Cultivating Talent Density and Long-Term Vision for Sustained Success

Key Quotes

"Netflix has effectively been scaling up its core original model since its inception Reed talks in our conversation about how even the dvds were nothing but a step stone towards the streaming future that they envisioned at the very outset of the company's founding in 1997 and simply letting that idea play out over decades without getting distracted and how powerful that can be"

Reed Hastings highlights the importance of a simple, core idea and the power of sustained focus. Hastings explains that Netflix's DVD business was always a stepping stone to streaming, demonstrating a long-term vision executed over decades without distraction. This approach underscores the value of patience and unwavering commitment to a foundational concept.

"And the second is this notion of talent density this is a term that now gets thrown around every major company and really it was Reed and Netflix that pioneered this concept of what can happen if you set and keep a talent bar exceptionally high we get into why that's difficult what Netflix did to make that talent density bar work and sustain itself over decades"

Patrick O'Shaughnessy introduces the concept of "talent density," crediting Reed Hastings and Netflix with pioneering it. O'Shaughnessy notes that this idea, now common in many companies, refers to maintaining an exceptionally high standard of talent. The discussion aims to explore the challenges and methods Netflix employed to establish and sustain this high talent bar over time.

"So I founded pure software in 1990 and grew kind of typical great software company doubling I wasn't careful about it and I would say talent density declined that company we went public in '95 got acquired in '97 and when I analyzed looking back what happened one of the major things was declining talent density and then with declining talent density you need a bunch of rules to protect against the mistakes and that only further drives out the high caliber people"

Reed Hastings shares a personal experience from his founding of Pure Software to illustrate the negative impact of declining talent density. Hastings explains that as the company grew, a lack of careful management led to a decrease in talent density. He observed that this decline necessitated more rules, which in turn pushed out high-caliber individuals, creating a detrimental cycle.

"So typically we humans we value being nice and we value loyalty yet in the workplace that's a tension because being nice is in contrast to our intention with being honest I generally like people that are nice and yet I want you in the workplace to be honest with each other so that we're more productive so we have to find a way to give each other permission to not be conventionally nice and instead to be focused on the team success which is being very direct"

Reed Hastings discusses the workplace tension between valuing niceness and loyalty versus the need for honesty and directness for productivity. Hastings suggests that companies should encourage directness focused on team success, even if it means deviating from conventional niceness. He posits that this approach is crucial for achieving higher productivity within a team.

"So um quickster for your listeners was a sad episode in 2011 where I became convinced we really had to go all in on streaming and drop dvd and put dvd in its own company that would drift along and free ourselves from that unfortunately most of the customers were mostly using dvds so yeah they were still mailed me the discs and so they didn't like it lots of cancellations stock drop by 75 so it was a tough time"

Reed Hastings recounts the Qwikster mistake, explaining it as a difficult period in 2011 where Netflix attempted to separate its DVD and streaming businesses too rapidly. Hastings notes that this decision, driven by a conviction to focus on streaming, alienated many DVD customers, leading to significant cancellations and a 75% stock drop. He acknowledges this as a tough time but ultimately believes the separation was the right long-term move.

"So I would say first part is board members to realize okay I'm not here to add value they can hire consultants who know the industry and are not conflicted and that they pay for the advice so I shouldn't spend my time trying to give advice so then what am I doing I'm here as a board member as an insurance layer if the company falls apart I will step in and be part of replacing the CEO and that's basically the entire job which is replacing the CEO"

Reed Hastings clarifies the role of a board member, emphasizing that their primary function is not to offer day-to-day advice but to act as an "insurance layer." Hastings explains that board members should recognize they are not industry experts and should not attempt to provide advice that consultants could offer. Their crucial responsibility, he states, is to be prepared to step in and replace the CEO if the company faces a severe crisis.