The Tim Ferriss Show Transcripts: Reed Hastings, Co-Founder of Netflix — How to Cultivate High Performance, The Art of Farming for Dissent, Favorite Failures, and More (#730)

Please enjoy this transcript of my interview with Reed Hastings (@reedhastings), who became executive chairman of Netflix in 2023, after 25 years as CEO. He co-founded Netflix in 1997. In 1991, Reed founded Pure Software, which made tools for software developers. After a 1995 IPO and several acquisitions, Pure was acquired by Rational Software in 1997. Reed is an active educational philanthropist and served on the California State Board of Education from 2000 to 2004. He is currently on the board of several educational organizations including KIPP and Pahara. Reed is also a board member of City Fund and Bloomberg.

He received a BA from Bowdoin College in 1983 and an MS CS in artificial intelligence from Stanford University in 1988. Between Bowdoin and Stanford, Reed served in the Peace Corps as a high-school math teacher.

You can learn more about Powder Mountain at PowderMountain.com.

Transcripts may contain a few typos. With many episodes lasting 2+ hours, it can be difficult to catch minor errors. Enjoy!

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Reed Hastings: Tim, so exciting to be here.

Tim Ferriss: I’m excited to have you. And here we are in Utah, but I’m going to start with someone who is not in Utah, maybe was never in Utah, Alfred Lee Loomis.

Reed Hastings: Yeah. Wow. That’s like my great-great-grandfather or something.

Tim Ferriss: That’s right. So long ago, one of the books that inspired me was a biography of Alfred Lee Loomis titled Tuxedo Park. So if you would indulge me and the audience, would you be willing to share just a brief sketch?

Reed Hastings: My mom’s paternal grandfather was Alfred Lee Loomis and during World War II, he played a role in developing LORAN. The L is supposedly Loomis, but actually it was long range, but he was like our early Bill Gates type. I mean not as successful, but sponsoring his own science and lab. It was sort of the gentleman scientist era in the 1940s, but I never met him.

Tim Ferriss: And he also, this is just to add a little color to the early part of this conversation. Effectively, my understanding is predicted or anticipated the 1929 stock market crash, and that’s part of what gave him the funding to then bring these scientists together.

Reed Hastings: It’s like the guy who did Big Short and those kinds of things. If you guess right on a big movement of the stock market, it’s of great benefit.

Tim Ferriss: All right, we’re going to hop a little further forward to after college and we’re going to bounce around. This is sort of the Memento style of my brain. So I apologize in advance, but I believe you found yourself in Africa and you can certainly flesh this out and ended up hitchhiking quite a bit with very little money. And the meta question is, I’d love for you to say just a bit about that experience and how you ended up there. But I’m wondering how you have thought about risk, just evaluating risk. That word gets thrown around a lot. People sometimes don’t define it very well for themselves, but you seem to perhaps frame it differently than some folks. I’d just be curious how you would speak to that.

Reed Hastings: I think I’ve always been pretty risk-tolerant, spent a bunch of college hopping freight trains and traveling around. I spent a couple years as a math teacher in Africa and then hitchhiking around on every vacation. So that’s always been very comfortable for me and I’ve been lucky that nothing bad has happened. So my stays in jail have been short. And I think all of that very much contributed to my entrepreneurial success once getting into business in tech because I wasn’t afraid to fail.

Tim Ferriss: Why weren’t you afraid to fail?

Reed Hastings: I think a lot of it is random genetics. You either have a propensity to be cautious or a propensity to take risk. So I don’t think it’s any great character thing I developed. It’s more like some people are very risk-tolerant and I think it’s wired randomly into our DNA.

Tim Ferriss: So the reason I ask about risk is that there must be some genetic stock component. I agree, right? Some people have high vertical jump, other people have different mental attributes or cognitive attributes. But it seems like you’ve also been very good at distinguishing between, and you’ll see the tie in good process and bad process. And I’d love for you to speak to that because it seems like part of that is recognizing reversible versus irreversible or non-reversible decisions in the way that, say, a Bezos might think about one-way doors versus two-way doors. Could you just expand on good processes versus bad processes?

Reed Hastings: For me, Free Solo is bad process because one mistake is the end of your life. So there are some people a lot more risk tolerant than me, and I try to take a lot of risks on things that are recoverable. So as you mentioned, Bezos calls them one-way doors. If there’s one-way doors, then they evaluate them very carefully. If it’s a two-way door, they’re willing to get in and experiment and try. And I think that’s a great business philosophy. I share it.

So generally good process tries to help you get more done. For example, a weekly meeting where everyone chairs context and moves forward as opposed to just randomly getting together. And bad process is the stuff that tries to prevent error. Let’s check everything because it just gets in the way of creativity. And in most fields, so not in medicine and not in airplanes, but in most fields, you want to move fast and some things don’t work and you fix them fast.

Tim Ferriss: The interview that I listened to recently between you and another Reid, Reid Hoffman, well known for Greylock, LinkedIn, before that, PayPal, brought up pretty early in the conversation, and I believe I’m getting the phrasing right, the culture deck, and I was hoping to hone in on a few of them, a few of the lines of the tenets in that. And just to get your explanation of the Genesis story, where these came from.

Reed Hastings: Absolutely.

Tim Ferriss: So the first is, and I’m paraphrasing here so you can give me the correct phrasing, but the reward for adequate performance is a generous severance package. Am I getting that right?

