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How to Cultivate High Performance — Reed Hastings, Co-Founder of Netflix

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How to Cultivate High Performance — Reed Hastings, Co-Founder of Netflix

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  • The episode is sponsored by Shopify, an all-in-one commerce platform used by millions of businesses worldwide.
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  • Shopify's award-winning help support is there to support your success every step of the way.
  • Reed Hastings, co-founder of Netflix, shares his insights on cultivating high performance.
  • High performance is not about working harder, but working smarter.
  • It's about being efficient and effective in your work.
  • High performance is also about being adaptable and resilient.
  • You need to be able to adjust to changing circumstances and bounce back from setbacks.
  • High performance is about setting goals and taking action.
  • You need to know what you want to achieve and be willing to take risks to get there.
  • High performance is about surrounding yourself with the right people.
  • Find people who share your values and are willing to support you.
  • High performance is about having a positive attitude.
  • Believe in yourself and your ability to achieve your goals.

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Reed Hasting's bio (00:05:12)

Alfred Lee Loomis and Tuxedo Park. (00:06:49)

  • Alfred Lee Loomis, Reed Hastings' great-great-grandfather, played a role in developing radar during World War II.
  • Loomis was a wealthy scientist who sponsored his own scientific research and laboratory.
  • He predicted the 1929 stock market crash, which gave him the funding to bring scientists together.

Risk tolerance: nature or nurture? (00:08:07)

  • Reed Hastings has always been risk-tolerant, spending time hitchhiking in Africa and teaching math there.
  • He believes that risk tolerance is largely genetic and not a matter of character.
  • Hastings distinguishes between good processes and bad processes.
  • Good processes help you get more done, while bad processes try to prevent errors and get in the way of creativity.
  • He prefers to take risks on things that are recoverable, like two-way doors, rather than irreversible decisions, like one-way doors.

Cultivating culture that “eats strategy for lunch.” (00:11:11)

  • Believes that culture is more important than strategy in determining the success of an organization.
  • Emphasizes the importance of having a high-performance team and only hiring the best players.
  • Adequate performance is not good enough and should be rewarded with a generous severance package.
  • This approach helps to create a talent density and a focus on culture that can be effective in very different areas.
  • The culture deck was used to expose new employees to the company's culture and values during the hiring process.
  • It helped people self-select into the company, with those who loved high-performance teams being drawn to it and those who wanted job security being turned off.
  • Good performance: The company values and rewards high performance, and adequate performance is not good enough.
  • Team, not family: The company emphasizes teamwork and performance over familial loyalty.
  • Loyalty is good as a bridge: Loyalty is valued, but only as a means to achieving company or individual performance.

The logic behind generous severance. (00:15:56)

  • Netflix provides a generous severance package of at least 4 months to employees who are let go.
  • This is done to ensure that employees who have tried their best but may not have succeeded can land on their feet and have a generous separation package.
  • It also helps minimize the guilt that managers feel when letting someone go, making it easier for them to make accurate assessments of employee performance.

Adapting to Pure chaos. (00:17:16)

  • Pure Software, a previous company of Reed Hastings, initially focused on process innovation and yield management, which led to efficient execution in a narrow market.
  • However, this approach stifled creative inspiration, and the company struggled when the market shifted towards Java.
  • Hastings realized that to thrive in a rapidly changing market, they needed to optimize for market shifts and manage on the edge of chaos.
  • This required having high-performance people who understood the overall context and could deliver results without the need for excessive rigidity.

Reference checking potential hires. (00:18:58)

  • Start by looking for mutual connections on LinkedIn.
  • The reference should be closer to you than to the subject.
  • Try to do a short Zoom call with the reference to create intimacy and semi-anonymity.
  • Use different ways to find people who worked with the person before.

Context vs. control. (00:20:43)

  • Creative companies should set context instead of trying to control every detail.
  • Context means defining the company's goals and values, and empowering employees to make decisions within that framework.
  • Control means telling employees exactly what to do and how to do it.
  • Setting context allows employees to use their judgment and creativity to achieve the company's goals.

Radical candor. (00:22:49)

  • Radical candor or transparency involves saying the honest thing and aligning actions with words.
  • Hypocrisy can arise when actions don't match words, leading to hurt.
  • The speaker learned to reflect and be honest, prioritizing honesty over politeness.

