  • Trusting a ‘gentleman’s agreement’ to both announce the non-renewal of licencing, giving Netflix an increasingly poor brand image whilst dealing with the other hiccups.
  • Announcing the new DVD service split 1 month early, again against the endless pleas of the internal team at Netflix. Also wishing to use an amateur video approach when releasing the statement believing that a shiny, polished corporate video would send the wrong image.

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These mistakes highlight the problem Reed Hastings had with his management approach, he took more of a leadership role but it became one filled with arrogance that no doubt disrupted the internal team’s camaraderie.

 

The effect was catastrophic to say the least, after the snowball effect of a company split announcement, price hikes and poor management of consumer communication Netflix had to also deal with a 77% drop in share price over a 4 month period & 800,000 subscribers jumping ship.

 


However what makes Reed Hastings such a great leader is that he stuck to what he believed; he preached that the DVD business will soon become a thing of the past and companies that stick to the ‘traditional’ model would soon be exposed to the slow in demand (á la Blockbuster).

 

The question to ask is; what makes a great leader? If you consider the circumstances and style of approach you could put Steve Jobs and Reed Hastings into the same basket in terms of dismissing what others say and sticking to what they truly believe is true.

 

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Looking at the negatives of the past is essential to understand and predict any future problems, however Reed Hastings wasn't crowned Businessman of the Year for nothing - here is a list of the great things he did with Netflix:


  • Continually pushed the company to adapt to the future of movies being online streaming, emphasising the slow-down and eventual end of DVDs.
  • Ultimately limiting the amount of risk the company would have if it stuck with the DVD model.
  • Admitting publically that the majority of what he did and said was a ‘mistake’ and without proper communication it was his entire fault.
  • Disrupting the market with low subscription prices that not even Apple, Google or Amazon can come close to.
  • Ignoring and shaking off the endless ‘threats’ the media put in place – the best examples being that the majority of major pay monthly TV services both in the USA & UK are releasing their own versions of a Netflix streaming service. None have yet caused any problems when it comes to taking Netflix’s consumer share.
  • Creating and signing massive deals all of which have either increased the amount of content available or created exclusive content making it impossible for the other services to offer.
  • Focusing on creating original and unique series to leverage the amount of content they already have from other companies.
  • Expanding the Netflix service into new markets, notably Europe being one of the more costly areas (this again drove media attention to comment on risk to the balance sheet with this expansion).To me that looks like a whole lot of positives that easily outweighs the negatives created before, not only has Netflix been able to sustain growth it has also been able to destroy it’s haters.

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So what makes Reed Hastings a great leader? It’s his ability to focus and see a future trend, something that he ‘knows’ will happen and ensuring that the company stays on the right path.

 

Every leader will make mistakes from time to time, especially when they are pushing the company into something new or attempting to create growth. What’s important is to learn from what Hastings did so well and that is publically admit his mistake and explain where the wrong decisions were made.

 

Besides the workplace will be filled with mistakes, the busier you get the more likely you are to create a mistake – this is when you admit to it straight away. No one expects you to be perfect and everyone expects you to make mistakes, just admit and leader the pack.

 

Since then the company has been on a glorious path of growth and success signing deals and creating a buzz again:


  • Signed an exclusive deal with Disney to offer content in 2014
  • The creation of original material (latest being House of Cards, which is brilliant!) but also bringing back classics such as Arrested Development which is what the consumer actually wanted.
  • Approaching $200 share price again.
  • Remaining extremely cheap whilst adding content.

 

It takes a lot to be a great leader, especially when you have a colourful past which is tainted by a few bad decisions – being able to carry the company out of the gutter but maintain and rebuild your personal image is a accomplishment in it self.

 

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By: Marius Fermi

 

 

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