Reed Hastings: Yeah. And the big picture is I’m in the camp that culture eats strategy for lunch. It’s all about culture. And whether it’s my first company, Pure Software, whether it’s a second one, Netflix, or third one Powder Mountain, its culture runs through all of that. How do you get human beings to work well together and accomplish amazing things? And one of the aspects of that is being around other incredible performers. So if you think about a sports team, if you want to win a championship and you’ve got 11 slots, you’ve got to have the very best player you can get in any position. And they have to be a great team player, work well with others.

Our model is built around that. So we said adequate performance, i.e., good enough, gets a generous severance package. The reason we wanted people to focus on that is how different it was because normally adequate for work is good enough to stay. And we’ve said, “What if a place was filled just with amazing people and you had that kind of talent density?” And that focus on culture through these three very different organizations. So my first company, Pure Software, was super geeky software enterprise sales. Second one was film and television streaming around the world. And third is Powder Mountain, very different. But what unifies them is this specialist approach, roughly speaking team, not family around culture and how effective that can be in very different areas.

Tim Ferriss: So I believe something like two out of three prospects in the hiring process would get really excited after reading this document or being exposed to this document. But one out of three would balk. And I’m wondering when you introduced or when this was in the early days, let’s just say sub 100 employees at Netflix, when did you expose people to the culture deck, at what point?

Reed Hastings: Yeah, we always had 5,000-page slides of what our culture was and it was used for employees and new employees would get exposed at it at the new employee meeting. And most of the time their managers had told them all about it in the hiring process, but occasionally they didn’t. And the new employee would be shocked, oh my God. And so we realized we should really give it to all candidates, but if you do that, it’s pretty much public. And of course it quickly became public and at first we were like uh-oh, but then it was great because it was out in the open and those who loved it who wanted a high-performance team were very into us. And those who wanted job security as their main focus were not into us. So it really helped people self-select in a positive way.

Tim Ferriss: What were some of the line items that quickly helped people to select out or put a different way? What were some of the principles that caused the strongest reaction in folks?

Reed Hastings: Well, I think you hit one, adequate performance. The other is probably team, not family. And so family has been the primary organizational unit for 10,000, 100,000 years. All countries were organized around families, kingdoms. It’s only recently that we had democracies and certainly most companies have always been family-based companies. So family units are how we think, and in a family what we admire is incredible loyalty. Your brother goes to jail and you stick by them, right? Your kids do, parents do anything when you maintain that love and lack of judgment. However, in a company, a family can be kind of dysfunctional. Think of, I don’t know, the Ozark — so that’s one crazy family.

So I would say we were one of the early ones to just point this out and confront it directly by saying team, not family, and impeaching family and saying that loyalty is good as a bridge over temporary — either company performance or individual performance. But ultimately we were about performance just like a championship or wanting to be a championship sports team.

Tim Ferriss: This is going to seem like a very — it is, I suppose, very tactical question, but the generous severance that we just talked about a second ago, my understanding is that’s four-month minimum and that you did that in Netflix from the very early days. Could you explain why that makes sense?

Reed Hastings: Well, the people who were on our team were trying really hard and they may not make it, but they’d done nothing wrong. So we wanted to make sure that they could land on their feet and have a generous severance package. And of course that’s US standards there. So there are higher in Europe because to be generous in Europe is higher than in the US. But think of it as we want people to feel like “I’m trying really hard and I’m going to give my all, and if it doesn’t work out, I’ve got a parachute.”

Tim Ferriss: And does it all also sort of, not absolve, but minimize the guilt that managers feel so you get a more accurate read rather than say putting employees on a performance plan or something like that? And then that takes four to six months or however long anyway.

Reed Hastings: Yeah, it’s a great insight. I mean, managers generally are people, they like people and it’s hard for them to hurt people and it does hurt to let someone go. So the fact that there’s a big severance package makes it easier for the manager to cut that person and try to find someone else who will be a rockstar in that role.

Tim Ferriss: So I’d love for you to say a little bit about Pure Software and some of the lessons learned. It seems like one of the lessons learned, and I’d love for you to expand on this, was that too much process can paralyze on some level, cause all sorts of issues. And that harkens back to what we were discussing earlier about the good process versus bad process. And you’ve spoken about and written about managing on the edge of chaos. And so I suppose I’m wondering how you find the sweet spot between those two. Because I would imagine also at Netflix there are certain processes in place as a company scales, but could you start with Pure Software?

Reed Hastings: In Pure, I imagined it as a big semiconductor plant where you’re doing process innovation and yield management. And every time we did something wrong, we put a process in place so that error wouldn’t happen again. And we did execute very well in one narrow market, but we lost the sort of creative inspiration. And so when Java came along, then the company was much weaker and we weren’t the leader in that. And I realized, oh, we were micro efficient at the current business, but the real risks to most businesses, the market shifting and so that we should optimize if we wanted to optimize for the market shifting, we had to manage on the edge of chaos to be super creative without tipping into chaos.

The chaos really doesn’t feel good where the products don’t work, the customers aren’t billed. I mean all kinds of bad things there. And so if you’re going to run loose but not be chaotic, then you have to have really high-performance people. That’s why that becomes the key part, people who get the overall context of what’s going on and don’t need a lot of rigidity to get good results.