Guardrails for maintaining work/life balance. (00:24:29)

  • Setting a strict budget for work commitments, such as 11 dinners a week, helps maintain work-life balance.
  • Sticking to the budget makes it easier for both the individual and their spouse.
  • When declining additional commitments beyond the budget, the speaker is honest about their focus and inability to take on more.
  • The speaker believes that focusing on a few things leads to greater impact than spreading efforts across many areas.
  • They decline additional commitments by honestly stating their focus and limited capacity.
  • The speaker acknowledges that some individuals, like Elon Musk, can handle a wide range of commitments, but this is rare.

Farming for dissent. (00:27:28)

  • Encouraging transparency during the hiring process by listening and being intuitive about who to give a chance.
  • Emphasizing the importance of farming for dissent within the company, as it's not normal to disagree with one's manager.
  • Implementing practices like asking managers what they would do differently if they were in their boss's role to promote open discussion and feedback.

Believing in the green crystals. (00:28:53)

  • Reflecting on the competition with Blockbuster and the various counterattacks that were launched, such as banner ads, selling used DVDs, etc.
  • Acknowledging that these actions did not significantly contribute to Netflix's success over Blockbuster.
  • Drawing a parallel to the human behavior of assigning meaning or causality to something ineffective, using the example of a dishwashing soap with green crystals.
  • Recognizing the temptation for management teams to focus on "shiny objects" instead of core competencies.
  • Emphasizing the importance of executing on the core and avoiding distractions.

High-performance team, not family. (00:31:08)

  • Stating that the principle of "high-performance team, not family" was one of the most valuable principles for Netflix's smaller organization.
  • Explaining that having a high-performance team creates a positive energy driver, attracts amazing people, and fosters talent farming.
  • Highlighting the importance of talent density and the incredible feeling when everyone in the organization is amazing.

The keeper test. (00:32:13)

  • The "keeper test" is used to determine if an employee is worth keeping or should be let go.
  • The test involves considering whether the company would try to change someone's mind if they were thinking of quitting or if they would let them go without a fight.
  • The goal is to fill the company with people that the company would fight to keep.
  • If someone is not a "keeper," they should be given a generous severance package and replaced with someone who is a better fit.

Fire and replace, or replace and fire? (00:33:03)

  • Generally, Netflix would let people go before starting the search for a replacement.
  • This was done to ensure an open search and to treat the person with respect.
  • The frequency of this exercise was up to the managers, but it was recommended to be done at least once a quarter.
  • The decision of whether to fight to keep someone or let them go depended on the degree to which the manager would miss them if they left.

Beyond Entrepreneurship and other recommended reading/viewing. (00:34:13)

  • Reed Hastings recommends the book "Beyond Entrepreneurship" by Jim Collins, particularly the first 80 pages.
  • He found this book impactful because it emphasized the importance of self-discipline, quiet determination, and caring about the organization over oneself.
  • Other recommended books include:
  • Hastings also enjoys non-fiction films and biographies, such as the recent biopic of Helen Reddy, "I Am Woman."

A favorite failure. (00:38:00)

  • Netflix attempted to split into two companies, Quickster for DVDs and Netflix for streaming, in 2011.
  • The decision was strategically sound but premature, leading to customer dissatisfaction.
  • Reed Hastings acknowledges his arrogance during this period and the importance of customer-centricity.
  • Netflix implemented a decision-making process where top executives provide input on big decisions to avoid similar mistakes in the future.

Outstanding leaders. (00:40:46)

  • Jeff Bezos stands out as a courageous leader who emphasizes customer centricity at Amazon, despite occasional controversies.
  • Hastings considers Bezos a paragon of customer obsession.

Reed’s two “religions.” (00:41:24)

  • Customer satisfaction is important, but not at the expense of operating income.
  • The challenge is to find the balance between great customer satisfaction and charging enough to have growing operating income.
  • Honesty and transparency are key to building trust with employees and shareholders.