Tim Ferriss: Okay. So you mentioned a word that I’m going to hit on in two questions, which is context, so we’ll come back to that. But I wanted to ask you about sourcing high performers because I have heard you say that you can effectively kick the tires and view, say hiring as a reversible decision. You can do that, but ideally you would also be increasing the likelihood of somebody sticking as a high performer within your culture. And I’ve heard you speak about doing references well, which means number one, you’re cold sourcing those references. Could you speak to that? And also how you do reference checks? Because it seems like at least when I’ve done very little hiring compared to you, but people are very afraid in a litigious society of getting themselves into trouble. So how do you navigate doing a reference call and how do you navigate that?

Reed Hastings: I’ll generally start on LinkedIn and look for mutual connections and the key is that the reference has to be closer to me or someone I know than to the subject. Otherwise, if they’re closer, if it’s the subject’s brother, I’m not going to get the depth of reference. And most of the time I’m able to find a couple people that worked with them at such and such a time. And then most of the time I’ll try to do a short Zoom. And when someone’s on Zoom, they’re much less likely to lie to me and I can ask a couple questions and they don’t feel like it’s being recorded. So it creates an appropriate intimacy but also a sort of semi anonymity. So that’s one aspect, but it’s just really important and hard. And then we’ll again, use lots of different ways to try to find people that worked with a person before and get to them directly.

Tim Ferriss: Context. So context versus control, let’s just say, and maybe you could certainly use Netflix, but you could also use Powder Mountain. How do you set the context? What does that mean for someone who’s heard the word? Obviously, they know what that means in other places?

Reed Hastings: The typical metaphor we have for companies is industrial companies, right? We’ve had 200 years of the Industrial Revolution factories. You make things, the boss tells everybody what to do, and you are really trying to drive consistency and process. And that’s how we have a million doses of antibiotics that are good and airplanes that are mostly good and that kind of thing. But creative companies, again, like Powder, trying to create an experience of wonder for our guests, what we want to do is really empower people. And so we set context, we say, what are we trying to do? We’re sparking wonder, that’s our core thing. How are we going to do that? Create this unique place with mountain recreation and art and beauty.

So we’re setting context in that way as opposed to telling employees, when you see a guest smile like this and say these words, I don’t know, something very reductionist in that way. We try to motivate and educate our employees that it’s all about that joyous feeling of wonder and how do we spark it? And so again, that’s an example of setting context versus control.

Tim Ferriss: And letting them make the day-to-day, week-to-week decisions about how they implement that.

Reed Hastings: Implement that. Then they’re both empowered and they use great judgment about things because they understand how we’re trying to change the guest experience. Skiing has gotten so crowded over the last 20 years. It’s less joyous and we are the distinctly uncrowded mountain. That’s our counter positioning and that’s why that context is important.

Tim Ferriss: Yeah, I can second that having just come off of President’s Day weekend.

Reed Hastings: And at Powder, it was wide open. It’s really just that we don’t take the big passes, the Epic, Ikon passes, and that’s what makes it uncrowded.

Tim Ferriss: That’s huge. That is a huge, huge advantage. I want to talk about something that applies, I mean certainly to business that applies in a lot of different areas and that is I suppose we would call radical candor or transparency. And is it true that at least some iteration of that came from marriage counseling?

Reed Hastings: Patty and I have been married 34 years. So we’re very fortunate. Early in our relationship we had a bunch of marriage counseling and the counselor was very good at getting me to see that I was a systemic liar. And I would say things like, “Family’s the most important thing,” whatever the phrases are. And then I would stay at work late and it’s like, “Okay, here’s the situation. You’re going home for dinner, this employee walks in with this crisis, what do you do?” And I’m like, “That’s easy. I deal with the employee crisis.” So, “It’s pretty clear that you’re not doing ‘Family’s the most important thing.’” And so I was a hypocrite, and once he helped me see that, A, I could modify my behavior at work where it had to be a very severe crisis and very rare. And I was less of a hypocrite for Patty and a little more easy to tolerate because I wasn’t saying things like “Family is the most important” and then I’m not showing up.

So that’s an example of I think we humans, in order to get along in very dense societies, have learned to be polite and to say conventional things without thinking much about is that really true? And that misalignment with how we act and what we say can be very hurtful. So since then I’ve been really committed to trying to reflect and say the honest thing. And then for example, the “Team, not family” or “Adequate performance” as an example.

Tim Ferriss: A few follow up questions. So with, let’s just say, on the personal side, the work crisis versus family time, a lot of people listening certainly will have experience with some degree of tension between work and personal life. What type of guardrails did you set up or conditions so that you wouldn’t continue to make that mistake?

Reed Hastings: One of the best things I learned from John Doerr was setting a budget. So many nights a week I would have dinners. So it varied to different phases, but let’s say in one phase it was 11 nights. So I had an 11-night budget. And then if Tim Ferriss calls, I might say, “Okay, I’m going to use one of my 11 slots” or not, but I would really stick to the 11 slots. And by having a strict budget that you stuck with, it was easier for the spouse because it wasn’t an unlimited thing. And it was easier for me because then I pick and choose and not say yes to a bunch of other things, which might’ve been nice but weren’t essential. And again, different people’s budgets will be different amounts, but by having that explicit agreement, I think it’s pretty helpful.

Tim Ferriss: You don’t strike me as someone who has trouble saying no. Maybe you are, but would you then, let’s just say number 12 comes in, invite number 12, and you say “No,” would you state your policy in the sense that “I have a budget for 11 and I’m sorry I’m out of slots,” and that’s that? Or would you just say, “Nope, can’t make it. Sorry. Good luck.”

Reed Hastings: Not generally. I would say “I just can’t make it,” as if I had a big conflict with some other meeting. 

Tim Ferriss: The reason I’m asking about this is it does seem like focus is a strength of yours and you’ve been able to institutionalize that in a number of different settings. For instance, just to give credit where credit is due with Reid Hoffman and his class related to Blitzscaling. And when you had that conversation and he said, “Yeah, I reached out to Reed,” this Reed sitting in front of me, and I think he asked you to be on a board or something, and you’re like, “Sorry, I’m focusing on education.” How do you phrase those declines? Not to get too much in the weeds, but I am curious, because this is something people struggle with.

Reed Hastings: Yeah, I mean I’ve always thought the people who really focus on a few things will get the most done. So the problems of society are ones that our parents and grandparents couldn’t fix. So they’re all very hard. If you make some material contribution in one or two areas, that’s remarkable. And I think what can happen is people get drawn into 20 different things and then they don’t make much of an impact in any of them. And once in a while you get an Elon Musk who can do magically a wide number of things, but that’s very rare and it’s not me. And so to answer your question of how do you say no, as a really — just honest about it, I really can’t do that because I want to focus, let’s say on education or Powder Mountain or whatever the thing is.

Tim Ferriss: Coming back to the radical candor or the transparency, there are very few people I imagine in the interview process who are going to say, “I actually prefer to be quietly deceptive in a harmless way.” On paper they’ll agree. And my question is, I think this is a term you’ve used, “Farm for dissent.” How do you actually help encourage that transparency?

Reed Hastings: During the hiring process, I think we try to just listen and be intuitive and try to figure out which people to give a shot at. Then when you’re in a company, and especially if you’re a leader, it’s important to farm for dissent because it’s not normal to disagree with your boss, right? Normal, we learn deference. “My job is to please my boss,” as opposed to we want people to feel “My job is to help Powder or Netflix or Pure Software grow. Sometimes, if to help them grow, I’ve got to be willing to argue with my manager,” and that’s okay. And so because it’s difficult, emotionally, in most companies to disagree with your manager, we call it farming for dissent. And we have managers do things like, what are three things you would do differently if you were in my job?

I would regularly, every 18 months or so, do that with 50 top executives and have them write down what would be different. We would be in games, out of games, we would be in porn, out of porn, we’d be in sports, out of sports. 100 different business decisions, what would they do different? And that was an example of farming for dissent.

Tim Ferriss: When you were going head-to-head with Blockbuster back in the day.

Reed Hastings: Yep. Shipping, mailing DVDs.

Tim Ferriss: That’s right. And so they come out and they decide launch their attack. And then my understanding is, and I’ve read and listened to different versions of this, but there were a number of things launched in sort of counter-attack that ranged from banner ads or advertising to selling used DVDs. And then, I don’t know if it was several months later or a year later, in retrospect, none of those things really contributed to the success that you had, the victory that you had over Blockbuster. How did you take that learning, meaning “If we just doubled down on our core competency, we would’ve probably beaten Blockbuster sooner,” How do you, this is not quite the right word, but institutionalize it, put it into the organizational memory so that you don’t make the same mistake again or you lessen the likelihood?

Reed Hastings: When I was a kid, there was a dishwashing soap, Crystal maybe, and supposedly it cleaned better because it had green crystals in it. And it’s an example in human behavior of assigning meaning or causality to something. So it wasn’t very effective to just say “We’re a great soap,” had to say, “We’re a great soap because of the green crystals, and we’re the only one that has these green crystals spread throughout the dishwashing flow.”

So when you got a big competitive battle and all your employees and investors are wondering, “Why are you going to win? How are you going to win?” We say, “Well, we’ve got to talk about the green crystals.” Okay, now we didn’t understand it at first, but we would do various things that were kind of irrelevant like selling used DVDs. And in hindsight, it’s because we, ourselves, needed to believe in the green crystals.

And so there’s a temptation in all management teams to focus on shiny objects in that way as opposed to just focus on, “We have great soap,” in that case. So in hindsight, what we did is, wow, we really spent 20 percent of our effort, not 80, but 20 percent of our effort on green crystals. And we could have done better if we had had the discipline and confidence to just execute on the core better. So that would be DVD shipping times reducing DVD breakage, better envelopes, making the core work better.

Tim Ferriss: And I think this is on the Netflix website. My team sent this to me because I was asking a number of follow-up questions on the culture deck. And I believe it’s very explicitly stated, if you are being disloyal to Netflix, if you disagree with someone and you do not voice that disagreement or if you disagree with your boss, I mean it’s very, very explicit.

Reed Hastings: Yeah. To disagree silently is disloyal.

Tim Ferriss: Yeah. Okay, there we go. In the early days, let’s just say sub-100, maybe it’s sub-50, which of the principles in that culture doc do you think were most valuable to have permeate the smaller organization? And it could be the ones that you’ve mentioned.

Reed Hastings: The fundamental one is high-performance team, not family. Because if you’ve got that, that is the energy driver because everyone around you is amazing. You learn so much. You attract other amazing people. So kind of talent farming in that way, and specifically the density of talent. Almost every organization has some fantastic people. It’s an incredible feeling when everybody is amazing.

Tim Ferriss: So part of that is hiring, part of that is firing. I mean, there’s a lot in between, but what is the keeper test and how did that come to be?

Reed Hastings: When I was maybe seven or eight years old, I caught a large fish and my dad said, “That’s a keeper, Reed.” So I always remembered that. And when thinking about this test, so the test is if someone’s thinking about quitting and going to a different firm, would we try to change their mind to keep them? Okay, or would we say “Bummer, but go ahead?”