Powder Mountain. (00:42:33)

  • Powder Mountain is an uncrowded ski resort that offers a private skiing experience.
  • About 20% of the ski terrain is reserved for homeowners, and the rest is open to the public.
  • Powder Mountain is relatively affordable compared to other private ski resorts.
  • Reed Hastings has invested over $100 million in Powder Mountain in the first year.
  • Three new public lifts and one private lift are being installed this summer.
  • Powder Mountain is an opportunity to build a community of adventurous, artistic, creative, and outdoorsy people.

How Powder Mountain differs from Reed’s other projects. (00:44:58)

  • Powder Mountain is an intimate community where everyone knows each other, unlike Netflix and philanthropy, which affect millions of people but lack personal connection.
  • Powder Mountain offers a unique skiing experience with uncrowded slopes and long-lasting powder, making it a popular destination for skiers.

Powder Mountain’s biggest challenges ahead. (00:46:38)

  • Powder Mountain faced mismanagement and lack of funding for a decade before Reed took over.
  • With significant investment, Reed transformed Powder Mountain into a successful ski resort that caters to the demand for uncrowded skiing.

Could Reed ever really retire? (00:47:16)

  • Reed finds it unlikely that he will ever fully retire without an enormous project to engage in, as he enjoys being involved and making a contribution.

Best investments of time, energy, or money. (00:47:33)

  • Reed considers his involvement in charter schools as one of his best investments of time and energy.
  • He believes that charter schools create great learning and teaching environments and have a positive impact on students and the teaching profession.

How can we improve education in the US? (00:49:03)

  • Reed Hastings became involved with education through DonorsChoose.org and QuestBridge.
  • He believes that the fundamental problem in US public education is the high turnover rate of superintendents, which leads to instability and lack of progress.
  • Hastings proposes shifting to nonprofits running public education, as charter schools have shown to be more stable and successful.
  • Charter schools are public schools that are not dependent on taxpayer dollars but rather on fundraising.
  • They are run by nonprofits instead of government entities, which allows for more stability and better leadership.
  • The political climate is a challenge, with unions generally opposing charter schools in blue states and supporting them in red states.
  • Parents want choice and teachers want an innovative climate, which charter schools can provide.

What class would Reed teach? (00:53:02)

  • If Reed were to teach a class, he would choose a subject he is passionate about, such as math.
  • He had a negative experience with a math teacher in 10th grade, but his brother had a positive experience with a different teacher and went on to get a Ph.D. in statistics.
  • Reed believes that the quality of teaching can vary significantly, especially in lower-income big cities.

Juggling projects without losing focus. (00:54:13)

  • Reed was the CEO of Netflix for 25 years, during which time he also engaged in philanthropy and pursued his passion for Powder Mountain.
  • He transitioned from being heavily focused on Netflix to dedicating more time to philanthropy and work in Africa on economy and technology.

Philanthropy: Why Africa? (00:55:28)

  • Reed's philanthropic efforts are primarily focused on education and Africa's economy.
  • His interest in Africa stems from his experience as a Peace Corps volunteer math teacher there.

Being “big-hearted champions who pick up the trash.” (00:55:46)

  • Reed believes that Powder Mountain's culture is defined by "big-hearted champions who pick up the trash."
  • This phrase encompasses the qualities of warmth, caring, a drive to win, self-responsibility, and self-discipline.
  • Reed considers this culture to be an improvement over Netflix's previous culture, as it emphasizes love, memorability, and tightness.

Reed’s billboard. (00:56:51)

  • Hope is the fundamental positive human force.
  • We live in an imperfect world and we are imperfect creatures, but we have hope for a better future.
  • When people lose hope, it's a tough situation.
  • Understand why the child feels apathetic and withdrawn.
  • Help them understand that growing up is tough, but it gets better with time.
  • There is hope for great happiness in the future.

Parting thoughts. (00:58:15)

  • Reed Hastings, the co-founder of Netflix, emphasizes the importance of a high-performance environment with a high density of talent and clear, actionable thoughts.
  • Powder Mountain is a recommended destination for experiencing high-performance skiing and snowboarding.
  • Tim Ferriss's "Five Bullet Friday" newsletter provides interesting and informative content.
  • AG1, a comprehensive nutritional supplement, is endorsed by Tim Ferriss for its convenience, nutrient density, and overall health benefits.
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  • Shopify offers a user-friendly platform with everything entrepreneurs need to start, run, and grow their businesses, including control over every sales channel and the internet's best-converting checkout.
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