And so we wanted to fill the company with people that we would fight to keep. And so that’s the keeper test. And what we say is, if we wouldn’t fight to keep someone, we should proactively give them a generous severance package and try to find someone that we might well fight to keep.

Tim Ferriss: So I’m going to ask maybe a mundane question but well, a few. One is how frequently was that done as an exercise for the managers in the company? And secondly, would you fire someone and then find a replacement or get the search going for a replacement and then fire the person? I know it might seem like a really kind of nitpicky question, but I’m curious.

Reed Hastings: Generally we would let people go and then do the search. You want the search to be open and we want to treat the person with respect and they’re trying hard. And think of it as we wanted to let people go in the way that we would want to be let go if we’re on the other side, which is, it’s difficult but let’s be direct and thoughtful and supportive on it. And then it’s up to managers how often they might think about it once a quarter. Would I really fight to keep that person? And then it’s a degrees of, oh my God, I’d pull out all the stops. I’d be like, that person’s the most incredible of two. Yeah, I think I’d like to keep them something and that’s fine. Versus the big one, it uncovers is no, if the person left, I’d be fine. And that we want to make sure that manager gives that person a severance package.

Tim Ferriss: I’ve read at least in two places, maybe three, about your fondness for Beyond Entrepreneurship, Jim Collins, but specifically the first 80 pages I think, and the ability to go back every year and reread these 80 pages. So I’ve had Jim on the show twice, I think, and he’s amazing, and I’ve read quite a bit of his work. I’ve never read that one. What are some of the things that really stick out to you in those first 80 pages?

Reed Hastings: And that’s where he really does the role of self-discipline, sort of rinsing the cottage cheese for an athlete.

Tim Ferriss: Wait, what does that mean? I’m sorry.

Reed Hastings: Yeah, it’s someone who’s so manic about their diet that they rinse the cottage cheese of something, the milk away, I don’t know. So for me, this was when I was 32, it came out and it was the first management book that made me feel like I could succeed because it wasn’t like Larry Ellison or these huge personalities. He pointed out of how many people had great success of sort of quiet determination and discipline and how much caring about the organization first over yourself made a difference. So a lot of fundamental precepts, which gave me permission to be myself and not try to be Mr. Charisma Flamboyant, which is kind of the CEOs that you read about. So I think that’s why it was so impactful.

Tim Ferriss: I’m sure there are the other handful of books that you have recommended the most or gifted the most to people who are would-be entrepreneurs or entrepreneurs/founders.

Reed Hastings: Probably, the Jim Collins-oriented stuff is good. Patrick Lencioni’s Five Dysfunctions of a Team, The Advantage, those are excellent. So those the ones, and then on the more human side, Sapiens, Yuval Harari’s book of sort of the meaning of life and understanding the big picture is extraordinary.

Tim Ferriss: Do you read much fiction? I know you read and liked The Overstory, I believe.

Reed Hastings: Yeah, but no, I don’t read that much. I tend to do fiction on film and series and then I’ll do biography, although I just watched the Helen Reddy biography, I Am Woman. So I like a lot of nonfiction both in reading and in film.

Tim Ferriss: And in film. Any standouts in recent memory?

Reed Hastings: Well, again, two days ago I watched a five-year-old biopic of Helen Reddy, Australian woman who broke through in New York and L.A. and had an incredible number of hits in the ’70s and ’80s, including “I Am Woman.” So it’s a super well done biopic.

Tim Ferriss: So we could talk about, and certainly I’m open to it, but you’ve had a lot of big wins, you’ve had a lot of highlights. I’m wondering if you have any favorite failures, and I’ll put that in quotation marks from Netflix days or before. When I say favorite failures, meaning something that really did not go as you had hoped, but that actually somehow set the stage for larger successes later in some fashion.

Reed Hastings: I get a little bit of irony in favorite failure. I would say our Qwikster episode at Netflix. So we were growing in DVD and streaming since 2011, and we realized the future was streaming. The customers currently were doing DVDs, and we decided to split into two companies, one called Qwikster to do the DVDs and the other Netflix to do the streaming. It was roughly the right idea, but five years too early. And the customers were screaming mad because they mostly used DVD. Streaming at that point, you couldn’t get to the television, so it was really just streaming to a laptop. So it wasn’t like a very great solution. We didn’t have that much content.

And what I learned about it was sometimes you can be so strategic in long term that you don’t bring along the customers with you. And so then I made it worse by trying to do a YouTube video of an apology. And I had this very odd teal shirt and it was just like everything was wrong.

Tim Ferriss: I take it, there were a lot of comments about the teal shirt.

Reed Hastings: There we go, which four years later we burned at a ceremony. So the reason it’s the favorite failure is because you can go from a string of amazing successes to arrogance. And that’s kind of what happened. And so ever since then we’ve done a lot more kind of grounded checking.

Tim Ferriss: So just to follow up related to that, internally, how is that decision made? And could you spot the train wreck in the making, if you look at it in hindsight? And then related to that is how do you, I suppose, buy some insurance with better process in the future, if that’s the right way to phrase it?

Reed Hastings: That’s exactly the right way. We didn’t do much farming for dissent in those days. So I was messianic, convinced this is the right move, looking around the corner. And it turned out that lots of people had severe doubts, but they didn’t know the other executives had doubts. So the thing we instituted is on big decisions, we make everyone say 10 to -10, whether they think it’s a smart idea. And so if we had done that at the time, we would’ve seen a whole tons of -7, -6, -8, and then that would’ve been shocking. And so establishing a clear input mechanism on big decisions, and we’d have the top 50 or 100 people weigh in on it, is a very positive step.

Tim Ferriss: Are there any CEOs or leaders who stand out? Let’s keep to CEOs or founders who stand out to you as being courageous in talking about the uncomfortable things. And I mean, Brian Armstrong comes to mind as one.

Reed Hastings: Jeff Bezos, I think, is probably a great standout in that and has always been very clear about being customer-centric. And they have various controversies at times, but he’s very clear about what they stand for. So I think he might be the standout example.

Tim Ferriss: One of the paragons for sure. So customer obsession, certainly Jeff has written about that since shareholder letter one. 

Reed Hastings: Yeah. That’s right.

Tim Ferriss: And you’ve said that you have two religions, so customer satisfaction and operating income. Could you hit both of those and just expand on what you mean by both?

Reed Hastings: Well, I think customer satisfaction is clear, but it’s probably incomplete because customers would love to have everything for free. So the challenge is to have great customer satisfaction and to charge them enough to have growing operating income. And that constraint is what makes business challenging, fun, exciting. So I lean into that.

Tim Ferriss: What have been some of the greatest insights or decisions that have allowed you to find that Goldilocks medium that contains both of those?

Reed Hastings: I think the main thing is back to setting context. So whether it’s Powder Mountain, Netflix, or Pure before that, not saying we’re only about customers, I guess just naive. We are about customers and growing operating income. And so I think that really back to the honesty theme that you talked about. It may not be as sexy, but it’s a more complete context for our employees and shareholders about why we’re making certain decisions.

Tim Ferriss: Let’s talk about Powder Mountain.

Reed Hastings: Yeah.

Tim Ferriss: Why Powder Mountain?

Reed Hastings: Well, I’ve been a small skier because of intense work most of my life, and we’ve had a place in Park City for a long time and loved raising the kids here, skiing, but it got super crowded. When you look around skiing all around the United States, because of the growth of the Epic and Ikon passes, has gotten very crowded. So Powder Mountain has counter positioned as the Uncrowded Mountain, and that creates some constraints on what we do, but it’s an incredible opportunity.

So Patty and I had a house there and we’ve enjoyed it, but just really been homeowners and nothing more. And then after Netflix retirement, I was like, oh, here’s a project. Why don’t we figure out private skiing? So about 20 percent of US golf courses are private and they have better tee times, nicer clubhouse, the people, that kind of thing. And that’s what private skiing is. We’ve introduced private skiing on about half of the Powder territory.

That’s skiing just for the homeowners. Then the people on the lift, the powder is untracked because there’s only a few hundred families there. It’s pretty amazing. There’s a couple other private skiing places, Wasatch Peaks, Yellowstone, but they’re all super expensive and we’re relatively affordable. So we think it’s just a great opportunity, again, in reaction to all the super crowding that everybody’s feeling in Tahoe and Colorado and Utah.

Tim Ferriss: So for a lot of people listening, they might think of project as making a canoe with their kids, but you taking on this huge — 

Reed Hastings: 10,000 acres.

Tim Ferriss: 10,000 acres skiing territory. I have spent a lot of time there, the skiing is fantastic. You have lots of on-track powder, as you would hope, given the name. Amazing cat skiing, and it doesn’t seem like a minor project, I guess is what I’m saying, so at least to mere mortals.

Reed Hastings: No, we’ve invested over $100 million in it in this first year. We’ve got three new public lifts and one private lift going in this summer. So it’s definitely a big project, but also a big opportunity to build a community that’s a very adventurous, artistic, creative outdoorsy. I mean, it’s an amazing place that we hope to spend a lot of time over the next 30 years.

Tim Ferriss: So you’re in a position, I would have to imagine where the menu of options is pretty long in terms of how you could spend your time. I’m sure you get plenty of offers and inbound things are interesting, and then that doesn’t even take into account the number of things you might be interested in. Of all the things out there, why this, what do you personally get from this experience?

Reed Hastings: Helping to nurture a place of beauty with a warm community. So I do Netflix, millions of people, but I don’t know most of them who are customers. And then I do a lot of philanthropy and it’s education, other things. And again, it affects, hopefully in a positive way, millions of people, but I don’t particularly know them. Power Mountain’s very intimate. It’s this close little community where everyone has coffee together in the morning. So Sky Lodge is amazing. It’s been upgraded since you were last there, and service is cool. So it’s something I can touch and feel. And so I think it resonates in a very deep way because it’s personal connection.

Tim Ferriss: So Utah’s famous for champagne powder, light, fluffy powder. For people who do not have any familiarity with Utah, where is Powder Mountain?

Reed Hastings: About an hour from Salt Lake City Airport.

Tim Ferriss: What’s the name of the closest town?

Reed Hastings: Yes. There’s Eden and Paradise. And Liberty, awesome, great town names, but we’re on a mountaintop in Eden, Utah. And again, it’s really an extraordinary ski experience because of being uncrowded. And so the powder lasts for days.

Tim Ferriss: Lasts for a really long time. I’ve been there where it’s lasted a week plus.

Reed Hastings: Yeah, that’s what I want everyone to feel. It’s even better than you said.

Tim Ferriss: What do you think, and I’m sure you have thought about this, what are the biggest challenges?

Reed Hastings: For Powder?

Tim Ferriss: For Powder. Yeah.

Reed Hastings: It’s been poorly managed for a decade. They just didn’t have — really good people, but didn’t have any money. And so then I get to take it over and waltz in and then invest, again, over 100 million so far. And it’s relatively easy transformation because people want uncrowded skiing. So it’s hitting a market opportunity in a significant way, and then it’s just very joyous because we get to ski in the morning and then do meetings in the afternoon, and so it creates a great team feeling.

Tim Ferriss: Do you think you have the hard-wiring to ever retire in a capacity without an enormous project?

Reed Hastings: Unlikely. I do like being engaged and making a contribution. So I hope to be able to do that for a long time.

Tim Ferriss: What is one or two of the best investments you’ve ever made? It doesn’t need to be financial. It could be an investment of time. Warren Buffett talks about Dale Carnegie public speaking courses. That’s a bit of the “Yeah, shucks” Grandpa thing that he’s got going. But do any particular investments of time, energy, money come to mind as real inflection points here?

Reed Hastings: If you mean financial investments, the few times I’ve done investing, I’ve lost my shirt and I realize I’m just so optimistic. I’m like anybody who seems to have a good idea, I’m like, “Sure.” So I think it’s a different DNA than investors have that are differentially good investors. So I’m a pure index fund investor. I’m Netflix plus index fund. So if we broaden the definition of investment to think about time and energy, I put a lot of work into charter schools, and I’ve done that over the last 25, 30 years because I see a real opportunity for these nonprofit public schools to create great learning environments and great teaching environments.

And so I’ve been on the board of KIPP Academy, one of them for 20 years. I’ve been on the board of many of the other related charter organizations. And they’re somewhat controversial because they’re not the same as the district schools, but I think it’s a very healthy creative tension. And the cities that have high charters, a percentage of charters like Denver and Washington, DC, and Indianapolis have done much better than other cities. So it really is a positive effect on kids and on the profession of teaching where again, you can start your own public school.

Tim Ferriss: I’d love to chat some more about this. So starting with my first book, even before that, but 2007, I became involved with donorschoose.org where I was an advisor and then QuestBridge, which seemed to do a lot of really good work. And at least from my perspective, I was deeply interested in education because I recognize how my trajectory differed from a lot of my friends growing up because of educational opportunities.

And it seems like a excellent way to try to maybe level the playing field is too strange a statement, but when you see a movie like Waiting for Superman, I’m not sure if you ever saw the documentary.

Reed Hastings: I did.

Tim Ferriss: You can leave the theater or after watching this movie feel quite demoralized, like low performing teachers can’t be fired and X, Y, and Z, that there are all these challenges in say, the US public school system. What are some of the changes that you would like to see that you think can be catalyzed in some meaningful way?

Reed Hastings: Yeah, I mean the fundamental problem in the US public education is our school boards turn over pretty quickly, and especially in large urban districts, which makes the superintendents or the CEOs turn over quickly. So the average superintendent tenure in Dallas and Denver and Atlanta and Boston and L.A. is three years. So superintendents come in, they last for a little bit of time, the school board changes, and then the superintendent has changed. And so why is that? Because the school board members run on change. That’s how they got elected. And these are big prizes running, big organizations and big budgets, and then you go on to city council and state representative and all those things.

We’ve got a system that, because the superintendent changes constantly, the organization is kind of chaotic. It’s not some well-run nonprofit like the Red Cross or Sutter Health, or it’s not certainly a for-profit, but the main issue is that turnover. And so shifting to nonprofits running public education, it would be a big positive from where we are now, and that’s what charter schools are. Again, in some cities like Washington, it’s about half of the kids go to one of the charter schools, one of the nonprofit schools in Atlanta. It’s about a quarter Denver, it’s about a quarter Indianapolis, it’s about a half. So we’re making a lot of New Orleans. It’s 100 percent of the kids.

Tim Ferriss: Just for clarity, for people listening, because almost everybody will have heard the term charter school, but that means it’s not dependent on taxpayer dollars, it’s dependent on fundraising? Or how does that work?

Reed Hastings: Yeah, it’s just a public school. It gets full tax dollars, but it’s run by a nonprofit instead of the school district, a government entity. So that’s the big difference.

Tim Ferriss: And maybe this isn’t the objective, what are the biggest challenges to scaling charter schools in the United States?

Reed Hastings: Usually it’s the political climate. So it’s difficult in blue states, the unions generally oppose charter schools because then they would have to organize many different nonprofits as opposed to one big school district, so that’s more expensive for them. But in red states, which are relatively low union, charters are growing very quickly because parents want choice. The teachers want a climate that’s innovative, and when they work in a nonprofit, it can be very stable and have great leadership for a long time because it’s got a stable board of directors.

So that’s the big difference is a governance. So when you express the frustration that people that donors choose or others feel, it’s because people have been trying to fix the school districts we have for 100 years. And they’ve made very little progress because they get a program in and then the superintendent changes and the program goes. So all the work that Annenberg and Gates and others have done, it gets deployed in some school districts for a couple years and then it gets unwound. Whereas the charter schools are very stable and continue to grow, and they’re not all perfect, but the parents have an ability to choose and the kids and the families. And so if it’s not a great charter school, you could move to another, but it is free, like public schools.

Tim Ferriss: If you were to teach a class, it could be a seminar, it could be one day, it could be a semester. Let’s just say for the time being that was an obligation, anywhere from fifth grade up to master’s, what age range would you choose and what would the subject matter of the course be?

Reed Hastings: Because when I was 22, I was teaching high school math. I think I’d jump right back in there. It just brings back so many great memories of helping kids solve problems and gain confidence. So I don’t know if that’s the strategic answer of the highest impact, but in terms of the emotional payoff, it is the highest.

Tim Ferriss: God, I had one, not to turn this into a personal therapy session, but I was pretty good at math back in the day, and I had a really abusive teacher in 10th grade, and I just got turned off. On the other side, my brother at the same school had a fantastic 10th grade teacher, and then he went on to get a PhD in statistics and so on and so forth. It’s just wild how these little things make — 

Reed Hastings: Well, that’s horrible that that happened to you, but it happens again to kids all over and in particular in lower income, big cities where average level of teaching is not that high.

Tim Ferriss: So you have all of this involvement in education. It’s very deep involvement. Now, Powder Mountain is your primary focus. Is that fair to say? Do you continue to do the education or do you have a conversation or send out emails to those people to set expectations that now you’ve shifted focus and therefore there’s a firewall, here’s your budget for certain things? How do you make that transition from one focus to another?

Reed Hastings: So for 25 years, I was CEO of Netflix, which consumed a lot of my time. And I did philanthropy a couple days a month, and I do Powder intensely and I do philanthropy a couple days a month.

Tim Ferriss: So they coexist.

Reed Hastings: It hasn’t really changed. And then now I’m doing a bunch of work in Africa on economy and technology, sort of better cell phones, better coverage, solar, things that I hope will stimulate the economy. So I’m in Africa once a quarter and some country doing some investment and trying to make a difference there. So that’s my kind of additional frontier that I didn’t spend that much time on during Netflix, but I’ve got a little more time now.

Tim Ferriss: Now, is Africa in this case, the chance beneficiary of you having been assigned to Africa way back in the day? Or could it just as easily have been someplace in Latin America or elsewhere?

Reed Hastings: You noticed that. So most people are very strategic and for me, what I’ve ordered are my causes, education and Africa economy basically because I was a Peace Corps volunteer math teacher. So I think I’m just trying to relive my 22-year-old self.

Tim Ferriss: Seems to be working out pretty well as far as I can tell. What else are you doing at Powder Mountain that is different or exactly the same as say what you did at Netflix? In other words, what lessons have you carried over, if any come to mind?

Reed Hastings: Yeah, fundamentally on the culture, we talk about being big-hearted champions that pick up the trash. So the big-hearted is the warm and loving and caring, which we didn’t have enough of at Netflix, at least in the culture description. The champion is someone who wants to win and is willing to go the extra mile to win, and then the who picks up the trash is the self-responsible, self-discipline, self-learning, does the right thing when no one’s looking. So I think at Powder actually, with our employee phrase of big-hearted champions who pick up the trash, that’s what we want to hire. We actually are better than the old Netflix description that I’ve learned from because we’re willing to be tighter, more memorable and more loving. That’s the big-hearted part.

Tim Ferriss: Makes me also think of — you mentioned Lencioni earlier — makes me think of The Advantage a little bit. The humble, hungry, and smart.

Reed Hastings: Absolutely. They’re very, very impactful.

Tim Ferriss: It does rhyme. What would you, metaphorically speaking, put on a billboard, a message to get to millions or billions of people? 

Reed Hastings: I might say hope is everything. I think the fundamental positive human force is hope. Hope of better things in the future. When we live in a very imperfect world, we always have — we are very imperfect creatures, we always have been and will be. And then we have hope of trying to do better. And when people lose hope, then it’s a very tough situation.

Tim Ferriss: How do you cultivate that in someone? Let’s say there’s a parent listening and they have a kid who doesn’t have any clinical psychiatric disorder, but maybe they see the glasses half empty. They’re barraged by negative news and headlines on social media and they’re just kind of apathetic. And what would your advice be to that parent in terms of what they can do to help?

Reed Hastings: I would say in that case, the kids are being withdrawn in protection from a world that confuses them or doesn’t treat them well. So it’s trying to understand from the kid’s perspective, why are they feeling that way? And then certainly helping them understand that growing up is really tough. And then by the time you get to 20 and 30 and 40 and 50 and 60, you start to know yourself better. And it doesn’t feel as bad, it feels better. And there is hope of great happiness in the future for them.

Tim Ferriss: Well, you were talking about high density of talent. You have a very high density of clear, actionable thoughts. We’ve checked a lot of boxes. Reed, is there anything else that you would like to say or discuss before we land the plane? I mean, I’m not in a rush, I’ve got time, but I know you have a dinner.

Reed Hastings: So excited to be with you Tim, and hope we get to do this more often. And love to have you and your listeners all come to Powder Mountain.

Tim Ferriss: Check it out folks. Powder for days. Thank you, Reed. Is there any place you would like to point people? Is there a website for Powder Mountain? I’m sure they can just google it.

Reed Hastings: Powdermountain.com.

Tim Ferriss: Look at that.

Reed Hastings: Right on the nose.

Tim Ferriss: Right on the nose. Well, thank you very much, Reed, for the time. I really, really appreciate it. It’s nice to be looking out the window at snow as we’re talking about Powder Mountain. And for everybody listening, we will put everything discussed in the show notes as per usual at tim.blog/podcast. And until next time, just be a little kinder than as necessary to others, but also to yourself. And thank you for tuning in.